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Operator: Good day, and welcome to UFP Industries Q1 2026 Earnings Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Stanley Elliott, Director of Investor Relations. Please go ahead. Stanley Elliott: Good morning, everyone. Thank you for joining us to discuss UFP Industries' first quarter 2026 results. Joining me on our call are Will Schwartz, our President and Chief Executive Officer; and Mike Cole, our Chief Financial Officer. Following our prepared remarks, we will open the call for questions. Before I turn the call over, let me remind you that yesterday's press release and presentation include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from expectations. These risks and uncertainties include, but are not limited to, the factors identified in this release and our most recent annual report on Form 10-K and in our other filings with the Securities and Exchange Commission. Today's presentation will also include certain non-GAAP measures. For a reconciliation of these non-GAAP measures to the corresponding GAAP measures, please refer to our earnings press release and our website, ufpi.com. I will now turn the call over to Will. William Schwartz: Good morning, everyone, and thank you for joining today's call to discuss our financial results for the first quarter of fiscal year 2026. We'll start by sharing our thoughts on the quarter, what we are seeing in the marketplace and provide some thoughts on how we see the business performing for the balance of the year before opening the call for questions. Many of these same dynamics that we saw through much of 2025 continued into our first quarter. After seeing some stabilization through much of the quarter, macro headwinds and competitive pressures increased volatility as the quarter progressed. We were also adversely affected this quarter by a longer-than-normal winter season, and so the normal seasonal uplift during the month of March failed to materialize. In addition to the impact of softer demand, our results were impacted by higher medical costs than the previous year. This abnormal activity throughout March contributed to roughly 60% of the year-over-year decline in profitability in the quarter. Business conditions have since leveled out, but given the ongoing geopolitical uncertainty and broadening inflation, particularly around higher transportation costs, we are approaching the remainder of the year with a slightly more cautious outlook. Our Q1 results are reflective of the current operating environment. Net sales of $1.46 billion were down 8% from Q1 of 2025, representing a 7% decrease in units and a 1% decrease in price. Our adjusted EBITDA margin for the quarter was 7.6% and earnings per share for the quarter was $0.89. Despite the temporarily challenged environment, we will continue to be focused on refining and growing our core business. We will focus on controlling costs, and we plan to use this period of uncertainty to be more opportunistic and leverage our strong financial position. With approximately $2 billion in liquidity, we intend to pursue meaningful M&A, while returning our free cash flow to shareholders through opportunistic share repurchase and dividends. As we've said before, we continue to target above-market growth with an emphasis on returns, and we continue to make strategic investments that contribute to the long-term success of our business. In the immediate term, new product sales remain consistent at 7.5% of sales on a trailing 12-month basis. We also have a sharp eye towards strengthening our core business for the long term, deploying capital for greenfield investments and M&A, introducing innovative products and structurally lowering our cost base. On the cost side, we are actively mitigating higher costs and remain on track to deliver the remaining $25 million of our $60 million cost-out program by year-end with the potential to capture incremental savings beyond our initial targets. While Mike will share additional color on the results, we were also pleased to announce two post-quarter end acquisitions that align with our disciplined strategy to deploy capital toward high-quality strategic fits. Before I get into the details, I'd like to start by welcoming the employees of Moisture Shield and Berry Palets into the UFP family. These companies were a strategic financial fit, but equally important, they aligned well with our future. In our Deckorators business unit, we announced the acquisition of moisture Shield decking operations from Oldcastle APG. The acquisition adds a wood/plastic composite plant in Springdale, Arkansas, which meaningfully expands our capacity, adds redundancy to our operation and enhances our ability to bring unique products to market. Additionally, this acquisition eliminates the need to spend capital on a new greenfield as demand for our product has outpaced capacity. We anticipate that this acquisition gives us the needed footprint to double our wood/plastic composite decking manufacturing capacity by 2027. Additionally, the acquisition also brings the rights to Moisture Shield's cool deck technology, a proprietary heat mitigating technology, which reduces heat transfer by up to 35%. We believe this would fit alongside our Deckorators decking line, including integration into our Surestone technology boards. In our Packaging segment, we also welcome to the UFP family Berry Pallets, a new pallet manufacturer in the Upper Midwest that expands our geographic reach and strengthens the density of our pallet network. These opportunities to increase the scale and synergy of our business only create value if we integrate it well, and that's exactly why earlier this month, we announced Patrick Benton will transition from his role as President of UFP Industries Construction segment to the newly created Executive Vice President of Operations Integration position. Patrick has spent his career running some of our most profitable plants and business units, and he knows firsthand what it takes to drive efficiency, reduce cost and accelerate the path to strong returns. In his new role, Patrick will apply that operational discipline across our growing portfolio of acquisitions, ensuring we move faster from close to contribution and that every business we bring into the UFP family performs to its full potential. Now moving on to segment highlights, beginning with retail. Our largest business unit, ProWood, continues to make progress on lowering our cost positions and improving our manufacturing process. Some of this progress was overshadowed by the levels of inflation we saw in the quarter as well as the later-than-usual winter conditions. ProWood is an industry-leading brand, and we continue to add more value across our portfolio. A great example of this is our TrueFrame Joists product launched last month at JLC. As a reminder, this is the business unit's first proprietary product designed specifically for use in deck substructures. The value we add on the front end eases several common pain points for contractors, saving time and money. We have expanded production into four manufacturing plants and increased our sales efforts to capitalize on the demand pull. While still relatively small, this is a compelling product line extension in our core pressure treating and decking products. Similarly, we are pleased with the repositioning of our Edge business and prospects for profitable growth. Our new Arris trim made with Surestone technology will begin shipping to customers late this quarter. Early demand indicators look quite favorable as contractors are gravitating to the same product features that has made our Surestone decking offering so compelling. Turning to Deckorators. We continue to see strong momentum from last year carry over into our first quarter. Our Surestone decking sales increased 27% and our traditional wood/plastic composite decking increased by 4%, both from the same quarter a year ago. We believe both metrics remain ahead of the broader industry. We were pleased with the results of our efforts last year to enhance Deckorators brand and intend to maintain that effort in 2026. In addition to our elevated sales volumes, our measures of consumer interest have more than doubled over the past year. These metrics include where to find a contractor, where to buy decorators and sample requests, both at big box retailers and through our website. The outperforming demand stated earlier, combined with a measurable customer feedback gives us confidence in our stated plan to double market share over the next five years. We remain excited about the progress we are making within both our Surestone and wood/plastic manufacturing facilities to increase capacity and meet growing consumer demand. Our first truck left Buffalo in mid-April, and we continue to ramp up production at both our Surestone production locations. We look forward to being fully operational in Q2, which will help us continue to work through the sales backlog that we were not able to realize in the first quarter. Coupled with the recent MoistureShield acquisition, we are well positioned to capture growth entering 2026 and beyond. Despite near-term macro uncertainty, our confidence in the business remains strong, and we continue to expect $100 million of incremental Deckorators growth this year. Our Packaging segment continues to make progress despite an uneven macro backdrop. We are positioning the business for longer-term success by introducing new value-add products to our customers, investing in automation and investing in new and lower-cost manufacturing. Quoting activity has remained strong, but customer takeaway remained mixed, which is reflective of the uncertainty across many end markets. The combination of higher commodity prices and a competitive market remain an overhang on profitability. That said, we are encouraged that our margins continue to stabilize sequentially and supports our view that we are closer to the bottom of the cycle. We continue to believe that our national footprint gives us geographic expansion opportunities and our design and engineering capabilities separate us from many of our smaller, more regional competitors who lack the manufacturing scale and financial position to compete with national customers. With the improvements we made to the business, we can deliver above-market growth in a recovery. Moving on to construction. The macro story in our Construction segment has been fairly consistent for the past several quarters, but we continue to actively reposition our portfolio. A challenging new residential construction environment continues to weigh on results, overshadowing improvements across our other businesses. Residential builders remain cautious, managing home inventories carefully ahead of the spring selling season, while consumer confidence and affordability headwinds persist. We continue to make investments in automation and other initiatives to improve our cost position and throughput. One of these initiatives is the Frame Forward Systems brand that we launched in February at the International Builders Show. Frame Forward Systems positions our site-built business unit to move our wood framing business beyond commodity component sale to capture increased margin through a system selling approach and to drive greater customer loyalty. While early, Frame Forward Systems has been very well received by the construction trade as we continue to raise the bar on off-site manufacturing to address the on-site challenges in the construction industry. Similarly, in our factory-built business, this business unit continues to actively add more value to our customers through partnerships, expansion of distribution capabilities and by facilitating cross-selling with other parts of our business. Our concrete forming business continues to expand our products and services offerings to capture more of our customers' wallets while helping them address labor challenges on the job site. Finally, our Commercial business continues to build on new products, new customer relationships and the benefits from prior restructuring actions to deliver improved results. Across our Construction segment, we are actively finding ways to solve our customers' problems by helping address labor, quality, production cost and reduce build time to help our customers win in the marketplace. Looking ahead, we remain committed to our long-term targets and believe the steps we are taking today will position us to achieve these results in the future. As a reminder, we are driving towards the following goals: a 12.5% EBITDA margin, 7% to 10% unit sales growth, some of which will come from M&A and new products; ROIC in excess of 15%, which is well ahead of our cost of capital. And lastly, to achieve all of this while maintaining a conservative capital structure. While the market dynamic has changed since our last call in February, it has not dampened our enthusiasm for our business longer term. As we've said before, we have confidence in our model and our focus remains on the most attractive opportunities that enhance our core business. We're taking action to reduce costs, rightsize capacity and exit underperforming or non-core businesses, while positioning the company to deliver above-market growth and margin expansion as market conditions normalize. With that, I'll turn it over to Mike Cole. Michael Cole: Thank you, Will. Net sales for the March quarter were $1.5 billion, down 8% from $1.6 billion last year. The change reflected a 7% decline in units and a 1% decline in pricing. Units declined due to continued weakness in residential construction activity, adverse weather, the exiting of select low-margin commodity sales and softer demand for new pallets. Pricing was impacted by a 6% decline in lumber and continued price pressure in our site-built business. Adjusted EBITDA was $111 million, down $31 million year-over-year, and adjusted EBITDA margin was 7.6% compared with 8.9% in the prior year period. The decline was driven primarily by Site Built, where gross profit decreased by nearly $19 million, along with higher health care and transportation costs across the portfolio, which increased approximately $7 million and $3 million, respectively. Despite these headwinds, our trailing 12-month return on invested capital remained above our weighted average cost of capital at nearly 11%, demonstrating continued value creation through the current phase of the cycle. Turning to our segments. I'll begin with the Retail. Retail sales were $531 million, down 12% year-over-year, driven by a 13% decline in units, partially offset by 1% higher pricing. ProWood units declined 15%, reflecting soft demand driven by adverse weather, weaker consumer sentiment and the absence of storm-related demand. We also exited certain low-margin commodity sales starting in Q2 of 2025. Deckorators delivered 2% unit growth as decking continued to outperform the market. Overall, decking sales increased 16%, led by 27% growth in Surestone, which was supported by capacity added at our Alabama plant. And wood/plastic composite decking increased 4%. We continue to target above-market growth in our Deckorators business unit. In April, we added wood/plastic composite manufacturing capacity in Arkansas through an acquisition. Our new Surestone plant in Buffalo just started shipping, and we continue to expand distribution across professional and retail channels, all of which is expected to support additional share gains in 2026 and beyond. Edge volume declined 20% as we closed our [ Bonner ] facilities and narrowed the portfolio to products we expect to meet profitability targets by the end of 2026, representing the significant actions needed to restructure the business unit. Retail adjusted EBITDA was down $1 million year-over-year. Gross profit and SG&A were both essentially flat, reflecting improved mix and continued cost control, while we continue to invest in the Deckorators brand. We remain focused on improving ProWood distribution and increasing throughput and margins in Deckorators. With these initiatives and the EDGE restructuring substantially complete, the Retail segment is well positioned for improved results in 2026. Packaging sales were $394 million, down 4% year-over-year, reflecting a 2% decline in units and a 2% decline in pricing. Structural packaging volumes were flat. PalletOne units declined 7% and protective packaging units increased 5% as new greenfield locations continue to ramp up. Across the segment, we continue to gain share with key customers because of our ability to provide value-added solutions and a comprehensive product portfolio on a national scale. Packaging adjusted EBITDA was $28 million, down $7 million year-over-year. The decline reflected lower volumes and higher input costs in PalletOne, along with unabsorbed overhead as protective packaging greenfield operations continue to focus on achieving targeted volumes. We partially offset this gross profit impact with a $2 million reduction in SG&A, primarily from incentives tied to profitability. Construction sales were $465 million, down 10% year-over-year with a 5% decline in price and a 5% decline in units. The change was driven primarily by a 14% unit decline in site-built as housing demand remains pressured by affordability and weaker consumer sentiment and larger builders are focused on lowering inventory. We are, however, seeing improving trends among multifamily customers. Factory-built units declined 7% as we exited certain low-margin commodity sales. While volume was lower, mix improved and supported higher profitability. And commercial and concrete forming each achieved mid-teens unit growth. Construction adjusted EBITDA was $26 million, down $12 million year-over-year, driven by market weakness and competitive pricing pressure in Site Built. The other three business units improved profitability through growth and more favorable mix, partially offsetting the decline. As we manage through this cycle, we're balancing cost discipline with continued investment on our long-term strategy. We remain focused on aligning our cost structure with current demand while continuing to fund growth initiatives, product innovation, brand awareness and technology-enabled productivity improvements. Consolidated SG&A declined over $3 million year-over-year due to lower incentive compensation tied to profitability. For 2026, our key cost structure targets are $25 million in cost savings from capacity consolidations, reducing cost of goods sold and keeping us on track to achieve the $60 million cost-out goal we announced last year. Core SG&A of approximately $570 million, including Deckorators advertising and excluding the following incentive-related items. Bonus expense of 17% to 18% of pre-bonus operating profit, sales incentives of about 3% of gross profit and $21 million of vesting expense for prior year stock-based incentives, an effective tax rate of 25% to 26% and total depreciation, amortization and other noncash expenses of approximately $200 million. Turning to capital resources and capital allocation. The company continues to maintain a strong balance sheet. At the end of March, the company had $714 million in surplus cash and no borrowings under its credit agreements for a total liquidity of approximately $2 billion. Our surplus cash was approximately $200 million lower than at year-end, driven by a typical seasonal working capital build that we expect to convert to cash by early Q4. We believe our diversified business portfolio generates meaningful and consistent free cash flow to support organic growth and M&A. Last year, we converted 80% of adjusted EBITDA into free cash flow. Our highest capital allocation priority is to invest in opportunities, organic and inorganic that grow our core businesses and increase margins and returns over time. Our focus areas are expanding geographically in core higher-margin businesses where we have sustainable competitive advantages, expanding capacity for new and value-added products and driving operational excellence through automation, consolidation and enhanced productivity. Consistent with this framework, in April, we completed one acquisition and announced a second that we expect to close in May. On April 6, we purchased the net operating assets of MoistureShield, Inc. And on April 28, we announced our plan to acquire the net operating assets of Berry Pallets. These transactions are aligned with our capital allocation strategy to strengthen our core portfolio, expand capacity in the geographies we serve and improve margins. We also intend to return capital by growing our dividend in line with long-term free cash flow and repurchasing shares primarily to offset dilution from stock-based compensation. We will evaluate additional repurchases opportunistically when we believe our shares are trading below intrinsic value, and we'll preserve our balance sheet strength to fund growth. With these points in mind, the Board approved a quarterly dividend of $0.36 per share, a 3% increase from a year ago. We have a $300 million share repurchase authorization in place through July 2026. Year-to-date, we've repurchased 30 million shares at an average price under $90 per share. We currently expect $250 million to $275 million of CapEx, about $50 million lower than our February target due to the MoistureShield transaction. And we continue to build our M&A pipeline around targets that fit strategically, offer higher margin and return potential and present opportunities to meaningfully scale our core businesses. As we pursue these opportunities, we'll remain disciplined on valuation. I'll conclude with our outlook. We expect the current market environment to persist through 2026. Based on current headwinds and visibility, we believe demand for the balance of the year is trending toward the lower end of our prior guidance, which assumes flat to slightly down unit volumes across our segments based on mix. With respect to input costs, we expect continued pressure from energy and transportation. While pricing actions are underway to offset these items, the benefit is expected to take time to flow through the income statement this year. Positively, we believe market share gains, capital investments and operating improvements should help offset headwinds in markets tied to new residential construction. For example, we continue to target $100 million of growth in Deckorators, decking and railing sales. With that, we'll open the line for questions. Operator: [Operator Instructions] Our first question will come from the line of Kurt Yinger with D.A. Davidson. Kurt Yinger: I just wanted to start off on ProWood. I know that you lost some lower-margin business last year, but it also sounds like kind of that slow progression into spring impacted the March period. I guess with the commentary that April has maybe leveled out a little bit, would you expect to see some better volume trends there? William Schwartz: Yes. I think that's fair to say, Kurt. If you look at it, there's the factors and points that we referenced in some of the commentary, whether it's kind of carryover of really a very slow storm season from last year. A lot of that tail drags into 2026 into the first quarter. We didn't have that, obviously. You combine that with unusual weather patterns and then the change in business mix, some of those volumes we talked about. So yes, we -- I think if you take some of that noise out, it really matches up well to some of the guidance we've talked about for single-digit down, and I think that carries forward. Kurt Yinger: That's helpful. And then on the Deckorators side, obviously, still a very good quarter in terms of decking sales growth. Can you just talk about how that matches up maybe internally versus your plan? And then as we think about the need to hit accelerating growth to get to that $100 million target with Buffalo online, does that really help ramp things up in Q2, or is it maybe more of a back half kind of phenomenon in terms of when a lot of that starts to flow through? William Schwartz: Kurt, it's a combination of both. I think you're -- what you're reading into Q1 is exactly aligns with the amount of production that we have. So with those CapEx improvements coming online, [indiscernible] fully operational. But as described, we shipped our first truck mid-April out of Buffalo. So that's a quick ramp-up. But really, as you get to Q3, Q4, we'll be able to capitalize on a lot of backlog of orders. So our first quarter sales matched up to what we had to sell. So we were very happy. It's right on track in those CapEx advance. It's right where we expect it to be at this point. Kurt Yinger: Okay, okay. Great. And then just last one on the transportation and energy side. Without maybe putting too fine a point on it, could you just help us kind of frame maybe what type of headwind do you expect that to be relative to what you're kind of budgeting at the start of the year? And then also talk a little bit about kind of the process of passing that additional cost on. Is it something that a portion of your contracts with customers might be embedded with just a time lag or something that's more negotiated? Just help us understand that dynamic a little bit. William Schwartz: Yes. The -- that's a hard one. The month of March is where we really felt the impact. And certainly, when the conflict started, we didn't know how prolonged that would be at the point that we realized we were a month in that looks like this is going to have a longer-lasting effect, we started those conversations with customers. And fortunately, for us, because of the relationships we have, they understand. We're not the only ones in that game with the cost out of our control. And so those are starting to go into place or already in place in most cases and will continue as -- in the different markets that we serve. But yes, as it looks right now, it looks like that's going to continue to be a bit of a headwind, but we've got it covered in the form of covering those costs and continue to work through it with customers. Kurt Yinger: Is it fair to say then that we kind of see that headwind in Q2 and then the back half, you feel like you're pretty well set in offsetting it, barring another kind of material inflation shock, or is it maybe going to be really the latter part of the year where you think? William Schwartz: Yes. I think as you described it, I think it's a very fair assessment of it. Most of those are already in place at this point, those offsets, but we continue to work through things through the quarter. But by the back half of the year for certain, I wouldn't expect to be taking hit as a result of those increased fuel costs. Operator: One moment for our next question, and that will come from the line of Jeff Stevenson with Loop Capital. Jeffrey Stevenson: First, I was wondering if you could provide some more color on how the MoistureShield assets fit into your long-term Deckorator strategy and then the opportunity to leverage your Deckorators products at existing MoistureShield distribution partnerships that you previously were not working with? William Schwartz: Yes. You hit the nail on the head. There's a combination. That was certainly an opportunity that we were happy to be able to take advantage of. We needed additional capacity. We've been challenged there. We needed a secondary plant. And so we had budgeted. It was reflected in the CapEx expectation for another plant. That eliminated that need. So we got immediately a product that's really, really good, a manufacturing plant that satisfies that additional capacity need. But I'll tell you the cool deck technology and being able to apply that across the Deckorators portfolio of products also is extremely exciting. And then lastly, coming with it, as you described, some other distributor partners that we think are extremely valuable and potentially, we can expand on that. So it was a win all the way around. Jeffrey Stevenson: That's great to hear. And then at a high level, how should we think about the margin cadence over the next several quarters in your retail business, given the full load-in of your low-end summer decking products across the 1,500 retail stores and then the new Deckorators capacity coming online here in mid-April. Just any more color there would be helpful. William Schwartz: Yes. And let's go back to last quarter, we kind of re-pivoted on that 1,500 stores. It's a little different. So store count, where products flow in from distribution centers, et cetera, and that's why we really explained the $100 million of additional Deckorator sales that we expected to get. You'll see that continue to build throughout the year. So describing back to the last question, we've only been limited by the production that we've had. So as that additional capacity comes on, Jeff, you'll see those sales build and revenues grow. So super excited about that. Operator: And that will come from the line of William Carter with Stifel. W. Andrew Carter: What I wanted to ask is on the kind of inflation, the energy pass-through. I think just to make sure, you are saying that when it's a headwind, it's transitory like in March. Could you give us a sense of how big that transitory headwind particularly was in the first quarter? How long you live with the lag? And then if it's just we see diesel stop or whatever, then the lag goes the other way. Any other incremental color to get some clarity around that incremental headwind this year? William Schwartz: Yes, absolutely. I think Mike is chomping at the bit to get a word in. So I'm going to let him kind of jump in here. Michael Cole: Yes, it was about a $3 million headwind in March, [ Andrew, ] and it did increase in April. But the good news is that in April, as Will had indicated, that's when we started taking actions with our customers and now through freight surcharges and price increases on the products, depending on which approach the customers prefer, we're now beginning to pass that through. And so working through that process, like Will said, and I expect that's going to be completed here in pretty short order in Q2. W. Andrew Carter: And I 100% apologize if you all answered this to Jeff's question because I actually cut out, but it's kind of something that we were chomping at the bit to ask about. The MoistureShield locations, basically, if you look at the kind of the dealer locations for MoistureShield and kind of Deckorators where you are today, it's highly incremental in terms of incremental distribution points. So I guess the first thing is, obviously, MoistureShield is going to go more 2-step. Is it an easy conversation to pick that up for Deckorators or Surestone? Obviously, you'd also be the factory constrained that you -- kind of your kind of playbook for launching MoistureShield. And I guess, long term, what's the brand strategy here? Is it keep MoistureShield, is it kind of -- and make it more of the brand, or just anything to help out there? William Schwartz: Yes. Good question. And I'm going to start with the last question first or the last point. So the intent is to run the MoistureShield brand for the remainder of the year and in 2027, we'll start to transition moving that under the Deckorators umbrella and starting to introduce some of those products into the mix as well as the cool deck technology, applying that towards the whole portfolio of products where we deem fit. Yes, we're excited, and we're working through that with those customers and partners that were part of MoistureShield that weren't part of the Deckorators customer mix, and we're working through that right now and -- but very, very excited about the opportunities that presents to us. Operator: One moment for our next question, that will come from the line of Reuben Garner with Benchmark. Reuben Garner: Let's see, this may be too early days, but any plans from a branding perspective? Will the MoistureShield assets ultimately become Deckorators wood/plastic composite, or is there a need or a reason to keep the separate branding longer term? William Schwartz: Yes. So Reuben, I think you probably cut out in the queue for asking the question. And yes, so we will transition that MoistureShield brand under the Deckorators umbrella at some point in 2027. So we'll carry it through the year, and then we'll start that transition process. Reuben Garner: Got it. Sorry, I missed that. And then the -- a lot of moving parts the last couple of years with both demand and the supply you've been adding and now MoistureShield. Can you give us an idea of what total wood/plastic composite business you have today, what total Surestone business you have today? And then like what the capacity is today, and where it's ultimately headed in each of those so we can kind of level set it on a go-forward basis? Michael Cole: Yes. So I'll work off with the 2025 numbers, Reuben. I think we finished the year in total decking and railing sales of about $245 million. I think of that $245 million, there was $165 million of decking. And of the $165 million in decking, about $90 million was mineral based with Surestone and about $75 million was wood/plastic composite. And the balance there, I think it's $80 million was railing. Now to your point about capacity, prior to this year, we had about $100 million, I think, in capacity of mineral-based or Surestone. We had about $100 million in wood/plastic composite. We've now doubled as a result of the -- or have the ability to double as a result of the MoistureShield acquisition, wood/plastic composites. So that's going to go from $100 million to $200 million. And as a result of [ Soma ] and Buffalo, we go from $100 million of capacity to adding another $250 million. So we'll be at $350 million of capacity for Surestone. And some of that will be -- most of it will lion's share be for decking, but we don't want to forget about the churn product that we're launching this year as well. Reuben Garner: Perfect. Very helpful. And then a question about -- you mentioned -- I think you used the term price mechanisms and maybe there being a lag for offsetting some of the inflationary pressures that you've seen. What exactly are those mechanisms? Are you using surcharges for fuel and transportation and they're delayed for some reason? Just walk me through that comment. William Schwartz: Yes, it's a combination. And so you're exactly right. Fuel surcharges in certain situations, others want repricing, building that into the price. So each of those scenarios is different. So when we speak mechanisms, we have a lot of business that we quote each time. And so you obviously take that into account the new updated costs, and what's reflected in the market. So it's just a combination of all of those and each of the segments we serve have different pricing time lines. So site built is very different than retail, an example. Operator: And that will come from the line of Ketan Mamtora with BMO Capital Markets. Ketan Mamtora: So sticking with the flavor of the day, which is Deckorators. So just help me understand a little bit on Q1. Obviously, Surestone and wood/plastic composite both grew quite nicely in Q1. Yet overall Deckorators sort of bucket was up 2%. So what are the other offsetting sort of factors there? Michael Cole: Yes. Railing was off 6%. I think we called that out in the release. So that was an offset. And then the other product categories that are sitting inside the Deckorators business unit are decorative aluminum fencing, deck accessories, generally post caps, [ basters ] and then vinyl lattice is also in the category. So those are areas that were softer. And obviously, the decking sales themselves are obviously very strong. Ketan Mamtora: I see. Okay. No, that's helpful. So as I think about sort of decorators and now with MoistureShield coming into the fold, Mike, is the right way to sort of think about as $100 million incremental sales you all talked about previously. And now we've got MoistureShield for probably 8 months of the year or something like that. So is that the way we should be thinking about Deckorators growth in '26? Michael Cole: Yes, that's exactly right. The $100 million that we originally talked about with the capacity coming online that goes a long way towards helping us achieve that and now the incremental increase from the MoistureShield transaction. Ketan Mamtora: Got it. Okay. That's helpful. And then just switching to the construction side. In Site Build, are you seeing sort of continued price competition among players, or is that sort of largely leveling out at this point given that we've been at it for a while now? William Schwartz: Yes. That's the hardest part of the business for us today. Obviously, that business is very tough. And when you talk about even some of the cost inputs that we recognized in the first quarter, it's hardest to pass along. So that's reflected in margins, too, when you talk fuel increases, lumber costs going up during the quarter. And so it continues to be a very pressured market for us on the margin side. Ketan Mamtora: Understood. But has the competitive dynamics changed at all since the start of this year? Obviously, at the start of this year, there was expectation that things will -- that housing activity will get better. And then with sort of the geopolitical events, it sort of feels like things have become a little softer since then, has there been any change? William Schwartz: Yes. I think your assessment is exactly right. From the start of the year until today, it has certainly not gotten better in the geopolitical tensions, interest rate increases, consumer sentiment, all those factors in play, it's a tough environment. Michael Cole: Although we did expect a tougher front half of the year. We had tougher year-over-year comparisons. Obviously, housing was pretty tough coming into the beginning of the year. We had anticipated it being tougher. But yes, exactly the recent events have made it even more so. Ketan Mamtora: Okay. That's fair. And then just final one for me. On capital allocation, are you -- sort of how are you thinking about M&A opportunities? And it seems like that pipeline is growing and you are seeing more opportunities versus kind of the other tool that you have on share repurchases. How are you stacking those two at this point, and if you were to rank order? William Schwartz: Yes, we are definitely more focused on growing. That's where we start. We talk about that a lot, but never losing sight of return. And I would tell you the pipeline is the best we've had in 5-plus years. I think a lot of that is intent and action. We've done a lot more prospecting. I personally have done more prospecting, allocated more time towards it for strategic opportunities that fit where we want to take the corporation. And so when you think about the liquidity, we want to put that to work, but it's got to be the right opportunities. Operator: I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Will Schwartz for any closing remarks. William Schwartz: Thank you for joining us this morning. While the operating environment remains challenging and visibility limited, we're confident in the strategy we have in place and the actions underway to strengthen our business. We're staying disciplined. We're focused on what we can control, investing thoughtfully in our core businesses and managing costs while remaining patient in how we deploy capital. I want to thank our employees for their continued execution and commitment and our customers and shareholders for their trust and support. Thank you, and have a great day. Operator: This concludes today's program. Thank you for participating. You may now disconnect.
Operator: Greetings, and welcome to the Lincoln Electric 2026 First Quarter Financial Results Conference Call. [Operator Instructions] And this call is being recorded. It is my pleasure to introduce your host, Amanda Butler, Vice President of Investor Relations and Communications. Thank you. You may begin. Amanda Butler: Thank you, Kathleen, and good morning, everyone. Welcome to Lincoln Electric's First Quarter 2026 Conference Call. We released our financial results earlier today, and you can find our release and this call slide presentation at lincolnelectric.com in the Investor Relations section. Joining me on the call today is Steve Hedlund, Chairman and Chief Executive Officer; and Gabe Bruno, our Chief Financial Officer. Following our prepared remarks, we're happy to take your questions. But before we start our discussion, please note that certain statements made during this call may be forward-looking, and the actual results may differ materially from our expectations due to a number of risk factors and uncertainties, which are provided both in our press release and in our SEC filings on Forms 10-K and 10-Q. And in addition, we do discuss financial measures that do not conform to U.S. GAAP. A reconciliation of non-GAAP measures to the most comparable GAAP measure is found in the financial tables in our earnings release, which again is available in the Investor Relations section of our website at lincolnelectric.com. And with that, I'll turn the call over to Steve Hedlund. Steve? Steven Hedlund: Thank you, Amanda. Good morning, everyone. Turning to Slide 3. We achieved solid results, led by record quarterly sales and adjusted EPS performance while also navigating heightened operating complexity from geopolitics and evolving trade negotiations. Teamwork exemplified our success this quarter. We remained agile in addressing short-term dynamics while staying customer-focused, investing in long-term growth and reimagining how work gets done. The global launch of our new RISE strategy was successful, and we celebrated a string of early wins, which include the U.S. launch of our elite customer program as part of our enterprise-wide Spotlight initiative, which raises the bar for customer service in our industry. It enables us to provide superior on-time delivery, hassle-free support and value-added services to help customers grow their business with us. In addition, we commissioned a new automated manufacturing line in one of our Harris facilities that triples the line's productivity while significantly improving quality. This investment also showcases the breadth of automated manufacturing solutions we engineer beyond traditional welding robots. Finally, we launched a new center-led process innovation function in welding consumables to accelerate our speed to market. I am pleased by the speed of progress, and we will work hard to maintain this pace. Turning back to quarterly performance. We are encouraged by improving sales and order momentum in the Americas region through April. This aligns well with 3 consecutive months of expanding manufacturing PMI data. In the quarter, we held our adjusted operating income margin steady with prior year. While we targeted a slight margin improvement, our 10% higher price did not fully offset inflation in the quarter. To ensure we achieve our neutral price/cost target this year, we have already announced new price actions across our welding segments, which go into effect in early May. Cash flows, while seasonally lower, were further affected by a temporary increase in inventory levels we put in place to maintain high fill rates and service levels while we pursue our Spotlight initiative and migrate select products to next-generation versions. We continue to invest in long-term growth through CapEx and R&D and return cash to shareholders through both dividends and share repurchases. ROIC performance remained at top quartile levels at 21.5%. Turning to Slide 4 to spend a few minutes on demand trends. The Americas region continued to outperform other geographies and consumables remained the most resilient product category. This was driven by factory activity and infrastructure investments in energy and data centers, which helped offset slower auto production. These same end market drivers, along with an increase in capital spending from off-highway customers, supported modest automation growth in the Americas in the quarter as well. Globally, our automation portfolio achieved $210 million in sales versus $215 million in the prior year with compression from international markets where we have a challenging prior year comparison. We have been encouraged by the continued acceleration in both equipment and automation order rates and backlog levels in the Americas through April. This should support modest volume growth in the Americas Welding segment starting in the second quarter with further improvement in the back half of the year if conditions are sustained. Internationally, we also saw a broad improvement in sales from European customers with organic sales pivoting to growth across Northern, Eastern and Central Europe and in Turkey. In addition, India and Australia improved. The headwind in our international business was largely from challenging prior year comparisons in regional automation and energy projects and to a lesser extent, the Middle East conflict. On a consolidated basis, the Middle East represents a relatively small portion of sales, and we estimate an approximate $8 million sales impact from the conflict as several customers suspended activity. In April, EMEA order rates continued to improve, and we are monitoring for consistency as activity may reflect prebuying ahead of higher inflation and regional commodity supply concerns. In the Middle East, we are engaged with regional customers servicing active requests and our global team of welding experts are ready to support their repair and expansion needs as called upon, whether for rapid large-scale metal 3D printing of replacement and spare parts to core welding and automation solutions. Pivoting to end market performance, we continue to see three of our five end markets achieving flat to higher organic sales growth in the quarter. Most notable is the high 30% growth rate in general fabrication, which represented accelerated factory and fabrication activity in the Americas as well as in data center and HVAC projects. Heavy industries grew in the quarter, led by growth in off-highway globally. Both construction and ag equipment grew across a broad mix of solutions, including automation. Energy was steady but was bifurcated between a high teens percent growth rate in Americas, which was offset internationally. We remain bullish on energy and expect Americas to continue to outperform international with a strong pipeline of pending LNG projects and energy infrastructure projects needed to support data center investments. With our strong broad presence across oil and gas and power generation applications, including gas turbine, battery, nuclear and renewables, our energy team is encouraged by the opportunities ahead. Our two challenged end markets, nonresidential structural steel and transportation are both project-oriented and capital intensive, which can result in choppy results quarter-to-quarter. Nonresidential was largely impacted by international weakness, while transportation was broader and largely driven by lower capital spending versus prior year and a slight decline in production rates. To conclude before passing the call to Gabe, while we are operating in a more complex environment, we are well positioned to adapt and react effectively to short-term dynamics. We are financially disciplined, maintained a solid balance sheet profile and continued to generate strong cash flows and manage the business for long-term profitable growth. This is evident in our balanced capital allocation strategy as well as our track record of compounding earnings and increasing shareholder returns through the cycle to deliver superior long-term value. This is an exciting time at Lincoln Electric with the launch of our new RISE strategy, and the entire team is energized to achieve our mission of being the essential link to help customers build better and execute on our 2030 goals. And now I will pass the call to Gabe Bruno to cover first quarter financials in more detail. Gabriel Bruno: Thank you, Steve. Moving to Slide 5. Our first quarter sales increased approximately 12% to $1.121 billion from approximately 10% higher price, 2% favorable foreign exchange translation and a 1.6% benefit from the Alloy Steel acquisition. This was partially offset by 2.6% lower volumes. Gross profit increased approximately 9% to $399 million, reflecting higher sales. Our gross profit margin declined 80 basis points to 35.6% due to lower volumes, timing of price/cost recovery and an approximate $1 million LIFO charge. Price/cost was unfavorable 90 basis points in the quarter. We continue to target a neutral price/cost posture and have implemented new pricing actions in our welding segment, which will go into effect in early May. Our SG&A expense increased by 7% or $14 million to $211 million. The increase was driven by foreign exchange translation, higher discretionary spending, which was largely commercially driven and from higher employee costs. SG&A as a percent of sales improved 80 basis points to 18.8% on higher sales levels. On April 1, we implemented our seasonal merit increase, which raises employee costs by approximately $6 million per quarter on a year-over-year basis. We expect our quarterly SG&A run rate to be at $250 million for the balance of the year. For analysts reviewing our segment EBIT schedule, our corporate expense of approximately $1.4 million reflects our decision to allocate additional center-led enterprise investments to our reportable segments. Looking ahead, we expect corporate expense to be approximately $1 million to $2 million per quarter for the balance of the year. Reported operating income increased 13% on higher sales. Excluding special items, adjusted operating income increased 11.5% to $189 million, and we held our adjusted operating income margin steady year-over-year at 16.9% with a 17% incremental margin. Our steady margin performance reflected favorable SG&A leverage, which offset the impact of lower volumes and an unfavorable price/cost position. First quarter diluted earnings per share performance increased 18% to $2.47. On an adjusted basis, earnings per share increased 16% to $2.50. We recognized a $0.04 benefit from foreign exchange translation and $0.05 from share repurchases. Moving to our reportable segments on Slide 6. Americas Welding sales increased approximately 8% in the quarter, driven by nearly 8% higher price and 1% favorable foreign exchange translation. Volume declines narrowed to 40 basis points as orders accelerated through the quarter across all three product areas on improving demand trends from most end markets. We expect volumes to inflect to modest growth in the second quarter. First quarter Americas price marked peak levels in the segment as we started to anniversary last year's actions in the second quarter. The team has recently announced new pricing actions to mitigate rising raw material and logistics costs. We expect Americas Welding to achieve a full quarter benefit of these new actions starting in the third quarter at 150 basis points per quarter run rate. We will continue to monitor evolving operating conditions and will respond as necessary. Americas Welding segment's first quarter adjusted EBIT increased approximately 3% to $128 million on higher sales. The adjusted EBIT margin declined 100 basis points to 17.2%, primarily due to timing of price/cost recovery and higher corporate expense allocated to the segment. We expect Americas Welding margin to perform in the mid-18% to mid-19% EBIT margin range for the remainder of the year. Moving to Slide 7. The International Welding segment sales increased approximately 4%, primarily from favorable foreign exchange translation and strong sales in our Alloy Steel acquisition, which will anniversary in early August. This increase was partially offset by 10% lower volumes primarily from automation and to a lesser extent, a temporary decline in customer activity due to the Middle East conflict. Adjusted EBIT decreased 1.5% to $23 million. Margin declined 50 basis points to 9.7% as the benefit from Alloy Steel was offset by lower volumes and higher corporate expense allocated to the segment. We now expect International Welding's margins performance to improve sequentially but remain in the 11% range until conditions improve in the Middle East. Moving to The Harris Products Group on Slide 8. First quarter sales increased 42%, led by 41% higher price. The outsized price impact reflects actions taken to mitigate record high metal costs, most notably in silver and copper. The segment effectively managed costs and achieved their neutral price/cost target in the quarter. While metal prices remain elevated, we expect Harris' price to moderate from first quarter record levels based on current metal price trends and prior year comparisons. Harris volume compression narrowed, benefiting from the growth in the retail channel as well as an improvement in HVAC production activity, which we anticipate will inflect positive by midyear. Looking ahead to the second quarter, we expect segment volumes to compress due to a challenging comparison from last year's retail channel load-in of a new customer. Volumes are then expected to pivot to growth in the back half of the year. Adjusted EBIT increased approximately 68% to $41 million and margin improved 330 basis points to 21.2%. The profitability improvement reflects SG&A leverage from higher sales dollars and favorable mix. We expect the Harris segment will operate in the 19% to 20% margin range at current metal prices. Moving to Slide 9. We generated $102 million in cash flows from operations in the quarter, which was lower due to higher uses of working capital. We strategically increased inventory levels on a short-term basis to ensure high customer service levels while we transition select products to newer models and ensure we capitalize on early strengthening of demand, especially in the Americas. We expect to reduce inventory levels in the second half of the year. The increase in inventories resulted in an 80 basis point increase in our average operating working capital to sales ratio to 18.6%. Moving to Slide 10. We continue to execute on our capital allocation strategy by investing $39 million in CapEx and returned $101 million to shareholders from a combination of our higher dividend payout and from share repurchases. We maintained a solid adjusted return on invested capital ratio of 21.5%. Moving to Slide 11 to discuss our operating assumptions for 2026. We have increased our net sales growth assumption to incorporate recently announced price actions taken to offset rising input costs. We now expect net sales growth to be in the high single-digit percent range as compared to our initial assumption of mid-single-digit percent growth. Our organic sales mix is now expected to be 3/4 price at a mid-single-digit percent rate and 1 quarter volume. Given how early we are in the year and the potential trade-off of strong order rates in Americas offsetting lower sales from the Middle East conflict, we have not changed our original volume growth assumption of a low single-digit percent growth rate. We estimate the sales impact from the Middle East conflict to be $8 million to $10 million per quarter while the conflict persists, which is split evenly between the Americas and International Welding segments. We also continue to anticipate a 70 basis point M&A benefit from the Alloy Steel acquisition, which again anniversaries in early August. We are maintaining our other full year assumptions on operating income margin improvement, a mid-20% incremental margin, interest expense, tax rate, CapEx and cash conversion. And now I would like to turn the call over for questions. Operator: [Operator Instructions] And your first question comes from the line of Bryan Blair of Oppenheimer. Bryan Blair: It would be great to hear a little more on how your team is thinking about cycle positioning here and the prospects for overall demand acceleration and broadening product growth over the coming quarters. Consumables growth has been encouraging since Q2 of last year, obviously, very robust in Q1. Trends have been a bit choppier on the equipment side, but it sounds like you do expect near-term improvement. Just any additional color on that front would be helpful. Steven Hedlund: Bryan, this is Steve. I would say we're cautiously optimistic, right? We're seeing good order rates in the Americas business. We've got continued strength in the PMI data conversations with customers are encouraging, but we don't want to get ahead of ourselves, right? We want to see a little bit more consistency month-to-month. In Europe, there's a lot of choppiness. We're concerned that some of the volume growth we saw there might have been pull forward around pricing and other regulatory issues in terms of carbon taxes and the like. Don't really have any more clarity than anybody else about what's going to happen in the Middle East and keeping our fingers crossed there. So cautiously optimistic, I guess, is our overall position. Gabriel Bruno: Yes. Bryan, just to add. As we mentioned, in the Americas Welding segment and we look at real volumes, consumables and automation were up. And as Steve mentioned as well as I, the progression in the quarter on orders were strengthening through March as well as into April and it also positions for growth on the equipment side. So Steve mentioned that a keyword for us is being just cautiously optimistic about what we're seeing in the business. Bryan Blair: Okay. That all makes sense. And specific to automation, sorry if I missed any related detail here. Is the expectation that the strategy turns to growth in Q2? Is it mid-single-digit range is still a reasonable outlook for 2026? And have you seen any improvement in the scope of quoting outside of the large projects that you cited last quarter? Gabriel Bruno: Yes. So Bryan, we do expect to turn to modest growth on the automation side as we exit Q2 with an expectation that second half, we see broad volume improvement across the automation business. Our order intake continues to be strong, backlog levels strong. And the mix, while a lot of project activity, which creates some choppiness, as you saw, particularly on the international side in this first quarter, but we do expect to posture the growth in second half. Operator: Your next question comes from the line of Angel Castillo of Morgan Stanley. Oliver Z Jiang: This is Oliver on for Angel this morning. Just a question on your gen fab end markets. I know you guys were up high 30s this quarter. Can you help us unpack that in terms of how much of that was driven by price versus volume? And then just on the back half of the year, we're seeing some of your customers talk about order numbers that are higher than that even. So just how does that translate in terms of volume growth for you guys in the back half of the year? Gabriel Bruno: Yes. So just high level, our volumes, particularly on consumables in the Americas Welding segment were up low double digits. So we're pleased with the mix. We do have a significant component of the overall increase tied to automation projects in this first quarter. But overall, we're seeing a broad-based strength across general industries. So we're optimistic -- cautiously optimistic that, as you know, almost 1/3 of our business is tied to general industries. And so as we see now 3 months in a row on PMI improving and the flash numbers in April also point to positive, we're tracking that closely because it's a key part of our business. Oliver Z Jiang: Got it. That's super helpful. And then maybe just one on automation. Was that a drag on Americas margin this quarter? And then looking forward, how does the margin look in terms of what you signed into your backlog? I know you guys are targeting mid-teens there. So any color there would be helpful. Gabriel Bruno: Yes. For the first quarter, we did have some pressure on automation margins. As you know, that's dilutive to our overall business. It wasn't as a key driver to the overall margin performance in the Americas Welding segment because, as I mentioned, it was driven by price/costs. We're trailing a bit there as well as the increase in corporate allocations into the segment, which is about 40 basis points. But we expect improvement in volumes to also track with a high single-digit type of margin for the automation business. Operator: And your next question comes from the line of Mig Dobre of Baird. Mircea Dobre: I just have a couple of points of clarification here. Gabe, I appreciate all the commentary, trying to take notes, but I guess I'm not a fast enough note taker here. In terms of pricing, do you expect to be back to neutral from a price/cost standpoint in Q2? Or is that delayed until later in the year? And as far as the embedded price in the guide, does that reflect the actions that you talked about in the welding business that occurred in May? Is that embedded in that or not? And how about Harris? Like -- because obviously, I mean, what we saw in Q1 at Harris is just outsized. And I know things are moderating, but at what pace should we expect that to happen? Steven Hedlund: Yes. So Mig, let me handle the first part of that, and then I'll let Gabe comment more specifically. Obviously, our goal is to be price/cost neutral at the margin level and that we've got a long history of achieving that objective. What you saw was an inflection in input costs for us in the latter part of Q1. And then there's a little bit of a delay for us to be able to announce the pricing to our customers, communicate all that and have it go effective. So I would expect that we're going to recover most of that in Q2 as the pricing goes into effect beginning of May. And then I think our guide for the year on total price reflects that assumption of the pricing we've already announced. Gabriel Bruno: Yes. So Mig, as Steve mentioned, I would expect price/cost neutral as we enter the third quarter. So the timing of the price increases will have an impact positively in the second quarter, but we have the full impact in the third quarter. In terms of our price assumptions, if you think about the increase between 300 and 400 basis points, the way I think about it is about 1/4 of that on a full year basis is tied to the new price actions and the balance really tied to the Harris, what we've seen throughout Harris. We don't get the full year impact, obviously, with the new price actions being taken. So if you just think about that 150 basis points that I mentioned that begins in the third quarter, think about half of that, and that's really about 1/4 of the overall pricing change assumption. Mircea Dobre: Great. That's very helpful. And then my follow-up, going back to international, I'm trying to make sense of the volume decline that you have in there. I understand the Middle East impact, something around 230 basis points. But what about the rest of it? Because at least optically to me, when I'm looking at the prior year, the comparison was not that difficult. I know you talked about tough comps, but volumes were down about 6% last year as well. So can you unpack what's going on here and what regions are doing what -- outside of the Middle East? Gabriel Bruno: Yes. So just real simply, the largest driver was the timing of projects within our automation business. We did see pockets of strength in certain markets within Europe and you have the impact of Middle East, but that was the key driver. On the Asia side, we've seen favorable trends in the likes of India, Australia and that. But biggest driver overall was the timing of projects and the tough comps on the automation side. We were down in automation internationally. We're slightly up on the Americas side. Operator: And we have our last question from Nathan Jones of Stifel. Andres Loret de Mola: This is Andres on for Nathan. Just moving on to the margin side. Can you maybe talk about some of the cost management actions Lincoln is taking to drive improved margins near term? Steven Hedlund: Yes. We have a series of initiatives we're driving under this RISE strategy in terms of enterprise-led initiatives. We're focusing a lot on sourcing and trying to get more leverage out of our global spend. We're looking at trying to improve supply chain planning, so we can become more efficient in how we run the factories and servicing our customers with less inventory going forward. We're looking at SG&A productivity initiatives. And the combination of all those things are reflected in our assumptions around incremental margins over the course of the RISE strategy period. Gabriel Bruno: And just to remind you, when we talk about our expectations in the operating margins as well as incrementals for 2026, as you know, we're talking about mid-20s. When you think about our 2030 targets, we're talking about high 20s. So we're looking to make a step change and a lot of the investments we're making currently have longer-term implications while we're continuing to improve the short-term margin outlook. Andres Loret de Mola: Got you. That's helpful. And just specifically to Harris, I guess, can you walk us through what were the primary margin drivers in Harris? Was it mainly mix related? Maybe just a little bit more color there. Gabriel Bruno: Well, mix was certainly favorable. We did have some strengthening across on the retail side as well as what we've seen on HVAC, which was better than expected. And then we also have the pricing impact where we've achieved our price/cost neutral posture and with the leverage on SG&A. You probably have about low to mid-20s type of incremental margin on that. So mix is a big part of it and then our pricing and strategy as well. Operator: And we have more questions. The next question comes from Walt Liptak of Seaport Research Partners. Walter Liptak: I wanted to ask about the lower international margins. I wanted to hopefully talk about that a little bit. I think you -- Gabe talked about 11% international margin throughout the year. And I think previously, it was at 11% to 12%. And I wonder if you could help us understand, is this more price/cost? Or is it the Middle East kind of volume overhang? Help us understand what's going on with the international profitability. Gabriel Bruno: Yes. Well, certainly, the volume impact in the first quarter, while the 9.9% down had an impact. And we do expect to see more stability in the overall business profile as we enter the second quarter. Timing of projects, as I mentioned on the automation has an impact depending on how the conflict progresses in the Middle East, we'll continue to see an impact there. But the mix is good from an Alloy Steel acquisition standpoint that will anniversary, as I mentioned, in August, and we expect that to also have a favorable impact. So the impact on volumes had an impact coming into the second quarter, which we expect that to stabilize. Walter Liptak: Okay. Great. And then kind of going back to the earlier questions about some of the general fab markets and just the way that things trended. Was this quarter kind of in line with what you guys were thinking going into it? Or did you see more of a pickup as the quarter went on and into April? Gabriel Bruno: Yes. I mentioned the level of -- in Americas Welding consumable volumes being up low double digits. So that was stronger than we would have expected as we spoke in February. So we saw strengthening in real volume activity in general industries. We continue to see that momentum into April. So that's what gives us the cautious optimism on the early parts of recovery, particularly in the Americas Welding side. Steven Hedlund: Yes. Walt, I would say the improvement in gen fab, particularly in the Americas, consumables may be a little bit ahead of what we were anticipating and standard equipment may be a little bit behind what we were anticipating. The consumables is a great barometer of factory activity. And with continued strength in the factory activity and hopefully improving confidence, we should see the standard equipment follow in fairly short order. Operator: And your next question comes from the line of Steve Barger of KeyBanc. Christian Zyla: This is Christian Zyla on for Steve Barger. One clarifying question. Just with your earlier comments on the 2Q volume expectations, are you expecting overall margins in 2Q to be somewhat similar to 1Q and then a pretty meaningful step-up to get to your full guide of slight improvement? Can you just help us walk through the cadence for the full year? Gabriel Bruno: Yes. No, I expect the second quarter to show a step improvement compared to what we've realized in the first quarter and see that progressively stable as we get full realization of price/cost neutral in the third quarter. Christian Zyla: Got it. And then to follow up on that, is that driven primarily by volume or mix in the back half? Just kind of help us parse that out. Gabriel Bruno: Yes. So for sure, volumes, we do see progressively improving. As we talked prior to the increase in our pricing assumptions for the year, we did point to the mix of price volume to progress into volumes in the back half of the year as we've anniversaried the price actions from -- that we had taken in 2025. So we have pivoted to volume in the back half of the year. The only comment we made to reinforce mix is that the strengthening of Americas, depending on what progresses within the Middle East conflict could be an offset, which we estimate that impact to be about $8 million to $10 million per quarter. Steven Hedlund: Yes, Christian. So our expectation is still for continued volume improvement in the second half of the year. We haven't seen anything yet to have us come off of that, but we're cautiously monitoring demand trends to stay on top of that. So hence, our cautious optimism. Christian Zyla: Understood. One final one for me is just on the cash flow for the year. I think I understood the comment of the increased working capital or inventory levels. Do you expect that to repeat as we go for the full year? Or should we expect a similar '26 versus '25 free cash flow, which then would imply about $140 million, [ $150 million ] per quarter? Gabriel Bruno: Yes. No, we expect to -- we're still anchored on 100% cash conversion. So we expect that while we're investing short term for some product transitions that would turn around in the back half of the year. Operator: And we have one last follow-up question from Mig Dobre of Baird. Mircea Dobre: Still back on international for me. If we're kind of leaving out the Middle East conflict and the drag that you've outlined from that, so excluding this, do you expect to see volume growth in the rest of that business at any point in time in '26? And as far as inflation goes, what is the impact on that flow-through in pricing in international welding? Steven Hedlund: Yes. Mig, I would say we're expecting volume growth in the Asia Pacific region of the business. The Western Europe, in particular, and the broader European region, excluding the Middle East, a little more cautious. We were pleased to see a little bit of an uptick this quarter versus the prior quarters, but we're concerned that, that might be pull forward related to pricing actions and also some of the government regulations around the carbon border adjustment mechanism coming into play. And so it's just a little too early to call any bottoming and improvement in Europe at this point in time. But we continue to see growth in Asia Pac and believe that we're investing appropriately to take advantage of that growth. Gabriel Bruno: And our posture there in the international market is to be price/cost neutral. So we'll take some action to achieve that objective, and that's what drives the improvement as we see from Q1 into that 11% type EBIT margin profile that we expect from the business. Operator: And this concludes our question-and-answer session. I would like to turn the call back over to Gabe Bruno for the closing remarks. Gabriel Bruno: I would like to thank everyone for joining us on the call today and for your continued interest in Lincoln Electric. We look forward to discussing the progression of our RISE strategy in the future. Thank you very much. Operator: Ladies and gentlemen, that concludes today's call. Thank you, everyone, for joining. You may now disconnect.
Operator: Good day, and welcome to the SPS Commerce, Inc. Q1 2026 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. To ask a question, you may press star then 1 on a touch tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the call over to Irmina Blaszczyk. Please go ahead. Irmina Blaszczyk: Thank you. Good afternoon, everyone, and thank you for joining us on the SPS Commerce, Inc. first quarter 2026 conference call. We will make certain statements today, including with respect to our expected financial results, go-to-market strategy, and efforts designed to increase our traction and penetration with retailers and other customers. These statements are forward-looking and involve a number of risks and uncertainties that could cause actual results to differ materially. Please note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events, or otherwise. Please refer to our SEC filings, specifically our Form 10-K, as well as our financial results press release for a more detailed description of the risk factors that may affect our results. These documents are available at our website, spscommerce.com, and the SEC’s website, sec.gov. In addition, we are providing a historical data sheet for easy reference on the Investor Relations section of our website, spscommerce.com. During the call today, we will discuss adjusted EBITDA financial measures and non-GAAP income per share. In our press release and our filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding these non-GAAP financial measures, including reconciliations of these measures with comparable GAAP measures. I will now turn the call over to Chad. Chad Collins: Thanks, Irmina, and good afternoon, everyone. Thank you for joining us today. SPS Commerce, Inc. delivered a solid first quarter. Q1 revenue grew 6% to $192.1 million. Recurring revenue grew 7%, driven by Fulfillment growth of 8%. Amid rapidly evolving global supply networks, SPS Commerce, Inc. innovations are critical in addressing trading partner needs across the supply chains of manufacturers, retailers, logistics providers, and brands. Tariffs, geopolitics, and risk mitigation are fundamentally restructuring global trade. In this environment, supply chain partners need real-time coordination to respond to disruptions, demand shifts, and capacity constraints, and SPS Commerce, Inc. is uniquely positioned to deliver the AI automation trading partners need at scale. Before I provide an update on how customers are leveraging our AI-enabled solutions, I will review current business dynamics across our product portfolio. First, with respect to our revenue recovery business, we continue to manage the headwinds from Amazon’s policy changes. For example, to better align pricing with the value we deliver to our 3P take-rate customers, we are introducing a subscription platform fee. Joe will be providing further detail. Second, we are pleased with our cross-selling momentum among 1P customers, and I will share some examples of that shortly. Third, our business without revenue recovery is performing in line with our expectations, with early indications that the invoice scrutiny we observed last year as a result of tariff and macro headwinds is subsiding. We continue to expect these transitory headwinds will be largely behind us by the end of the second quarter as we remain focused on delivering the solutions our customers need to succeed in a dynamic trade environment. A great example of how suppliers are realizing value from the SPS Commerce, Inc. portfolio is Siete Foods, a customer since 2018. Over the past year, Siete made the transition from a high-growth emerging brand into an enterprise-scale operation, driven by their acquisition by PepsiCo and rapid expansion across mass retailers like Walmart, Target, Whole Foods, and Costco. As their scale increased, so did the complexity of their supply chain. We worked closely with Siete to modernize their operations and support their goal of full supplier compliance, while integrating tightly with their ERP to ensure they are able to handle higher volumes and evolving retail requirements with greater data consistency across orders, shipments, and invoicing workflows. Recently, Siete became an early adopter of MAX, SPS Commerce, Inc.’s AI agent, embedding our proprietary network intelligence directly in day-to-day operations. Their team is using MAX to quickly diagnose issues that previously required manual investigation, such as identifying why shipments failed or invoices were rejected, before those issues impact their retail partners. MAX is also helping Siete surface broader operational patterns across thousands of transactions to address root causes of inefficiencies, enabling them to scale and handle greater order volume with stronger compliance without adding operational overhead. This customer engagement demonstrates how an SPS Commerce, Inc. partnership evolves beyond trading partner connectivity and compliance to become a core intelligence layer within our customers’ supply chains. Siete Foods is one of many brands participating in the MAX beta release, providing valuable insight into how agentic capabilities are being applied and where customers are realizing value across their workflows. For Siete, by catching undetected inventory failures, MAX is projected to protect up to 8% of revenue that would otherwise be lost to stockouts. Based on feedback from more than 400 MAX beta customers, the biggest impact AI can have on trading partner collaboration is identifying issues early before they cause disruptions. MAX is already demonstrating its ability to do exactly that. SPS Commerce, Inc. is also leveraging agents to improve operational efficiency. Early applications within our agentic network are already driving measurable gains in customer treatment strategies, reinforcing our competitive moat through proprietary network data and intelligence, and reducing onboarding and setup time from weeks to days. In parallel, product engineering has advanced significantly, with much of our software development now agent-driven, accelerating innovation cycles and improving productivity. In sales, our data-powered growth strategy is using demand signals from customer activity across our network to identify upsell and cross-sell opportunities. As we continue to advance our network-led go-to-market motion, cross-selling momentum continues to build across our customer base. For example, Fulfillment customers are expanding into revenue recovery, while revenue recovery customers are adopting Fulfillment, reinforcing the strength of our network and the value of our integrated solutions. Explore Scientific, a precision optics company that designs and manufactures telescopes, binoculars, and other scientific instruments, was a SupplyPike revenue recovery customer. After spending over a year with a different EDI provider during their NetSuite ERP implementation, they faced ongoing usability challenges, unreliable workflows, and incomplete automation, at times requiring manual order processing just to keep pace. More importantly, these inefficiencies created a downstream financial impact, with inconsistent data and limited visibility leading to shipment failures, invoice rejections, delayed payments, and revenue loss through deductions and write-offs. By transitioning to SPS Commerce, Inc., Explore Scientific reestablished a reliable operational foundation. With a fully functioning ERP integration and standardized workflows across orders, shipments, and invoices, they gained consistent, accurate data flowing across their business. This shift enabled their team to move from reactive problem solving to proactive management, identifying issues earlier, understanding root causes, and preventing disruptions before they impact financial outcomes. As their operations stabilized, Explore Scientific expanded their use of SPS Commerce, Inc. solutions, adding analytics and system automation to operate with greater confidence and control. What began as a need to fix operational gaps has evolved into a broader transformation, positioning Explore Scientific not just to process transactions more efficiently, but to actively protect and recover revenue. Explore Scientific’s experience highlights how customers are realizing meaningful value on the SPS Commerce, Inc. network by restoring operational stability and visibility. In addition to cross-selling our products, we are unlocking incremental growth opportunities by unifying them. For example, Walmart suppliers using SPS Commerce, Inc. Fulfillment can now recover overages directly in the SPS Commerce, Inc. solution. This underscores the value of the platform approach and enables trading partners to collaborate better along the entire value chain. In closing, SPS Commerce, Inc. is well positioned to capitalize on significant growth opportunities ahead. Our product portfolio continues to advance with AI-driven solutions for both suppliers and retailers, powered by proprietary data that improves efficiency and unlocks meaningful value across supply chains. As a result, SPS Commerce, Inc. is the leading intelligent supply chain network, embedded in the daily flow of commerce, driving automation, insights, and increasingly AI-powered optimization. Lastly, over the past 16 months, we have added seasoned SaaS leaders to the SPS Commerce, Inc. team who bring the operational rigor necessary to scale our product and go-to-market strategy. Today, I am pleased to formally introduce our new CFO. He joined us on March 16, and we are excited to have his expertise on board as we enter this next phase of our journey. Welcome. Unknown Speaker: Thank you, Chad, for the warm welcome. This is my first earnings call as SPS Commerce, Inc. CFO. I would like to take the opportunity to express my excitement and share my reasons for joining SPS Commerce, Inc. at such a pivotal time. First, I believe SPS Commerce, Inc. is uniquely positioned to capitalize on the dynamics that are driving a growing need for supply chain optimization. Second, with a large global market opportunity, disciplined capital allocation, and a clear path to scale, SPS Commerce, Inc. is well equipped to deliver durable growth, margin expansion, and long-term shareholder value creation. Lastly, and most importantly, having engaged with the management team and many SPS Commerce, Inc. employees, I am truly impressed by the strength of the organization’s culture. I look forward to being part of such an energetic, driven, and highly collaborative team. I share the organization’s strong sense of momentum and enthusiasm for the opportunities that lie ahead. Now let us review our Q1 results. We reported a solid Q1 2026. The core business is strong and continued to show momentum throughout the quarter. However, as Chad called out, we continue to see headwinds in the Amazon portion of our revenue recovery business. Revenue was $192.1 million, a 6% increase over Q1 of last year. Recurring revenue grew 7% year over year. The total number of recurring revenue customers in Q1 was approximately 54,200. Consistent with our expectations, the number of 1P customers was flat sequentially while the number of 3P customers declined by 400. ARPU was approximately $13,550. As Chad mentioned earlier, we are generating cross-selling momentum across our network, and we remain strategically focused on servicing and expanding the 1P customer base, where we see the greatest cross-selling potential for our products. To improve profitability across our smaller customer cohorts, we are in the process of introducing a subscription platform fee to our 3P take-rate customers to better align pricing with the value delivered, while helping offset servicing and infrastructure costs associated with these accounts. We expect this change to increase churn within this cohort, with a projected decline of up to 4,000 3P suppliers in 2026. We do not anticipate this action to result in a material impact to revenue. Adjusted EBITDA increased to $57.9 million, and we ended the quarter with total cash and cash equivalents of $154 million. In Q1 2026, we deployed nearly 100% of free cash flow to repurchase $47.1 million of SPS Commerce, Inc. shares. Now turning to guidance. For Q2 2026, we expect revenue to be in the range of $194.5 million to $196.5 million, which represents approximately 4% year-over-year growth at the midpoint of the guided range. We expect adjusted EBITDA to be in the range of $60.9 million to $62.4 million. We expect fully diluted earnings per share to be in the range of $0.53 to $0.56 with fully diluted weighted average shares outstanding of approximately 37.3 million shares. We expect non-GAAP diluted income per share to be in a range of $1.06 to $1.09, with stock-based compensation expense of approximately $19 million, depreciation expense of approximately $5.2 million, and amortization expense of approximately $9.4 million. As we look to the rest of the year, three dynamics are shaping our outlook: First, we continue to expect headwinds impacting the Amazon revenue recovery business. Second, excluding Amazon, we expect the revenue recovery business to continue to outpace overall company growth. Third, we expect our business without revenue recovery to continue to perform in line with our expectations. For the full year 2026, we expect revenue to be in the range of $796 million to $802 million, representing approximately 6% growth over 2025 at the midpoint of the guided range. We expect adjusted EBITDA to be in the range of $262.8 million to $267.3 million, representing growth of approximately 14% to 16% over 2025. We expect fully diluted earnings per share to be in the range of $2.66 to $2.69 with fully diluted weighted average shares outstanding of approximately 37.3 million shares. We expect non-GAAP diluted income per share to be in the range of $4.73 to $4.76, with stock-based compensation expense of approximately $69.8 million, depreciation expense of approximately $23 million, and amortization expense for the year of approximately $37.4 million. For the remainder of the year, on a quarterly basis, investors should model approximately a 30% effective tax rate calculated on GAAP pre-tax net earnings. To wrap up, I am encouraged by our momentum entering the year. I am excited to be part of this driven team, and I am committed to maintaining the rigor and discipline necessary to scale our success and fully capitalize on the market opportunity in front of us. With that, I would like to open the call to questions. Operator: We will now open the call for questions. Please limit yourself to one question and one follow-up. To ask a question, you may press star then 1 on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If you would like to withdraw your question, please press star then 2. Our first question comes from Scott Randolph Berg with Needham & Company. Please go ahead. Ian Black: Hi. This is Ian Black on for Scott Randolph Berg. When should we expect to see the 3P revenue recovery business start to trough? Unknown Speaker: I can take that question, Ian. I think on the 3P—the way we are explaining it a little bit more is the Amazon revenue recovery side of the business. Right now, that continues on a negative trajectory. It probably troughs somewhere in the middle of this year towards the end of this year. As we enter into 2027, we would probably see a little bit more momentum in that business. But right now, we still see a lot of headwinds in 2026 as it relates to that business. Ian Black: Thank you. And then you reported some delayed enablement campaigns exiting 2025. What is the progress of those campaigns? Chad Collins: Yes. Overall, our pipeline and activity on the retail relationship management campaigns is quite strong. Some of the specific campaigns that we cited in Q4 that were going to carry into 2026 have now either closed or are near closure, so that momentum has continued. As these programs affect customer count, keep in mind there is some delay to actually run the program and get the suppliers on and initiate the invoicing with those suppliers. We do expect that to affect customer count and be more impactful in the second half of the year versus the first half of the year. Operator: Our next question comes from Parker Lane with Stifel. Please go ahead. Parker Lane: Hey, guys. Good afternoon. Thanks for taking the question. Chad, I think you said tariff and macro headwinds that you started to see in the middle of last year should start to dissipate as we lap them this year. Obviously, we have seen more conflict in the Middle East and some talk about what that could mean for global supply chains. Any thoughts on what your customers could be facing or are facing as a result of that? And is there any belief that, as you look through the year, that could have any follow-through effect that maybe knocks that recovery timeline off of the 2Q that you outlined? Chad Collins: Absolutely. We are seeing the contract scrutiny driven by the cost pressures from the tariffs begin to dissipate. You will remember that most of that took effect beginning the latter half of Q2 last year. We are cautious in watching how we run through the final renewals that may be more susceptible to that on the annual renewal part of our business. As it relates to the broader global situation, we have not yet seen any indicators on that. As I reflect on this situation versus the tariff situation, we were hearing from our customers more directly that the tariffs were a bit more acute to their business with immediate impact on their cost of goods sold, and we are not hearing that type of thing from our customers at this point in time given some of the more global situations that we have right now. Parker Lane: Understood. And maybe one for you as well on the 3P churn you referenced—about 4,000 third-party customers could churn off the platform as a result of the changes you are making. Comparing that to the roughly 7,300 today, what is it about those—are these the smallest of them in nature and most sensitive to cost, or is there something else you would characterize amongst that base that puts them in the category of likely to churn? Chad Collins: Yes. These are the very smallest of our 3P take-rate-only Amazon customers. One, they do not have a high volume of recovery opportunities for us, so they are very low revenue customers. When we introduce this subscription fee, which is quite modest at $19.99 a month, we could find ourselves in some situations where they periodically process a recovery but do not feel there is enough volume to pay a $19.99 per month subscription fee. That is how we arrived at our churn numbers. They are very small revenue customers. In fact, we have a cost to service those customers—platform, monitoring, all those things—so we think there is some benefit to us from a cost perspective to not service those very low revenue customers if they do churn as a result of this platform fee. Operator: Our next question comes from Dylan Tyler Becker with William Blair. Please go ahead. Dylan Tyler Becker: Hey, gentlemen. I appreciate it. Maybe, Chad, starting with you on early takeaways from the MAX program and how customers are implementing it and seeing value across the network. Any incremental color you can provide? I know you had a couple of ROI case studies. Also, the opportunity outside of the prebuilt agents you are spinning up and offering to clients—what about clients building their own agents over time? How do you think about custom-built versus prebuilt deployment over time? Chad Collins: Great question, Dylan. In the MAX beta, we have 400 customers now, and the feedback has been particularly strong. What is interesting is where they are finding value—combining their data in our network with the proprietary databases we have on major retailers’ and distributors’ supply chain expectations for their suppliers. For example, the differences in rules for shipping an order to Target versus Walmart or Costco. When you combine those nuances with a customer’s specific data, it allows you to answer questions like the difference in time to acknowledge an order from Target versus Walmart and how that affects workflow. A good example is Siete Foods, where MAX helped them determine they had less inventory than they believed due to transactions with a supply chain partner involving detailed lot codes and expiration dates. MAX helped them identify and correct their inventory position so they could make more commitments to sales—hard ROI where MAX helped with inventory and generated sales. On customers building agents versus using agents in the tool, our approach is with the MAX Connect product we have launched, which is an MCP endpoint that gives customers access to their network data as well as our proprietary databases around retailer supply chain expectations. Some customers will utilize it within the product itself, but others will want agent-to-agent interaction, and that is where MAX Connect fits in and can handle agent-to-agent communication. Dylan Tyler Becker: Fantastic. Thank you, Chad. And maybe for you on margins—understand the third-party dynamics, but the core business continues to track relative to plan. Historically, we talked about gross margin as a big lever, but it sounds like you have other initiatives underway to improve unit economics of the third-party piece. How reliant is the 200 basis points target on growth, and how many levers do you have to sustain that trajectory as we navigate these idiosyncratic dynamics? Unknown Speaker: Thanks, Dylan. Some of the savings on the 3P side are a pretty small impact on EBITDA and our ability to drive the 200 basis points. A couple of levers you already saw in Q1 with the ability to overperform guidance. We are seeing initial success on time to onboard customers and how much more efficient we can be using AI internally. There are efficiencies on the product engineering side—our ability to iterate much faster. You will see levers across sales and marketing, R&D, and G&A throughout the year. I am working closely with IT on where AI can add the most value internally. There will be more to come on future calls on where we are leveraging AI to drive margin. Operator: Our next question comes from Christopher Quintero with Morgan Stanley. Please go ahead. Christopher Quintero: Hey, Chad and team. On the medium-term targets—historically at least high single digits—you are guiding Q2 to 4% to 5%. I understand the Amazon headwinds. Is high single digits still the right framework, and how should we think about the path back to that growth rate? Chad Collins: Yes, we believe high single digits over the mid to long term is the appropriate growth rate for the business. The headwind is very specifically from the Amazon revenue recovery piece. The other portions of our business—revenue recovery without Amazon—is growing faster than the overall business, and the business excluding all revenue recovery is executing per our expectations. If you take out that headwind, you are back in that high single-digit range, which is consistent with our mid to long term expectation. Unknown Speaker: I will add a couple more data points. On Q2 year-over-year, there is a comp dynamic: Q2 this year has the first full-year comp for Carbon6. That growth rate is probably not directionally where we are headed. If you look at our full-year guide and do the implied growth rates for Q3 and Q4, you see pretty strong reacceleration. Lastly, if you remove Amazon revenue recovery from Q1, the rest of the business is already growing high single digits. There is a huge part of our business growing high single digits; you just cannot see it because of the Amazon revenue recovery headwinds. Christopher Quintero: Got it, that is helpful. As a follow-up on MAX Connect: businesses are choosing vendors based on API strategy and interoperability with broader agents and third-party agents. How are you thinking about the openness of MAX Connect and monetization as agents leverage your network and data? Chad Collins: We have been very open and API-friendly in our product strategy. Many of the ways our network connects to retailers, especially on ecommerce and marketplaces, is through APIs. Customers have always been able to access our network through APIs. Specific to agentic APIs or an MCP approach, we think this is very important. Agent-to-agent workflows are the future—we are already seeing that internally. The data we have—both transactional and, importantly, our databases of retailer and distributor supply chain expectations—are very robust and built over 20 years. Our customers tell us they cannot find this information anywhere else. Exposing the combination of network data and these proprietary supply chain databases will be powerful for agent-to-agent communication via MAX Connect. We will monetize those interactions over time once we get through the beta period. Operator: Our next question comes from Analyst with Citi. Please go ahead. Analyst: Thanks for taking the questions. On approach to guidance: we have seen revenue come in towards the lower end of the range a few quarters in a row. Any learnings or shift in approach toward embedding more conservatism? It sounds like spend scrutiny is improving—has that been baked in or could it be a source of upside? Unknown Speaker: There is no major change in guidance philosophy. On the annual guide, the Amazon revenue recovery business is posing a strong headwind, and we wanted to make sure we were factoring all the risk we are seeing in that part of the business. If you take that out, the rest of the business is in line with expectations. We saw momentum coming out of Q1 into Q2. On EBITDA, there is likely to be upside—we raised the full-year guide and are exploring other AI use cases internally. Overall, no major change in guidance philosophy. Analyst: Got it. And on the Amazon revenue recovery pricing changes—can you give details on the timing of the rollout and how churn from the subscription fee translates through the metrics so we can get a sense of that 4,000-customer number? Unknown Speaker: We will begin rolling that program out into Q2, and the rollout will go into Q3 a little bit. The churn may happen over time, so even though we are rolling it out in Q2 and early Q3, the churn may come throughout the year. Operator: Our next question comes from Lachlan Brown with Rothschild & Co and Redburn. Please go ahead. Lachlan Brown: Appreciate that we are cycling off the second quarter of 2025 where we began to see lower document volumes within Fulfillment. How have these trends been as we exit the first quarter, and what is your confidence we will see strong year-on-year growth in the volume-based component as we head into the coming quarters? Chad Collins: We have seen a dissipation of the headwind related to contract scrutiny, which had customers looking at their document plans and any trading partners they could reduce from their contracts. As we have moved into 2026, we have not seen the same level of pressure as in 2025. As we engage with customers who have renewals through the year, that gives us more confidence about that dynamic in 2026 versus what was a challenge in 2025. Lachlan Brown: And with those 400 customers on MAX, how has consumption/usage been through the beta stage—over or under expectations? Has usage been helpful in formulating the monetization strategy for MAX? Chad Collins: The 400 number was above our internal targets, which speaks to the communication to customers and their ability to see benefits even in beta. As with anything, some customers have heavy use cases and others are smaller with less volume. All of that is informing how we plan to monetize. Our current thinking—although not final—is that we will try to include MAX in a lot of our base subscriptions to get customers using the feature, with usage throttled somehow, and then have an uptick in subscription based on incremental usage. Operator: Our next question comes from Joseph Vruwink with Baird. Please go ahead. Joseph Vruwink: On AI increasing development velocity—you spoke to that inside the company. What are you seeing outside—competitors wielding that capability as well? To what extent is AI making automation easier to build such that suppliers who historically looked to SPS Commerce, Inc. might now consider doing it internally? Chad Collins: There is still a fundamental difference between a do-it-yourself approach and being in a proactively managed network like SPS Commerce, Inc. The majority of competitors facilitate DIY connections—good tooling and now AI tooling to help manage maps—but you still need to manage it yourself. We do not believe most customers, especially small to medium, will get the efficiencies from DIY that they would in a managed approach. In a managed network, one change a retailer makes can immediately cascade to all our customers, which is more efficient. Also, our average revenue per customer is about $13,000 per year; if a customer is dedicated to rebuilding their enterprise IT stack, they will likely prioritize bigger spend applications before a $13,000-per-year connection to the SPS Commerce, Inc. network, which gives us some protection. Joseph Vruwink: Thanks. A clarification on the subscription change in Amazon 3P. You said it will yield logo churn but not a material revenue impact. Yet the revenue guide is coming down and relates to revenue recovery. Are the headwinds absorbed in the Q1-to-Q2 timeframe, and is that the source of change? Chad Collins: These are two different topics. Specific to the subscription fee and churn, while the count seems high at 4,000, the revenue from those is quite modest. For those that remain and absorb the platform fee—again, modest—there is potential for even a small revenue uplift. Netting those effects out, the platform fee and related churn are not material to revenue. The reduction in the guide is related to overall headwinds from the Amazon space tied to policy changes Amazon has made that reduce the amount we can recover for customers. That is separate from the introduction of the platform fee. Operator: Our next question comes from Matthew VanVliet with Cantor Fitzgerald. Please go ahead. Matthew VanVliet: Thanks, and welcome aboard. On the product roadmap, how has the ability to get product to market faster using AI tooling pulled forward items that were “nice to have” but not high enough priority before? Do you think you will roll out functionality that helps expand that $13,000 per-year average customer spend? Chad Collins: Absolutely. A few key areas drive higher ARPU. In revenue recovery, we continue to execute our strategy to build out to more retailers—the more retailers we cover, the more market that opens up. We are making enhancements to our Analytics product and underlying technology to provide more data access and AI capabilities, which we are optimistic about. We are also advancing strategies around ERP connections—for example, our longstanding partnership with NetSuite, where we are investing in technology so customers using NetSuite together with the SPS Commerce, Inc. network can get more full features. These are examples underway in our product roadmap that have benefited from the velocity we are experiencing using agentic engineering. Matthew VanVliet: On M&A appetite—how has AI raised the bar on targets, and what outcomes and potential synergies are you looking for? Also, initial viewpoints on how the M&A strategy might evolve? Unknown Speaker: Overall, we are focused on running the business and buying back stock. We bought $47 million in Q1, and the board has authorized up to $300 million in total. That is our major focus right now—run the business and buy back shares. Chad Collins: The most efficient use of our capital today is buying back shares. Over the long term, we view M&A as part of our strategy in three areas. First, further consolidating in the EDI market—there remain players, and every time we add an EDI company, customers benefit by moving to the SPS Commerce, Inc. network, and those have been efficient transactions. Second, broadening our product solutions for supplier customers—as we drive more cross-selling and build the discipline into our go-to-market teams, we will gain more confidence over time to add to the product portfolio for cross-sell opportunities. Third, activity outside the U.S. has been strong, and as those businesses scale, there could be longer-term opportunities to gain more scale with acquisitions outside the U.S. Operator: Our next question comes from Jeff Van Rhee with Craig-Hallum Capital Group. Please go ahead. Daniel: This is Daniel on for Jeff Van Rhee. Regarding the pricing increase for 3P customers, what was the timetable for deciding on that, and to what degree had it already been anticipated in guidance? Chad Collins: Strategically, if you look at revenue recovery, going back to SupplyPike—SupplyPike was a 100% subscription business with broad retailer coverage, a lot in Walmart, not much in Amazon. We saw an opportunity to quickly gain the world’s two largest retailers, Amazon and Walmart, by acquiring Carbon6. Carbon6’s revenue model was more of a take-rate, where we took a portion of what we recovered for customers. We have always had two revenue models, and we believed portions of the 100% take-rate business could convert to a more predictable subscription model or hybrid over time. That has always been part of our thesis. We decided to start with the very small 3P customers, particularly those that, because they are small in revenue, had cost-to-serve questions relative to the revenue we were getting from them. Unknown Speaker: On guidance, as briefly mentioned earlier, it is revenue-neutral. We believe there will be some churn and these customers are low value, but that will be offset by customers that accept the fee. From a guidance standpoint, assume a net zero impact to revenue for the rest of the year. Daniel: And as you are coming on board, what opportunities drew you to SPS Commerce, Inc., and what are your top priorities stepping into the role? Unknown Speaker: My focus areas: first, ramping on the business and industry quickly so I can help drive strategic decisions. Second, keep driving EBITDA—there is a strong track record, and I want to ensure we stay on that course. Third, there is real opportunity on the AI front internally to drive leverage, and I will be laser focused there. At the highest level, the network we have built between retailers and suppliers and our ability to use that data—plus our proprietary data—and apply AI is a huge opportunity. We are early with MAX, but there is a lot of upside as we introduce AI into the product set. Operator: Our next question comes from Mark William Schappel with Loop Capital Markets. Please go ahead. Mark William Schappel: Thanks for taking my question. There is a new Chief Commercial Officer on board for a little over a quarter. With the recent expansion of your product portfolio into revenue recovery and AI, how is the commercial team streamlining the cross-sell motion to ensure these products are effectively adopted by your current client base? Chad Collins: Historically, our go-to-market motion focused on acquiring new customers. As we established our market-leading position and moved further into our TAM, there is still opportunity for new customers, but the larger driver of growth is expanding ARPU with existing customers—first by expanding their total usage of the network, especially for Fulfillment customers where there is opportunity to add more connections and features, then cross-selling revenue recovery and Analytics, and, as we move into monetizing MAX, cross-selling MAX. In response, we have focused sales and marketing on engagement with customers and full lifecycle relationships, making investments in treatment strategies to retain and grow customers. There is a new operational rigor that our Chief Commercial Officer and our new Chief Marketing Officer have brought to expansion within existing customers while simultaneously maintaining a strong motion, especially on the retail side, to continue adding new customers. Operator: Our next question comes from Nehal Sushil Chokshi with Northland Capital Markets. Please go ahead. Nehal Sushil Chokshi: Thank you for the reminder. Good to see that the guidance implies an inflection of overall revenue growth in the back half of 2026. Given the core business, excluding Amazon 3P, is already growing high single digits, what is the driver for the inflection implicitly projected here? Chad Collins: The right way to think about the dynamics is in three parts. First, the Amazon revenue recovery portion has strong headwinds based on policy changes Amazon has made, which reduce the amount we are able to recover—this drove coming in at the lower end of our range this quarter and the reduction in guidance. Second, all of our revenue recovery business excluding Amazon—for retailers like Walmart, Target, Lowe’s, Home Depot, and others—is growing very nicely with great cross-selling momentum and is growing faster than the overall company. Third, our business without revenue recovery is growing consistent with expectations, and we are seeing improvement compared to 2025—downsells and contract scrutiny are not at the same level, and our forward visibility for 2026 is positive. Nehal Sushil Chokshi: So the core business is inflecting up because you are anniversarying the scrutiny in Q2 2026? Chad Collins: Yes, that is a large effect. We are lapping some of the negative effects from 2025, which appear more one-time in nature, leading to a reacceleration in the back half of 2026. Nehal Sushil Chokshi: If the business excluding Amazon 3P is already at high single digits, does that imply it could move further up beyond high single digits in 2026? Unknown Speaker: We are sticking with the annual guide we gave you. If that changes throughout the year, we will update you, but for now we remain within the guidance provided. Operator: At this time, there are no more questions. This concludes our question and answer session. 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Operator: Good day, and thank you for joining us today. On the call from Five9, Inc. are Amit Mathradas, Brian Lee, and Andy Dignan. During today's conference call, certain statements will be made that are not historical facts and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements regarding our Q2 2026 and full year 2026 guidance, expected improvements in operating and financial metrics, CCaaS and AI revenue growth trends, industry trends, including with respect to AI, our strategy, priorities and execution, our product roadmap and technology investment, our markets, customer demand trends, our market position and opportunity, our capital allocation strategy including our share repurchase programs, and other future events or results. Such statements are simply beliefs and predictions and should not be unduly relied upon by investors. Actual events or results may differ materially, and the company undertakes no obligation to update the information in such statements. These statements are subject to substantial risks and uncertainties that could adversely affect Five9, Inc.'s future results and cause these forward-looking statements to be inaccurate, including the impact of adverse economic conditions, lower growth rates within our installed base of customers, failure to manage our technical operations infrastructure, unsuccessful development of our AI solutions, failure to maintain and develop our contact center solutions, failure to achieve the anticipated benefits of our share repurchase activity, and the other risks discussed under the caption Risk Factors and elsewhere in Five9, Inc.'s annual and quarterly reports filed with the Securities and Exchange Commission. In addition, management will make reference to non-GAAP financial measures during this call. A discussion of why we use non-GAAP financial measures and a reconciliation of our GAAP versus non-GAAP results and guidance is currently available in our press release issued earlier this afternoon, as well as in the appendix of our investor deck that can be found in the Investor Relations section of Five9, Inc.'s website at investors.five9.com. Also, please note that the information provided on this call speaks only to management's views as of today and may no longer be accurate at the time of a replay. Lastly, a reminder: Unless otherwise indicated, financial figures discussed are non-GAAP. I will now turn the call over to Five9, Inc.'s CEO. Please go ahead, Amit. Amit Mathradas: Thank you, and welcome, everyone, to our first quarter 2026 earnings call. We delivered an encouraging start to the year, and I am particularly pleased to report an acceleration in subscription revenue growth with top and bottom line results coming in above the high end of the guidance ranges. While we are still early in our work, this quarter marks an important step in showing that our actions are beginning to translate into better business performance, with the indicators we care about moving in the right direction again. This is my first full earnings call as CEO. I want to frame our work around four priorities that I believe are essential to driving long-term value at Five9, Inc. First, building a performance-driven culture rooted in accountability and transparency. Second, optimizing operations. Third, stabilizing and strengthening the core business. And fourth, winning in AI-empowered customer experiences. Let me start with our first priority: culture. Over the past three months, I have spent a significant amount of time with our teams and leaders across the company and had frank conversations with employees across functions and geographies. What is clear to me is that Five9, Inc. has talented people, highly strategic assets, and a real desire to win. But winning also requires clarity of mission, high standards, urgency, and accountability. We need a culture where performance is measured rigorously, decisions are made quickly, and leadership is held to a high standard. That starts with me. Transparency with the investor community is equally important. Over time, our story has become harder for investors to underwrite than I believe it should be. Some of that was about how we executed, how we communicated, and how clearly we translated our strategy into measurable progress. Going forward, we will demonstrate progress through clearer, relevant, and trackable metrics that help investors assess the health of the business and hold management accountable. We understand that investors want evidence, not ambition. And our job is to convert our vision into results that are quantifiable. Turning to operations. Over the past year, and with the support and oversight of the board, the company has been executing a significant operational review designed to improve efficiency and simplify execution. This work, which was well underway before I joined, helped drive the 470 basis points increase in EBITDA margin from 2024 to 2025. This foundational work is crucial, but it is only the beginning. We are now in a better position to move faster and reinvest in critical areas. Building on this foundation and with the support of external advisors, I am leading a series of deep dives across the product portfolio to align investments with our long-term competitive priorities. To help accelerate this effort, we are filling gaps and making changes in leadership and adjusting our organizational design, including reducing spans and layers, to improve focus, speed, and accountability. These changes will help us operate more efficiently and effectively and build a more disciplined foundation for innovation, growth, and continued operating leverage over time. An example of this was our recent hire of Jay Lee, our new chief marketing and growth officer. In this newly created role, Jay will unify global marketing with revenue strategy and operations to build a more aligned, insights-driven go-to-market engine that delivers a seamless experience for customers and partners. Let me shift to my point of view on the strategic outlook for our industry and our business specifically. AI is one of the most important shifts underway in our industry, and customer experience is one of the most compelling application areas. In my conversations with customers, I am consistently hearing that AI is fundamentally increasing the importance and value of every customer interaction. Historically, contact center spending has been overwhelmingly weighted towards labor, creating a difficult trade-off between lowering costs and delivering better experiences. AI is acting as a catalyst to change this. Customers now see the potential to reallocate a portion of their labor spend to fund the combination of AI and enhanced CX, better addressing the trade-off between cost and quality. This makes the move to a modern cloud-based platform more urgent than ever. This shift is forcing a critical decision: customers must now consider how AI is incorporated into their CCaaS platform because they want to avoid a sprawling collection of disparate AI tools that cannot seamlessly coordinate with their human agents. This means that AI point solutions are not enough because they only solve a fraction of the problem. Enterprises are looking for a complete customer experience platform they can trust to handle the entire lifecycle—the orchestration, the data, the integrations, and the governance needed to run reliably in production. This is precisely what Five9, Inc. provides. What is interesting is that as AI handles a large share of routine customer requests, the role of agents is elevated, not eliminated. People become experts who manage complex escalations and provide essential oversight, a necessity in several regulated industries. A platform infused with AI and CX technology empowers these agents with real-time guidance and suggested next steps while simultaneously giving supervisors unprecedented visibility into every interaction, not just a sampling. Importantly, human-based intelligence and case resolution provide a critical feedback loop for training AI agents, which in turn drives continuous performance improvements of the entire unified platform and further differentiates Five9, Inc. This evolution is about more than just efficiency; it is about value capture. As AI reduces the customer's traditional labor spend, that budget shifts towards technology. We believe this fundamentally expands our monetizable surface area by enabling entirely new use cases and more customer experiences. Our path to success is no longer about simply selling seats. Instead, it is about selling a complete solution based on capabilities and consumption. This is where we believe our category is going, and we plan to lead it by pairing these and other powerful agentic capabilities into our platform that has the trust and governance that enterprises seek. But we are not assuming success here; we must earn it. And we will measure ourselves not by demos, but by production, adoption, and customer outcomes. We are seeing signs that our strategy is working. In the first quarter, we posted our second consecutive quarter of year-on-year accelerating subscription revenue growth, an important indicator that the core business is strengthening. We are also seeing customers adopt our AI solutions in production as an integrated part of our CX platform, leading to multiple quarters of strong AI revenue growth. This effort is amplified by the strength of our platform and our ecosystem. Our cloud-native CCaaS platform is built for high reliability and features open integrations, which has allowed us to build an ecosystem of over 1,400 partners. Our deep strategic relationships with market leaders within this ecosystem are critical, serving to validate our technology, strengthen our go-to-market reach, and accelerate enterprise adoption. This is a large opportunity, and we believe Five9, Inc. is one of the few key players truly positioned to capture it. We intend to do so with both urgency and discipline. Before I hand it over to Brian, let me say a few words about capital allocation. We take our role as stewards of shareholder capital seriously. Our approach will be disciplined, return-oriented, and balanced. This includes investing organically in our business, evaluating inorganic opportunities against a high strategic and financial bar, and, when appropriate, returning capital to shareholders. On the last point, reflecting our confidence in the company's intrinsic value, we intend to complete the remaining amount of our $150 million share repurchase authorization by the end of Q3. In addition, our board has authorized an additional $200 million share repurchase program. We see this as a compelling use of capital, and Brian will provide more details in a moment. Since joining in February, it has become even clearer to me that Five9, Inc. has talented employees, a portfolio of highly strategic assets, and significant upside potential. It has also become clear to me that we must operate with greater urgency, better execution, and higher accountability as we build toward an AI-driven future. That work is underway, and I intend to drive meaningful change as we work to turn Five9, Inc. from a good company into a great business, with a disciplined focus on creating long-term shareholder value. With that, I will turn the call over to Brian. Brian Lee: Thank you, Amit, and good afternoon, everyone. I would like to begin by underscoring our commitment to transparency in our reporting. To that end, starting today, you will find supplemental metric disclosures in the investor relations section of our website. While many of these metrics have been disclosed previously, we believe this new format will help simplify your modeling. As Amit noted, we have taken decisive action on returning capital to shareholders. After repurchasing $10 million of shares in the first quarter, we intend to enter into an accelerated share repurchase program for the remaining $90 million under the current authorization, which we expect to be completed by Q3. The board has also approved a new share repurchase program of $200 million, which we expect to execute opportunistically. These actions reflect our deep conviction in our long-term opportunity and confidence in continuing to generate strong free cash flow while also providing ample strategic flexibility. Now turning to our financials. Q1 revenue was $305 million, up 9% year over year. Of the total for the quarter, the contributions from subscription, telecom, and professional services were approximately [inaudible], respectively. Our subscription revenue grew 13% year over year. This was driven by our CCaaS revenue, which grew 8%, and our AI revenue, which grew 68% to an annual run rate of over $125 million. For clarity, please note that this AI revenue figure now includes both enterprise and commercial, providing a complete view of this growth driver. Our AI revenue now represents approximately 13% of total subscription revenue, compared to approximately 8% a year ago. And the year-over-year growth rate accelerated from 49% in Q4 2025 to 68% in Q1 2026, primarily driven by our backlog ramping earlier than anticipated. Looking ahead, we expect total subscription and CCaaS growth to trend with our overall revenue guidance. AI revenue growth is expected to fluctuate quarter to quarter given varying ramp schedules, with full year 2026 growth anticipated to exceed 40% year over year. LTM dollar-based retention rate, defined in our filings as the retention rate of recurring revenue from subscription plus telecom, was 105%, which is the same as Q4 2025. Given our focus on subscription revenue going forward, we will transition our DBRR disclosure to LTM subscription DBR, which came in at 107% in Q1, compared to 106% in Q4 2025. Please refer to the previously mentioned supplemental metric disclosure on our investor relations website with nine quarters of historical dollar-based retention rates. As anticipated, both DBR metrics stabilized in Q1, and we expect Q2 to be at relatively similar levels, plus or minus one percentage point, before inflecting in the second half of the year. Adjusted gross margin in Q1 was 64% compared to 62% in Q1 last year. Adjusted EBITDA was $74 million, or 24% of revenue, compared to $53 million, or 19% of revenue, in the same quarter last year. In terms of cash flow, cash from operations was $64 million, or 21% of revenue, and free cash flow was $49 million, or 16% of revenue. These profitability and cash flow margins benefited by slightly more than one percentage point in the first quarter from a one-time discount negotiated with a key vendor that we do not expect to recur in future periods. From a balance sheet perspective, we ended the quarter with $724 million in cash, cash equivalents, and short-term investments. On to guidance. For the second quarter, we are guiding total revenue to a midpoint of $306 million with a range of $303 million to $309 million. For the same period, our guidance for non-GAAP EPS is a midpoint of $0.67 per diluted share, with a range of $0.65 to $0.69. The largest driver of the sequential decline versus Q1 is the one-time discount I mentioned a moment ago that benefited Q1. Additionally, this guidance includes an estimated 3.6 million shares being retired through our accelerated share repurchase. For the second half, we continue to expect total revenue growth to accelerate to double digits driven by our backlog of both new logo and installed base bookings. For non-GAAP EPS, we expect steady sequential increases in the second half. For the full year 2026, we are guiding total revenue to a midpoint of $1.26 billion with a range of $1.254 billion to $1.266 billion, up from our initial midpoint guidance of $1.254 billion. Our guidance for 2026 non-GAAP EPS is a midpoint of $3.26 per diluted share, with a range of $3.22 to $3.30, which is up from our initial midpoint guidance of $3.18 per diluted share. Additionally, we continue to anticipate annual adjusted EBITDA margin to exceed 24% and annual free cash flow to be approximately $175 million. That said, our organizational design initiatives are expected to initially result in higher temporary expenses that provide longer-term cost efficiencies along with improved focus, speed, and effectiveness. To assist with modeling, please note the following. Purchases of PP&E are expected to be approximately 3.5% of revenue for 2026 due to a global data center refresh. Please refer to the presentation posted on our investor relations website for additional estimates including share count and taxes, as well as GAAP to non-GAAP reconciliations. We will now open the call for questions. I would like to ask our president, Andy Dignan, to join us for Q&A. Operator, please go ahead. Operator: We will begin with Sitikantha Panigrahi from Mizuho. Please go ahead and unmute at this time. Amit Mathradas: Great. Sitikantha Panigrahi: Thank you, and congrats on a good quarter. Amit, thanks for outlining all those four priorities. Just wondering, what are the two or three most concrete, measurable milestones you think investors should track over the next twelve months to assess the progress of each of those areas? Amit Mathradas: Thank you, Siti, and thank you for the question. As I am going deeper into the business, the number one thing that I mentioned is I am spending time really diving deep into the market, our tech, and our products, and where Five9, Inc. should be positioned. One benchmark you should be looking for is, in the near future, me coming out and laying that out for you all and being very clear with how that is progressing and where we are taking the business. There are two or three other major areas I have been diving into. One is culture—how we drive more accountability, more ownership, and organizational design improvements within spans and layers, faster location strategy, and reducing a lot of the bureaucracy and processes internally. The right measure of that should be reflected in the pace that we bring to the market in terms of delivery, as well as underpinning metrics such as margin improvements and growth improvements. That is probably the best way to hold us accountable, and we will be laying that out for you. Sitikantha Panigrahi: That is helpful. And then one more follow-up. You must have talked to customers and partners over this quarter, and AI is moving much faster than any other trend we have seen before. What are your customers doing in terms of adapting to this faster pace on AI? And what is your assessment of Five9, Inc.’s opportunity there, and why do you think Five9, Inc. is well positioned versus some of the other emerging vendors? Amit Mathradas: Another good question. As I have been talking to customers, it is clear that everyone is excited about AI, what it can do, and where it is going, particularly in the contact center. The big thing customers are realizing is that AI is allowing for greater interactions and driving an increase in their ability to connect with customers—maybe tier two, tier three—who they had relegated into different channels because of OpEx. Customer experience is a reflection of your OpEx. I know how to make hold times go to zero—double your OpEx. It is challenging. As AI comes in, there is one big thing happening. As AI replaces seats, those dollars are not leaving the contact center; they are getting reallocated towards software. Companies are looking to platforms like us that can marry voice, digital, and AI and present it in a format where it is all connected under one roof, allowing them to get far larger outputs in efficiency through that system. That is where AI is going. That is why Five9, Inc. is well positioned because of this shift. The TAM for CCaaS plus support AI is nearly 2x the displacement of seats that will happen, and so we now get to play in a much larger market as we evolve and build into this platform. Operator: Our next question will come from Terrell Frederick Tillman from Truist. Please unmute and ask your question at this time. Giancarlo Secchiano: Hey, guys. Thanks for taking the question. This is Giancarlo on for Terry. You mentioned seat counts, and we were wondering how the end market has been for contact center seat counts. Are we seeing it stay stable, growing, or declining? And what are customers sharing in terms of their plans for seats as we look into the next six to twelve months? Brian Lee: Let me start on the actual seat count, and then Amit can chime in as well. We mentioned that the seat count continues to grow at a healthy rate, relatively in line with the CCaaS revenue growth that we had provided. That was commentary we provided last quarter, and it continues to be the case. If you look at the backlog of our customers that we have already won, there is a large portion that is CCaaS-oriented and a smaller but fast-growing portion that is AI. So definitely, the seat growth from a customer perspective has been healthy. Amit Mathradas: To the second part of your question around what customers are telling us, it is what I mentioned to Siti, which is as they see the ability to get more efficient with their human agents, they want to start investing into software tools, platform tools, and AI tools that allow overall efficiency to grow and for them to increase overall interactions. A number of customers that we are working with today are exactly in that use case. Giancarlo Secchiano: Got it. Thank you. Appreciate it. Operator: Our next question will come from Raimo Lenschow from Barclays. Please unmute and ask your question. Raimo Lenschow: Hey. Thank you. Can you hear me okay? Brian Lee: Yes. Raimo Lenschow: Perfect. Congrats. Great start, Amit. Quick question. If you think about the industry at the moment, there is all this talk about AI disruption. But one thing we pick up when we talk with people in the field is how much of the call centers are still on-premise and how we need to think about first cloud migrations and then AI. What have you picked up in your customer conversations in your first three months on that dynamic because for many years, you were the cloud provider that had the structural tailwind? In theory, that should be coming your way even more now given that people have to modernize finally. Amit Mathradas: Thank you for that question. There are still a vast number of customers on-prem, and eventually they will have to make that decision to move to the cloud. A lot of them are testing out AI right now and asking if they can deploy AI on-prem. We have seen a pickup of those requests. They want to come in and test AI first. The results have been a mixed bag. When you are on-prem, the Achilles’ heel of AI working is data and architecture and how it is connected to the rest of your ecosystem. In some cases, it works; in others, it does not. You will see more customers testing AI on-prem. My hunch is that for some it may be okay, but a lot will realize that you have to move to the cloud for best-of-breed, full adoption, and the scalability they want. Andy, anything to add? Andy Dignan: The only thing I would add is we are seeing more of those conversations. Throughout the process of working an opportunity, customers often worry that they need a year to move to the cloud and only then get AI. We have done a lot within our product and our delivery processes so we can deliver AI at the beginning and migrate them at the same time. They can get the best of both worlds, which is really what they are looking for. Raimo Lenschow: Thank you. That is very clear. And then, Brian, thanks for tightening up disclosure—that is really helpful. On guidance, it is Q1; usually people think, do I change my annual guidance or not? Can you talk a little about the puts and takes for you to change annual guidance a little bit as well and why you took the level? Thank you. Congrats. Brian Lee: Absolutely, Raimo. Let me take that in two parts. First, Q1: subscription was the key driver of revenue growth—the second quarter of acceleration to 13%. Breaking that down between CCaaS and AI, CCaaS was stable at 8%, and AI accelerated to 68%, primarily driven by the strength of backlog converting to revenue. For modeling purposes, I want to point out that this time the AI revenue disclosure is different from past periods in the sense that we are including enterprise and commercial to give you a full picture of our AI revenue as well as total subscription. AI as a percent of total subscription revenue a year ago in Q1 2025 was approximately 8%, and it stepped up by roughly one percentage point each quarter to 9%, 10%, and 11% in Q2, Q3, and Q4. The most recent quarter was 13% of total subscription revenue. Going forward into Q2 and the rest of the year, revenue is really driven by the backlog we have been talking about. It is growing at a healthy rate. We have great visibility into it. It is comprised of both new logo and installed base bookings that are converting to revenue, and every customer has a unique ramp schedule. It just happens to be back-end loaded, which is driving the acceleration to double-digit growth in the second half. The visibility we have gives us the confidence to increase the midpoint of our annual guidance from $1.254 billion to $1.26 billion, essentially covering all of the Q1 beat plus a little bit more. Operator: Our next question will come from Catharine Trebnick of Rosenblatt. Please unmute and ask your question. Catharine Trebnick: Thank you very much. Nice quarter. You hired a new chief marketing officer—Jay Lee. I noticed he has a really strong data background, so it does not look like your typical branding type of marketing person. Can you give us some details on why this particular hire with that background? Amit Mathradas: Thank you for that question. We are super excited to have Jay here. We also adjusted his title to reflect what he is here to do: chief marketing and growth officer. Jay brings a tremendous amount of experience not only in marketing but also in analytics and data and piecing those together. As we look at driving a unified go-to-market and improvements in efficiency in how we serve our customer, you have to look at the full lifecycle. That implies that we all need to be working off one sheet in terms of the data, in terms of the funnel, in how it translates into revenue operations, and the strategies tied to it. Under one roof, you are going to have one go-to-market strategy, one go-to-market delivery mechanism, and one measurable dataset that drives all of that. Operator: Our next question will come from Analyst. Michael, you can go ahead and unmute at this time. Michael, you can go ahead and unmute at this time. Okay. Next question will come from Scott Berg of Needham. Scott, you can go ahead and unmute at this time. Scott Randolph Berg: Nice quarter here. Amit, in your four priorities, one of them was winning in AI. It is obviously the key question most investors are asking on Five9, Inc. given the state of the contact center environment. How do you see the company today, and do you think you are winning effectively? Is this a product item? Do you think you need to lean into product or potentially lean into distribution more to really capture what is a pretty interesting AI opportunity today? Amit Mathradas: Thank you, Scott. Starting with performance of our AI capabilities today, looking at the 68% year-on-year growth, the acceleration, and the full-year view, I feel like we have strong momentum in what we are doing. That said, the market is moving fast, and we have announced some new products in beta that will be coming into general availability in the next quarter or so. The question for me is how we stay on top of that and speed it up. Near term and long term, to be disciplined, we cannot serve every piece of AI in CX. We will have to be selective as to what we build into the platform and where our advantages are—whether that is done organically or inorganically—and then where we partner with other players to fill gaps, including vertical or CX-centric needs. It is not one or the other; it is a combination of continuing to deliver and build faster, bringing more products tied to where our platform is going and where we want to own the market, and partnering to fill gaps so end users can work with Five9, Inc. because it is all available in one place. Scott Randolph Berg: Helpful. And then my follow-up is for Andy. What are you seeing in sales pipelines today? In Q1 maybe versus a year ago in this fast-changing environment—has the composition of deals substantially changed in terms of feature functionality, etc., or has it stayed pretty steady? Andy Dignan: We track our RFP and pipeline levels, and they have been at elevated levels we have talked about for the last two years; that continues. In terms of the makeup, we are seeing more conversations around AI-first. We have a strong go-to-market around that, as well as a product strategy, and that will continue to play to our strength. Operator: Our next question comes from Rishi Jaluria of RBC. Rishi, you can go ahead and unmute at this time. Rishi Jaluria: Thanks so much for taking my questions. I will keep it to just one. Great to see the continued momentum and appreciate the greater transparency. One thing we are all trying to figure out is the impact of AI broadly—whether that is your portfolio, DIY, or third party. I appreciate that you are talking about not doing everything yourselves and partnering where it makes sense. To what extent has that had an impact on the nature of conversations you are having with net new customers around migrating from on-premise to cloud? How has that changed some of your competitive dynamics in the RFP process? And is there a point at which AI in contact center becomes widespread enough that it actually starts to speed up some of the sales cycles? Amit Mathradas: In the on-prem solutions, what we are getting a lot of requests for are AI apps that augment humans—like Agent Assist and some of our AI agents—while they contemplate voice changeouts. My view as a new set of eyes on this business is that as AI replaces humans over time, those dollars go back into software, making both humans and AI more efficient. Fast-forward six to twelve months: people may think about point-solution AI as a solve, but most customers are saying if they will still have humans, they need it all on one platform. There are certain functions that cannot be done effectively through point solutions. Agent Assist does not work unless it is in real-time conversations. For AI voice—agentic scenarios—think about what a platform offers. If someone chooses to speak to a human and goes into hold time, that hold time becomes a window in which AI agents can perform checks or get the call ready for the human—things that cannot happen with independent point products. As humans get elevated, human agents will start monitoring AI agents. If an AI agent is stuck on pronouncing Mathradas, my last name, and does it three or four times, a supervisor can see something go yellow and step into that call and take it over. That cannot happen with point products; it has to happen on a platform. Everyone is talking about agentic; at Five9, Inc., we are talking about “humanic,” which is the combination of humans and agents doing things that have not been thought about before. That is the direction we are going, and that is where I see this all coming together. Operator: Our next question comes from Analyst. You can go ahead and unmute at this time. DJ, you can go ahead and unmute at this time. Okay. Our next question will come from Analyst. Elizabeth, you can go ahead and unmute at this time. Analyst: Great. Thanks. This is Jamie on for Elizabeth. Congrats on the strong results. Going back to some of the earlier commentary, I think I heard you say that some of the strength you saw this quarter was from more of that backlog coming in ahead of expectations. Could you unpack that a little bit more? Was that more attributable to strong execution on your side? Was it customers accelerating deployment timelines? And how has that influenced your thinking for the path of those deployments for the rest of the year for what is still in the backlog? Brian Lee: It was a combination of factors and not just one customer; it was many customers. As I mentioned earlier in the year, we did have some contingency built into our guidance. Part of it is timing coming in earlier than anticipated. Also, our professional services resources are always there and ready to deploy as quickly as the customer wants. Sometimes customers align faster internally, and the deployment cycle speeds up. We saw some of that. The deployment was strongest on the AI side this quarter, which is why you saw the acceleration from 49% to 68% year-over-year growth. Going into Q2 and beyond, the total revenue guide implies 9% in Q1, [inaudible] in Q2, and then double-digit growth acceleration in the back half. The CCaaS portion from the backlog will more or less mirror that shape, and AI will fluctuate up and down because of varying deployment schedules. For the annual number, we are anticipating AI revenue growth to exceed at a minimum 40% year over year. Operator: Our next question comes from Peter Marc Levine of Evercore ISI. You can go ahead and unmute at this time. Peter Marc Levine: Thank you very much for taking my question. Amit, you made a comment in prepared remarks about not really selling seats anymore and moving more toward a consumption model. Walk us through what that progression looks like. What are you hearing from your customers, and how does the model change over time if it becomes more consumption? And second, Bryan, last quarter we talked about the guide for 2027 being anywhere from 10% to 15%. Is that still the path forward as you think about the business now and as we go into the second half? Amit Mathradas: Thank you, Peter. We have started to transition with all our new logos, and with existing customers as they renew, to more of a fixed revenue commitment model. They are committing to a revenue number. That brings predictability to them and to us. The thesis is that as seats potentially compress over time, customers get the option to fill that committed revenue with our AI tools and others. They love it because it brings predictability, and they are also betting on our roadmap—saying that as new products come in, they will keep consuming those AI tools to make the human-and-AI combination more efficient. We are seeing that starting to happen. A lot of our business is starting to move this way. It is early days, but it is picking up. This ties to my original comment: as seats compress, customers are saying those dollars are not leaving the contact center; they will be utilized in other forms of AI and software tools, and that is what they are committing to. Andy Dignan: We have seen strong traction out of the gate. Customers have great interest in buying into that motion. Often they are making three- and five-year decisions. Their belief in the roadmap—what we have today and what we will deliver—gives them the confidence to sign up for three to five years and make these revenue commitments. It helps protect our downside and makes it easier for Bryan to forecast. Brian Lee: On your 2027 question, we are not providing 2027 guidance today. We have our 2026 guidance, which keeps us on the path toward double-digit growth exiting the year and expanding EBITDA margin. We are in the middle of deep dives across the portfolio, and we have our new chief marketing and growth officer. We want to let that process play out before revisiting the longer-range framework. Operator: Our next question comes from Analyst. Analyst: Hi, guys. This is Ryan on for Jim Fish. Congrats on the quarter. As you think about the guide going forward and your backlog that is driving that guide, how much upside do you have and view into pipeline through the end of the year? How much of that is go-gets versus what you already have in the pipeline? Brian Lee: If you break down our guide for the last three remaining quarters, it implies we need to get about $80 million of incremental recurring revenue. Roughly two-thirds of that will be coming from our DBR, which we said will stabilize in the second quarter, plus or minus one percentage point, and inflect upward in the second half. The remaining third is coming from new logos—but all from our backlog that is converting to revenue. Each customer has a different schedule, and it is more back-end loaded. There is essentially no dependency on new-logo go-gets for the rest of the year. Operator: Our next question comes from Tom Blakey of Cantor. Tom, you can go ahead and unmute at this time. Tom Blakey: Thank you for taking my questions. I want to talk about that AI volatility. Brian, thank you for all the extra color—it is very helpful. Maybe start with what is driving that volatility in terms of a dynamic inflection in AI usage across the space? Brian Lee: This is really the way bookings have come into our backlog from 2025 and the deployment schedules of each of those customers. AI is a fast-growing part of our business but still small—13% of total subscription revenue. When customers ramp at different times throughout the year, it causes lumpiness. When we say it will fluctuate up and down throughout the year, we are looking bottoms-up at every customer in our backlog and their deployment schedules; that is how it plays out for the rest of the year. Tom Blakey: As a follow-up, was there an element of use cases or seasonality or non-recurring type of revenue in the AI line? Brian Lee: No. Not at all. There was no seasonality. It was more on new-logo AI backlog ramping. Operator: Our next question comes from Jackson Ader of KeyBanc. Jackson, you can go ahead and unmute at this time. Jackson Ader: Evening, guys. Thanks for taking our questions. We have seen in some other areas of software that the pace of AI innovation has led to some spending paralysis as customers feel it is too early and things are changing too quickly, making them nervous to pick a winner too early. Since customer experience was an early environment for AI to infiltrate, did you feel like you saw that, and did it play out in your base? And if so, are we starting to get past that where there is no longer this uncertainty about picking winners, and it is time to act and spend and deploy? Amit Mathradas: Given the use case for CX and AI, the number of startups in this space is mind-boggling, and customers are inundated daily. There are early adopters who try a few things, but what they appreciate from companies like Five9, Inc. is that what we bring is tried and tested, with security and governance. It may not be the bleeding edge of everything, but it works and drives meaningful outcomes. That is why many customers pick us over time versus the hundreds of options out there. My sense is you are going to see more of this where trust and governance, especially in large organizations, become a more meaningful part of decision-making. Operator: Okay, this concludes the Q&A portion of our call. I will now hand the call back over to CEO, Amit Mathradas, for closing remarks. Amit Mathradas: Thank you all for participating in our Q1 2026 earnings call. As you can see, we have had a good start to the year, but there is more work to be done. We will continue to build upon this momentum and look to capitalize on the larger market opportunity for AI and CX. We look forward to updating you as the progress unfolds throughout the year. Thank you.
Operator: Good afternoon, and thank you for standing by. Welcome to Western Digital Corporation’s Third Quarter Fiscal 2026 Conference Call. Presently, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. At that time, if you would like to ask a question, you may press star 1 on your phone. As a reminder, this call is being recorded. Now I will turn the call over to Ambrish Srivastava, Vice President, Investor Relations. You may begin. Thank you, and good afternoon, everyone. Ambrish Srivastava: Joining me today are Irving Tan, Western Digital Corporation’s chief executive officer, and Kris Sennesael, Western Digital Corporation’s chief financial officer. Before we begin, please note that today’s discussion will contain forward-looking statements based on management’s current assumptions and expectations, which are subject to various risks and uncertainties. These forward-looking statements include expectations for our product portfolio, our business plans and performance, ongoing market trends, and our future financial results. We assume no obligation to update these statements. Please refer to our most recent Annual Report on Form 10-K and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations. In our prepared remarks, our comments will be related to non-GAAP results on a continuing operations basis unless stated otherwise. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that have been posted in the investor relations section of our website at investor.wdc.com. Lastly, I want to note that when we refer to we, us, are, or similar terms, we are referring only to Western Digital Corporation as a company and not speaking on behalf of the industry. With that, I will now turn the call over to Irving for introductory remarks. Irving? Irving Tan: Thanks, Ambrish, and good afternoon, everyone. Thank you for joining us today. Western Digital Corporation started calendar year 2026 with great execution, driving strong sequential and year-over-year revenue growth in our cloud, consumer, and client businesses while expanding gross and operating margins. Gross margin exceeded 50% driven by our continued innovation and focus on improving total cost of ownership for our customers through higher capacity drives and increased adoption of our UltraSMR products. With strong operating leverage, lower interest expense, and an efficient tax structure, these efforts resulted in nearly a doubling of our EPS compared to last year. These results underscore our commitment to leading-edge innovation and strong execution. This is an exciting time to be part of Western Digital Corporation, a focused HDD company and a strategic partner to hyperscalers and cloud service providers in this AI-driven data economy. We are well positioned with business momentum building across our entire portfolio with greater visibility into long-term customer demand. Looking at the bigger picture, it is clear that data and data storage are becoming more critical and valuable. As AI workloads extend from training to large-scale inferencing, data generation is at an inflection point. This year, inference is expected to account for roughly two thirds of all AI compute. This larger focus on inference increases the amount of data generated, which in turn increases the need for data storage. The scale of what is happening is also considerable. One leading hyperscaler’s LLM processes over 16 billion tokens per minute via direct API used by their customers, while another AI company processes over 2.5 billion prompts every single day from 900 million active users. While the resources that are used to create tokens are recycled, the data that is being created must be stored. Every token, every prompt, and every query answered and checkpoints saved create data that require persistent, scalable, and cost-efficient storage, and the majority of this data is stored on hard disk drives. As we look ahead, we see the rise of agentic AI, the next wave and arguably the biggest yet. What we are seeing with agentic AI frameworks represents a structural shift from AI that answers questions to AI that continuously executes workflows. That transition materially increases data generation and extends data retention cycles. Every hour of autonomous agent work and every action an agent takes creates data that must be stored. As a result, we expect agentic AI to drive a step-function increase in capacity-oriented storage demand, particularly in cloud and enterprise environments. Beyond agentic AI, two more waves are building simultaneously. Synthetic data, the primary fuel for physical AI, is by design orders of magnitude larger than real-world inputs that seed it. Across industries, physical AI data factory frameworks are being designed to transform limited training data into larger synthetic datasets. At scale, robotics, autonomous vehicles, and vision AI—and physical AI itself—robots, industrial systems, autonomous fleets—generate continuous streams of video, sensor, and motion data that must be stored, versioned, and fed back into training loops. These forces are not additive; they are a compounding loop. Inference creates data; agents consume and generate more data. Physical AI creates data and trains synthetic models that create more data, and ultimately, the loop accelerates. We are truly seeing that the AI-driven data economy is creating an unprecedented demand for high-capacity, reliable, high-performance storage on HDDs. This reinforces our conviction that long-term data storage growth will be greater than 25% CAGR. Western Digital Corporation’s technology and product roadmap is purpose-built to meet this growing demand. As we shared on our innovation day in February, we continue to innovate to meet our customers’ needs through a combination of capacity leadership and performance innovation. Our high-capacity drive roadmap now extends from our 44-terabyte HAMR and 40-terabyte EPMR drives that are currently in qualification to a roadmap that goes beyond 100 terabytes. On HAMR, we are accelerating our development, and we are now in qualification with four customers. We are qualifying our 40-terabyte EPMR drives with three customers and are on track to start volume production in the second half of calendar year 2026. Our UltraSMR technology, which works across both EPMR and HAMR, is expanding our customer base significantly. Three of our largest customers have now adopted the technology; two are already meeting nearly all of their exabyte demand with UltraSMR, while the third is rapidly ramping in that direction. We plan to have all of our major customers qualified on UltraSMR by the end of calendar year 2027. We are delivering on major areal density improvements along with a focus on performance innovation with our high-bandwidth drives. Customer response to our innovation has been very positive. Our high-bandwidth drives are currently sampling with two hyperscale customers, with an additional customer scheduled to start this quarter. Our dual-pivot technology is being built specifically for new AI workloads and an open API approach aimed at simplifying deployment at scale. Based on our industry-leading technology and product roadmap, we are well positioned to support growing customer capacity demand and address their AI workload needs. Our long-term visibility continues to improve, with the duration of our agreements now extending into calendar year 2028 and calendar year 2029. We continue to see strong demand from across our client, consumer, and OEM enterprise customers as well. In summary, the tailwinds shaping our industry today are both exciting and dynamic, and at Western Digital Corporation, we remain focused on meeting our customers’ needs while enhancing the value proposition and delivering long-term shareholder value to our investors. With that, let me now hand it over to Kris to share our Q3 results and outlook for Q4. Kris Sennesael: Thank you, Irving. Good afternoon, everyone. The Western Digital Corporation team delivered strong results, making solid progress against our strategic priorities with continued focus on innovation and disciplined execution while advancing key initiatives and remaining tightly aligned with our customers’ growing exabyte demand. As we move forward, we are encouraged by our momentum and remain confident in our ability to deliver sustainable revenue growth, expand gross and operating margins, and create long-term value for our shareholders. During fiscal Q3 2026, revenue was $3.3 billion, up 45% year over year, driven by strong demand across all our end markets and an improved pricing environment. Earnings per share was $2.72, almost double compared to a year ago. Revenue, gross margin, and earnings per share were all above the high end of the guidance range. We delivered 222 exabytes to our customers, up 34% year over year. This includes over 4.1 million drives or 118 exabytes of our latest-generation EPMR with capacity points up to 32 terabytes, demonstrating our ability to quickly ramp new technologies and products in support of strong customer demand growth. Cloud represented 89% of total revenue at $3.0 billion, up 48% year over year, driven by strong demand for our higher-capacity nearline product portfolio and a stronger pricing environment. Consumer represented 6% of revenue at $186 million, up 24% year over year. Client represented 5% of total revenue at $179 million, up 31% year over year. Both client and consumer segments saw strong year-over-year exabyte growth and improved pricing. Gross margin for the fiscal third quarter expanded to 50.5%. Gross margin improved 1,040 basis points year over year and 440 basis points sequentially. The drivers of strong gross margin performance include continued mix shift towards higher-capacity drives, along with ongoing execution of our pricing strategy and tight cost control. Operating expenses were $397 million, or 11.9% of revenue, a 40 basis point sequential improvement, demonstrating further operating leverage in the model. The sequential increase of operating expenses was driven by the acceleration of R&D project expenses as we continue to expand our HAMR qualifications with more customers. Strong top-line growth, expanding gross margin, and leverage in the model drove operating income to $1.3 billion, up 106% year over year, translating into a strong operating margin of 38.6%, up 1,260 basis points year over year. Interest and other expenses were $24 million, and our effective tax rate for the fiscal third quarter was 16%. Taking into account the diluted share count of 385 million shares, earnings per share was $2.72, an increase of 97% year over year. During the third fiscal quarter, we significantly strengthened our balance sheet by monetizing 5.8 million shares of SanDisk, which led to a $3.1 billion reduction in our debt. As a result, only $1.6 billion of convertible debt remains outstanding, and with $2.0 billion in cash and cash equivalents, we ended the quarter in a net positive cash position of $450 million. At quarter end, we still owned 1.7 million shares of SanDisk. Additionally, during the quarter, we received an upgrade from Standard & Poor’s and Fitch to investment-grade level. Operating cash flow for the third fiscal quarter was $1.1 billion and, in combination with a disciplined approach to capital expenditures—CapEx of $145 million—this resulted in strong free cash flow generation of $978 million for the quarter and a free cash flow margin of 29%. During the quarter, we made $43 million of dividend payments and increased our share repurchases to $752 million, repurchasing 2.9 million shares of common stock. Since the launch of our capital return program in fiscal 2025, we have returned $2.2 billion to our shareholders by way of share repurchases and dividend payments. Also, given the board and management confidence in the business, the board has approved a 20% increase of the cash dividend from $0.125 per share of the company’s common stock to $0.15 per share, payable on 06/17/2026 to shareholders of record as of 06/05/2026. I will now turn to the outlook for fiscal Q4 2026. As we continue to operate in a strong demand and pricing environment, with longer-term visibility across our cloud, consumer, and client businesses, we anticipate revenue to be $3.65 billion, plus or minus $100 million. At midpoint, this reflects growth of 40% year over year. Gross margin is expected to be in the range of 51% to 52%. We expect operating expenses in the range of $385 million to $395 million. Interest and other expenses are anticipated to be $10 million. The tax rate is expected to be 16%. As a result, we expect diluted earnings per share to be $3.25, plus or minus $0.15, based on a non-GAAP diluted share count of 385 million shares. In summary, this quarter’s results and outlook highlight our commitment to disciplined execution, focus on innovation, and deep customer engagements. Our strengthened balance sheet and robust free cash flow empower us to invest with confidence in the business. With strong momentum and a clear capital allocation framework, we are well positioned to drive durable earnings and free cash flow growth and create long-term shareholder value. With that, let us now begin the Q&A. Ambrish? Ambrish Srivastava: Thank you, Kris. Operator, you can now open the line to questions, please. And to ensure that we hear from as many analysts as possible, please ask one question at a time. After we respond, we will give you an opportunity to ask one follow-up question. Operator? Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer portion of today’s call. If you have a question, please press 1 on your phone. If you would like to withdraw your question, please press 2. And today’s first question comes from Erik Woodring at Morgan Stanley. Please go ahead. Erik Woodring: Great, guys. Thank you so much for taking my question. Irving, congrats on the really nice results. I would love if you could maybe go into a bit more detail on the specific tailwinds that HDDs and Western Digital Corporation are seeing from agentic AI—meaning exactly what parts of the workflow in agentic are ripe for HDDs—and again, just tying that back to your comment on greater than 25% long-term exabyte growth, where does that go as a result of agentic AI? Thank you so much. Irving Tan: Thanks, Erik, for the question. We really see three core drivers of HDD growth going forward. One that we have seen for quite a while is the ongoing storage requirements associated to training. That is not going to end. Training will continue—relearning, reinforcement learning is going to happen—and what we are seeing from our customers is as they retrain and reinforce learning with these models, the quality of the model results improves. They continue to store all the data they are generating to enable improved quality of the model. So that is one continued driver that we see. The second driver is the rise of agentic AI and inferencing. With every inference that happens, new data is generated, and what is happening is that all that new data is getting stored as well to both feed back into training models and be stored to support future inferences. So that is the second key driver in terms of agentic AI and inferencing. The third driver for data storage for HDDs is physical AI. As we have highlighted before, physical AI with the limited datasets that it has—whether it is autonomous vehicles or robotics—is using AI to generate a lot of synthetic data to further train and enable physical AI as well. Any data that is generated out of it gets stored and feeds that whole training and synthetic data development loop. So those are the three big drivers of growth that we see going forward, Erik. That is why we have the confidence to see exabyte growth going beyond 25% CAGR. Ambrish Srivastava: Thank you, Erik. And did you have a follow-up? Erik Woodring: Yeah, just a quick one for Kris. Over the last four quarters, you have really shown a lot of gross margin expansion. I think it is 260 basis points on average over the last four quarters, and you just did 4.5 points of gross margin expansion. For June, guidance implies about 100 basis points of gross margin expansion. Is there conservatism baked into that forecast, or are there any emerging headwinds we need to consider given you should be accelerating cost downs and you are seeing really nice pricing growth? Some context around the June gross margin would be helpful. Thanks so much. Kris Sennesael: Yes, Erik. First of all, I am really pleased that we delivered strong gross margin in the third quarter and broke into the 50% gross margin range with 50.5%. For Q4, we are guiding to 51% to 52%, so some further good improvement in gross margins. If you look at the incremental gross margins on a year-over-year or quarter-over-quarter basis, for three quarters in a row now—and including the fourth quarter that we guided—you see very strong incremental gross margins in the plus-70% to plus-75% range on a year-over-year and quarter-over-quarter basis. We believe that we will be able to continue to further improve gross margins. Obviously, we are only guiding one quarter at a time, but based on the strong pricing environment that we operate in—which is based on more and more value that we provide to our customers—as well as a better mix as we move to higher-capacity drives with EPMR and later on moving to HAMR, and more and more driving adoption of UltraSMR, we expect further gross margin uplift. Then, of course, we continue to execute well from an operations point of view. When you put it all together, we are very pleased with the gross margin and the gross margin trends going forward. Ambrish Srivastava: Operator, next question, please. Operator: Thank you. And our next question today comes from Amit Daryanani with Evercore. Please go ahead. Amit Daryanani: Thanks for taking my question, and congrats on a nice set of numbers here. My first question is on the pricing side. On a per-terabyte basis, pricing was up high single digits in March. It is a big step up from the flattish trends we have seen in the last few quarters. Could you help us understand what is enabling this step up? Is it reflective of some of these LTA contracts that you have engaged in? Irving, is this the new normal on pricing as we go forward? Irving Tan: Thanks, Amit. Pricing was up 9% year over year. It reflects a couple of things: the ongoing value that we are creating for our customers, better TCO value—as we said, our whole pricing philosophy is to enable better TCO value for our customers and to be able to share in that value creation through pricing. As we highlighted at innovation day, and as Kris highlighted also, we said that as we move forward towards the latter part of calendar year 2026, we would see pricing increase more towards the high single-digit range. That is what you are seeing from us. That is reflective of the timing of new LTAs coming on board as we move forward to new periods of LTAs. We are about to deliver our next generation of EPMR in the second half of this calendar year. That will be a step up in capacity point that will deliver more TCO value; therefore, we are able to share in better pricing as a result of that as well. Ambrish Srivastava: Do you have a follow-up, Amit? Amit Daryanani: I do. Thank you, Ambrish. On the other side of this, cost per exabyte was down again roughly 10% in the quarter. What is the right framework for us to think about cost-per-exabyte declines? Should we expect a bigger step down as you transition towards the higher-density next-gen EPMR into this year? Thank you. Irving Tan: If you look at the cost down, we delivered 10% year over year, and that is probably the right way to look at it going forward. We continue to be focused on delivering higher areal density—that is a big cost driver. As I mentioned, we will be introducing and ramping up our next-gen EPMR in the second half of the year. We also have an increasing uptake of customers on UltraSMR, which is a good cost driver for us as well. We get 20% uplift on capacity without the associated cost. By the end of fiscal year 2027, close to about 60% of all the exabytes that we ship will be on UltraSMR. Our teams continue to work on platforming the products to drive further cost downs and ongoing value engineering to reduce high-cost elements of our bill of materials, and we continue to drive supply chain efficiency across procurement and manufacturing operations. Putting that all together, we feel confident that we can continue to deliver the trend that we have mentioned. Ambrish Srivastava: Thank you, Amit. We can go to the next question, please. Operator: Absolutely. Our next question today comes from Aaron Rakers at Wells Fargo. Please go ahead. Aaron Rakers: Congrats on the results. I want to go back to the 25% growth rate and think about as you see agentic AI drive incremental structural demand, how you are thinking about the capacity to fulfill that demand. Is it a continued ability to just mix higher, or is there a point in time where some capacity investment might have to play itself out? Irving Tan: Thanks for the question, Aaron. At this juncture, we still do not see any need to increase unit capacity, so we have no plans for that. Our focus is to continue to improve areal density. As we introduce our next-gen EPMR—which is a 40-terabyte drive—that will be a 25% step up from our current drives at the 32-terabyte capacity range. There is also the opportunity to further mix up with our customers. We have seen an acceleration of mix up, and as we introduce the high-capacity drives in the next two quarters, we will see an acceleration of that going forward as well. Ambrish Srivastava: Follow-up, Aaron? Aaron Rakers: Yeah, I do. Thanks, Ambrish. Maybe on the capital structure now with the debt-for-equity transfer behind you. You have still got 1.7 million shares of SanDisk, and I know that you increased your dividend—20%. Kris, any updated thoughts on how you are thinking about capital return—building cash on the balance sheet versus returning what appears to be very strong free cash flow generation going forward? Thank you. Kris Sennesael: Yes, Aaron. I agree with you; we have very strong free cash flow and free cash flow margin. The free cash flow margin last quarter was 29%, and so we are approaching our above-30% free cash flow margin. In terms of capital allocation and capital return to our shareholders, we are not changing our policy or framework. We are returning all excess free cash flow back to shareholders through a combination of our dividend program and share buyback program. As you have seen last quarter, we will continue to do so going forward. We are increasing the dividend with a 20% increase to $0.15 per quarter, and we will continue to execute on our share buyback program. Ambrish Srivastava: Thank you, Aaron. Operator: Our next question today comes from Thomas O’Malley at Barclays. Please go ahead. Thomas O’Malley: Congrats on the good results. I am looking at peers’ results, which were out tonight too, and I am seeing over 100% sequential pricing increases. I know you guys got asked about pricing already, but from a 30,000-foot view, with the gap kind of exploding between NAND and some of the hard disk drive players, how much appetite do customers have to keep on taking pricing increases, and what is your strategy there about how much you could push given the gap is moving higher? Secondarily, you are hearing about some of the industry potentially doing long-term agreements where you have prepay fronts. Could you talk about your appetite to do that and what that would mean for the industry if you saw some of that? Thank you. Irving Tan: Thanks, Thomas, for the question. In terms of pricing, our philosophy is to provide predictable pricing to our customers. The one thing they appreciate and want to avoid is volatility in pricing. Our focus is to provide predictable pricing. As we deliver more value and better TCO through higher-capacity drives and performance innovation—whether it is throughput or bandwidth enhancements, as we laid out at innovation day—that gives us the opportunity to create more value for our customers and to share in that through better pricing. Our philosophy is to ensure we do that in a very predictable way. Predictable pricing enables our customers to make long-term architectural decisions. That is our focus and gives us the confidence behind our roadmap and our investments. We are not looking to be opportunistic from a pricing standpoint, but rather provide predictability so customers can make long-term architectural decisions that support the structural change in the hard drive industry. On LTAs, we continue to make progress and now have LTAs that extend into calendar year 2029. As we have shared in the past, those LTAs are exabyte-based with a degree of pricing associated with them. The LTA volume we put together for our customers does not meet their full requirement, and anything we deliver above and beyond the base volume requirement we have agreed is subject to a different pricing regime that gives us an opportunity to drive some incremental upside. Ambrish Srivastava: Alright. No follow-up for Mr. O’Malley. We will go to the next caller, please, operator. Thank you. Operator: Absolutely. Our next question today comes from Asiya Merchant with Citi. Please go ahead. Michael Cadiz: Hi. Good afternoon. This is Michael Cadiz for Asiya Merchant at Citi. Congratulations on the quarter. My first question: would you be able to provide any additional color on yields and reliability, and as a result, are there any implications to the cost-per-bit decline that we should think of? Kris Sennesael: Sure. Irving Tan: If you look at EPMR products that we are shipping today and what we are anticipating as we go into volume ramp in the second half of the year for next-generation EPMR, they continue to be in the 90% range for yields. Quality, which has been one of our key considerations, remains very high. This is the hallmark of who we are as a company—high yields and known quality products—and that is something we will continue to focus on, both in our EPMR products and in our HAMR products, where our focus right now is to ensure we have the right reliability, the right quality, and the right manufacturing yields as well. In terms of current yields and quality, we do not see any changes. Michael Cadiz: Thanks. Given the price differential currently between hard disk drive and flash, would you attribute the strength in HDD demand because of that? Are you seeing any architectures changing? I think you said at this point it is not. Irving Tan: Look—flash is a great technology. It has a specific role in the storage stack. We both play in slightly different spaces. If you look at large-scale object storage, which requires long-term retention, that is where HDD really comes to the fore—that is 80% of all data stored within hyperscale data centers. If you look at workloads that require high IOPS and high throughput, that is where flash comes to the fore. Even in inferencing, we see a symbiotic relationship: the new data created from inferencing typically will get stored on HDDs, while the vectoring data required for inferencing is stored on flash. Some of the new innovation we are delivering—our high-bandwidth drives, for example, and dual-pivot technology—will improve throughput and bandwidth and continue to improve the performance of our HDDs, delivering more value to our customers. We do not see any major structural changes to architecture at this point, but that is why we want to ensure predictability in pricing so customers can make architectural decisions not one year out, but two, three, five years out as well. Thank you, Michael. Operator: Thanks. Next question today comes from JPMorgan. Please go ahead. Analyst: Hi. Thanks for taking my question. Maybe for the first one, on the quarter—you had a strong set of numbers including both revenue and gross margins coming in above the high end of your guide. The outperformance in gross margin was a lot more relative to the outperformance on revenue. Is there something more specific going on with gross margins—maybe in terms of cost reduction? What really outperformed relative to your expectations is what I am trying to get to in terms of the magnitude of the outperformance on those two metrics. Thank you. Kris Sennesael: On gross margins, there are three major drivers. The first is pricing and the pricing environment, which continues to be very strong and was a little bit better during the quarter than we expected when we provided guidance. As we have indicated, not all pricing going into the quarter is locked, and so we do have some opportunities—not only in our cloud business, but also in our client and consumer businesses—where we see further opportunities in terms of pricing. Secondly, mix: we are making good progress driving to higher-capacity drives and more adoption of UltraSMR, and that is playing out really well. Third, the teams continue to execute really well on driving down cost across the board throughout the supply chain. There was great execution during the quarter, and I expect similar levels of execution going forward. Ambrish Srivastava: Do you have a follow-up? Analyst: Yes, please. Looking at the cost per exabyte and as a follow-up to Amit’s question earlier, you are doing roughly a 10% decline in cost per exabyte right now. As you start shipping the 40-terabyte EPMR and then eventually the HAMR drive, why should we not expect that cost-per-exabyte decline to accelerate? I am thinking about trajectory as you ship those lower-cost overall profiles—why not accelerate from where it is today? Thank you. Kris Sennesael: We are only guiding one quarter at a time, but I have confidence that the teams will continue to execute on the three levers I discussed a moment ago. We are ramping the next-generation EPMR in the second half of calendar year 2026—that is not far out. As Irving already talked about, we are feeling good about that ramp, the manufacturability, and the yields. For the HAMR ramp, we are making really good progress on the qualifications—now with four customers, getting really good feedback. We expect to ramp that in 2027. There is still a little bit of work to be done in terms of yield, reliability, and quality, but good progress is being made by the operations teams. There is going to be an adoption curve; we are not switching overnight to those new products. The improvements will be phased in over the ramp period. Operator: And our next question today comes from Wamsi Mohan with Bank of America. Please go ahead. Aisling Grueninger: Hi. This is Aisling Grueninger on for Wamsi. Congrats on the results. You mentioned the UltraSMR JBOD platform as a way to broaden beyond your current target base. Does that primarily expand your reach into tier-two CSP customers or enterprise customers, and how material could this opportunity become over the next one to two years? Thanks. Irving Tan: We definitely see it as an opportunity to expand our reach into tier-two CSPs, including in the Asia region as well. That is one of the enablers behind our forecast that by the end of calendar 2027, the vast majority of our key customers will be on UltraSMR—either fully adopted or materially underway in qualification. That also gives us the confidence that by the end of fiscal 2027, close to 60% of the exabytes that we ship will be on UltraSMR. Ambrish Srivastava: Thank you, Aisling. Operator: Thank you. And our next question today comes from C.J. Muse at Cantor Fitzgerald. Please go ahead. C.J. Muse: Good afternoon. Thank you for taking the question. Curious on the agreements, particularly as they extend out into 2027, 2028, and beyond—how should we think about pricing and what is embedded inside there? Is there a fixed-versus-variable construct or different percentages? Irving Tan: Thanks for the question, C.J. The construct of the LTAs broadly includes an exabyte volume tied to it and pricing tied to it. Depending on the duration, there may be periods of pricing adjustment as we introduce new capacity points and new capabilities. That gives us the opportunity to adjust pricing going forward. Ambrish Srivastava: The follow-up, C.J.? C.J. Muse: Curious on the remaining SanDisk position now that it is beyond 12 months. Is that now taxable? Any implications beyond that window, and how are you thinking about the time frame for monetization? Kris Sennesael: Yeah. So we still have 1.7 million SanDisk shares after we did the debt-for-equity monetization in 2026. It is our intention to monetize the remaining 1.7 million shares in an equity-for-equity transaction. We have indicated it is our intention to do that before the end of calendar year 2026, and this will be in a tax-free manner. Ambrish Srivastava: Thank you, C.J. Operator: Thank you. And our next question today comes from Karl Ackerman at BNP Paribas. Please go ahead. Karl Ackerman: Thank you. I have one for Irving and one for Kris, if I may. Irving, when would Western Digital Corporation consider adding internal heads or media capacity to support these multiyear commitments from customers? For example, have you had discussions regarding prepayments for future capacity adds? Irving Tan: We are definitely looking ahead in media investments. As we said in the past, we are not making any investments in adding unit capacity. When we talk about areal density improvements or increasing the capacity per drive, that does involve technology investments to support new media recipes, new media substrates, new head designs, as well as the potential to increase disk count over time—as we highlighted on our innovation day—where we are able to get to 14 disks over time. Our number one focus is to increase terabytes per disk to make sure we are very competitive within the industry, and beyond that, we can add more platters to the drive as well. That is the most cost-effective way to deliver incremental capacity to our customers. We will definitely look at heads and media capacity investments if it makes economic sense, but not unit capacity investments. Ambrish Srivastava: Karl, do you have a follow-up for Kris? Karl Ackerman: Yes. Kris, when you note that you have agreements extending into 2028 and 2029 with your major customers, could you delineate that with respect to build-to-order and LTAs? Do you have build-to-order contracts addressing much of your nearline capacity this year, or does it extend into 2027 as well? Thank you. Kris Sennesael: Manufacturing lead times are now about a year, and so most of the purchase orders are being placed a year in advance. Beyond the first year, we move into those LTA frameworks as explained by Irving. There is still a little bit more variability beyond the first year. Ambrish Srivastava: Thank you. We will go to the next question, please. Operator: Absolutely. Our next question today comes from TD Cowen. Please go ahead. Analyst: Hey, guys. This is Eddie for Krish. Irving, when you look across your four largest hyperscale customers, are you seeing demand patterns that are broadly similar, or is there a meaningful divergence in how aggressively different customers are scaling based on their AI roadmaps? Anything specific outside overall CapEx growing that is driving demand for HDDs? Irving Tan: In general, the profile is quite similar. As I have highlighted, the demand for storage is increasing because storage is persistent. In inferencing, the resources used—compute and memory—can get recycled, but the data generated is not recycled. All that data is getting stored, and that stored data is persistent. That is consistent with what we see with all our top four customers, whether their business model is in search, advertising, or enterprise software. It is really the ongoing data storage requirements to support training, improvements in training, to support the demands of inference, and to support synthetic data being driven by physical AI. Thank you, Eddie. Operator, we will go to our last caller, please. Operator: Absolutely. Our last question for today comes from Goldman Sachs. Please go ahead. Analyst: Good afternoon. Thanks for taking my question. Could you talk about, at some point in time in the future—say, at the end of calendar 2027—what level of coverage you would expect to be shipping in terms of HAMR on an exabyte basis? Irving Tan: We do not have a number that we are putting out there right now. Our focus—as we have stated repeatedly—is to ensure we de-risk the transition for customers to HAMR. We have taken a dual-track process: we continue to deliver areal density improvement and high-capacity EPMR drives even as we introduce HAMR. That gives customers confidence in the transition while allowing them to enjoy better TCO through higher areal density. When we get to the right reliability and yields, we will make that transition accordingly to HAMR to make it the main share of exabytes that we ship. Kris Sennesael: Just to add, we indicated we have now four customers in qualification with HAMR. We are somewhat ahead of schedule compared to our initial plan. The feedback we are getting from all our customers is very positive, and our HAMR development is going really well. Ambrish Srivastava: Thank you. Operator: Thank you. That concludes our question-and-answer session. I would like to turn the conference back over to Mr. Tan for any closing remarks. Irving Tan: Thank you. As we shared today, we are really excited about the opportunity ahead of us, and the roadmap that we put forward in Western Digital Corporation positions us well to address our customers’ needs and the demands that they have going forward. I want to take this moment to thank all of Western Digital Corporation’s employees and business partners for their commitment to our customers and all that they do for Western Digital Corporation. Thank you again for joining us today, and hope all of you have a great rest of the day. Operator: Thank you. This concludes today’s conference call. Thank you for joining. You may now disconnect your lines.
Operator: Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Beacon Financial Corp. first quarter 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. To ask a question, simply press star 1 on your telephone keypad. To withdraw your question, it is now my pleasure to turn the call over to Dario Hernandez, corporate counsel. You may begin. Dario Hernandez: Thank you, Tina, and good afternoon, everyone. Yesterday, we issued our earnings release and presentation, which is available on the Investor Relations page of our website, beaconfinancialcorporation.com, and has been filed with the SEC. This afternoon's call will be hosted by Paul Perrault and Carl Carlson. During the question and answer session, they will also be joined by Mark Meiklejohn, the Chief Credit Officer. This call may contain forward-looking statements with respect to the financial condition, results of operations, and business of Beacon Financial Corp. Please refer to page two of our earnings presentation for our forward-looking statement disclosure. Also, please refer to our other filings with the Securities and Exchange Commission, which contain risk factors that could cause actual results to differ materially from these forward-looking statements. Any references made during this presentation to non-GAAP measures are only made to assist in understanding Beacon Financial Corp.'s results and performance trends and should not be relied on as financial measures of actual results or future predictions. For a comparison and reconciliation to GAAP earnings, please see our earnings release. At this time, I am pleased to introduce Beacon Financial Corp.'s President and Chief Executive Officer, Paul Perrault. Paul Perrault: Thanks, Dario, and good afternoon, everyone, and thank you for joining us for our first quarter earnings call. I am pleased to share that we achieved a major milestone in our integration process in the quarter with the successful completion of a core systems conversion in mid-February. I would like to recognize the hard work and dedication of our teams in executing on this very critical step and, just as importantly, their efforts to achieve strong client retention throughout that process. That outcome reflects months of preparation, disciplined execution, and a continued focus on serving clients during a period of significant change. From a financial perspective, I am very disappointed with our first quarter results. Loan growth and the margin fell far short of our expectations and reflect some near-term pressures, uncertainty in the economic environment, and the tail end of merger activity. GAAP earnings for the first quarter were $0.55 per share and operating earnings were $0.70 per share, excluding merger-related charges. While operating results were below both our prior quarter and our expectations, the core returns remained good with operating ROA just over 1% and operating return on tangible common equity of 11.25%. As we discussed coming out of the fourth quarter, the operating environment during the first quarter remained quite challenging. Balance sheet contraction, margin pressure from declining rates, and lower fee income all weighed on our results. Importantly, several of these headwinds are not structural in nature. They were influenced by seasonal dynamics, timing, and the uncertainty created in the economy from persistent inflation, extremely thin pricing, global events, and the prospect of rent control legislation in our major markets. Collectively, these headwinds impacted loan volumes. While the pipelines remain strong, clients are cautious yet optimistic as the economic environment remains quite fluid. Excuse me. On the positive side, we continue to make progress on the strategic priorities we laid out at the time of the merger. Expense discipline remains strong. Core funding costs improved sequentially. Capital levels are robust with CET1 at 11% and tangible common equity at just over 9%. And while credit metrics moved modestly higher during the quarter, they remain manageable and well reserved, reflecting proactive credit management in a still uncertain environment. Now that the systems conversion is behind us and merger charges are largely complete, our focus shifts squarely to execution, stabilizing the balance sheet, restoring growth momentum, and fully capturing the revenue and efficiency we outlined when we announced the merger. We believe the pieces are now in place to close the gap between current performance and our planned runway as we move through the remainder of the year. Before I turn it over to Carl, I will note that our board approved a quarterly dividend of $0.3225 per share, consistent with our commitment to returning capital to stockholders. In addition, the board authorized a $50 million stock repurchase program, subject to regulatory approval, reflecting our confidence in the franchise, our capital strength, and the long-term value creation opportunity that we see ahead. I will now turn it over to Carl to walk us through the financial results in some more detail. Carl? Thank you, Paul. Carl Carlson: I will begin with the high-level summary of the quarter and then walk through the income statement, balance sheet, and credit trends in more detail. First quarter operating results declined sequentially, driven primarily by balance sheet contraction, modest net interest margin pressure tied to the rate environment, and lower noninterest income. GAAP earnings totaled $46.2 million, or $0.55 per share. Operating earnings were $58.4 million, or $0.70 per share, which excludes $13 million of one-time pretax merger-related charges. Operating return metrics remained healthy: operating ROA was 1.01%, operating return on tangible common equity was 11.24%, reflecting continued expense discipline and solid core profitability even with lower revenues. Turning to the income statement in more detail. Net interest income was $190.8 million, down $8.9 million, or 4%, from the fourth quarter. This decline was driven by lower average earning assets and a modest reduction in asset yields as rates moved lower in late 2025. The net interest margin declined by 4 basis points to 3.78%. Importantly, funding costs improved sequentially. Interest-bearing deposit costs declined 17 basis points and we expect continued improvement as pricing actions taken continue to flow through. As balance sheet growth resumes, we believe this positions the margin more favorably ahead. Noninterest income totaled $23.9 million, down $2 million, or 8%, from the prior quarter. The decline was primarily driven by lower deposit fees and reduced gains on loan sales as SBA activity moderated from a very strong fourth quarter. These declines were partially offset by higher mark-to-market income on derivatives, tax credit investment income, and relatively stable wealth management fees. On the expense side, operating costs remain well controlled. Total noninterest expense was essentially flat compared to the fourth quarter, and came in nearly $1 million below budget. This performance reflects disciplined cost management and continued execution against merger synergies, offset modestly by seasonal increases in occupancy costs and a true-up in FDIC insurance. Excluding merger charges, the operating efficiency ratio for the quarter was 59.5%, underscoring the underlying expense discipline in the business. Now turning to the balance sheet. Total assets declined $992 million to $22.2 billion, driven primarily by lower cash balances associated with point-in-time payroll fulfillment deposits. Loans declined approximately 1%, reflecting continued runoff in the commercial real estate and consumer portfolios, partially offset by growth in core commercial lending. Loan originations and draws totaled $734 million, with a weighted average coupon of 7.628%. Sixty-seven percent of originations were floating rate. Deposits declined 6%, driven largely by payroll deposits and brokered balances. Excluding payroll and brokered deposits, core customer deposits declined approximately 2%, reflecting typical seasonal outflows related to tax payments and commercial activity. Turning to credit. Credit metrics deteriorated modestly during the quarter. Nonperforming loans increased to 83 basis points of total loans, driven primarily by migration of Boston office exposure and several rent-controlled multifamily properties in New York City. Net charge-offs totaled $13.6 million, or 30 basis points annualized, reflecting resolutions of a small number of larger credits. The allowance for loan losses closed the quarter at $244 million, representing 1.36% of loans. Given portfolio composition and current risk trends, we believe reserve coverage remains appropriate. Provision expense declined modestly from the prior quarter, and we continue to expect provisioning to be less than net charge-offs as we work through existing criticized credits. Capital generation remains a clear strength. CET1 ended the quarter at 11%, tangible common equity at 9.1%, and tangible book value increased $0.16 to $23.48 per share. Importantly, with the core systems conversion completed in early February, we have now recognized the final significant merger charges. Total merger costs were in line with expectations, and management is confident the announced cost synergies of the merger have been realized. Looking ahead, we anticipate improving earnings momentum now that merger costs and system conversions are completed and announced expense synergies have been realized. We expect loan growth to remain soft in the second quarter, then strengthen throughout the remainder of the year. We expect the margin to stabilize around 3.80% and gradually improve. While near-term macro and rate uncertainties remain, we believe the franchise is well positioned to improve performance and close the gap to our targeted run rate over the coming quarters. That concludes my prepared remarks. Back to you, Paul. Paul Perrault: Thank you, Carl. We will now be joined by Mark Meiklejohn and Michael McFerrity, and we will open it up for questions. Operator: As a reminder, to ask a question, press star 1 on your telephone keypad. Our first question comes from the line of Justin Crowley with Sandler. Please go ahead. Justin Crowley: Hey, good afternoon, everyone. Just wanted to start out on the margin. In the outlook there, can you, Carl, maybe provide a little more detail on the reset on accretion expectations, what changed from the original assumptions that went into that, and what got you from $15 million down to that $12 million number just on a go-forward basis? Carl Carlson: Sure. Thanks for the question. When we first estimated the purchase accounting, we tried to take out the impact of prepayments and things of that nature, and we were estimating it around $15 million. A lot of the schedules suggested that. We have these all set up in our systems to track as loans pay down, and it is coming in a little bit lower. We are not seeing any kind of prepayment activity at this point that is meaningful to the amounts. For this quarter, it came in at $12.1 million. I believe it was over $13 million last quarter. I am feeling more confident that the $12 million range is something, now that the system conversions have taken place—we had two general ledger conversions and old systems conversions onto a new system. I feel more confident that this will be the number going forward. Justin Crowley: Okay. Understood. And just, I guess, some of the moving pieces there. If I look at the average balance sheet and just loan yields, that 5.96% was down over 30 basis points. You pointed it out, but without a huge swing in accretion income—and I know we had lower rates filtering through—it seemed like a big move. So I was just curious if there is anything else underneath the surface there that drove that yield down for the quarter? Carl Carlson: As you mentioned, the purchase accounting did come down in the quarter from $13.8 million to $12.2 million, so that was $1.6 million of the impact, which was about 7 basis points. On the other side, the movements in the fourth quarter in rates—75 basis points moved by the Fed—we saw that throughout the quarter really impact Q1 as you see the full impact in the quarter. You still have some loans that reprice every three months and things of that nature coming in and repricing down as well. I would say we are not particularly surprised by where the yields came in when you exclude the purchase accounting impact. What did not help us here is we expected a little bit more loan growth and at more current yields. We are originating loans in the 6.20% range right now, so you are not getting that lift from new originations as much. Justin Crowley: Okay. Then just one other one sticking with the margin. Can you flesh out a little more your thoughts on deposit costs from here? We have heard from a lot of your competitors that we are at a point where there could now perhaps be some upward pressure on funding with rate cuts off the table for the time being. It sounds like you instead see some more room to go lower there. What factored into that and what repricing may be left on the book? Carl Carlson: Sure. We were going into a systems conversion, and we probably lagged our deposit costs on moving down our nonmaturity deposit costs a bit. I think we will see the benefits of that more so in the second quarter into the third quarter. We probably could have done a little bit more, but going into a systems conversion, it did not make a lot of sense to be moving rates at that point. On the nonmaturity deposits, we see opportunity there. The CD book is roughly $1.4 billion to $1.5 billion that will be repricing. I do not see tremendous opportunity there. I think things that are rolling off—at the rates that they are rolling off—there will be some opportunity, 10, 20, maybe even 30 basis points there, but the competition is pretty tough, so we have to be competitive in the market. On the rest of the funding book, Federal Home Loan Bank advances and brokered deposits, we are basically at market at this point. Not a lot of benefit on that side. Things are kind of rolling into current at rates that are current rates now. Paul Perrault: The margin gain is going to be with better loan production. In that environment, that is the better lever that I can see as I look a few months down the road. Justin Crowley: Okay. Great. We will leave it there. I appreciate it. Operator: Yep. Okay. Your next question comes from the line of David Bishop with Hub Group. Please go ahead. Paul Perrault: Yeah. Good afternoon. David Bishop: Hi. Hey. Quick question, Paul, Carl. In terms of the investor CRE—I appreciate the slide at the back there—looks like a slug of that is coming up for maturing or repricing. Just curious, in terms of the risk you point out there, is that more of debt service coverage risk or refinance risk, or both? Paul Perrault: I did not catch the preface, David. I could not clearly hear what the preface was. What is it that you are asking about? David Bishop: On the investor CRE portfolio that is coming up for maturity here in the next couple of quarters, I think in the slide deck, you mentioned some risk factors there. Just curious if that is more pertinent in terms of debt service coverage risk, refinance risk, or a combination of both—where you see the risk in that book? Thanks. Paul Perrault: Mark will answer that. Mark Meiklejohn: Yes, I will take that. We have the maturity and refinance—there is a fair amount coming up over the next four quarters. As we look forward through it, I was taking a look at it the other day, and there is one substandard loan in that portfolio. It is a property that is being redeveloped. We expect that to work itself out, and there are two smaller criticized loans. The rest of that is a pass book. So I think we feel pretty good both with maturity and repricing as we move through those maturities, whether they are hard maturities or pricing maturities. David Bishop: Got it. And then I noticed just the linked-quarter trends—the loan 90-day past due seemed to decline the same amount nonaccruals went up. Is it the right way to read into it that they just migrated to nonaccrual from past due? Mark Meiklejohn: Yeah. I think that is fair to say. David Bishop: Got it. Then just one follow-up in terms of the board approval for the buyback there. Any color or indication when you might be getting regulatory approval? I do not know if there is any sort of a time frame you would feel comfortable sharing. Paul Perrault: Well, there is a little time frame. I never try to predict exactly what the Federal Reserve is going to do, but we expect it to happen reasonably quickly, within the month. David Bishop: Got it. Thank you. Carl Carlson: Okay. Who is next in line? Maybe it is only a few days. Paul Perrault: Who is up next? Operator: I am sorry. Your next question comes from the line of Karl Shepard with RBC Capital Markets. Please go ahead. Karl Shepard: Hey. Good afternoon, guys. Paul Perrault: Echo. Karl Shepard: Just maybe to get ahead of ourselves a little bit on the regulatory approval of the buyback—but maybe just high-level thoughts—how do you want us to think about what could go into your decision-making process if you want to go ahead and use it? I know you have the CRE issue or concentration, but you also have lots of capital. So maybe can you frame up a little bit? Paul Perrault: We are actually pretty far ahead on the real estate piece of it for the leverage concentration. We have created an opportunity to do these kinds of things with that. Go ahead, Carl. Any other factors? Carl Carlson: No. We still remain committed to that 300%. The board is certainly behind that and wants us to hit that and stay on target. But as capital continues to grow, and the size of the balance sheet, I think we are in good shape to be able to continue to move forward with at least this initial authorization. Karl Shepard: Okay. So let me just try it one more time, I guess. If you feel like you are on pace to get under the 300% by the 2027 year, you are comfortable using a little bit of buyback. Is that a fair way to think about it? Paul Perrault: Yeah. Particularly when you couple it with the current shrinking of the balance sheet with originations being way off from what we are used to, and payoffs still coming in. So when you look at the current environment, the idea of a buyback seems to fit in very nicely. Karl Shepard: Great. I appreciate that. I know it is a topic for investors. And then I guess on a follow-up question here for you guys, both of you used the term “close the gap,” and I was wondering if you can help us understand what gives you the confidence that the macro or environmental headwinds you saw this quarter are starting to fade and then, once you get one quarter past the conversion, what kind of tailwinds do you see at the core from not having to spend the time and energy and focus on getting that right? Paul Perrault: I expect people to move from making sure we have customer retention and problem solving—you always have those things associated with a massive conversion like this. We are at the point now where I think of it as like you built a new home. When you move in, there is a punch list of things that need to get done, and that is where we are. I am expecting that our bankers and support personnel will now continue to shift toward loan production and fee income production, which will get us on the right track to where we had hoped we would be. Carl, do you want to add anything? Carl Carlson: No. I think just the uncertainty in the market—so we feel good about our loan pipelines. We feel good about what is going on out there, but we know they could be better. There is a lot of uncertainty in the market. In late February, and then we have the geopolitical things that are going on. We have seen interest rates increase, particularly the yield curve steepening, which sets people back even if it is momentarily. We also have the multifamily proposals for rent control in the Boston market, which has a lot of folks in wait-and-see mode, and in Rhode Island. In Rhode Island, it was passed in Providence. So there are a number of things that we think will get resolved sooner rather than later—or hope to get resolved sooner rather than later—that take some of that uncertainty off the table and move things forward. Karl Shepard: Thank you both. Paul Perrault: Okay, Carl. Operator: Your next question comes from the line of Stephen Moss with Raymond James. Please go ahead. Carl Carlson: Hey. Stephen Moss: Carl, maybe starting for you—I will just circle back to the margin here. In terms of just thinking about the day count here, you do have, it looks like, a certain five to six basis points drag or increase potential in the upcoming quarter on the margin. Just curious if you could be a little bit over the 3.80% number for the second quarter here? Carl Carlson: Anything is possible. Day counts always come into play. As far as I am concerned, I am less focused on the margin number and more on the actual net interest income that we earn. Just to give you a little sense around that, payroll deposits are something that drags us on the margin. We have average payroll deposits that are substantial. In the first quarter, they were about $1.2 billion in average balances. They are highly volatile during the week, and depending on what day of the week we close for the quarter, that is the ending balance of those balances. Usually the first quarter is the highest quarter for average balances—that is because of tax and other things that go through that—and it was about $200 million more than the fourth quarter. We expect that the average balance in Q2 will be lower, and it will be lower still in Q3, then bounce back in Q4. But those balances we have very little spread on. That is mostly a fee-income business, and the margins around that may be around 35 to 40 basis points. As those balances move, it could move the margin overall. Paul Perrault: As Carl is learning about the payroll business, it is not because he is not doing his job. It was a legacy Berkshire business that they have been in for some time. It is quite volatile. I look at it daily and it goes, I think the lowest I have seen is about $600 million in deposits to a little over $2 billion in deposits. We do not employ it as we do our other sources of funding. Carl Carlson: On the loan side, on the commercial side, the CRE loans and the C&I loans are actual day-basis loans, and the others are 30/360. We will get a pickup—there is an extra day next quarter. I will let you guys figure out how you want to calculate the margin; I see it get calculated in lots of different ways. Stephen Moss: 100% on that. Okay, that is fair enough. And then, the second thing here for me, in terms of credit and the provision and charge-off guidance—so provision to exceed charge-offs—how are you thinking about the level of charge-offs for the remainder of the year? Mark Meiklejohn: I think we provided some guidance on the provision. I think those are good numbers, probably trending a little bit towards the high end of that guidance. Charge-offs, I expect to exceed the provision, and that is as a result of the aggressive reserving that we have in place, and the credit marks that we have in place. As an example, we have about $80 million on our substandard portfolio, and net of substandard, we are at about 91 basis points coverage. Those charge-offs will effectively be funded out of that reserve. So I expect provision will run lower than charge-offs. Stephen Moss: Okay. So pretty substantial charge-offs then as the year goes on? Mark Meiklejohn: That is hard to say. It depends on how we resolve some of these loans. They will be in excess of provision. Stephen Moss: Okay. Fair enough. And then, sticking with credit for the moment, in terms of the office loan that went to nonaccrual here and the multifamily, maybe just color around the LTVs and debt service coverage ratios for those properties and timing on resolution? Mark Meiklejohn: I will start with the larger loan, which is the office property. That is a downtown Boston property. It is a larger loan. We have a participant in that deal. Our share of that deal is around $17 million and change. There is about 50% occupancy, about a 0.7x debt service coverage. On that particular loan, we are working with the sponsor on a potential sale of that property. Between specific reserves and then customer reserves that we hold against the loan, we have about 40% coverage on that loan. Even though it is a somewhat new nonaccrual, we feel like we are in a pretty good place from a reserving perspective and we will be able to work with the borrower through that. As far as the rent control, I want to make a comment on New York rent control. We only have seven rent-control properties in New York. It is a total of $18 million, so that represents the entire portfolio. This was two particular loans. They are related to each other. They total $9 million. I do not have the statistics on those loans—loan-to-value, debt service coverage—but, again, we are about 40% coverage on a reserve basis, and we are potentially looking at selling either the notes or the loans near term. Stephen Moss: Appreciate that color there. Maybe just on the loan growth outlook for the second quarter and the pipeline here—just kind of wrestling a little bit with the flattish comment for the upcoming quarter. Is it just more CRE runoff at the end of the day than you expected that drives that, versus the pipeline, or are they both typically driving it? Paul Perrault: It might be equal, but it is the distraction and the internal focus that everybody has had now for a number of months, coupled with more prepayments than we expected, coupled with customers and prospects not moving as quickly as we thought on purchases or activity that would cause loan drawdowns. To get that cranking again, it is going to take a little while. But we are on it. I think it will happen. How quickly and how deeply, I would be speculating, but we all know what we need to do to get there. Stephen Moss: Okay. Great. That is everything for me at the moment. Appreciate all the color. Operator: Our next question comes from the line of Laura Havener Hunsicker with Seaport Research. Please go ahead. Laura Havener Hunsicker: Yes. Hi. Good afternoon. Carl Carlson: Hi, Laurie. Laura Havener Hunsicker: Just wanted to stay with credit here. I really appreciate the details on slide 5.06. The $192 million criticized office—how much of that is coming due this year and next year? Are there any lumps, any colors you can give us? Obviously, you referenced some maturing. I just did not know the amount. Mark Meiklejohn: I will go over it again for you, Laurie. Over the next four quarters, in terms of criticized and classified, the total is about $55 million. Twenty million of that is substandard. Again, I mentioned earlier, that is a property that is being redeveloped for a major retail tenant. That is a relatively new event, so I think that is going to help us with a favorable resolution there. The other two loans are both special mention, and they have very strong sponsors. I do not expect any issues with those. One is $18 million maturing in the third quarter, and the other is $17 million maturing in 2027. That represents the total of criticized or classified loans in office. Laura Havener Hunsicker: Okay. And I am sorry. Just to clarify, the $18 million and the $17 million, those are office? Mark Meiklejohn: Correct. Paul Perrault: Okay. Carl Carlson: Okay. Laura Havener Hunsicker: Great. And how much office charge-offs were there this quarter? Mark Meiklejohn: It is in the deck, but there was a single charge-off for just under $7 million, and that represented the resolution of a downtown office property that we have had in nonaccrual for some time. We took the charge-off in the first quarter. That loan will resolve in the second quarter. The deal has been inked, and we are just waiting for it to close, but we went ahead and took the charge on that. Laura Havener Hunsicker: Okay. And I am so sorry. What is the total balance of that loan? Mark Meiklejohn: $23 million. Laura Havener Hunsicker: $23 million. Okay. So great. So all of your CRE charge-offs this quarter were office. Mark Meiklejohn: It was a single loan, Laurie, just to be clear. One single loan. Laura Havener Hunsicker: One single loan. Right. Yeah. Okay. Great. And then your C&I charge-offs were $6.6 million. I am thinking most of that is the discontinued specialty vehicles or the Eastern Funding—can you help us think about what that is and what the nonperformers are on those two categories? Mark Meiklejohn: That was split pretty evenly between SBA and Eastern Funding. In the case of Eastern Funding, it was a charge-down of a loan that has been a long-term workout. In the case of SBA, it was an SBA charge-off. In terms of the nonperforming balances, Vehicle was at $3.9 million. Macrolease is at $5.5 million—that is down pretty significantly from prior quarter. We did have a resolution of an $11 million loan. It was that Orangetheory franchise that we talked about last quarter, I believe. That resolved itself, and I expect it will be back accruing within the current quarter. I am sorry—it is accruing already. It will be upgraded within the current quarter. And you did not ask, but Firestone is a little under $1 million. Laura Havener Hunsicker: Oh, that is great. Okay. Great. And then just one last question for me. Carl, your final one-time charge is $13 million, a little bit higher than the $10 million you had expected. Can you help us think about what were the differences there? Thanks so much. Carl Carlson: Sure. On the compensation side, those numbers came in a little bit higher. Accounting and tax came in a little bit higher. Some of the contract terminations came in a little higher than I expected for the quarter. But overall, we came in on top of what we originally announced—$93 million was our original estimate when we announced the transaction. We came in basically right on top of that number, but in different buckets than we thought. The IT folks did a great job of negotiating and executing on a lot of the contracts and the conversion costs, which helped pay for some of the things that went over. At the end of the day, we came in right on top of the original $93 million, and merger charges are over now. They are done. If anything sneaks through, it is not going to be a merger charge. It will just go in the operating run rate. Laura Havener Hunsicker: Perfect. Thanks so much. Paul Perrault: Okay, Laurie. Operator: Next question comes from the line of David Konrad with KBW. Please go ahead. David Konrad: Yeah, hey. Good afternoon. I just want to circle back on the NIM a little bit because it is pretty important with what the stock is doing today. I just want to clarify the language of the 3.80% stabilized NIM. Are you thinking about that for the second quarter and then build from there, or is 3.80% kind of the full 2026 average NIM in your thoughts? Carl Carlson: I really liked the 5.80% you threw out there. I just wish I was there. We feel pretty good about the 3.80% for Q2 and feel that we will be building on that. Again, a lot of this is dependent on loan growth—that really drives a lot of this. I think the second quarter will be more about the funding side as well as loan growth. I expect that we will get the funding rates down to where they are supposed to be on some of our deposit products. Of course, everything changes in the market, but we have a little bit of a steeper yield curve, so I feel good about how things look going forward. Now, if rates drop 25 basis points—just to throw that out there, even though there is no expectation of this right now—if rates happen to drop 25 basis points, that would cost us about $6.8 million a year in net interest income, and that is a parallel move. I do not think anybody is expecting rates to go up—we will see what happens. Paul Perrault: A lot of our loan originations are in the five-year neighborhood, and those originations should be helpful as we go forward into the second and third quarter. David Konrad: And so commercial yields—the commercial loan book at around 6.20%—that is probably pretty good for now, so that will just benefit from the mix as it grows. The key is to grow the commercial real estate at 5.74% to get that up to the 6.20% range. Paul Perrault: Yes, but I would add that we are still on track to target getting to the 300% leverage of commercial real estate to capital. We are probably ahead of the original schedule, and so we have turned the real estate lenders back on because we can easily absorb some decent production and still make the targets to get to the 300% in plenty of time. That is all good news. Carl Carlson: Just to add a little bit of color on the loan origination side of things. The CRE loans we originated this quarter had a WAC of 6.30%. The C&I loans were at 6.34%, and the consumer loans were coming in at 6.03%. The spot weighted average coupon on those books at the end of the quarter: commercial real estate at 5.57%, C&I at 6.75%, and consumer loans at 5.01%. We are originating at higher coupons than what is on the book. Those coupons do not include purchase accounting; that is just the rate on the loan. Paul Perrault: Right. David Konrad: And then last one, just building off of that on the bond book. You actually had decent lift there. What is new money going in at on the bond portfolio? Carl Carlson: That is going in at around 4.29%. I think we purchased about $130 million during the quarter. Durations are in about 3.5 to 3.8 on that book. Paul Perrault: Got it. David Konrad: Okay. Thank you. That is all I had. Carl Carlson: Appreciate it. Okay. Operator: And our final question comes from the line of Daniel Cardenas with Brain Capital Research. Please go ahead. Daniel Cardenas: Good afternoon, guys. Just a couple follow-up questions on the office—the Boston office credit that went on NPAs this quarter. Was that Class A property or a Class B? Paul Perrault: It is a B. Daniel Cardenas: Okay. And the occupancy rate that you gave out, that 50%—is that kind of indicative of the overall marketplace? Paul Perrault: No. I do not think so. There is certainly pressure, and occupancy is down. I think it is about 75% occupancy—about 25% vacancy would be the number. So that is low. How much of that is being unused but still under good lease—you can speculate on what that may or may not be. But I think we read about some green shoots in leasing that have been happening, not the least of which is JPMorgan moving into the big new building over the South Station area—quite a few floors. So they will introduce some competition maybe. Daniel Cardenas: Got it. And how does the rest of your portfolio look? I am sure you have taken a deep dive. Are there any concerns in that Boston office portfolio? Mark Meiklejohn: We have taken a deep dive. We have about $1.2 billion in office, and only about $200 million is in downtown Boston. We have talked about two problem loans on the call already—one that we took the charge-off on and then the new nonaccrual. Those are our two largest nonaccruals in our book. Beyond that, the portfolio is criticized, but we have good reserves. We look very closely at all those loans, and we reassess the reserves all the time. Carl Carlson: Okay. Daniel Cardenas: Perfect. And then last question for me is, as I think about operating expenses for you guys— Carl Carlson: Daniel, I think we lost you, but you asked about operating expenses. I am getting this question all the time, so I am going to guess what you are asking. We are certainly on target, if not better, than what we originally anticipated and targeted for operating costs, and we laid that out in the deck. We feel good about where we are right now going forward. Paul Perrault: Are you there, Daniel? Carl Carlson: Is anybody there? We have lost Daniel. Mark Meiklejohn: Yeah. Operator: With no further questions in queue, I will hand the call back over to CEO, Paul Perrault, for closing remarks. Paul Perrault: Thanks, Tina, and thank all of you for joining us today, and we look forward to talking with you next quarter. Have a good day. Operator: Thank you again for joining us today. This does conclude today’s conference call. You may now disconnect.
Operator: Greetings, and welcome to Weave Communications, Inc.'s First Quarter 2026 Financial Results and Conference Call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal remarks. As a reminder, this conference is being recorded. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. I would now like to turn the conference over to your host, Moriah Shilton, Investor Relations. Thank you. You may begin. Moriah Shilton: Thank you, Kara. Good afternoon, everyone, and welcome to Weave Communications, Inc.'s First Quarter 2026 Earnings Call. With me on today's call are Brett White, CEO, and Jason Christiansen, CFO. During the course of this conference call, we will make forward-looking statements regarding the anticipated performance of our business. These forward-looking statements are based on management's current views and expectations, entail certain assumptions made as of today's date, and are subject to various risks and uncertainties described in our SEC filings. Weave Communications, Inc. disclaims any obligation to update or revise any forward-looking statement. Further, on today's call, we will also discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results. Unless otherwise noted, all numbers we talk about today will be on a non-GAAP basis, which excludes acquisition-related costs, costs related to certain shareholder matters, amortization of acquired intangible assets, and stock-based compensation. A reconciliation to comparable GAAP metrics can be found in today's earnings release, which is available on our Investor Relations website and as an exhibit to the Form 8-K furnished with the SEC before this call, as well as the earnings presentation on our Investor Relations website. With that, I will now turn the call over to Brett. Brett White: Thank you, Moriah. And thank you to everyone joining us today. I am very pleased to share that we have delivered another excellent quarter marked by acceleration in revenue growth and further expansion in operating margin. Both revenue and profitability came in above the high end of our guidance. This marks our 17th consecutive quarter of meeting or exceeding the high end of our revenue guidance. Revenue growth accelerated to 17.4% year over year and operating income was $2.5 million, a significant improvement from breakeven last year. This continues our track record of strong execution, consistent growth, expanding margins, and disciplined operations. We are well positioned for long-term success with a growing customer base and an expanding market opportunity. We see a clear path to building a significantly larger business with our growing suite of solutions by expanding market share and increasing average revenue per location. We added the most locations ever in a quarter, and revenue retention improved in Q1. We saw strong performance in our upsell motion, with new products like insurance eligibility and AI receptionist. Additionally, payments revenue growth accelerated in Q1 as our customers increasingly used Weave Communications, Inc. for their payment processing. Weave Communications, Inc. is purpose-built for health care. We serve over 40 thousand customer locations and billions of patient interactions flow through our platform. That data, combined with nearly two decades of experience, underpins a platform that supports growth and executes that work end to end. Weave Communications, Inc.'s workflows begin with precare operations focused on acquiring new patients, reengaging existing patients for follow-up care, and keeping schedules full. Once a visit is scheduled, we automate administrative tasks like confirming appointments, collecting patient information through digital forms, and verifying insurance eligibility to ensure appointments are kept and to streamline patient intake. During the clinical visit, we handle payment processing and help staff address patient financing needs that improve treatment plan acceptance. Following treatment, our platform helps manage the practice's online reputation through reviews, and manages accounts receivable by following up on unpaid bills and enabling patients to make payments from their mobile device. Throughout the patient journey, Weave Communications, Inc. manages communication and engagement behind the scenes, reducing time spent on repetitive tasks and empowering staff to focus on the personal side of patient care. Health care practices are resilient businesses, but they face significant operational pressures: higher costs of goods, rising labor expense alongside talent shortages, and elevated patient expectations. The day-to-day demands of running a practice often pull skilled staff away from face-to-face patient care. Weave Communications, Inc. harnesses the power of AI to automate repetitive tasks. Rather than managing paperwork, practice teams focus on people work. Our deep understanding of health care workflows guides how we deliver and use AI through our platform. Our customers start with a Weave Communications, Inc. core solution that typically includes communications, reviews, appointment reminders, and patient recall to fill schedule openings and ensure schedules stay full. Customers pay for these solutions through standard bundles, and we have released several AI-powered enhancements that streamline practice operations and make these bundles more valuable. More than 50% of our customer locations use at least one of these embedded AI solutions such as intelligent reviews response and always-on messaging assistant. Additionally, we have developed AI-powered products that we sell as add-ons to their chosen bundles. These products include Call Intelligence, insurance eligibility, and our AI receptionist. Weave Communications, Inc. Call Intelligence is an AI analytics product that transcribes every call and creates a task list for office staff to follow up on. It highlights missed revenue opportunities and unhappy patients. A physician owner of a primary care practice in New Jersey implemented Call Intelligence as a coaching tool for his front desk team. Rather than operating without clear visibility, or manually reviewing every call, they use AI-generated summaries and transcripts to pinpoint the exact moment patient sentiment shifts, dramatically reducing the time required to identify training gaps and freeing them up to provide more one-on-one coaching. After implementing Weave Communications, Inc. Call Intelligence and updating training, their unhappy call rate dropped by over 40% in just two months. A multi-location med spa in Philadelphia describes a similar transformation. Every Wednesday, using Call Intelligence, they review the flagged unhappy calls and follow up with a personal note. They report a 100% client retention rate among those follow-ups. They shared that they would not have known who needed outreach without it. Our solutions provide these practices with protection from otherwise invisible and preventable revenue leakage. Our customers are increasingly reliant on our AI functionality. In Q1, our platform handled over 300% more AI interactions than in Q1 last year. The growth is being driven by both expanded AI features and products and increased customer adoption. Today, our text-based AI handles appointment scheduling and answers common questions such as office hours and accepted insurance providers. Our customers have highlighted a number of ways the AI receptionist has increased the production of their dental practice. One is by reducing no-shows and appointment cancellations. Another is effectively converting leads to new patients. A dental practice recently reported that using our AI receptionist, they saw new patient volume grow 37%. This had a meaningful impact on the business's financial profile as their new patients spend three times as much per visit as existing patients. Next week, we will release our omnichannel AI receptionist to customers on select integrations, which will significantly increase these capabilities by supporting both voice and text modalities. We anticipate that the agent will be more broadly available late this quarter. Weave Communications, Inc. delivers seamless task execution, transcription, and summarization, and preserves context through a single unified view of conversations and analytics across every bot-to-human handoff. We are uniquely positioned to deliver this capability. Because we own the full stack, we make the entire experience connected, visible, and actionable. Initially, the agent will be able to effectively manage dozens of workflows, including scheduling, answering common questions, and completing handoffs between AI and humans. We have mapped out hundreds of additional workflows which will steadily be added to the agent skill set. It will become a more effective and skilled teammate every week. Customers who are using this latest solution are getting significant value from it, and it is changing the way they operate. One dental office signed on to the pilot because the staff was completely overwhelmed by voicemail and increased call volumes on Mondays. By implementing our AI receptionist, patients got their questions answered more quickly, and more appointments were kept. The doctor highlighted, quote, we only get paid when patients come in, so protecting the schedule matters. We have had several instances where patients started to cancel at the last minute, saw the cancellation fee warning from the AI agent, and decided to keep the appointment. End quote. A dental practice in Florida joined the pilot to address missed calls outside of business hours and an overwhelmed front office team during the day. The result is that missed calls have dropped by roughly 80% with a similar decrease in weekend voicemails. An additional benefit is the improvement in care continuity. Patients dealing with emergencies or last-minute scheduling conflicts can now get help when they need it most. For the front office team, the day simply runs smoother with fewer interruptions, less time managing calls on hold, and a lighter start to the week. These are just two examples, but the early results confirm that providing our customers with an always-on teammate to autonomously fulfill daily tasks will change the way these practices do business. This makes Weave Communications, Inc. more mission critical than ever by increasing the production and revenue capture of the practice, which provides an additional way to grow our revenue per location by competing for a portion of the labor budget. We plan to monetize the omnichannel AI receptionist through a hybrid subscription model, largely aligned to consumption. Our ability to monetize will grow as practices expand their utilization of this always-on teammate that manages the complete patient life cycle. In the future, we expect to capture even greater payment processing volumes as we process copays by intelligently managing the intake process and collecting outstanding balances. The future of Weave Communications, Inc. is agentic and proactive: converting leads to booked appointments, filling holes in the schedule with patients on the verge of slipping through the cracks, collecting critical patient data in advance of appointments, recommending financing options to drive higher treatment plan acceptance, garnering online reviews, and collecting on outstanding patient balances. Our current and future success with AI is a result of nearly 20 years of data and deep domain expertise that informs the development of health care–specific workflows. Most patient-facing workflows for a practice originate from or terminate through a phone call or a message. Our communication platform gives us a significant advantage as Weave Communications, Inc. owns and manages this control point and natively executes these workflows through the trusted primary business phone number, which leads to higher patient engagement. These interactions often require data transfers with practice management systems, and we have the largest library of authorized practice management systems integrations available. Weave Communications, Inc. is the all-in-one partner that practices can use to standardize work and efficiently grow their business. Practices that use Weave Communications, Inc. are smarter, built to scale, and feel more human. We focus on the day-to-day operations so the rest of the practice team can focus on the people they care for. To close, I want to thank the Weave Communications, Inc. team for their continued focused execution. Q1 was a great quarter, and our future is bright. I am very excited about the recent product launches and what we have on the horizon. Our financial results improved while delivering increasing value for our customers. We are well positioned for success in the new AI frontier. We will continue to lean into our strengths and our scale to deliver innovative solutions that help our customers improve their business outcomes. I also want to thank our customers, partners, and shareholders for your continued trust. With that, I will turn the call over to Jason to walk through the financials in more detail. Jason Christiansen: Thanks, Brett, and good afternoon, everyone. The first quarter was a great start to 2026 for Weave Communications, Inc., with improved revenue growth, strong gross margins, and much improved operating income as we continue to execute across the business. In the first quarter, we produced $65.5 million in total revenue, which represents an acceleration to 17.4% year-over-year growth, driven by payments, which again grew more than twice the rate of total revenue, and the addition of new locations. We added more gross and net locations in Q1 than in any previous quarter, and the specialty medical vertical continued to be the largest contributor. Gross profit grew over 19% year over year to $47.9 million. Gross margin for the quarter was 73.2%, representing a year-over-year improvement of 110 basis points. This margin improvement in Q1 was primarily driven by improvements in our customer support model, ongoing efficiencies in our cloud infrastructure and hardware device costs, and the growing contribution of higher-margin payments revenue. Customer support has been able to scale partly due to the benefits of using AI to deflect calls and effectively manage the caseload tied to a growing customer base. We also saw strong growth in the number of locations using our payment processing solutions, increased processing volume per location, and a higher net take on payment transactions. These factors contribute to an expanding subscription and payment processing gross margin of 78.4%. In aggregate, the underlying progress and growing mix of high-margin payments revenue clearly highlights a path to achieving our target long-term gross margin profile of 75% to 80%. Turning to our dollar-based revenue retention metrics, we believe our reported metrics found the floor in Q1 as monthly retention rates positively inflected in the quarter and were higher than in 2025. Our dollar-based net revenue retention rate in Q1 was 92%. Our dollar-based gross revenue retention rate was 89% and remains very strong for companies serving SMB customers. As a reminder, our reported dollar-based revenue retention rates are a weighted average of the previous 12 months’ monthly retention rates. As such, it can take multiple quarters for improvements to show through in reported metrics. Total operating expenses for Q1 were 69% of revenue. As mentioned in our previous conference call, Q1 expenses are seasonally higher due to the reset of payroll tax limits and benefit renewals taking effect. General and administrative expenses were $10.2 million, and decreased over 180 basis points year over year to 15.6% of revenue from 17.4% of revenue in the prior year. Research and development expenses were $8.6 million, or 13.1% of revenue. Research and development expenses decreased slightly year over year due to the increased capitalization of software development costs in Q1 2026, as development efforts tied to new products have increased. Our omnichannel AI receptionist development has been a key contributor. Sales and marketing expenses totaled $26.6 million, or 40.6% of revenue. Sales and marketing expenses increased year over year largely due to increased advertising expenses and sales costs. Q1 is seasonally higher in advertising expenses due to increased events and prospect reengagement after the holidays. We added a payments sales team and channel sales team in 2025, expanded our inbound, upsell, and mid-market sales teams, and most recently reintroduced a sales development team. We continue to optimize our sales and marketing activities to deliver more profitable growth, and we anticipate some improvements in sales and marketing efficiency as a percentage of revenue starting in 2026. Operating income for the quarter was $2.5 million compared to breakeven in Q1 2025. Operating margin was 3.9%, a 380 basis point improvement over the prior year and more than a 20 basis point improvement sequentially. We are really pleased with how the quarter developed, as we converted 26% of the revenue growth year over year into incremental operating income. The 26% incremental margin is a significant improvement over the 6% incremental margin produced in Q1 2025. Turning to the balance sheet and cash flow, we ended the quarter with $72.7 million in cash and short-term investments, a decrease of $9 million sequentially. Cash used by operating activities in Q1 was $5.7 million and free cash flow was negative $7.1 million. Q1 cash flows and March 31 balances on the balance sheet are impacted by large seasonal disbursements, including the payout of our annual bonuses and significant prepaid software renewals, which will not recur until Q1 of next year. Additionally, we used $1.6 million in cash on the net settlement of vesting equity awards, which reduces dilution from RSU vests. We expect free cash flow to be positive for February 2026. Looking ahead, we look to build on our strong Q1 and are encouraged by the opportunities in front of us. We remain committed to delivering improving margins while maintaining our bias toward growth. We continue to make targeted investments in growth initiatives, which reflects our ability to balance growth while making investments into our business. For Q2 2026, we expect total revenue to be in the range of $67.2 million to $68.2 million. We expect second quarter operating income to increase from Q2 last year to be in the range of $2.1 million to $3.1 million. As a reminder, Q2 operating expenses will increase sequentially as annual merit increases take effect in early Q2. For the full year 2026, we are raising our outlook and expect total revenue to be in the range of $275 million to $278 million. We are also raising our outlook for non-GAAP operating income and expect it to be in the range of $10.5 million to $13.5 million. We expect our weighted average share count for Q2 to be approximately 79.6 million shares and approximately 79.8 million shares for the full year. With that, I will turn the call over to the operator for Q&A. We will now open the call for questions. Operator: We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, please press 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Alex Sklar with Raymond James. Alex Sklar: Great. Thank you. Brett, first one for you. Just in terms of the record locations added, where do you see that incremental pickup versus some of the prior quarters? And what are you seeing in terms of the land sizes relative to a year ago across all your different bundles? Thanks. Brett White: Sure. So we had really strong performance across all of our verticals and all of our motions. So, I think, as Jason mentioned, medical was strong, but dental was actually quite strong as well, which was terrific to see because that is the largest part of our business. So I think broad performance across all verticals for new locations added. And then also all of our motions, we had a strong bookings quarter in mid-market, added some good logos there. Both inbound and outbound performed well adding locations, and then on just adding the MRR, not location-based, our upsell team had a terrific quarter. All the new products that we have released over the last 12 months are really getting traction now, which is terrific to see. And then on the land side, on ASP, I think it is pretty consistent with what we have seen over the last several quarters. Obviously, the upsell motion adds to the average revenue per location for the businesses that are adopting those products. Alex Sklar: Great color there. And then a follow-up on payments. I do not know if you want to take this or Jason. You talked about higher usage in the quarter. Maybe just some color on what drove that? And then enhanced payment integration with some of those bigger practice management vendors—what is the potential unlock there from that announcement? Thanks. Jason Christiansen: Yeah. Hey. Thanks, Alex. Really, we saw very strong payments performance across a number of vectors. I think some of the product functionality that we talked about at the end of 2025 that we delivered, which includes bulk collection capabilities—the ability to send multiple collection requests through one motion—payment reminders that follow up on unpaid invoices, and then the surcharging capabilities. All of them contributed to the additional pickup. Surcharging was a very strong quarter for us. We saw the most increase in adoption of surcharging here in Q1 as we have seen. So really encouraging across those use cases. And then you cannot discount the impacts that adding payment integrations has on the payments business. We are still pretty early stages. We have got a handful of payment integrations done with more to come. And I think that will continue to be an unlock for us as we are able to really just streamline some of the office workflows, the pain points that staff experiences, and help these practices reduce their days’ sales outstanding and their AR balances. And so AI receptionist is going to be part of that story as we look forward, as we are able to become more proactive in collecting on those balances and also help introduce the collection on the front end as part of the intake process. Alex Sklar: Okay. Great. Thank you both for the color and nice results. Operator: Your next question comes from the line of Hannah Rudoff with Piper Sandler. Your line is open. Please go ahead. Hannah Rudoff: Hi, guys. Thanks for taking my questions. It is nice to see the growth acceleration in Q1. I just wanted to ask on AI receptionist. You talked about hybrid subscription and consumption pricing. I guess, Jason, could you just expand on what this looks like? I know you have talked about tapping into labor budget in the past, and I guess have you thought about pricing this on more of an outcome-based pricing model? Brett White: Sure. So what we mean by hybrid is, we will have a monthly fee for the product, which will come with a number of phone calls—a number of phone interactions—handled by the agent. And as your usage increases, then you can move to a higher tier, which gives you more phone calls that the agent will take. So, basically, you can scale the receptionist up and down, and the monetization is really tied to the number of calls it handles. So you could imagine a practice may want to use it just for nights and weekends, so that would probably be on the lower end of the call handling. Or they might want to use it 24/7 to actually be a fully always-on teammate, in which case the number of calls handled would go up, and then the pricing would go up as well. So right now, that is the pricing that we are launching with. And as far as outcome-based pricing, yeah, it is absolutely on our pricing team's radar. But we are going to start with this hybrid usage model and test that and see how that goes. Jason Christiansen: The one thing I would add to that is, as we think about some of the additional workflows that we deliver, there is built-in or inherent pricing on that side. When you think about payments, as we integrate payment workflows into the AI receptionist, we will also be able to collect on the outcomes of actually collecting balances on behalf of practices, but there is a lot more thought going into it that we will continue to iterate over time. And maybe one thing just to highlight on the AI receptionist that Brett alluded to, where offices will be able to scale the utilization up or down: one of the unique things about Weave Communications, Inc. and our ability to support that is because we own the full communication stack on the back end. Offices can insert the agent anywhere they want within the interaction flows. So offices will have the control to dial that up, to scale that back, hours where they want it in—like for calls coming in, where they want it in the call tree, where they do not, when they want it to escalate or hand it off to a human and when they do not. And so that is part of the adoption that Brett is talking about. As offices might start with nights and weekends and see how it starts to actually deliver meaningful bookings and see the same results that the customers we highlighted are getting, they will be able to inject it more and more directly with how their practice operates. That is unique to us because of the full stack that we own where it is all in one place. Brett White: Yeah. To expand on that a little bit, if I could, Hannah, we recently showed one of our large DSOs this functionality. Basically, you pull up a screen—it is basically a flowchart—and you grab the AI receptionist and you move it wherever you want. So you can say, I want it to pick up only at lunch. Or you can say, I want it to pick up only after the third ring. Or—I want it—so, you know, just showing the capability and the flexibility of moving the agent anywhere you want in the call tree is really, really powerful. And I am sure that practices will experiment with it and see how it works best for them. Hannah Rudoff: That makes a ton of sense, and it is nice to see that users can completely customize how they use the AI receptionist. My second question is on NRR. I know we have talked about this metric being a little complicated just with it being location-based, but I guess how should we think about, or when should we expect, AI to help drive an expansion in that NRR metric? Jason Christiansen: Yeah. I guess I will just start with highlighting what I talked about in the prepared remarks, which was where we have started to see an inflection within the monthly net retention metrics—not the weighted 12-month average, but the direct monthly—here in Q1. You know, the contribution—there is an interesting thing with our business, which is customers continue to land heavy whenever we bring new capabilities and we are able to deliver meaningful value. And so how exactly AI starts to drive the expansion of our net revenue retention is tough to predict. We have a better opportunity today with the release of these new products that we have brought to market and what is coming—more than we have had in the past. And so that is something that we are leaning into and we are optimistic about, also realizing that they may continue to land heavy as well and how that dynamic will play out. The one thing that I anticipate to continue to be true—which is regardless of what happens with net revenue retention as a metric—the average revenue per location, we anticipate that to continue to grow. Q1, we saw growth again in the revenue per location. If you look over the last two years, it has grown about 10%. At the same time, net revenue retention has decreased as a metric. And so I think we are very optimistic about what these products can do and contribute, though. Hannah Rudoff: Makes a ton of sense. Thanks, guys. Operator: Your next question comes from the line of Parker Lane with Stifel. Your line is open. Please go ahead. Parker Lane: Yeah. Hi. This is Jack on for Parker. Thanks for taking the questions today. I wanted to go back to the strong quarter of location additions, and I would be curious to hear if in any way you are seeing the AI product set and roadmap really resonating with prospective clients, and whether this potentially drove the really strong location addition quarter. Brett White: Yeah. So I will start. Because of our sales model, what is super interesting is we generally sell what we have available to deliver immediately. So the vast majority of the sales success in the quarter was on the core products that we have now—our core engagement platform—plus some of the newer products that have come out recently. We do not really sell futures just because of the SMB nature of our customers. However, what resonates very well with larger customers—DSO, multi-location—is the roadmap. So I think most of the upsell and the new additions this quarter were primarily based on our current product set—what they were going to get next week, what they are going to go live on next week—which kind of gets us even more excited about the next 12 to 24 months because then we can get these customers onboard, happy with the core platform, and then come back to them with new products, additional products, especially the AI receptionist. Parker Lane: Yeah. No. It makes sense. And then just to follow up, when you think about the ideal customer profile for the AI receptionist and what you are rolling out soon with everything around the omnichannel receptionist, is there a portion of your customer base that you think the product makes the most sense for in particular? Is it more relevant in mid-market due to their scale or SMB due to staffing constraints? Or maybe even on the vertical side there may be puts and takes between the old core TAM versus specialty medical in terms of ripeness for adoption. Brett White: Yeah. So it is a great question. And as we build our personas for our core platform and additional products, we really give a lot of thought to this. So the AI receptionist is getting really favorable reviews across the board, and there are really different use cases. If you are a small practice, you want to cover the phones at lunch or over the weekends, because all you need to book is a couple potential lost appointments, and it pays for itself. You can see some small practices say, well, I will try it because I really want to have that personal experience. But then they find out how many calls they are missing, and it is really not a personal experience. So the proposition definitely resonates on the low end. And then you think about the high end—multi-location practices—they are very, very serious business operators. They understand the economic value very clearly. And so the upsell products that we have—Call Intelligence is going really well with larger, more sophisticated practices—we expect the AI receptionist, we are piloting with them now, and it has been received very well. So when we look at the personas for the additional products, specifically AI receptionist, it really works. There is a strong use case all the way across the spectrum. Jason Christiansen: Yeah. And when you look at it by vertical, you see a similar phenomenon with just how they operate. Many dental practices might only be in the office four days a week, and so they have extended weekends where they need more coverage that this is really impactful. If you flip over and you look at a veterinary clinic, they have incredibly high call volumes that flow into their practices. And so the value proposition of a receptionist that can help them manage—especially if there are staffing shortages—the demands of pet owners to bring their sick or injured, or whatever the situation is with their loved animal, having a resource in place that can help address their needs is also very relevant. And so it is universal across the end markets that we serve and across the sizes as Brett highlighted. Parker Lane: Great. Thank you. Operator: Okay. I think that concludes the Q&A portion. So I will now turn the call back to Brett White for closing remarks. Go ahead. Brett White: Okay. Well, thank you all very much for joining the call, and thanks again to the Weave Communications, Inc. team for such a terrific quarter. I look forward to chatting again in about 90 days. Operator: And that concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good afternoon, everyone, and welcome to IDACORP, Inc.'s First Quarter 2026 Earnings Call. Today's call is being recorded and our webcast is live. A replay will be available later today for the next 12 months on IDACORP, Inc.'s website. If you need assistance at any time during the presentation, please press 0 on your phone. I will now turn the call over to Amy I. Shaw, Vice President of Finance, Compliance, and Risk. Amy I. Shaw: Good afternoon, everyone. We appreciate you joining our call. The slides we will reference during today's call are available on IDACORP, Inc.'s website. As noted on Slide 2, our discussion today includes forward-looking statements including earnings guidance, spending forecasts, financing plans, regulatory plans and actions, and estimates and assumptions that reflect our current views on what the future holds. These are all subject to risks and uncertainties. Those risks and uncertainties may cause actual results to differ materially from statements made today, and we caution against placing undue reliance on any forward-looking statements. We have included our cautionary note on forward-looking statements and various risk factors in more detail for you to review in our filings with the Securities and Exchange Commission. As shown on Slide 3, also presenting today are Lisa A. Grow, President and CEO; Brian R. Buckham, EVP, CFO and Treasurer; and John Wonderlich, Investor Relations Manager. Slide 4 has a summary of our first quarter financial results. Diluted earnings per share were $1.21 compared with $1.10 last year. Our key operating metrics and guidance are unchanged, except for our hydropower generation forecast as we reduced the top end of the range. We are reaffirming our full-year 2026 IDACORP, Inc. earnings guidance in the range of $6.25 to $6.45 diluted earnings per share, which includes our expectation that Idaho Power will use less than $30 million of additional tax credit amortization to support earnings. These estimates assume historically normal weather conditions and normal power supply expenses for the rest of the year. Now I will turn the call over to Lisa. Lisa A. Grow: Thank you, Amy, and thank you all for joining us today. I will start my remarks with a look at our continued growth on Slide 5. We have seen an overall customer increase of 2.3% since last year's first quarter, with growth across all customer segments, including 2.4% for residential. From a load perspective, industrial energy sales grew by 5.7% over the same period. After years of thoughtful planning and execution, we are starting to see the ramp-up in loads and revenues from some of our large industrial customers, and that ramp will accelerate during the year. Two of our industrial customers, Micron and Meta, are examples of that. As you can see in our latest photos on Slide 6, construction of Micron's first fabrication facility continues to progress, and Micron has started ground preparation for the second fab. Meta's data center has reached the testing and commissioning stage. We have worked tirelessly to be ready to serve their needs as they ramp up operation. In addition to these large industrial projects, we continue to see significant interest from core industries—food processing, manufacturing, distribution, and warehousing—as well as inquiries from other large customers in other industries looking to operate in our service area. As we serve one of the fastest-growing areas in the nation, with what we view as a leading rate base growth, we are doing it thoughtfully so that growth pays for growth to help protect our existing customers from cost shifting. As you can see on Slide 7, our approach to contracting with new large industrial projects is focused on protecting both existing customers and shareholders from potential negative financial impacts as well as being transparent and responsive to the new customers. We provide clarity in how we will serve the new load, including timelines, rates, and other terms. We have used take-or-pay provisions, certain upfront payments, credit and security requirements, termination or exit payments, customized pricing terms, and other contractual features in some cases. Like everything we do, we take a thoughtful approach to our customer pipeline. Turning to Slide 8, we remain focused on affordability. We work hard to keep our costs down and provide exceptional value to our customers, and our rates remain 20% to 30% lower than the national average. Our rates have increased at a much slower pace than averages, increasing by 23% over the past decade compared to 41% nationally. This increase also compares favorably to the consumer price index, which increased 36% over the same period. The benefits of our low-cost system—and hydro in particular—help with our affordability focus. Our regulatory model in Idaho, a growth-pays-for-growth system, also helps us retain that affordability, and it has been working. Legislation was passed in Idaho this year that codified the way we currently develop large load contracts with one change: it established a deadline of nine months for the PUC's contract approval process, which had previously been more open-ended. As we discussed on our last call, Idaho Power is not planning to file a general rate case on June 1, and at this point, we are unlikely to file one at all this year. While we are seeing higher depreciation and interest expense associated with growth and our infrastructure build out, as well as wildfire mitigation costs, we expect that revenues from new large load contracts will help offset those additional costs. We also continue to benefit from careful and thoughtful spending. As we move towards summer, and moving to Slide 9, I am happy to report that the Idaho Commission approved our 2026 wildfire mitigation plan earlier this month. As a reminder, the commission-approved plan establishes the standard of care in Idaho under the Wildfire Standard of Care Act beginning this year. Moving to Slide 10, Idaho Power continues full speed ahead on major infrastructure projects, including three major transmission lines that will add critical flexibility and reliability to our system. Work is progressing quickly on our B2H transmission project, which we expect to be in service in late 2027. Nearly half of the access roads and structure pads have been completed, along with 200 structures, about 15% of the total structures for the project. On the SWIFT North transmission project, we received our CPCN from the Idaho Commission. Several project authorizations remain in progress, including final construction authorization from BLM. The construction contractor plans to break ground this June in Nevada and this September in Idaho, and we expect SWIFT North to be complete as early as 2028. We are also continuing to work with PacifiCorp on the Gateway West transmission project, and we recently filed a joint request for a CPCN with the Idaho Commission. We anticipate a critical section of that line between our Hemingway and Midpoint substations will come online as early as 2028. If all continues to go as planned, customers will be served by three new large transmission lines on our system by 2028, bringing with them the benefits of access to diverse markets and transmission wheeling revenue. Turning to Slide 11, I have some updates on the new gas plants we discussed last quarter. We have received a CPCN from the Idaho Commission for the company-owned 167 megawatt plant that will be a natural gas plant next to our existing Bennett Mountain Power Plant. We have also secured an EPC contractor as we continue to work toward an in-service date of summer 2028. Since our last call, we have also filed for CPCN in Idaho for two additional natural gas plants. As a reminder, both were included in the CapEx forecast update we shared at year-end. We plan to bring the 222 megawatt South Hills project online in 2029 and the 430 megawatt Peregrine project in 2030. These natural gas projects will provide firm, dispatchable resources we need to meet growing customer demand, and we view these projects as affordable, low-risk solutions to our near-term capacity deficit. We also have 250 megawatts of new company-owned battery storage that will come online this quarter, and we will be adding 125 megawatts of third-party-owned solar generation to our system later this year. We remain on track to complete the conversion of VOLMI Unit 2 from coal to natural gas before the summer peak this year. These resources support our efforts to add capacity, flexibility, and affordable energy to help serve our customers. As you can see, we are continuing a major expansion cycle, and Idaho Power is an exciting place to be. Turning to Slide 12, Idaho Power received approval of the 2026–2032 RFP from the Idaho Commission. The RFP is aimed at solving a projected capacity deficit of at least 200 megawatts. Idaho's new procurement rules will allow us to complete a timely and competitive resource evaluation, and we will have additional details about potential resources and projects to meet these energy needs on future calls. I will close my remarks by following up on last quarter's announcement regarding the sale of our Oregon service area. The transaction continues to progress ahead, and we plan to make filings in the next couple of months with the Oregon and Idaho Commissions and FERC for the approval of the sale. With that, I will turn the time over to Brian. Thanks, Lisa. Lots going on operationally, which is exciting for us. Brian R. Buckham: On the financial results side, I wanted to summarize the company's strong start to the year by highlighting that we saw strong results even with unusually mild weather and several expected headwinds. Our expected headwinds were higher share dilution, higher depreciation and interest expense, and lower accelerated amortization of ADITCs. The use of fewer ADITCs is technically a headwind when you are comparing Q1 of this year to Q1 of last year. Admittedly, that might be counterintuitive, so I will talk more about that as I go through the reconciliation, which is next on Slide 13. IDACORP, Inc.'s first quarter net income increased over $8 million compared to last year. Higher retail revenues from the January rate increase and from customer growth combined for a $23 million benefit. Usage on a per customer basis decreased operating income by $10.7 million, the result of particularly mild weather that reduced residential and commercial usage. Keying on something that Lisa noted though, industrial use per customer increased notably, in part from a new large industrial customer that ramped up its usage during the quarter. As part of our last general rate case, we updated the FCA mechanism—that was for both the rates and usage per customer base. Combining those updates with lower usage per customer in the residential and small commercial classes from the mild first quarter, we saw increased FCA revenues of over $19 million compared to 2025. As expected, O&M expenses were higher in the first quarter, but the primary drivers were higher wildfire mitigation program expenses and amortization of previously deferred costs associated with the Jim Bridger plant. A large portion of those items we recover in customer rates, so they are reflected in revenues. In total, O&M expenses were up $13.1 million compared to 2025, but, again, with offsetting revenues for much of it. Depreciation and amortization expense increased around $—million dollars for the quarter [inaudible] from our ongoing infrastructure investment. Other changes in operating revenues and expenses increased operating income by a net $13.6 million. That resulted from lower net power supply costs, a decrease in property taxes due to legislative changes in Idaho last year that became effective this year, and updates to the PCA mechanism base from last year's rate case that were not unlike the changes to the FCA base. Nonoperating expense increased about $4 million, which was mostly higher interest expense. Interest expense recorded on the new finance lease, which is our battery tolling agreement, also contributed to the increase. Partially offsetting those items was increased AFUDC from a higher construction work in progress balance, which we still expect will be sustained for some time. Idaho Power amortized $6.3 million of additional tax credits under the Idaho earnings support mechanism in the first quarter. That was $13 million less than what we reported in 2025, so last year's Q1 benefited from additional ADITC usage much more than this year's Q1. As I alluded to, that is actually good news from a financial strength and performance perspective for this year. It means we expect to use or need less support from the ADITC mechanism this year to reach the floor level of year-end return on equity in Idaho, and that is despite what we predict to be a considerably higher year-end book equity balance. I tend to look at that as one helpful barometer of operating performance. Our next slide, Slide 14, reiterates what we discussed about CapEx on the fourth quarter call. I will just note that the forecast does not include any resource that could result from the 2026–2032 RFP, nor does it include some of the projects that often fill the last two years of that plan as we move ahead. So there could be some upside to what is shown on the graph. Moving to Slide 15, I want to point out that we have made a small update to this slide since our last call. You can still see that net cash flow from operations is funding over half of our CapEx needs in the 2026 to 2030 window—and hopefully more than that. Either way, we will still need our growth capital, which we have estimated around $2 billion in equity and $2.9 billion in debt to stay near our target 50/50 capital ratio. What we have updated is in the equity section under FSAs and equity to be issued. In the first quarter this year, we executed on $155 million of forward sales through our ATM program, and we settled nearly $52 million from prior forward sales through the ATM program. So it would be around $2 billion of equity shown as needed on the slide. When you combine the ATM program with our follow-on from last year, we have now settled or executed forward on over $750 million of the need, which we have broken out separately on the chart. That gets us the equity we needed to 2027 and leaves the remaining amount that we think is within relatively conservative ATM issuance ranges. We have a $300 million ATM that we put in place a couple years ago, and we have now used that one in full, so we are planning to establish a new ATM program in the near term. Not surprisingly, any additional CapEx needed to serve loads would require some level of financing. If that were the case, that funding would likely be more heavily weighted at the back end of the five-year forecast where operating cash flow should also be higher to offset financing needs in part. A lot of numbers and detail pretty quickly there, and on Slide 16 you can see the forward sales agreements that we have available and the forwards that we have settled to date. It offers a little better, easier picture of where we stand on equity and financing generally. With that, I am going to wrap it up there. I am going to hand it over to John Wonderlich. John Wonderlich: Thanks, Brian. Turning to Slide 17, you can see our 2026 full-year earnings guidance and key operating metrics. Not much changed from the fourth quarter call. This guidance assumes normal weather for the remainder of 2026 and normal power supply expenses. We expect IDACORP, Inc.'s diluted earnings per share this year to be in the range of $6.25 to $6.45. We still expect that Idaho Power will use less than $30 million of additional investment tax credit amortization in 2026, so less than the $40 million we amortized in 2025. We continue to expect full-year O&M expense to be in the range of $525 million to $535 million. We still anticipate spending between $1.3 billion and $1.5 billion on CapEx in 2026. As the five-year forecast showed, we continue to expect higher CapEx numbers as we continue to focus on safe and reliable service and to respond to strong growth in our service area. Finally, given our current forecast of hydropower operating conditions, we expect hydropower generation to be within the range of 5.5 million to 7 million megawatt-hours for the year, so we trimmed the top end of our guidance. Water storage in our system is near or above average across the Snake River Basin. However, low overall snowpack conditions will result in lower water supplies from spring snowmelt. Record-wet April conditions, with more than three times the average precipitation for the Boise area, have helped to increase spring season streamflows and hydropower production, but will not completely offset the lack of winter snowpack. With that, we are happy to address any questions you might have. Operator: We are now ready to begin the question and answer session for attendees who have joined on the Q&A line. If you would like to ask a question, please press star 1 on your phone. Please ensure your mute function is turned off before you ask a question. We will take as many questions as time permits on a first-come basis. Once again, that is star 1 on your phone to ask a question. Your first question comes from the line of David Arcaro from Morgan Stanley. Your line is live. Lisa A. Grow: Hi, David. David Arcaro: Hey there. Thanks so much for taking my questions. Thanks for the comments on the timing of the rate case. I was wondering what you are currently thinking, or what should be the base case expectation. Could it potentially be next June—June 2027—in terms of when a full rate case might be, or how are you characterizing that? Lisa A. Grow: You know, I think that has been sort of our traditional cadence, but we will keep doing the math and figuring out when the right timing of the next general rate case would be. It will depend on how this year shapes up and what we see coming for the next year. Brian R. Buckham: Yeah, Dave, and a couple of factors we are looking at, just following on Lisa's comments. One is the conversion of Quip to plant in service becoming eligible for rate base treatment. Some of the timing of that dictates when we do rate cases. And then the other aspect is large load revenues—the timing of those coming in and the magnitude of those revenues. Those can both dictate timing of rate cases. David Arcaro: Got it. Thanks for that. That makes sense. And then I was wondering if you could comment on what you are seeing in terms of new customer, new large load inbounds—the pace of demand in that pipeline? And also, when could you deliver new power? When could you handle new large loads coming into the system at this point? Lisa A. Grow: Well, it continues to amaze me how strong the pipeline is. There is just an incredible amount of interest in our service area, again, from many different industries. Certainly, there are some data centers included in that. For what we have ahead of us right now between now and, say, 2028, we are probably at our maximum capacity to actually get work done. But if there was someone that was going to come on with modest ramps, perhaps it could go a little bit towards the end of that time period. We are seeing a pipeline that goes well into the 2030s now, and we are really excited about the sustainability of this growth as we look to the future. Adam? Adam J. Richins: Yeah, David. I do not have a ton to add. In the data centers, we are seeing a fair amount of movement. In the dairy area, biodigesters, base manufacturing, warehousing—so it is pretty diverse in that regard. In terms of keeping up, we feel good about where we are at. We have been able to reserve turbines where needed. Obviously, we have ESAs that are going out the door to make sure we will continue to meet these moving forward. As of right now, we feel good. We are staying ahead of it. Obviously, we have to get our transmission lines built and in place too. Those are all on track, so we feel good about the transmission side too. So far, so good, but it is a constant effort, and we are continuing to focus on it every day. Operator: Your next question comes from the line of Shar Pourreza from Wells Fargo. Your line is live. Analyst: Good afternoon, team. It is Ashley Whitney with Telema on for Shar. As we are thinking about rate case cadence, we are also thinking about the credit outlook. Some time back, Moody's downgraded the holdco to Baa3 as well as Idaho Power. It cited a heavier CapEx cycle and weaker near-term credit metrics, but it also acknowledged supportive offsets like additional parent equity or more frequent general rate cases. From your perspective, is the focus now on simply rebuilding within the new ratings category, or do you still see a path over time to improve credit positioning as recovery cadence catches up with spend? Brian R. Buckham: Yeah, Whitney, thanks for the question. In terms of where the credit metrics stand right now, we do not issue debt at the holding company level—we do all of those debt transactions at the opco level. The move at Idaho Power to Baa2—part of the rationale for that was when you look at sector credit metrics at Moody's, a lot of the Baa1 ratings, which is where Idaho Power was before, have a CFO pre-working capital to debt of around 18% on average—maybe even slightly higher in some instances. Ours, as we have talked about in the past, while we met our prior threshold of 13% in both 2024 and 2025, going forward we are not looking to have a credit metric of 18%, at least not for this year and not for next year at Moody's at the opco level. Moody's report has some of the details on that, but from my perspective there was a lot of peer benchmarking that went into that decision, so perhaps the downgrade was not a surprise in that regard. The new positive is the stable outlook, and a new downgrade threshold at 12% for Moody's. We have received a lot of questions in the past on the negative outlook, but some positive remarks on the new stable outlook. On the IDACORP, Inc. side, you mentioned Baa3—that is part of Moody's notching policy. We have a higher CFO pre-working-capital metric at IDACORP, Inc. and no holding company debt, so that really is just the Moody's policy on notching. We have talked before about the need or desire to keep our balance sheet strong at 50/50—and a simple and straightforward balance sheet—so very focused on that. To your point, that does require some equity issuances that we have signaled for quite some time and actually executed on over time. Maintaining that balance sheet structure for us does require the equity. It keeps us closer to the threshold for S&P and our prior threshold for Moody's in that 13%–15% zone for a while, expecting to naturally grow off of that with large load revenues and rate cases over time. We do not have an intent to immediately target 18%, for example. We will continue to blend debt and equity. We did a debt offering earlier this year. We will have some equity that we will do later in the year—pull down from forwards—to help blend that in. Our financing strategy does take into account those credit metrics, but balance sheet strength is the most important thing for us as we look to continue our financing. Lisa A. Grow: We just take a very pragmatic view of where we are in our spend and where revenues come in. To the extent those are not matching up, especially during this growth cycle, we will go in for rate relief. But like this year, where we are able to stay out given that those revenues are starting to come in, we will use that as the cadence. Brian R. Buckham: I think that is right. One of the things I mentioned earlier is looking at the conversion rate of Quip to plant in service and the financial impact that has if you do not do rate cases around that. Some of it will be weighing the impact of that conversion to rate base and taking that to regulators versus filing rate cases when you have large load revenues coming in. The large load revenues do really cover a lot of what would otherwise be rate cases. I cannot say at this point that we would file every year. The word you used was opportunistic—when we need to go in, that is when we will go in. That is how I look at it. Another thing we can talk about is customer affordability. That is important to us, and we can maintain that through these large load revenues, long-lived assets, and other features of the company with a growth-pays-for-growth mentality. We will look each year at what our rate app would be. We do not want to go in and make really large rate requests, and this growth-pays-for-growth mentality and the way we operate our business from an O&M and affordability perspective help us stay out and use those revenues instead of rate cases in some years. Analyst: Thank you. Operator: Your next question comes from the line of Christopher Ronald Ellinghaus from Siebert Williams Shank. Your line is live. Lisa A. Grow: Hey, Chris. Christopher Ronald Ellinghaus: How are you? Brian, I thought you were going to get into this—I do not remember what you said in your comments—but can you talk about how you foresee ITC recognition through the years? Do you have some visibility there? And in the guidance, you talk about normal weather, but just looking at NOAA’s forecast it is going to be far from normal. Can you give us any sense of what you are seeing—particularly irrigation—as it is supposed to be super hot with well-below-normal precipitation? What have you seen so far in the spring? What is the soil condition? And what are your thoughts about what the summer will look like? Brian R. Buckham: For ITCs, we are actually a cash taxpayer, and so we have a tax credit appetite on our returns each year for federal income taxes. We are monetizing those ITCs every year. That appetite continues. I will say there is some diminishing availability of ITCs in the future when you look at some of the legislation that is out there now. We are getting it from our batteries, for example, now—that will go on our tax returns. Over the long term, things could change. We have also looked at PTCs as another avenue for us as well. Right now, one of the important features of the ITCs that we generate is that they do go into the mechanism. So we have a fairly sizable balance of ITCs that are available for ADITC use in the mechanism going forward. But no planned external monetization through sale of the tax credits—we would be recording them on our tax returns. Lisa A. Grow: On the weather, it is a great question, Chris. Those of us that enjoy winter sports were really bummed out about not having much snow in the hills. We did have some good storage, and we did catch up a little bit with the rain that we had last month, but it is still a little bit short of what we would normally see. Certainly, we like it to be stored up in the mountains as snow and come down on a slower pace. Irrigators have been trying to figure out their strategy given some of the commodity prices, and that may have some impacts. Overall, with hot and dry conditions, our folks on the ground are thinking it could be actually closer to normal than some of that might indicate. Adam has some additional color. Adam J. Richins: Chris, we have been debating this issue with folks on the ground because it is interesting to see their take. What we have been looking at is that low water years have not correlated to less sales because there are so many other factors involved. This summer, the factors pushing towards more sales are projected warmer weather—you mentioned NOAA—Lisa mentioned our reservoirs. We are actually at average, so that is a good sign. When surface water users get cut off a little bit, they tend to use ground pumps to make some of that up when water is scarce. Those things push towards more sales. On the other side, with low water, you can have the risk of curtailments, which could happen—we have had that in the past. As we debated these things and looked at what we thought irrigation sales were going to look like in the future, we got to this net-net normal position that Lisa mentioned, and that is really from the folks on the ground talking to farmers, trying to get a feel for what the season is going to look like. Christopher Ronald Ellinghaus: If I could paraphrase, you are suggesting that you are expecting sort of normal water resources but the demand could be high. Adam J. Richins: It does feel like the demand—if the weather turns out like it is predicted, like you mentioned—could be higher in terms of the need for energy to pump. The water side could be a little bit low, but we have seen no correlation in the past between low water and low sales. In fact, lots of times we have had low water years that have had higher sales because the temperatures have been higher. There are just puts and takes as we look at both sides of it. Christopher Ronald Ellinghaus: Did you get any sort of feedback about the impact that the Iran situation is having on your agricultural customers? Adam J. Richins: We did not get feedback on that. We got a little feedback, as Lisa mentioned, on the commodity side. Some of the pricing for potatoes and beets are a little bit lower than our farmers would like, and so there are some cases when they planted maybe slightly less of those products, which could impact water use. But they did not touch on the Iran issue directly. Christopher Ronald Ellinghaus: Lastly, you touched on the strength of the pipeline. Can we assume that your queue is basically unchanged from what you talked about on the fourth quarter? Lisa A. Grow: I think we have even had a few more inquiries since the fourth quarter. It seems like it is never-ending, honestly. A few new ones come into the queue; a few others might drop out. Overall, it is up. Adam J. Richins: I think that is right, Chris. Just a quick reminder, we have been hanging at that 8.3% IRP growth for a while now. I think we are going to update that as part of the next IRP in Q4. There should be some upside in that. Lisa A. Grow: And it is important to remember that we do not put any prospective load into that number until we have either a sizable financial commitment or a signed contract or something that feels a lot more than a tire-kicker. While the pipeline and the 8.3% are not exactly correlated, there is some lag in between. Christopher Ronald Ellinghaus: Sure. It just helps when you quoted that 4 thousand megawatt queue—it puts things into perspective. I was curious if that number had made any kind of advance or decline. Adam J. Richins: The problem on those issues and talking about the large loads is so many of them are confidential. We just cannot come out with them until they go public, and so a lot of times we are in a holding pattern for them. Christopher Ronald Ellinghaus: Sure. Makes sense. Okay. Thanks a bunch. Appreciate it. Lisa A. Grow: Thank you. Operator: Next question comes from the line of Michael Lonegan from Barclays. Your line is live. Michael Lonegan: Hi there. Thanks for taking my question. Just wondering if there is any update you can provide on Micron Fab 2—when you expect an ESA to be signed, and when we could expect it to be implemented into your capital plan? Adam J. Richins: The ESA for Fab 1 has been signed and is being reviewed by the commission. We expect to hear from the commission. On Fab 2, we are still negotiating the ESA. What I can say about Micron is there is an absolute ton of work that is going on on-site. It is really amazing to see what a $50 billion project looks like as you walk around. Brian, Lisa, and I were able to do that not long ago. In terms of their in-service date, they anticipate initial wafer output for their first fab around mid-2027. On the second fab, they are already moving forward with ground preparations for Fab 2. We have revenues potentially coming in the door mid this year related to Fab 1. On the ESA side for Fab 2, we are still working with Micron. Hard to say exactly the timing of that, but we will let you know when it becomes more public. Michael Lonegan: Thanks. And then you highlighted the capital plan as conservative. You touched upon the 2026–2032 RFP as being incremental. Is there anything you could say about your targeted ownership in the investment opportunity set there? Lisa A. Grow: We always want to go in with some company-owned assets or projects, and we do. Historically, we have won about 50% of those. We certainly have a desire to own as many of the resources as we can, and we do so in a competitive way. Adam J. Richins: I will just add we do have several projects that we will put into the 2026–2032 bid, so we will compete like we do each year. Brian R. Buckham: Michael, on the CapEx impact as well—the CapEx forecast that we have in the slides does not have any resources for the 2026–2032 RFP in it. We do not assume any sort of win rate for purposes of our CapEx. We put it in there when we know it is going to happen. There is some amount of CapEx in the graph that will help a portion of Micron's second fab, but only what we expect would be in the very earliest year or years of operation. Our large transmission projects will help with that. We need more generation resources too, and like Adam said, the amount of CapEx actually depends on the ESAs we sign and how we serve our load growth rate, which we are working on right now. The IRP is filed in June 2027, but we will lock down some form of load growth rate more in fourth quarter this year so that we can do our modeling off of that. If you want to serve load several years from now, you have to start the process now, which means spending some amount in the near term for things like turbine reservations and early payments, and then higher amounts as things get fabricated and delivered and the project gets constructed. So you could start to see some of those payments show up in the current five-year window—maybe weighted more towards 2029 and 2030 than in the very near term. That is how we look at the CapEx upside on that graph. Michael Lonegan: Great. Thanks. And then lastly, you executed on the ATM program this year. You talked about a new ATM program. You have some forward settling later this year. For the balance of your equity financing plan, can you talk about the profile of issuances, broadly speaking? Should we expect it to profile with CapEx? And also, for incremental capital, should we still anticipate that to be financed with your 50/50 structure? Brian R. Buckham: The answer to the second question is yes. For any incremental amounts that are in the plan, you should plan on 50/50. For the stuff that is already in the plan, I think we have quoted more like a 30/70 split, but anything incremental above that—to maintain our balance sheet structure—assume 50/50. On the nature of the issuances, one of the things we have talked about in the past is probably not linear. Part of that is because you have large customer revenues coming in—more operating cash flow in the latter years of the window—so maybe a little bit more end-loaded. The best way we have told people is to model it somewhat like the CapEx profile is right now. Then, if there is incremental upside, build a little more in that window, but definitely not linear. We can look at it from the perspective that, if we were to have ATM issuances with forward settlement, the financing plan for equity—based on the amount you saw on the slide—is within reasonable ATM issuance amounts. With those forwards, we have the ability to shape the equity a little easier to match the timing of payments. Operator: Your next question comes from the line of Julien Dumoulin-Smith from Jefferies. Analyst: Hi. It is Brian Russell on for Julien. It is nice to see ground prep beginning at Micron Fab 2. What are the next milestones that could trigger an ESA, or is it just the parameters of the contract that you are negotiating? And secondly, what load is upside that would be incremental to the prior IRP's 8.3% that would be reflected in this updated IRP? Will Micron's Fab 2 also be included in that load forecast? Adam J. Richins: Fab 2 is not in the 8.3%. We do anticipate that it will be in the upcoming Q4 load forecast. In terms of timing, I shared where they are at. Anything beyond that is not public. They have publicly said they anticipate initial wafer output for the first fab in mid-2027. Beyond that, we cannot get into the details of when they will hit different targets. We can track what they have said publicly, and that is what they have said publicly. Analyst: I apologize if I missed this earlier—could you remind us of what has changed in the RFP bidding process that might give you a slight advantage, possibly, on the win rate? Adam J. Richins: I would not say an advantage as much as it is faster than it was under the Oregon rules. One of the things we are running into—and I think you know this—is that turbine procurement you have to do well in advance of what we used to do because of supply chain constraints and the timeline related to the regulatory process. The review was a lot longer than what we needed to get these projects in place. The other thing is we do not submit a benchmark bid anymore—we just compete equally with all other independent power producers. That does not set us at an advantage as much as it puts us on an equal playing field, and that was not the playing field we were in several years ago. Lisa mentioned we have been at about a 50% hit rate, so we are continuing to strive to do that. Hopefully, this new process will make it go faster, and not having a benchmark bid allows us to compete equally with everyone else. Analyst: Understood. Thank you very much. Operator: Your next question comes from the line of Anthony Crowdell from Mizuho. Your line is live. Anthony Crowdell: Hey. How is it going? I appreciate the update on the beet crop. One quick follow-up: on Slide 12, you talk about the 2026–2032 RFP update. The 200 megawatts of capacity you are talking about there—is that with any particular committed customer or committed load? Adam J. Richins: One thing we mentioned there—you will note this as “at least” 200 megawatts. We view that as a minimum. This 200 megawatts is firm capacity, and it is tied to the 8.3% IRP growth rate that we have been talking about. Again, we are going to update that figure in the future. The way it works in the RFP is we will get a variety of different projects. We will be able to review those projects that are on the short list, and then, depending on our need at that time, we will be able to pull the trigger on as many projects as we need to meet the load forecast at that time. Idaho Power will bid several projects in the 2026–2032 RFP. Brian R. Buckham: I will reiterate: we do not actually have anything in CapEx from the 2026–2032 RFP. It is a common question. We do not assume any win rate. We will compete on equal footing in the RFP, and what shows up from that that is company-owned would be additive to CapEx. Anthony Crowdell: Great. That is all I had. Congrats on a good quarter. Lisa A. Grow: Thank you. Operator: A final opportunity—press star 1 to signal for a question. There are no further questions. That concludes the question and answer session for today. Ms. Grow, I will turn the conference back to you. Lisa A. Grow: Thank you. Thanks, everyone, for joining us today and for your interest in IDACORP, Inc., and I hope you all have a great evening. Thanks. Operator: That concludes today's meeting. You may now disconnect.
Operator: Good morning, everyone, and welcome to Marcus Corporation's First Quarter Earnings Conference Call. My name is Ellie, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded. Joining us today are Greg Marcus, Chairman, President and Chief Executive Officer; and Chad Paris, Chief Financial Officer and Treasurer of Marcus Corporation. At this time, I'd now like to turn the program over to Mr. Paris for his opening remarks. Please go ahead, sir. Chad Paris: Good morning, and welcome to our 2026 First Quarter Conference Call. I need to begin by stating that we plan to make a number of forward-looking statements on our call today, which may be identified by our use of words such as believe, anticipate, expect or other similar words. Our forward-looking statements are subject to certain risks and uncertainties, which may cause our actual results to differ materially from those expected or projected in our forward-looking statements. These statements are only made as of the date of this conference call, and we disclaim any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. The risks and uncertainties, which could impact our ability to achieve our expectations identified in our forward-looking statements are included under the heading Forward-Looking Statements in the press release we issued this morning announcing our 2026 first quarter results and in the Risk Factors section of our annual report on Form 10-K, which you can access on the SEC's website. Additionally, we refer you to the disclosures and reconciliations we provided in today's earnings press release regarding the use of adjusted EBITDA, a non-GAAP financial measure in evaluating our performance and its limitations, a copy of which is available on the Investor Relations page of our website at investors.marcuscorp.com. All right. Let's begin. This morning, I'll start by spending a few minutes sharing the results from our first quarter with you and discuss our balance sheet and liquidity. I'll then turn the call over to Greg, who will focus his prepared remarks on where our businesses are today and what we are seeing ahead. We'll then open up the call for questions. I'll begin with an important reminder about our fiscal calendar that impacted our first quarter year-over-year comparisons. The first quarter of fiscal 2025 was the first quarter of transition to a calendar fiscal year and included 5 days at the beginning of the quarter during the week between the Christmas and New Year's holidays at the end of calendar 2024 that are significant days in our theater division. In fiscal 2026 and going forward, the first quarter began on January 1. And as a result, our first quarter results faced the headwind of having 5 fewer operating days when compared to the first quarter of fiscal 2025. Going forward, our year-over-year quarterly comparisons will now be aligned ending on traditional calendar quarters. On the call today, I'll provide the as-reported year-over-year changes in our results as well as the growth on a comparable calendar quarter basis, excluding the impact of the extra days in the prior year to provide an apples-to-apples comparison. As you would expect, our growth for the comparable calendar quarter is even stronger than our as-reported results. We are very pleased to report that we were able to overcome this headwind to deliver another quarter of solid execution and results with both divisions growing year-over-year revenue and an overall increase in adjusted EBITDA. In theaters, a significantly better first quarter film slate with improved product supply and better carryover of holiday films drove significant attendance and revenue growth, leading to our overall improved results. In our hotel division, we continued to see year-over-year improvement in RevPAR and occupancy as we benefited from our renovated hotel assets being fully operational. Shifting to the numbers, I'll start with a few highlights from our consolidated results for the first quarter of 2026. Consolidated revenues of $154.4 million increased $5.6 million or 3.8% compared to the prior year quarter, with revenue growth in both divisions. The 5 fewer operating days negatively impacted consolidated revenue growth by $15.3 million. On a comparable calendar quarter basis, excluding this impact, consolidated revenues increased $20.9 million or 15.6%. Operating loss for the quarter was $19.3 million, an improvement of $1.2 million compared to the prior year first quarter. Consolidated adjusted EBITDA for the first quarter was $2.6 million, an increase of $2.9 million over the first quarter of fiscal 2025. The year-over-year improvements in both operating loss and adjusted EBITDA were negatively impacted by $5.3 million due to the fewer operating days. On a comparable calendar quarter basis, adjusted EBITDA grew $8.2 million. Turning to our segment results. I'll start with our theater division. First quarter 2026 total revenue of $92.9 million increased $5.6 million or 6.4% compared to the prior year first quarter. The 5 fewer operating days negatively impacted theaters revenue growth by $12.2 million. On a comparable calendar quarter basis, excluding this impact, theaters revenues increased $17.8 million or 23.6%. For our fiscal first quarter 2026, comparable theater admission revenue increased 9.8% and comparable theater attendance increased 1.9% compared with our fiscal first quarter 2025. On a calendar quarter basis, first quarter 2026 comparable theater admission revenue increased 29% and comparable theater attendance increased 19.1% compared to the prior year first calendar quarter. When using our comparable fiscal days, according to data received from Comscore and compiled by us to evaluate our 2026 first quarter results, U.S. box office receipts increased 5% during our 2026 first quarter compared to box office receipts during our fiscal 2025 first quarter, indicating our theaters outperformed the industry by approximately 4.8 percentage points. On a straight calendar quarter basis, we also outperformed the U.S. box office by 7.6 percentage points. We believe our outperformance is primarily attributed to our strategic pricing actions as well as a favorable film slate that featured several titles appealing to family audiences, our genre where our circuit typically performs very well. Average admission price increased 7.8% during the first quarter of 2026 compared to last year, benefiting from strategic ticket price optimization actions, an increased percentage of ticket sales from PLF screens and a favorable daypart ticket mix. Our average concession food and beverage revenues per person at our comparable theaters increased by 2.4% during the first quarter of 2026 compared to last year's first quarter, which was primarily due to increases in movie theme merchandise sales and incidence rate as well as inflationary price changes. Our top 10 films in the quarter represented approximately 62% of the box office in the first quarter of 2026 compared to approximately 66% for the top 10 films in the first quarter last year, with film costs as a percentage of admission revenues effectively flat for the first quarter compared to the prior year. Theater division adjusted EBITDA during the first quarter of 2026 was $8 million, an increase of $4.3 million. The year-over-year increase in adjusted EBITDA was negatively impacted by $5 million due to the fewer operating days. And on a comparable calendar quarter basis, theater division adjusted EBITDA increased $9.3 million. Turning to our hotels and resorts division. Revenues were $61.4 million for the first quarter of 2026, up $100,000 compared to the prior year. Total revenue before cost reimbursements at our 7 owned hotels decreased $600,000 or 1.1% compared to the first quarter of fiscal 2025. The 5 fewer operating days negatively impacted hotels revenue growth by approximately $3.1 million. On a comparable calendar quarter basis, excluding this impact, hotels revenue before cost reimbursements increased $2.5 million or 5.1%. RevPAR for our comparable owned hotels grew 13.7% during the first quarter compared to the prior year, which resulted from an overall occupancy rate increase of 8.9 percentage points, partially offset by a 3.4% decrease in our average daily rate or ADR. Our average 2026 first quarter occupancy rate for our owned hotels was 59.2%. Our occupancy rate increase benefited from the Hilton Milwaukee being fully back in service compared to the first quarter last year when the hotel was under renovation and guest rooms were out of service. We estimate that the impact of the renovation in the prior year favorably impacted our RevPAR growth by approximately 4 percentage points during the first quarter. According to data received from Smith Travel Research, comparable competitive hotels in our markets experienced a decrease in RevPAR of 2.9% during the fiscal first quarter of 2026 compared to the first quarter of fiscal 2025, indicating that our hotels outperformed their competitive set by 16.6 percentage points. After adjusting for the prior year impact of the Hilton Milwaukee renovation, we believe our hotels RevPAR growth outperformed the competitive sets by 11.5 percentage points, which we attribute to continued strength in group business as well as generally strong performance from our renovated assets. When comparing our RevPAR results to comparable upper upscale hotels throughout the United States, the upper upscale segment experienced an increase in RevPAR of 3.9% during our first quarter compared to the first quarter of fiscal 2025, indicating that our hotels outperformed the industry by 9.8 percentage points and by 5.8 percentage points when adjusting for the estimated prior year impact of the renovation. Food and beverage revenues decreased 2.1% in the first quarter of 2026 compared to the prior year and were negatively impacted by the decrease in operating days. Hotels other revenues decreased by $1.4 million or 9.2%, primarily due to a weaker ski season at Grand Geneva Resort & Spa and the impact of fees generated from an all hotel group buyout at one of our condo hotel properties in the first quarter of fiscal 2025, an event that doesn't happen every year and did not recur in the first quarter of 2026. Finally, hotels adjusted EBITDA decreased $1.3 million in the first quarter of 2026 compared to the prior year quarter, primarily due to a $400,000 impact from the 5 fewer operating days, lower other revenues resulting from the weaker ski season and the nonrepeating group buyout in the prior year, which included high-margin rooms and banquet and catering business and higher benefits costs. Shifting to cash flow and the balance sheet. Our cash flow from operations was a use of cash of $15.2 million in the first quarter of 2026 compared to cash used by operations of $35.3 million in the prior year quarter, with the increase in cash used primarily due to favorable timing of payments and accounts payable, higher EBITDA and a onetime benefit of $3 million from the sale of historic tax credits related to the Hilton Milwaukee renovation. As a reminder, our cash flow from operations in the first quarter is historically impacted by seasonal changes in working capital resulting from the slowdown in our business following the peak holiday season and by the timing of various year-end accounts payable and compensation payments. Total capital expenditures during the first quarter of 2026 were $6.6 million, a $16.4 million decrease compared to the first quarter of fiscal 2025. Our capital expenditures during the first quarter were primarily invested in maintenance and ROI projects in both businesses. Our capital investments and projects have progressed as planned, and we continue to expect capital expenditures for 2026 of $50 million to $55 million, and we will update our capital expenditure estimates throughout the year. As we discussed last quarter, we continue to expect this decrease in capital expenditures to result in a significant increase in free cash flow in 2026. And this played out as expected in the first quarter with a $36.5 million improvement in free cash flow compared to the prior year. Our balance sheet remains strong, and we ended the first quarter with over $11 million in cash and over $194 million in total liquidity with a debt-to-capitalization ratio of 28% and net leverage of 1.7x. Our strong balance sheet and confidence in our businesses gives us the ability to continue investing in our businesses and pursuing growth while returning capital to shareholders through our quarterly dividend and opportunistic share repurchases. During the first quarter, we repurchased approximately 87,000 shares of our common stock for $1.3 million in cash. We will continue to allocate capital with a balanced approach that supports our strategic priorities while pursuing investments that provide the most attractive long-term returns to shareholders. With that, I will now turn the call over to Greg. Gregory S. Marcus: Thanks, Chad. Good morning, everyone. We entered the year with a plan for projected growth in both of our businesses. In theaters, we expected a stronger film slate in 2026, coupled with improvements in per capita sales to drive growth in the theater division. In hotels, we expected our recently renovated properties to drive outperformance within our competitive sets after several years of significant investment in an overall stable macroeconomic environment. We're happy to report that the first quarter generally played out a little better than we expected with strong outperformance in both divisions. Theaters led the growth and improvement in our results on a better-than-expected box office and hotels continue to grow RevPAR and revenue with outperformance being driven by our renovated hotels. As Chad discussed, we were able to overcome the headwind from having fewer operating days in the quarter, which was no small feat considering the week of the year that those days fell in the first quarter last year. With the normal seasonal headwinds in our hotel business, the first quarter is always challenging. So it's incredibly helpful when we're able to get off to a good start as we did this quarter. The first quarter that we are reporting today continues to make year-over-year progress, and we're pleased to be sharing these results with you. I'll start with the theater division. Our theater division got off to a much stronger start than last year and what a difference a year makes. A stronger film slate drove significantly higher attendance for the comparable quarter with a combination of solid carryover performances from several holiday films, successful original family films in Hoppers and Goat and a major tentpole in Project Hail Mary that delivered blockbuster results, all contributing to deliver the best first quarter in the U.S. box office since the pandemic. This quarter was a great reminder of what is possible with better product supply when there are several things working at once. It also demonstrates that audiences will come out whenever there are good movies, not just during the peak summer and holiday periods, and the industry needs to continue to fill in the slate across the calendar. The first quarter national box office was up over 21%, and there is still a lot more opportunity for further growth with additional products in the future. As Chad discussed, we continued to realize strong per capita growth during the quarter with average ticket prices benefiting from our ongoing price optimization efforts and continued growth in merchandise sales, which are included in our concession revenues. Last quarter, I shared several initiatives we are executing this year to drive per capita sales growth. As an update, we have now completed our rollout of tap-to-pay terminals to all ticketing and food and beverage points of sale, both in-store and our mobile wallets for our digital purchasing channels. This week, we will complete the rollout of in-seat QR code mobile food and beverage ordering to all 20 of our dine-in theaters, which we believe makes food ordering faster and easier for customers. Looking ahead, we continue to work redesigning a best-in-class food and beverage digital purchase experience in our mobile web and app for all theater locations that we expect to roll out in time for the holidays later this year. A couple of weeks ago, we were with our theater team at CinemaCon, and once again, our studio partners, film directors and talent all continue to reaffirm the importance of theatrical exhibition and our critical role to the overall movie and media ecosystem. After years of experimentation and discussion around the length of the exclusive theatrical window, I believe we have reached an inflection point and recognition by studios and distributors that a longer theatrical window enhances the overall performance of films across the ecosystem, and we applaud the significant announcements from major studios, including Universal, Sony and Paramount, extending or committing to minimum exclusive theatrical windows. While the industry has more work to do on windows and improving product supply, we are heading in the right direction. Second, we got a closer look at the film slate for the rest of the year and into 2027, and we remain very optimistic about the coming attractions. The momentum from the first quarter continued into April with the blockbuster success of Super Mario Galaxy movie and last weekend's record opening of Michael, getting the second quarter off to a solid start. We kicked off the summer movie season this week with the opening of The Devil Wears Prada 2, which will be followed by a number of big titles, including Mortal Combat 2, Star Wars: The Mandalorian and Grogu, Super Girl, The Odyssey and Spider-Man: Brand New Day. I am particularly excited for the widely appealing family features such as Toy Story 5, Minions & Monsters and Moana. The fall and holiday film slate is also exciting with Avengers, Doomsday, Dune: Part Three and Jumanji: Open World, just to name a few. There are many more great films coming noted in today's earnings release. Looking even further ahead, the 2027 film slate also looks strong with major franchises, including Shrek 5, Star Wars: Starfighter, Minecraft 2, Frozen 3, The Batman Part II, Sonic the Hedgehog 4, Spider-Man: Beyond the Spider-Verse, Man of Tomorrow, The Legend of Zelda, Avengers: Secret Wars and many more. We are excited about the momentum that is building in theaters and the film slate ahead in the coming years, and we remain very positive and optimistic about the long-term future for the industry and our theater business. Moving to our hotel and resorts division. You've seen the segment numbers and Chad shared some additional detail on the performance metrics, including our outperformance to our competitive sets and upper upscale hotels nationally. We have made significant investments in several of our hotels over the last 3 years, and we continue to see customer demand for newly renovated room product and freshly redesigned meeting and event spaces. These amenities allow us to drive strong rates and outperform within our markets, and our sales teams have done a great job capitalizing on this opportunity. As we've discussed in past years, there is significant seasonality in our hotel business given that most of our company-owned hotels are located in the Midwest. We often lose money in this division during the winter months as was the case this year with adjusted EBITDA that was slightly negative. In addition to having fewer days in the quarter, there were headwinds from a few items in the first quarter of fiscal 2025, including Milwaukee hosting the men's NCAA basketball tournament, an all-school -- I'm sorry, an all hotel group buyout at one of our condo hotels last year and favorable weather for ski season that did not recur this year in the first quarter. This is the nature of event-driven group rooms business. And while we did not see these events repeat this year, these are similar events will likely return in the coming years. There were a few notable items in the quarter I would like to highlight. While average daily rates decreased around 3% in the first quarter, this was not unexpected and was primarily driven by 2 factors. First, all of the Hilton Milwaukee rooms are back in service, resulting in less rate pressure with more room supply. This contrast to last year when we were able to create some rate compression in the Milwaukee market with the reduced available room count due to renovation. And second, at Grand Geneva, the weaker ski season resulted in weekend transient demand that was softer and resulted in lower rates compared to last year. The decrease in rates was more than offset by the significant increase in occupancy from the Hilton Milwaukee rooms back in service, resulting in overall RevPAR growth of 13.7%. Group bookings remain stable with our group room revenue bookings for 2026 or group pace in the year for the year, running approximately 5% ahead of where we were at this time last year. Looking a bit further ahead to 2027, group room pace is running in line with where we were at this time last year for the next year out. Although this far out, the timing of bookings can vary significantly. Banquet and catering space for the remainder of 2026 is running in line with where we were at this time last year. As our hotel division heads into the busier spring and summer travel months, we believe we are well positioned to win in our markets. While transient demand has remained healthy, it is important to acknowledge there continues to be an elevated level of economic uncertainty with recent volatility in key travel costs, including gas prices and airfare. If market conditions change and we begin to see softness, we are prepared to react and adjust quickly. Before we open the call up for questions, I want to once again thank all the people that work so hard every single day, making our ordinary days extraordinary for our guests. We talk a lot about the investments that we make in our businesses, but we can never lose sight of the fact that our people are our most important asset, and they proved that once again this quarter. With that, at this time, Chad and I'd be happy to open the call up for any questions you may have. Operator: [Operator Instructions] Your first question comes from the line of Drew Crum of B. Riley Securities. Andrew Crum: Greg, you provided an update in your preamble on the various initiatives you've rolled out or plan to launch over the course of the year to drive concession revenue. Any early learnings or observations you can share just the overall receptivity on the part of your patrons to these? And maybe for Chad, is the 2% cap rate reported in 1Q a good quarterly run rate to think of as you progress through the year? Gregory S. Marcus: I'll go first with the question on what we're seeing. We see a number of things. One is the QR codes are being very well accepted, and we're happy with how that's going. That makes for a better experience for everybody. If nothing else, we get better customer service because it's really interesting. One of the things that could happen is if you order and you don't sit in the right seat and your food is delivered to the seat that you ordered it to, you don't get your product and then everybody is unhappy. And so we were seeing better efficiency, if nothing else, with people going to their seat and they -- because the QR code is linked to their seat. So the food arrives, it arrives hot and it just makes the whole operation much better. So that's very helpful. The other thing that we've seen, and I don't have a number to give you yet, but I think we talked about before, one of the -- I talked about how we're really working to develop a best-in-class food and beverage experience for our customers' ordering experience digitally because we know that basket sizes are larger when people order digitally. And primarily that comes from that never missing on whether it's an upsell. If you've got 10 people deep in a concession line, you're just trying to get through a Friday night, you may not be -- you may not always try to upsell that medium soda to a large. But digital, that never misses. And we have a whole -- I think we can't do even live. It's a last chicken saw, last time offer, we call it. So before you check out, oh, do you want a popcorn with that soda? Do you want whatever it might be with that, a dessert with your food? And so we're able to do that suggestive selling and upselling much better digitally. So we feel with that and then making the whole experience more frictionless for the customer, we're going to have an opportunity to increase our concession sales. Chad Paris: Yes, Drew, on the concessions per cap increase, we said last quarter, we're trying to get to low single digits. We were at 2.4% in the quarter. I think that kind of 2% to 3% range is probably about right. And in terms of the way we're getting there, we're trying to get to that 3% with just inflationary pricing and growing another point or so with the results of some of the initiatives that Greg has just talked about by increasing incidents and by increasing basket size. So that's -- I think that's a reasonable number for purposes of modeling. Andrew Crum: Got it. Okay. Very helpful. And then just one follow-up on the hotels business. Can you address the divergence between rooms and food and beverage revenue? I think you mentioned there were fewer operating days that impacted the food and beverage figure. But was there anything else that drove the divergence between the 2? Chad Paris: There was. The one item that sticks out aside from the days difference which some of those days come between the holidays and we actually do get a fair amount of F&B business in that period. But the all group hotel buyout that we had in one of our properties that I mentioned in my remarks, actually had a very heavy F&B component. That's a piece of business that we don't get every year. We had it last year. We had it 3 years earlier. It's on its own cycle. And so that had a heavier F&B impact than we normally would have had. Operator: Your next question comes from the line of Mike Hickey of StoneX. Michael Hickey: Chad, congrats guys on a great 1Q. Just a few. First on windows, Greg, good to hear from you that you're excited. I think last year, there were some big plans, but I think we felt stuck too on windows moving anywhere positive. So just curious how impactful you think this new windows is sort of when you think the consumers' behavior might change and maybe the future of windows because it seems like this year at CinemaCon, there were a few studios talking maybe even longer windows. Gregory S. Marcus: Yes. Look, I'd start with -- what's the word in the financial community, the trend is your friend. I'd say that the trend is our friend here. This is -- but it didn't just happen overnight. I credit Michael O'Leary at the Cinema United but really starting to really raise the issue publicly a year ago at CinemaCon and say, this is really important. So this is not something that happened overnight. It's an education. It's an understanding. It's the evidence that we see on the importance of a window. And let's be very clear, studios control the window and the studios are not doing -- it just not charity, the theater business. They know that a help of theatrical business is good for the overall ecosystem, and it maximizes the value of their product. That whole concept that we've talked about many times, windowing, selling the same thing to the same person over and over again. Well, if you match those windows too tight together, you lose that second or third or fourth sale. But if you create some space, not only do you get people who pay more -- remember, the other concept of windowing is important is a high -- that you start with your highest per capita set of eyeballs. And to the extent that you trade somebody paying $12, $15, whatever it might be, to putting 5 people in the room splitting $20, it's a much better deal to catch those per capita eyeballs and nothing else, and then you get that second sale on top of it or that third sale when somebody consumes it in a transactional video-on-demand or a streaming video-on-demand environment. And so I thought that -- and the other thing, too, is you don't have people saying, well, I'll just wait for it at home. And we've been very clear to say that, that very short 17-day window is one of the contributor -- was one of the contributors to this idea that because people don't -- they're not paying enough attention. They just hear at home now. They don't know that it's $20. They get something in their e-mail saying, "Hey, get it now." It doesn't say it's -- and they maybe don't pay enough attention. It just feels like it's coming so fast. So stretching that out, continuing to educate the customer that stretched out is really important. And Universal who just recently made the announcement that they are going to move back from their pandemic era experimentation and go to a standard -- go to 45 days, I thought was unbelievably important and signals that, and you've got Tom Rothman of Sony saying it's theatrical is important and for theatrical to be healthy, it has to have a window. And so as Stephen Spielberg said 45 days is a good start, but how about 60 or more? And I would presently say an easy way to explain that, I think, is my mantra should be 2 and 5. That's 2 and 5, 2 months for transactional, 5 months for streaming video-on-demand. So I'm for the 2 in 5 model. Very simple to understand for everybody. And I think it will be good for theatrical and what's good for theatrical will be good for the overall ecosystem. Michael Hickey: Right. Obviously, on the concession side, you've really been doing some cool tech and it looks like you're getting progress there. Curious on the seating side, if you see any sort of innovation or enhancements you could do on seating. And also curious about the Infinity vision. It looks like sort of a mixed reception from operators on Disney certification. Gregory S. Marcus: Well, the -- on the -- let's start with the seating. Any new seating stuff that you -- there's de box, there's things like that, that can be experimented with. There's things we can do. I don't think there's anything huge that we're going to be able to do. We've had others experiment with just charging more for premium seats, and I don't know that, that went so well. But on the -- so I don't -- so there'll be on the margins, maybe a little bit here and there, but nothing sharing. I mean the recliner investment we made was so significant. And for us, it's great. We made ours with 2,000, let's call it, $15. So that I think has been very helpful for us. On the Disney thing, I'm not familiar with the exact details of it, although look, the ability to brand PLFs, it's very interesting if you think about it, I think the -- taking out IMAX out of the PLF. IMAX is a PLF. But taking IMAX out, I think that the footprint of PLFs in the country is double IMAX in size. And so, in any given weekend, the ability to unify that marketing effort, I understand why Disney is trying to do what they're trying to do. Now whether they'll be the ones to do it, I don't know. But there's power -- when you speak with one voice, you speak louder. Everyone getting together to speak with one voice is much more effective. And so I see -- I understand what they're trying to do, whether that's the model that works, I don't know, but I'm not against the idea. And so that's my feeling on that. Michael Hickey: Nice. Last question on free cash flow. Obviously, it looks like you're inflecting this year. Just curious, Chad, your confidence there. Obviously, that's really resonating with investors. So post 1Q, after a strong quarter, I'm guessing you're more enthusiastic, but I love to hear from you and then how you're thinking about carrying that into '27. Chad Paris: Yes. Mike, I think we feel really good about it because we control the CapEx spend. We've got a $30 million planned decrease with our current guide on CapEx. And so that alone will provide a meaningful uplift and that if the business is flat, and we don't expect the business to be flat. And getting off to a really good start in Q1 certainly helps. So 3 quarters to go, but in terms of confidence, I feel good. Gregory S. Marcus: I want to just build -- I want to add one thing, Mike, on your question about premium large format, and that is one thing that's not lose sight of and that is still 80% of our business is regular traditional screens. And that's a customer that we -- theatrical has always been known as the least expensive form of out-of-home entertainment. It's a cheap date, so to speak. And I think we always have to remember that. And I think in our theater, specific to our platform, we have probably the highest incidence of PLF in the industry. And yet we also have a very robust discount program with our Tuesday program and our Marcus Movie Club. And I like to think about it as we've talked about this before, learnings from our hotel business, the right price for the right customer at the right time. And so our averages look sort of in line, but I think that our -- we offer a real wide breadth of opportunity for our customers. Operator: Your next question comes from the line of Eric Wold of Texas Capital Securities. Eric Wold: A couple of questions. I guess first on the hotel and resorts division, now that you've completed the renovation of Hilton Milwaukee, maybe talk about the level of rate hikes that your rate increases or that you're looking to kind of push through that you have pushed through at that property maybe around both kind of group and leisure travel and how that compares to kind of what you're able to push through following a Pfister renovation a couple of years ago? Chad Paris: Yes, I can take that one. So we absolutely have seen uplift from both group events that we're able to win and book into renovated properties. We're winning that business, and we're getting an uplift in transient rates that's driving growth in ADR at those properties. As a general rule, Eric, I would say we're in the range of 10% to 15% on rates after we do make rooms renovations like this. And that's across our experience on the 3 major renovated properties, the Pfister, Grand Geneva and now Hilton Milwaukee. But there's no doubt you -- once the customer knows that room product has been refreshed and you are the desired asset in the market to stay at, you get to take share and you're commanding premium rates to do so. Eric Wold: Got it. And have you seen any reaction from others in the market on their pricing when you've taken rate changes? Or are they kind of playing catch up a little bit given the lack of remodel? Chad Paris: I can start and then Greg can add his thoughts. I mean, I think at the end of the day, it's a perceived value on the quality of the product and the customer is making a choice on what experience they want to have. And it's a dynamic pricing business. We're continuously adjusting prices based on where we see that demand. And I think others in the market are doing the same. And so we're able to capture a premium because there is demand for the renovated product. I would believe that others are hurting from that loss of demand, and they're adjusting prices to try to capture volume. Gregory S. Marcus: The other thing too that could happen is, it may not look on its face as if the rates are going up as much because it can also be a mix of business thing, too, that you may not see like just looking at the rates. And so our rates do go up, and you can't see it specifically in like a [ Star ] report because they don't divulge the specific hotels rates. But you can see that our rates are improving because we're moving out lower-rated business out of a hotel like the Hilton where we have so many rooms, and we're able to move that business -- that lower-rated business out. Eric Wold: Got it. And then just the last question, kind of a follow-up on the free cash flow question from earlier, given kind of the understanding there's kind of a relative lack of transaction activity in both the exhibition and hotel segments, I guess how aggressive would you be willing to be on share repurchases as that cash flow grows? Do you feel you need to build up a war chest in case transaction activity picks up? Or are you kind of really comfortable where your leverage is and possibly leveraging up for the right opportunity? Chad Paris: Yes. I think we tend to have a very balanced approach. We're opportunistic when we see really attractive opportunities to buy back shares. We've leaned in and we've done that. But we are trying to maintain some dry powder to give us the ability to go and move quickly, which I think is one of our advantages in M&A. And we have seen across both businesses, some activity. And so far, nothing has resulted in deals, but we're trying to maintain a balance. Operator: [Operator Instructions] Your next question comes from the line of Patrick Sholl of Barrington Research. Patrick Sholl: I was just wondering if you could maybe talk about how you're evaluating the leased footprint of your theaters and maybe just in general, kind of with the box office expectations for 2026 and 2027, how you kind of evaluate the overall screen base both within markets, but also kind of the industry overall? Chad Paris: Well, I'll take the first part of that question on our footprint and Greg can layer on about the industry. I mean, portfolio management is an ongoing part of our operating process, really. We're constantly looking at the store level performance of all of our locations, both our owned real estate, which is a little over 60% of our theater screens, even higher percentage of our cash flow in that business. And then our lease locations as well. And as leases mature, that gives you the opportunity to reevaluate investments in those properties and renegotiate terms, which tends to be necessary because many of the leases were negotiated on a pre-pandemic box office. And so that's an ongoing process. Historically, we've had a preference to own real estate, but we've certainly done M&A where often you're looking at acquiring leases as part of the deal. So it's more about what's the actual financial performance, whether it's after rent or after a return on our invested capital in the real estate is how we look at it. Gregory S. Marcus: Overall, it is -- we've talked about this before, there's a lot of leases that are very expensive compared to the level of business, which leaves me the point of there's been -- we talked earlier about windows and the 2 factors that really will be very helpful to getting the business in a good place, and that is in a better place. And that is, one, it would be to have windows extend. And the other is getting enough product in the pipeline and enough product on the shelves. Right now, we've got some room on the shelves. And so to the extent that we can get a full year's calendar's worth of films that will drive more sales and then those leases will start to look better. Otherwise, people will be trying to figure out what to do with some of the space in their theaters to some of the bigger ones. We've been -- we are different. We've been very conservative about how big we build our theaters for the most part. And so we don't see that as much. Patrick Sholl: Okay. And then maybe just on concessions. To the extent that like the film slate is a healthy contributor to incidents or on the merchandise side, I guess when you look at the upcoming film slate or maybe just sort of like the broader expansion of that film slate, as the film slate kind of like broadens out, do you think it would be similarly supportive of concession per cap? Or do you think that could -- as it maybe expands out, would that be a headwind? Or is that probably just too soon to tell? Chad Paris: And your question, Pat, is specifically around merchandise? Patrick Sholl: Broader concession activity. Gregory S. Marcus: It all depends on the mix of films. The right mix of films will drive better per cap. That really is what it comes down to in any given year. And I think -- but over time, that does tend to even itself out. I don't think there's anything that would -- more films wouldn't drive down per cap. Chad Paris: And then because merchandise is a component of our concessions and food and beverage per cap, merchandise tends to lend itself to more event-driven type of product. And so in any given period, when we've got a heavy mix of big event films, we are seeing more merchandise sales that provide some uplift in those periods, which gets back to Greg's point on product mix being part of this. Operator: At this time, it appears that there are no other questions. I'd now like to turn the call back to Mr. Paris for any additional or closing remarks. Chad Paris: We'd like to thank you once again for joining us today. We look forward to talking to you again in early August when we release our 2026 second quarter results. Until then, thank you, and have a good day. Operator: That concludes today's call. You may now disconnect. Goodbye.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to this morning's Belden's Reports First Quarter 2026 Results. Just a reminder, this call is being recorded. [Operator Instructions] I would now like to turn the call over to Aaron Reddington. Please go ahead, sir. Aaron Reddington: Good morning, everyone, and thank you for joining us for Belden's First Quarter 2026 Earnings Conference Call. With me today are Belden's President and CEO, Ashish Chand; and Executive Vice President and CFO, Jeremy Parks. Ashish will provide an overview of our first quarter results before turning to a discussion on today's announcement that Belden has entered into a definitive agreement to acquire Ruckus Networks from Vistance Networks. Jeremy will discuss the financing aspects of the transaction and our immediate delivering plans. We issued press releases related to our earnings and this transaction announcement earlier this morning and have prepared slide decks for both announcements. These materials and a transcript of our prepared remarks are currently available online at investor.belden.com. Please note that the presentation used during today's call is the transaction announcement presentation. The regular earnings presentation is loaded to our website for your reference. Turning to Slide 2. I'd like to remind everyone that today's call will include forward-looking statements, which are subject to risks and uncertainties as detailed in our press releases and most recent Form 10-K. We will also reference certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures can be found in the appendix to our presentation and on our website. And now to Ashish. Ashish Chand: Thank you, Aaron, and good morning, everyone. This is a significant day for Belden, and we appreciate you joining us. Today, we announced an important step in our solutions journey, an agreement to acquire Ruckus Networks, a market-leading provider of Wi-Fi and enterprise switching solutions. This transaction directly accelerates our evolution into a full stack IT/OT networking solutions provider. Ruckus brings industry-leading wireless and switching technology that our customers in hospitality, education and health care are actively demanding and that we soon will be empowered to deliver as part of a complete end-to-end networking solution. Equally important, these same capabilities create a compelling opportunity to bring high-performance wireless and switching to our industrial customers who are increasingly looking to converge their IT and OT environments. Together, Belden and Ruckus will offer something no single competitor can match, a complete active and passive networking solution spanning the industrial edge to the enterprise campus. We're excited about what this means for our customers, our partners and our shareholders, and we look forward to sharing more details on the transaction today. Before we do that, let me cover the highlights of our first quarter results on Slide 4. In short, we had a strong start to the year in the first quarter. Our team executed well, and we continue to build on our momentum with healthy year-over-year organic growth in key verticals. For the first quarter, both revenue and adjusted earnings per share exceeded the high end of our guidance range. Revenue totaled $696 million, up 11% compared to the prior year, and adjusted EPS came in at $1.77, also up 11% compared to the prior year, demonstrating the earnings power of our growing solutions portfolio. Revenue for the quarter increased 7% organically year-over-year with growth across all our markets in major regions. The Americas were particularly strong with the U.S. up high single digits year-over-year. Across our market categories, automation delivered solid mid-single-digit organic growth with broad-based gains in key verticals, including discrete and energy. Smart buildings grew double digits organically, propelled by momentum in our priority verticals and accelerating solution adoption. Broadband rounded out the quarter with mid-single-digit organic growth during a seasonally slower period. Our profitability continues to strengthen. Adjusted EBITDA was $118 million, up 14% year-over-year, and adjusted EBITDA margins expanded 40 basis points to 17%, reflecting our growing solutions mix and continued operational leverage across the business. As we discussed last quarter, we continue to pass through copper and tariff-related costs, which modestly diluted our reported margin percentages. Excluding these pass-throughs, adjusted gross margins were flat and adjusted EBITDA margins expanded approximately 100 basis points year-over-year. Incremental EBITDA margins once again aligned with our target range, underscoring the operating leverage in our model. At the same time, we are continuing to invest in the foundation of the business, putting capital into capacity, footprint optimization and our back-end systems to scale solutions delivery and support long-term growth. Turning briefly to guidance. Assuming a continuation of current market conditions, we expect second quarter revenue of $735 million to $750 million, GAAP EPS of $1.53 to $1.63 and adjusted EPS of $1.95 to $2.05. Underlying demand signals remain encouraging, though near-term visibility is limited and the macro environment remains fluid. Our outlook reflects a balanced, measured view consistent with typical seasonal patterns. This guidance is provided on a stand-alone basis and excludes any contribution from the proposed Ruckus acquisition. Taken together, these results reflect the momentum in our solution strategy. Customer demand for integrated IT and OT networking solutions is accelerating, and we are well positioned to capture that opportunity. This was another quarter of consistent execution, reinforcing our confidence in our outlook and long-term strategy. Turning to Slide 5. I want to take a moment to reflect on the journey that has brought us to today's announcement because context here is important. When we began our solutions transformation early in 2020, we made a clear commitment to investors that we would systematically transform Belden from a product-centric company into a solutions-driven provider of integrated networking infrastructure, and we would do it in a measured, disciplined way that created lasting value for our shareholders. The results speak for themselves across four clear objectives. First, we said we would deliver consistent financial results with healthy growth, and we have. Since 2019, we have grown revenue at a 5% CAGR to a record $2.7 billion in 2025. At the same time, we grew adjusted EPS at a 12% CAGR to a record $7.54 in 2025. Second, we said we would advance our solutions offerings to transform the business. Solutions reached 15% of total revenue in 2025, on track to achieve and even exceed our 2028 target, a target that today's announcement accelerates meaningfully. Third, we said we would expand profitability while continuing to invest in growth. Adjusted EBITDA margins continue to expand with incremental margins consistently in the 25% to 30% range, demonstrating the operating leverage embedded in our business model. And fourth, we said we will deploy capital with discipline and purpose. Throughout this journey, we have repurchased over $700 million of outstanding shares while simultaneously executing multiple strategic acquisitions to build out our solutions portfolio. Each of these steps has been deliberate and interconnected. The solutions mix growth drives margin expansion. Margin expansion generates cash flow. The cash flow enables disciplined capital deployment. And finally, capital deployment, including today's announcement, further accelerates the transformation. This is what executing on a multiyear solution strategy looks like. And today's announcement is a logical next step as we look to strengthen our solutions offerings with active products that have a strong market presence in our priority enterprise verticals. Now please turn to Slide 6. Before I walk through the details of the Ruckus transaction, I want to be clear about something important. Our strategy has not changed. What you see on the slide is exactly what we committed to on our last Investor Day, and it is exactly what we are executing against today. Four pillars: growing our portfolio of best-in-class networking and data products, advancing our solutions capabilities, enhancing growth with selective M&A and delivering long-term earnings and free cash flow growth. Each of these is progressing. Our product portfolio continues to strengthen. We are seeing increasing adoption of our integrated offerings and our solutions pipeline is growing as customers look for more comprehensive end-to-end capabilities. Our margin profile remains solid, supported by favorable mix and continued operating leverage even as we invest in innovation and go-to-market capabilities. And on Pillar three, selective M&A. This morning's announcement is a direct and deliberate expression of that commitment. As we've shared previously, our M&A pipeline has been focused on closing key gaps in our technology stack that strengthens our solutions offerings, including wireless capabilities, expanding access to customers pursuing IT/OT convergence and enhancing our software platform. Ruckus advances all three. The Ruckus acquisition is not a departure from our strategy. It is our strategy executed at scale. It fills a critical gap in wireless and enterprise switching capabilities, expands our addressable market and accelerates our ability to deliver the end-to-end IT solutions our customers are asking for. Taken together, these four pillars reinforce that our transformation is on track, our execution is consistent and that we are building a stronger, more durable business. With that foundation in mind, let me now turn to the details of the Ruckus transaction. Now please turn to Slide 8. This morning, we announced that we are acquiring Ruckus Networks from Vistance's Networks for approximately $1.85 billion in cash. Simply put, this is a pivotal acquisition for Belden and is a major step towards building the most complete IT-OE networking platform in the market. Ruckus Networks is a market leader in enterprise Wi-Fi and switching with 48,000 customers globally across many of our existing target verticals. Ruckus immediately strengthens our financial profile and puts us on a trajectory to exceed our 2028 solutions mix target. The combination creates a unified platform that is well positioned to take advantage of customer demands as IT and OT continue to converge. Now on to Slide 9. Ruckus is a market leader, and that leadership is what drew us to them. Their technology portfolio is best-in-class, first to market with enterprise Wi-Fi 7, a leading enterprise switching portfolio and unified wired and wireless management offerings. These are not incremental capabilities. They are differentiated and they're exactly what our customers are asking for. Their vertical presence is equally compelling. Hospitality, education, health care, warehousing and manufacturing are also core Belden verticals and align nicely with our existing footprint. Ruckus has deep roots with 48,000 customers globally and strong channel partnerships built over many years. That installed base represents an enormous opportunity for Belden. And the financial profile speaks for itself. $687 million in revenue last year with gross margins above 60%. That is immediately and structurally accretive to Belden's margin profile and earnings power. Finally, Ruckus has a strong experienced team of over 1,700 employees. I've gotten to know their leadership well, and I look forward to combining our teams to deliver an even more compelling offering for our customers. Turning to Slide 10. The most powerful long-term driver of this transaction is IT/OT convergence. Today, customers increasingly operate in environments where enterprise and industrial networks must seamlessly work together, and they are looking for partners who can deliver across both worlds. The combination of Belden and Ruckus positions us to do exactly that, creating value in several important ways. First, Ruckus is a significant growth catalyst that meaningfully expands our addressable market. Their industry-leading Wi-Fi and enterprise switching strengthen our solutions momentum across priority enterprise verticals, including hospitality, education and health care, whilst bringing world-class active networking in markets where Belden already has deep customer relationships and trusted brand presence. Second, it extends Ruckus' high-performance platform into our industrial base where demand for converged IT and OD connectivity, including edge capabilities and the enablement of physical AI at scale is accelerating rapidly. And finally, it creates an immediately compelling financial profile with accretion to gross margins, EBITDA margins and adjusted EPS, a meaningful step-up that advances our progress against our long-term financial framework. Please turn to Slide 11. And I want to spend a moment here because this slide tells you exactly why we believe this is the right transaction. At a high level, the two product portfolios are highly complementary. -- where Belden is strong, passive infrastructure, OT wireless and industrial switching, Ruckus has minimal presence. And where Ruckus leads in enterprise wireless and enterprise switching, we have been actively looking for complementary capabilities to round out our portfolio. This is not an overlap story. It is a completion story. Our customers in hospitality, health care and education have been clear about what they need, a single trusted partner capable of delivering both the physical infrastructure and the high-performance wireless and switching layer on top of it. Ruckus gives us exactly that capability. Their Wi-Fi and enterprise switching platform is purpose-built for these high-density mission-critical environments, and it maps directly to the customers we've been working to win. The opportunity runs in both directions. Ruckus' technology can also be extended into our extensive industrial customer base, customers who are actively converging their IT/OT environments and need exactly this kind of high-performance wireless capability. Combined, we deliver a complete higher-value end-to-end active networking solution spanning enterprise campuses, high-density public venues and industrial facilities. Now turning to Slide 12. Why Ruckus and why now? The answer starts with Ruckus itself. As of deliberate investment in sales, technology and go-to-market are now translating into accelerating commercial momentum. Their Wi-Fi leadership positions them at the forefront of a multiyear upgrade cycle across both enterprise and industrial environments. And their AI-driven cloud networking capabilities are increasingly what customers demand. Ruckus is at an inflection point, and we intend to capture it. The strategic fit is equally compelling. Customers today require secure, interoperable solutions that span both IT and OT environments. Together, Belden and Ruckus deliver exactly that, a complete wired, wireless and software networking solution. As the economics are attractive, we are acquiring a high-growth, high-margin asset at a disciplined entry point, and Jeremy will walk through the financial details in a moment. We are excited about the significant growth opportunity this acquisition provides us with and look forward to closing the transaction in the second half of the year. With that, I'll turn it over to Jeremy to provide insight into the financial aspects of the transaction. Jeremy Parks: Thanks, Ashish. Turning to Slide 14. This is a disciplined and financially compelling transaction. We are acquiring Ruckus for approximately $1.85 billion in cash, representing 13x projected 2026 adjusted EBITDA. This is an attractive entry point given the company's growth profile and margin structure. Ruckus operates with gross margins of approximately 60%, which are significantly higher than Belden's current margins, reflecting their highly differentiated active product portfolio. This provides an immediate uplift to our consolidated margin profile. The transaction accelerates growth, expands margins and is accretive to adjusted EPS immediately following close. We will share additional details on our expectations at a later date. To finance the acquisition, Belden has obtained fully committed debt financing from JPMorgan, which provides flexibility to optimize our permanent capital structure between signing and closing based upon market conditions. This transaction has been approved by both Boards of Directors. And as Ashish mentioned, we expect to close in the second half of 2026, subject to customary closing conditions and regulatory approvals. Finally, I want to be clear about our capital allocation priorities post close. Delivering will be our top priority. We have a clear path to rapid reduction in our leverage, which I will walk through when we get to Slide 16. Turning to Slide 15. The strategic and financial impact of this transaction is significant. And most importantly, it is a leap forward in our solutions transformation. Together, Belden and RUCKUS will deliver high-value differentiated solutions that strengthen our existing offerings and meaningfully expand our addressable market. On a 2025 pro forma basis, RUCKUS represents approximately 20% of combined revenue and importantly, takes our solutions mix from 15% to over 20% of the business, accelerating our progress against our 2028 solutions mix target. Financially, Ruckus brings a high-quality profile to the combined company with high single-digit revenue growth, gross margins above 60% and EBITDA margins of 20% in the first full year of ownership, each meaningfully above Belden's current profile. As a result, the transaction is expected to be immediately accretive to earnings per share. The combination is a stronger, more differentiated solutions platform that meaningfully strengthens our financial profile. Now let's discuss the financing behind this transaction and our plan to deliver with Slide 16. As I mentioned earlier, our debt financing is fully committed by JPMorgan. We have a clear and well-defined path to bringing net leverage to approximately 2.9x by year-end 2027 and back to our long-term target of approximately 1.5x by year-end 2029, as illustrated in the chart at the bottom of the slide. That path starts with a strong cash generation profile. The combined business will have an adjusted EBITDA base of approximately $650 million, complemented by Ruckus' low capital intensity, which maximizes free cash flow conversion. Together, these drive a pro forma unlevered free cash flow base of more than $360 million, providing substantial capacity to pay down debt quickly. As we prioritize delevering, we intend to temporarily pause both share repurchases and strategic M&A until leverage returns closer to our long-term target. Throughout this period, our priorities are clear: disciplined execution of our combined business, continued investment in organic growth and rapid delevering to return to our long-term target capital structure. With that, I'll turn the call back to Ashish for closing remarks. Ashish Chand: Thank you, Jeremy. To summarize, we are highly confident in this transaction and the way it accelerates Belden's evolution into a full stack ITOE networking solutions provider across our target verticals and industries. We have strong conviction in our capability to successfully integrate Ruckus into our portfolio and believe that this transaction will create lasting value for our shareholders. I would like to thank the leadership teams at Vistance and Ruckus for their partnership throughout this process. Ruckus' people are central to the value of this business, and we are excited about what we can build together. I look forward to welcoming their more than 1,700 talented employees to the Belden family. Before we open the line for Q&A, I want to thank our entire team for their hard work and dedication to improving Belden every day. Today's announcement would not have been possible without their commitment to our solutions transformation and their continued execution at the highest level. Thank you all for joining us today. We appreciate your continued interest in Belden. With that, operator, please open the line for questions. Operator: [Operator Instructions] We'll take our first question from Rob Jamieson with Vertical Research Partners. Robert Jamieson: Congrats on the quarter and the acquisition. So I just want to start on RUCKUS. I mean this is -- sounds like a very highly complementary acquisition that's clearly going to help your acceleration on the Enterprise Solutions side. I just wondered if you could expand a bit more on how this aligns with the solution strategy a bit more. What does this bring to the portfolio? I guess more importantly, like what are some of the secular growth opportunities this will enable you to capture in like the near and medium term? Ashish Chand: Sure. And you're right, Rob. It certainly accelerates our strategy in terms of the enterprise markets, but I think it's equally compelling on the industrial side or the overall automation side. So -- the way to think about this is that we have made our vision really to provide our customers with the most comprehensive network solutions that can take them all the way from basic digitization all the way to autonomy, right? And it's digitization followed by harmonization, followed by convergence and then you get to autonomy. And convergence actually has a few aspects. So there's obviously the IT/OT convergence we talk about, which is the kind of big theme. But within that, there is a wired wireless convergence and there's also embedded security. And I think today's announcement really positions us to be a leader in terms of that IT/OT convergence plus the wired wireless aspect of it. So it's a fairly comprehensive solution. I don't think there's really anybody else in the market that has that full stack, the way we do. Obviously, the vertical markets Ruckus focuses on and Belden focuses on are complementary. So that's another -- it kind of -- it makes it more complete. And when you think about it from a customer's perspective, they are really looking for one single -- I'm going to say a single pane of glass, but one single system all the way from the industrial edge to their, let's say, IT data center. And I think that's the opportunity, right? It's really taking Belden to a different level in those conversations. And finally, it's the simplification. A lot of our customers don't have the expertise to deal with this complexity that comes from more velocity, variety and volume of data across many different types of pieces of the network. So getting it all together makes it simple, reduces total cost of ownership. So multiple, multiple reasons why this comprehensive IDOD strategy will work for us. Robert Jamieson: Perfect. That's very helpful. And then just as a follow-up, I know that this is going to accelerate the solutions-based mix. But where should we think about solutions as a percentage of total mix trending in the medium term? Is that going to be closer to like 30% as you look further out? And then also just on the slide of the software exposures here. Can you talk a bit about how and what RUCKUS brings from the software side and how that might align with or enhance the Horizon software platform? Ashish Chand: Yes. So on the first question, Rob, we'd articulated a goal of over 20% by 2028 in terms of solutions mix. We were already -- even pre-Ruckus, we were already on track to get there. As you know, we did 15% in 2025. I think in the medium term, it's more the 30-ish percent number that you mentioned. I think that's the right framework to keep in mind. That's what gets us excited about this opportunity, especially. And then in terms of the software, so I think there are 3 aspects of what is going on there. Let me start with the one that's the most exciting. So if you think about traditional Wi-Fi 6, which is more based on RF technology, as you get to more Wi-Fi 7, Wi-Fi 8, this has to become -- the technology has to become more deterministic and you need AI optimization really to make that happen. Otherwise, it's just too complex. So Ruckus is pretty advanced in terms of how they are working on that entire capability. And that's something we didn't have previously, right? So we had wireless products, but not with that level of AI-driven complexity. So that's an important addition to us. Second, Ruckus has a single Belden Horizon-like approach with their kind of software platform that does unified wired and wireless management. I think this is a great opportunity for us to combine that platform at some point with Belden Horizon. Horizon has certain vertical-specific capabilities. Ruckus is kind of more horizontally simplified. And I think there's -- there are positives and negatives that both will -- they'll cancel each other out and become more powerful. And then Ruckus obviously also has an offering which is more of a Network as a Service offering. And that's also something that Belden has started at a very basic level. I think Ruckus is at a more advanced stage here. It has more exposure to those IT vertical markets that demand it. So that's the third aspect of software that will come out of this transaction. Operator: We'll take our next question from William Stein with Truist Securities. William Stein: Ashish, I'm hoping you can talk a bit about the origin of this transaction relative to other ones. Is this sort of a sales or banking-led transaction? Or -- yes, let me just ask it in sort of an open-ended way. What was the origin of the transaction? Ashish Chand: Will, we've admired Ruckus for some time. As you know, we've talked about 3 areas where we need to build capability. One is edge, one is wireless and one is cybersecurity. And in that framework, we've always had a well-developed funnel. We've -- we've liked Ruckus for quite some time. This actually did not originate through a bank process. Really, this is something that at the right time, there was a mutual discussion. I obviously don't want to go into too much detail here in terms of specifics. But really, we saw the benefits of how this can become a big complementary acquisition for us. At the same time, the leadership at Vistance realized that Belden would be a good home. And I think that conversation progressed very well, matured in a relatively short period of time, and then we started this process. So I think it was more a mutual understanding of what we can bring for each other rather than anything else. William Stein: Okay. As a follow-up, I'm wondering, I would expect that Ruckus might have been a customer of your, let's say, the more passive elements of your portfolio. And then by extension, I would assume that Ruckus' competitors are also customers. Is that correct? And does that create -- I don't know if I want to say channel conflict, but some sort of conflict with customers as we consider the competitors to Ruckus? Or do I -- maybe I misunderstand. Any clarity you can provide on that would help. Ashish Chand: No, Ruckus, if you think of Ruckus' core offerings, it's enterprise switching and wireless systems and of course, the software portfolio that covers all of that. Ruckus is not actually buying anything from Belden. Now it's possible that some of Ruckus' installers when they deploy Ruckus products and solutions in the field, they may sit on some Belden passive networks. But frankly, that's a choice that changes project to project based on the systems integrator and installers. So no, there isn't really any conflict will hear in terms of Ruckus' competitors buying Belden products. If you think about Ruckus' competitors today, they actually do not -- I mean, I know this fact. We don't actually trade with them. But of course, they are in the industry. We sometimes work together on standards bodies. We collaborate on certain other things. But we also compete in some -- at some points in time because we have wireless in our industrial portfolio from the legacy Belden side. So it's pretty clean from that perspective, Will. Operator: [Operator Instructions] We'll take our next question from Mark Delaney with Goldman Sachs. Mark Delaney: CommScope previously owned RUCKUS and CommScope also historically had a presence in markets, including structured cabling as well as broadband. So I'm hop to understand if there are synergies available to Belden that weren't there for CommScope or more broadly, why you think the portfolio will perform better with Belden than it did in the past with CommScope before they sold some of their business lines to Amphenol. I think I guess similar to Slide 11 in the deck and some of your prepared comments, but if you could speak more on this topic, it would be helpful. Ashish Chand: Mark, that is an interesting question. I think it's got more to do with the maturation of the market and the trends that are emerging now, especially with the more complex demands of Wi-Fi 7, Wi-Fi 8, physical AI and how all of that will manifest, frankly. I think if you think about the CCS division of CommScope which is focused on structured cabling and broadband, they might have had some overlap with Ruckus in terms of end customers or there were very different buying processes at play 3 to 5 years ago and opportunities for synergy were limited from that perspective. I think what we've seen in the last 3 to 5 years is a lot more convergence. And I think it's accelerated significantly over the last, let's say, 18 to 24 months because of the whole idea that customers want to go towards autonomy and they need converged networks for that. So really, this is a more kind of recent phenomenon. That's one. I think the second thing is you might be right to some extent in that Belden had invested in the solutions selling approach maybe a little sooner than some of our competitors in the basic networking or passive networking area. So to that extent, maybe we are better positioned to benefit from the complementarity of this acquisition. So I think it's more market-driven, frankly, versus any specific capability or inherent weakness that CCS had. Mark Delaney: My other question was just on the existing Belden business. You mentioned positive underlying demand signals, but also somewhat limited visibility. I think your guidance is for relatively typical seasonality as you characterized it. So maybe if you could just speak a little bit more on the demand signals you're seeing in the current business and on balance, if it's strengthened or weakened over the last 90 days. Jeremy Parks: Mark, this is Jeremy. Yes, you're right. I think that we're forecasting or guiding a quarter that looks a lot like Q1 just with typical seasonality. As you know, we're a relatively short-cycle business. But in general, I think the trends in each of our businesses have been positive up to this point. I mean industrial seems like it keeps getting stronger. PMIs continue to go in the right direction. So I think from an end market standpoint, industrial is relatively healthy. Smart buildings has been doing fairly well. That's been growing now for the last 5 quarters or so organically at a pretty decent pace. It was up double digits year-over-year in the first quarter. And I would expect them to have a pretty good second quarter. And I think broadband will improve as we move throughout the year. So I think broadband will grow as well. I think the good thing is all 3 businesses were up at least mid-single digits organically in the first quarter. And I would expect things to kind of move along at that same pace in the in the second quarter. I think we're obviously always trying to be a little bit cautious when there's so much volatility in the macro environment. But I would say, as we sit here today, we feel good about the second quarter. Operator: And we'll go back to William Stein from Truist Securities. William Stein: I'm hoping you can give us any update on your exposure to AI infrastructure demand. A few quarters ago, this was an area that you spoke about with maybe one hyperscaler, one instance of their data center. And we've been hoping to hear about landing elsewhere and expanding in the place you are. So, hoping you can update us on that. And then along with that, any comments as to whether this acquisition would potentially improve your prospects in that end market? Ashish Chand: Yes. So, Will, we do see AI data centers as one of our top growth opportunities over the next few years, but of course, along with physical AI. So, I think of both of those as connected. They're not necessarily connected in terms of the sales process. But as you get more AI data center capacity, it enables eventually more physical AI in the field. So, what is FLIR -- so by the way, before I go into that, our AI data center business, it had good growth this quarter too. I think we were up -- data centers as a category was up double digits. So, it's been coming along pretty well. Our customers keep talking about the need for converged solutions in AI data centers. They don't want to focus on buying pieces and pulling them together. They want us to do that. This is, by the way, one of the reasons why we have integrated with OptiCool. You might have seen that announcement because that brings advanced cooling straight to the rack to support AI workloads. So we are approaching AI data centers with that converged offering. We haven't really focused on just supplying passive networks by competing on price. Those conversations take a little longer. You're really getting into the full build -- design and build cycle there. And we've had -- apart from that one big win we talked about, we've had consistently midsized wins every quarter. So it's a very, very consistent flow. And then, of course, linked to that will is the whole physical AI opportunity. And this is very exciting. I mean, as you know, at a very -- just as a summary reminder, we do enable closed-loop physical AI systems in collaboration with companies like Accenture, NVIDIA and other select OT technologies where we combine vision, digital twins, some real-time orchestration, et cetera. We talked about the security -- sorry, the safety fence example from the automotive customer. And we are very focused on delivering the full deterministic fully secured network, which will deliver the low latency time synchronized connectivity. So that's the focus. And there, we are doing a number of pilots right now. So very exciting. A lot of our customers want solutions that will integrate cameras, edge computing, software AI platforms, industrial connect and we've gone forward with a number of companies. Many of them, by the way, in the U.S. focused on bringing manufacturing back. But those pilots are underway right now. And I think between physical AI and the AI data center opportunity, we will see this emerging as one of our top growth opportunities, if not the top one. Operator: And we'll go next back to Mark Delaney with Goldman Sachs. Mark Delaney: On RUCKUS, are you able to share a bit more on the end market exposure specifically for that business? I imagine a lot of it is what would be considered enterprise for Belden. But I'm curious to what extent they're also selling into factories and industrial markets? And to what extent there may be an opportunity for Belden to accelerate the growth of the RUCKUS portfolio into industrial and factory settings. Jeremy Parks: Yes. Mark, so from a vertical market standpoint, you're right. RUCKUS is mostly or primarily focused on enterprise segments. So hospitality, education, those are the 2 biggest verticals, but they sell into a lot of other enterprise verticals as well. They do have some exposure today into what we would consider industrial markets, primarily into automated warehouses and material handling, where we also play today, but that's the only area of overlap. So I think from our perspective, there's actually a lot of opportunity to bring their products into some of our legacy industrial markets and then obviously, to combine their products with some of our passives on the enterprise side. Ashish Chand: So, if I can add to that, the short- to medium-term opportunity we see here, Mark, is in discrete manufacturing. At this point in time, as you may know, the majority of data, machine data is transmitted in a wireline format and not wirelessly. But that is expected to take over in the next 3 to 5 years to become more 50-50 and then the majority might move wirelessly. So, a lot of our discrete customers are planning for that change, and they need advice. Right now, they struggle because they don't actually have a company that they can go to for that comprehensive blueprint, which they will need in the next 2, 3 years. So that's the opportunity mainly. So apart from material handling, we see this expanding rapidly into discrete. Mark Delaney: Helpful. And then just circling back to the existing Belden business. Maybe you can clarify how much revenue exposure you think Belden has via distribution network to the Middle East and if that's something you try to factor into your outlook. You imagine given the uncertainty there that, that was part of the thought process with guidance, but if you could be a little bit more specific around your exposure and what's included in guidance relative to that region? Jeremy Parks: Yes, Mark. So our Middle East exposure is relatively small. It's less than 5% of our total revenue. It's primarily in the enterprise side of the business, smart buildings, where we're selling into UAE and a few other countries. I think from our perspective, we've got that business roughly flat sequentially and not significant growth built into the guidance. So I don't view it as a significant risk for second quarter, just given the size of that business. And up to this point, by the way, it's kind of held up. So it's been okay. Mark Delaney: Understood. And then just lastly on supply chain. It's been a difficult area for companies globally to manage, especially with certain semiconductor chips and memory. I'm curious if you could speak a bit more to Belden's ability to get the materials that needs to support the business and your confidence in passing on any higher costs and sustaining the margin objectives. Jeremy Parks: Yes. I think our -- our view is that we'll continue to pass on inflation to the extent it's real true market inflation. I think we've been successful doing that over the past several years. Our exposure is more so on some of the commodities, metals and plastics and things like that, oil-based compounds. But obviously, we do have electronic components. And I think we've been successful passing those on as well. The legacy Belden business does not really have much exposure to some of these memory price increases. So it's not been a major issue for us up to this point. But yes, for sure, to the extent that prices on chips and circuit boards and other components have gone up, we've been able to recover that in price and our expectation is that we'll continue to do so in the future. Operator: And that does end our question-and-answer session. I would now like to turn the call back over to Aaron Reddington. Please go ahead. Aaron Reddington: Yes. Thank you, operator, and thank you, everyone, for joining today's call. If you have any further questions, please contact the IR team at Belden. Our e-mail address is investor.relations@belden.com. Thank you very much. Thank you, ladies and gentlemen, and this does conclude our call for today. You may now disconnect from the call, and thank you for participating.
Operator: Hello, and welcome to the Phathom Pharmaceuticals First Quarter 2026 Earnings Results Call. [Operator Instructions] Please be advised that today's call is being recorded. With that, I would like to turn the call over to Eric Sciorilli, Phathom's Head of Investor Relations. Please go ahead. Eric Sciorilli: Thank you, operator. Hello, everyone, and thank you for joining us this morning to discuss Phathom's first quarter 2026 results. This morning's presentation will include remarks from Steve Basta, our President and CEO; and Sanjeev Narula, our Chief Financial and Business Officer. A couple of notes before we get started. Earlier this morning, we issued a press release detailing the results we will be discussing during the call. A copy of that press release can be found under the News Releases section of our corporate website. Further, the recording of today's webcast and the slides we'll be reviewing can also be found on our corporate website under the Events and Presentations section. Before we begin, let me remind you that we will be making a number of forward-looking statements throughout today's presentation. These forward-looking statements involve risks and uncertainties, many of which are beyond Phathom's control. Actual results may materially differ from the forward-looking statements, and any such risks may materially adversely affect our business and results of operations and the trading prices for Phathom's common stock. A discussion of these statements and risk factors is available on the current safe harbor slide as well as in the Risk Factors section of our most recent Form 10-K and subsequent SEC filings. All forward-looking statements made on this call are based on the beliefs of Phathom as of this date, and Phathom disclaims any obligation to update these statements. Later in the call, we will be commenting on both GAAP and non-GAAP financial measures. Specifically in the scope of this discussion, when we refer to cash operating expenses, please note we are referring to the non-GAAP form of this measure, which excludes noncash stock-based compensation. As always, detailed reconciliations between our non-GAAP results and the most directly comparable GAAP measures are included in this morning's press release. With that, I will now turn the call over to Steve Basta, Phathom's President and CEO, to kick us off. Steve? Steven Basta: Thank you, Eric, and thank you, everyone, for joining our call this morning. Let me start with a few highlights and a bit of perspective on the quarter. We more than doubled revenue from Q1 2025 to Q1 2026. We believe we're on track to potentially achieving $1 billion in annual revenue from gastroenterology prescriptions with the potential for a second $1 billion from primary care prescriptions as patients cycle back to share their VOQUEZNA experience with their PCP and we evolve our sales and marketing focus to include this segment in the future. In 2025, we set our strategy to focus on building toward that first $1 billion target in GI. We're executing that strategy. In Q1 of this year, we expanded our sales team with nearly 50 new sales representatives trained and deployed into the field in recent months. Our sales force alignment to enable high-frequency calls on gastroenterologists is complete. We have more than 290 reps in place to start Q2. In parallel, we're rolling out enhanced HCP marketing programs with several initiatives in the works to support the sales team. Our primary sales and marketing focus is on increasing depth of writing among gastroenterologists and associated providers. We're encouraged by the impact we're already having. There are approximately 20 million PPI prescriptions written annually from gastroenterology HCPs. And we believe that 20% to 30% market share among this group should get us to the first $1 billion in annual revenue. We previously discussed that as we look at our top 300 gastroenterology writers, they are already averaging about 20% TRx share compared to PPIs. Importantly, when we look at new-to-brand or NBRx writing among these early adopters, our market share is even stronger. In Q1, VOQUEZNA achieved approximately 45% NBRx market share compared to PPIs among this group of 300 writers. This means that our top 300 gastroenterology writers were selecting VOQUEZNA for their patients nearly 1 out of every 2 times as they switch their patient therapy to a new product. In fact, even as you look as deep as our top 3,000 gastroenterology writers in Q1, cumulative NBRx or new-to-brand prescription market share remains north of 30% in that population of physician writers compared to PPIs. We believe new-to-brand conversions drive future TRx growth as we expect that many of these patients who are converted to VOQUEZNA will elect to remain on VOQUEZNA. While Q1 TRx numbers showed expected seasonality, the underlying trends in prescribing behaviors and particularly new-to-brand switching to VOQUEZNA reinforce our view that our strategy of going deeper in gastroenterology is starting to show early positive indicators. We've transitioned the strategy and profile of this business and we believe the effects of those changes are still getting underway. I'd like to briefly discuss key financial highlights for the quarter and then Sanjeev will provide further commentary during his portion of the call with more detail. Net revenues were $58.3 million for Q1 compared to $28.5 million for the same quarter last year. We believe we're seeing similar early year revenue patterns compared to last year with late March and early April prescription trends indicating the growth going into Q2. We are thus maintaining our revenue guidance for the year. Cash operating expenses, excluding stock-based compensation, were $56.2 million for Q1. Our team continues to exercise fiscal discipline in our operations. And lastly, our net cash usage for Q1 operations was approximately $15 million. A few quick notes on commercial metrics for Q1. Through April 17, about 1.35 million VOQUEZNA prescriptions have been filled. Covered prescriptions increased about 5% during the most recent 4-week period compared to the prior 4-week period, signaling that growth that I previously described in recent weeks going into Q2. Of the approximately 268,000 prescriptions that were filled in Q1, about 168,000 were covered prescriptions, representing approximately 63% of the total, while about 100,000 were filled with cash pay. The incremental IQVIA reporting gap mentioned on our previous call was resolved by mid-March and the TRx numbers we are reporting today include the prescriptions that IQVIA has not captured. On a year-over-year basis, covered prescriptions grew about 91% and total prescriptions filled grew about 115%. The higher growth in total prescriptions reflects the impact of introducing the cash pay option for Medicare patients as of April 2025. Weekly TRx in March approached the previous December highs. And now as we begin Q2, we've seen 2 of the first 3 weeks in April reach new all-time prescription highs for covered prescriptions. I mentioned earlier that we view NBRx prescription growth as an early indicator of how our strategy is playing out. We believe NBRx writing is the leading signal for our growing patient base as it represents a patient being switched to VOQUEZNA prescriptions for the first time. Ultimately, many of these new-to-brand prescriptions progress to consistent refill prescriptions in future quarters, thus driving growth. In Q1, we saw covered NBRx grow approximately 11% over Q4 of 2025, signaling that we are continuing to see a solid rate of new patient starts on VOQUEZNA. The proportion of NBRx being written by gastroenterologists versus other specialties has increased over the last few quarters, indicating the early effect of our strategy focus on gastroenterology. Introducing more new patients with GERD VOQUEZNA is the first step to drive durable growth. Persistent refills for these patients then contribute to growth in future quarters. Among the cohort of patients that started VOQUEZNA in 2024, we saw an average of approximately 6 bottles worth of VOQUEZNA dispensed over a subsequent 12-month period. One note on this analysis is that the analysis may actually understate persistence to some degree as an additional 18% of the patients who had stopped VOQUEZNA through that analysis actually restarted therapy within 12 months of their original prescription. Lastly, we've recently been hearing questions from investors about a possible new P-CAB entrant into the U.S. market. Internally, we're preparing for a potential second P-CAB approval in the U.S. in 2027. Last week, 2 Tegoprazan abstracts related to the erosive esophagitis Phase III trial for this product were released ahead of this year's DDW conference, where the data will be presented next week. The abstracts provide a preliminary summary of the data. As anticipated, the Tegoprazan results support the effectiveness of P-CABS as a class. While cross-trial comparisons have inherent limitations and the studies were not a head-to-head evaluation, it may be helpful to our investors to note that in our VOQUEZNA Phase III erosive esophagitis trial, approximately 93% of patients in all categories of erosive esophagitis achieved healing of their erosions by 8 weeks. In the separate recently reported Tegoprazan study, approximately 85% of patients in all categories of erosive esophagitis achieved healing of their erosions by 8 weeks. We continue to feel confident in VOQUEZNA's robust clinical data profile and are executing our commercial strategy in the current market. Overall, we remain confident in our outlook for 2026. Our foundation is strong. The sales force is implementing our gastroenterology-focused strategy and new patients continue to start therapy. We are fully in execution mode as we continue to work to drive TRx and sales growth. I'll now turn the call over to Sanjeev to take you through our financial updates. Sanjeev Narula: Thank you, Steve, and hello, everyone. We have a lot to cover, so let's jump right into our Q1 results. Revenues for quarter 1 were $58.3 million, reflecting year-on-year growth of 104% and a sequential growth of 1% over Q4 2025. Our Q1 2026 revenue was somewhat light compared to our internal expectation due to market access seasonality and other factors like winter storm and deployment timing of new sales force team members. However, with recent weekly prescriptions demonstrating growth relative to early Q1 and our expanded sales force in place, we remain confident in our outlook for VOQUEZNA in 2026. Our gross to net discount for Q1 came in at the lower end of our 55% to 59% guidance range because of channel mix for [ Cordis ] prescription. Our gross margin was in line with our guidance at approximately 80% for quarter 1. As described during last quarter's call, this now reflects certain third-party fulfillment costs being accounted for as cost of goods sold instead of gross to net adjustments. Q1 cash operating expenses were about $56.2 million, reflecting continued disciplined expense management. The sequential step-up was anticipated and tied to 3 main drivers: expansion of our sales force, our annual national sales meeting in February and the ramp-up of our Phase II EoE trial. In fact, I'm pleased to report that the EoE trial is enrolling ahead of schedule. And as a result, we are anticipating top line data by late Q4 2026 or early Q1 2027. Importantly, we continue to demonstrate expense discipline across the organization with year-on-year cash operating expenses down about 43% compared to Q1 2025. We reported a loss from operations, excluding stock-based compensation of approximately $9.9 million. We ended the quarter with about $181 million in cash and cash equivalent, which reflects roughly $15 million used in Q1 after netting out the flows from our equity raise and debt amendment. The increase in cash usage compared to Q4 2025 was driven by the timing of our annual corporate bonus payout and changes in the working capital due to timing of certain payments. We anticipated these dynamics and remain confident in our path to operating profitability and cash flow positivity. Overall, our balance sheet remains strong and as a result of our operations and the deliberate capital structure enhancement we did at the start of the year. Based on our current operating plan, we believe our cash on hand, along with the anticipated future cash generated from operations will be sufficient to invest in our business, satisfy all outstanding debt obligations at all time without the need for another debt or equity raise. Now let me speak about our financial guidance for 2026. We're maintaining all guidance ranges and estimates provided during last quarterly call. We continue to anticipate 2026 net revenue between $320 million to $345 million. We continue to believe our gross to net discount will be within the 55% to 59% range and gross margin will be approximately 80%. As for spend, we anticipate that cash operating expenses, excluding stock-based compensation, will be between $235 million to $255 million. As we think about cadence, we continue to believe revenues will be more heavily weighted towards the back half of the year. We expect expenses to modestly step up in Q2, reflecting full quarter's worth of cost of the expanded sales force. Lastly, we continue to anticipate achieving operating profitability, excluding stock-based compensation by Q3 and for full year 2026 with positive cash flow in 2027. We remain focused on executing with discipline and we feel confident in our ability to deliver on our GI focused strategy. We ended the quarter with a strong balance sheet and believe we will strengthen our financial position as revenues grow. In summary, our priorities remain clear. First, drive efficient growth towards achieving $1 billion from GI prescriptions. Second, support strategic investments where needed while continuing to be disciplined on spend. As we look ahead, I am encouraged by the efforts and dedication of our commercial and R&D teams. We're energized by the opportunity in front of us and we believe our internal metrics show the momentum is building. With that, I will now turn the call back to Steve for his closing remarks. Steve? Steven Basta: Thank you, Sanjeev, for the detailed financial review. With an expanded and trained sales force executing our gastroenterology-focused strategy and continued expense discipline, we believe we have a clear path to strengthening the revenue trajectory and achieving operating profitability in the months ahead. Thank you to our team and our investors for your continued dedication and support. We look forward to continuing to serve the patients in need of VOQUEZNA. Operator, please open the line for Q&A. Operator: [Operator Instructions] Our first question or comment comes from the line of Yatin Suneja from Guggenheim. Yatin Suneja: Congrats on good performance. So 2 questions for me. First one is on the competition. Steve, I think you just mentioned a little bit about how you see their product. I'd love to understand from a market dynamic perspective, what do you expect? Like, so you are right now the only branded that is doing the heavy lifting. Should we -- do you expect the market to expand or them to take some share? Just love your articulation there. And then maybe second for Sanjeev. I think you touched a little bit on the gross to net dynamic. So I understand, I think there was a better gross to net yield. But your guidance for 55% to 59% still stays. So is there some room there for an upside as we go into second quarter or third quarter because generally they tend to be a little bit better? Steven Basta: Yes. Thanks so much for both of the questions and the kind sentiments. The -- yes, as you sort of described, we are, in fact, tracking the evolution of Tegoprazan sort of as they start to build awareness. It's awareness is at a pretty low level in the market right now because they don't have a current commercial organization. So they're in the NDA review process. Certainly, we expect that as a second P-CAB entrant comes to market, there's a shift in sentiment from Vonoprazan or VOQUEZNA is a new product and I have to learn about a new product to now there's a new category and I have to learn about the new category and think about how to integrate this new category into my treatment. That helps to build awareness within the gastroenterology community and generally what prior market experience for a number of products have shown is that the first mover in that space gets the lion's share of the market, but there's a growth in awareness of a category as a second entrant comes in and we're certainly optimistic in that regard. The other thing is that as we look at the data, there's just no compelling reason for anyone to switch a patient from VOQUEZNA to -- from Vonoprazan to Tegoprazan. The data doesn't suggest that the patient is going to do better. And so we think that the market share that we've won and the presence in the market that we've won is really quite solid. We are going to be continuing to grow our presence in the market. We've got very strong market share among several thousand gastroenterologists and that expands every month as the sales force spends more time. So we've got at least another year to be building that depth of awareness and building the habit among gastroenterologists around prescribing VOQUEZNA. I think that all positions us very nicely. And we think growing awareness of this category will just help build it. Sanjeev Narula: Yes. And Yatin, on your question about gross to net. As we said in our prepared remarks, it came in at the lower end of our guidance and the guidance at 55% to 59%. I think what happens in our business or any business, there is a channel mix that go on quarter-to-quarter and that could change the gross to net percentage. And in first quarter, we see a higher proportion of cash scripts. And what that does is that drives gross to net to be a little lower because cash scripts don't have any gross to net item. So I don't expect us to deviate from our range, but it's going to be within the range. And every quarter could be different because of different dynamics that are going on. But for the full year, that's how we're maintaining our gross to net range at 55% to 59%. Operator: Our next question or comment comes from the line of Umer Raffat from Evercore ISI. Umer Raffat: I wanted to touch up just broadly on your observations commercially with the readjusted commercial focus and what the feedback is and how much of a follow-through you guys are continuing to expect with the turnaround we're seeing on IMS already? And secondly, as we think about sort of the path for the company forward in terms of heading towards sort of better than breakeven, et cetera, would it -- what are the priorities from a potential M&A perspective? And I'm not talking large deals. I'm just saying to enable the OpEx to be levered across a larger sales base in the areas you're already operating in? Steven Basta: Thanks so much for both of the questions. So thinking about first, the commercial focus and what we're seeing, we are feeling and hearing from the field the same kinds of things that you can see in the IQVIA or the IMS numbers in recent weeks and that is there is growing activity, growing momentum in the adoption pattern. We've got territories regularly seeing all-time highs in terms of the new prescription volume that is happening. And one of the reasons that we spent a little bit of time today talking about NBRx trends rather than just TRx trends because the easy thing to look at from IQVIA numbers is sort of look at the TRx trend. But what we think about as a forward indicator of that commercial momentum is how effectively are we converting new patients because those new patient starts are really where we can have an impact. When a sales rep is in an office working with the gastroenterologists about thinking about what kinds of patients are appropriate for VOQUEZNA, they're not changing the established base of patients that are already getting PPIs under the office. The only patients they can switch are the patients that they're seeing in the office at that time. So that's really the new-to-brand volume and that's where we move the needle first and then that foretells the future momentum. So we expect that the momentum on new-to-brand conversions predicts that we're going to have continued momentum on TRx growth and that should show up in the future quarters. And we're quite enthusiastic about that feedback and that dynamic in all of our conversations with physicians and with our field personnel. And our field team is feeling pretty solid about that. And then sort of path forward in terms of M&A priorities and the kinds of things. There's not urgency for us to bring a second thing in. We are starting outreach to identify other GI assets that would be complementary to bring into our sales force. And those could be commercial products or they could be Phase II or Phase III products that we could launch before our LOE date, 2033 or 2034. So we've got a few years to identify those assets and bring them in. There's not a great urgency to do so right now because, quite honestly, I don't want to distract the field. Our team is focused on conversations around VOQUEZNA with accounts and there is still a lot of education and market depth to build in terms of all of those conversations. So we're starting to evaluate those programs. There's nothing imminent, but we are looking at really interesting things and also looking at new applications for VOQUEZNA. We're doing the EoE Phase II trial. We've been evaluating the potential to look at as-needed dosing of VOQUEZNA. There's lots of interesting talk around potential synergy of using VOQUEZNA when patients are on GLP-1s associated with the GERD that arises in the context of GLP-1 use. There are a number of really interesting opportunities that could be expansion opportunities for us just within the VOQUEZNA opportunity set. Sanjeev Narula: And Umer, just to look at the cash flow opportunity in the company, as you pointed out, with the strategy in place and the -- us generating the positive cash flow next year and the cap structure we enhanced at the beginning of the year, I think that gives us the flexibility to meet, obviously, our obligation, but we'll have the flexibility of additional cash to invest as we expand VOQUEZNA potentially in a couple of years, maybe to primary care and maybe combine that with the DTC. So we'll have the resources and the cash flow to be able to do that. So we feel pretty good about what the trajectory is and we're going to take best use of the opportunity. Operator: Our next question or comment comes from the line of Kristen Kluska from Cantor Fitzgerald. Kristen Kluska: Congrats, everybody, on all the great growth you've seen, especially when looking at the trends from last year. So as the breadth and depth of your GI interactions are increasing, how are physicians understanding in a real-world scenario, the additive benefits of VOQUEZNA? And how do these measures and the patient feedback they get then translate to them potentially recommending the product to other patients they have? Steven Basta: So Kristen, thank you. And thanks for the context on both physician understanding and the importance of patient awareness and patient advocacy because both become really important components in how this product grows. What we're seeing is as we have time in the market, I mean, we're now a couple of years into the launch and so the physicians who have adopted VOQUEZNA as a meaningful part of their practice are having the opportunity to get feedback from patients about the significant improvement that VOQUEZNA provides. And it's interesting, we just did a round of market research where we were doing interviews with a significant number of physicians and a significant number of patients. And one of the interesting findings from that research was -- and often there are clinical trials and you see a clinical outcome and then the physician doesn't really know whether or not they can measure that clinical outcome. That's not the case here. The case here is what we see in our clinical trials, which is better outcomes with VOQUEZNA, certainly in erosive esophagitis patients, but also significant alleviation of pain and sort of an increase in the heartburn-free experience for patients with non-erosive reflux, physicians are seeing that from their patients. They are hearing from their patients how much better they feel. And every one of those feedback points, every time a physician talks to a patient who then comes back and says, "Doc, I've not felt this good in years," that conversation is a reinforcing conversation that cements in the mind of the physician, this really is a transformative experience for my patients. And that's part of what drives growth. So part of what drives growth is our sales and marketing activities and the time spent in the office educating the physicians, but a large part of what drives growth is physician experience and feedback from their patients that then causes them to want to prescribe it in more patients. The other thing that happens is not only do patients understand the benefit and have that conversation with their physician, but this becomes the passage to our future expansion back into primary care. Those same patients who are telling their gastroenterologists how much better they feel are going to go back to their primary care physician for their annual physical next year. They're going to be having exactly that conversation with their primary care physician who referred them to the GI. And it's going to naturally ask how did that go? How are you feeling? Are you still having the pain that you're experiencing? That conversation leads to an education of the primary care community and positions us in future years to expand meaningfully in primary care and positions us for possible future initiatives to broaden the outreach. Kristen Kluska: Okay. And as the database for patients that have been treated with VOQUEZNA continues to increase, particularly maybe some more severe patients as you do more work with GIs, are you collecting any -- again, not -- understanding this is in a clinical trial setting, but are you collecting any anecdotes to give you any clues as to where this therapy could potentially be studied for in the future? And then if you were to expand into other indications in the future, are there ways to also strengthen the IP around those opportunities as well? Steven Basta: So absolutely, we are learning from physicians about the breadth of use. And again, in the context of some of the recent market research, we're starting to evaluate this. So we're starting to look at a number of different indications. How would physicians think about using a product on an as-needed basis on a long-term basis for patients who may not require daily therapy, but PPIs can't really be used that way. So that becomes an opportunity to switch a different population of patients and grow utilization. I mentioned earlier to one of the questions that there is an increasing prevalence of gastroesophageal reflux symptom severity in patients who are on GLP-1s. That becomes an increasing prevalence conversation. I've been having a series of dinner conversations with gastroenterologists in recent weeks and it's come up several times that they are now starting to see patients who they're having to have conversations with them about whether or not to titrate their GLP-1s because of the side effect profile of the reflux and the heartburn that they're experiencing and patients really don't want to reduce their GLP-1s if they're losing weight, but they're having significant GERD. So that becomes a significant opportunity. Certainly, in patients who are having severe consequences and a lot of patients with erosive esophagitis, they may progress to Barrett's and progress to having the risk of esophageal cancer and there are a number of potential sort of broadening thoughts that physicians have around how do I consider what patients I'm using this product for those conversations are evolving as we are learning about the breadth of use that physicians want to have. Oh, and then your other question was on potential IP. I apologize, I didn't touch that. I'm going to probably just pass on answering questions about what potential IP we might have around what future products or indications. We'll evaluate that as we get there. Operator: Our next question or comment comes from the line of Paul Choi from Goldman Sachs. Kyuwon Choi: Congrats on the good quarter. To the degree you guys have insight from either the prescription data or physician feedback, can you maybe help us understand or break down how much of the incremental prescription growth is driven by NERD versus GERD? That would be very helpful for clarification. And my second question is, as you think about the potential entrance of a second P-CAB into the category, over the intermediate term, do you envision the category becoming more managed? And if that is the case, do you think PPIs would be an appropriate analog here given that the category eventually had multiple entrants? Steven Basta: So, Paul, thanks for the questions. And in terms of the relative use, so we don't always have visibility on the underlying diagnosis that drove the specific prescription for every one of our TRxs, whether it's a NERD patient or an EE patient or a half EE patient because you may have a patient that had erosive esophagitis and now is having symptoms again, may not have erosions, but the physician is concerned that they might get erosions. So there are patients that sort of cross over between the 2 categories. What we see is generally, a gastroenterologist will start by putting their most severe patients on VOQUEZNA and then they will grow their utilization over time. So often, the starting point is the erosive esophagitis patient who has severe erosions who's failed multiple rounds of PPIs, has failed BID PPIs and there's just no other alternative, they don't have any other way to help this patient, they need to help them heal, that's the patient with which a gastroenterologist may start. When they see success with that patient, they see that VOQUEZNA has actually enabled that patient's erosions to heal, then the conversation that our representative is having in the office is about how the physician can start using it more broadly, maybe it's to all of their Grade C and D erosive esophagitis patients. And then as they see success in those patients, broaden it to all of your erosive esophagitis patients. And then as they're seeing success in those patients, why not broaden it to your patients that have non-erosive reflux but are still having significant pain and are still having nighttime heart burn, not able to sleep or not able to tolerate certain foods. And so there is a natural evolution in a physician's adoption that starts from the more severe patients to the less severe patients, starts with erosive esophagitis and then moves to non-erosive reflux. That's just the natural cadence with which a gastroenterologist tends to adopt this product. And so we see that evolution. There's some skew probably toward more erosive esophagitis patients in the early adoption years and we continue to see those patients being converted, but then expand into non-erosive reflux patients. And then in terms of how the market evolves with a second P-CAB entrant, I mean, there are so many examples where there has been a category where multiple entrants came in over the course of time and the category continued to grow substantially, we would -- as I commented earlier, I think we just expect to see the category of P-CAB adoption grow as physicians become ever more familiar with this mechanism, ever more familiar with the efficacy of these products. And we have a product with really terrific outcomes in which physicians have really significant confidence. Operator: Our next question or comment comes from the line of Joseph Stringer from Needham & Company. Joseph Stringer: Just a follow-up on a previous answer you gave on the primary care setting. I know this is part of your future expansion plans. But just curious if you have any early quantitative metrics on the patients that cycle from primary care through a specialist back to primary care, for example, what's the recapture rate from the initial patient referral, those patients coming back to the PCP? And how is that evolving over time? Presumably, that's already occurring to some extent, but just curious if you had any early color here or commentary, that would be helpful. Steven Basta: Joseph, thanks for the question. I think that's going to be a really important element for us to track and evolve in our understanding over the next couple of years. It's not one where we have significant metrics yet because we're still in early days. We've made the GI pivot just about 12 months ago. And so with that GI pivot a year ago, we haven't had enough time for a significant number of those patients to make it back to their primary care physician to then start getting scripts in their primary care physician. Anecdotally, I would tell you, it was interesting one of the observations from our analytics team is that we are starting to see primary care physicians writing scripts for VOQUEZNA whom we've never called on. That's an indication of exactly that pattern. What we're seeing -- the only way that a physician we've never called on is writing a script for VOQUEZNA is a patient came back to them and asked for it. And that's exactly the pattern that we want to see. But as to the breadth of those metrics and exactly how we track that, it's still early days and we don't have all of those worked out. Operator: Our next question or comment comes from the line of Annabel Samimy from Stifel. Annabel Samimy: So wondering if there's anything that you can share about the dynamics between the cash pay and the covered patients. Do you see any increasing usage of the cash pay market as you're moving into more Medicare populations? And then separately, I guess it's great to see the EoE trial enrolling so quickly. Is that an indication that there could be bigger demand than off-label PPIs would suggest? Can you just give us a little color around what's driving that? Steven Basta: So on the dynamics for cash pay versus covered, I'll start and then, Sanjeev, if you have additional insights, feel free to jump in on this. But we saw a little bit of a bump up in the percentage of patients who received a script on a cash basis rather than a covered basis in Q1. We fully expect that every Q1 because there will be patients who with their health plan resets are going to have a high deductible plan and where they had coverage with a low co-pay. Our co-pay buy-down programs don't bring them down to a low enough price, so they would end up opting for the cash pay price. We think that's a Q1 phenomenon. And then going forward, I would expect it to normalize more consistently with historic levels in terms of the ratio of cash pay to covered. But we don't try to manage that number precisely. What we try to do is really maximize prescriptions and then maximize how many of those prescriptions can get coverage and that number will evolve over time. But I think there's a little bit of a Q1 bump that we experienced. Sanjeev Narula: And we already -- Annabel, we're already seeing that number starting to moderate in the script data after Q1 to Steve's point. So I think that's a natural phenomenon of what happens in quarter 1. Steven Basta: Yes. And then for EoE, what I can describe is what we've heard from the clinical sites, but I can't really extrapolate it out to the entire market yet, but we're certainly seeing the fast enrollment of this trial reflects significant interest in a first-line therapy that doesn't have the significant burden of some of the immunologic changes that more aggressive therapies would have. I mean, if a patient progresses to Dupilumab, for example, that's a more advanced patient and first-line treatment standard of care for many EoE patients is, in fact, today, PPI therapy. But this is the first big study of acid suppression therapy as a treatment modality in a well-controlled clinical trial. There was a high level of interest among the physicians in the clinical trial to enroll patients, lots of enthusiasm for it. And obviously, we're enrolling ahead of schedule. So certainly pleased with that. We haven't done enough market research on it to predict exactly how broadly that's going to suggest the market opportunity is in EoE when we commercialize it. We'll do that after we see the data from this trial as we're planning on our Phase III trial. Operator: Our next question or comment comes from the line of Denise Ding from Jefferies. Yuchen Ding: Congrats on a great quarter. Can you talk a little bit more about the shape of gross to net throughout the year? Should we expect it to worsen towards the top end of 55% to 59% like it did last year as the percentage of cash pay comes down? And then secondly, Steve, you've talked on a broadening category on a new P-CAB entrant, but curious on your thoughts more specifically for VOQUEZNA. How do you see a new competitor impacting the sales trajectory in 2027 and beyond? Do you expect any sort of pressure from payers that would erode price? Sanjeev Narula: So on the first one, the shape of gross to net, I would stay short of making a prediction about the quarter-to-quarter number. That's the reason we give a range because as you know very well, this is entirely based on the mix of business in each quarter. Clearly, quarter 1 gets impacted by -- a little bit by the cash scripts. But in the subsequent quarter, there are so many other dynamics that go on. So it's kind of hard to say one quarter what percentage is going to be. That's why we want to stay within the range as we did last year. Steven Basta: Yes. And then your second question around sort of the shape of the market in the context of a new competitor entry, I don't think we've got enough specifics yet on how the second product may come to market, what their positioning is going to be. And so it's really hard for us to predict what their market strategy is going to be and therefore, what our response will be. What we are very confident about is the momentum that we're building within the gastroenterology community, the conviction that physicians have around this product. I mean, again, our top 3,000 writers -- now 1 out of every 3 new patients that they are switching acid suppression therapies, they're switching them to VOQUEZNA. That's an enormous share of mind that we have with a broad population of the gastroenterology community. And in fact, that is broadening. And we've got another year at least before second entrant comes in to be building that market share and to be building that mind share that I think will position us really well in the context of the competitive dynamic in the future. Operator: Our next question or comment comes from the line of Mr. Matthew Caufield from H.C. Wainwright. Matthew Caufield: Are there any further insights into the weighting for revenue growth expected between first half and second half? And then additionally, are there thoughts on how we can best expect OpEx trends to continue for the year? I believe there was mention of the OpEx being up in 2Q. Sanjeev Narula: Yes. So Matt, thank you for your question. So I think it's safe to say the revenue trajectory will follow similar trends as last year. I don't want to get into the percentage because if I do that, then I'm actually giving you guidance for a quarter, next quarter, which I don't want to do that. So I think it's fair to say -- I said in my prepared remarks, it's going to be second half-weighted business, which is what happened last year and I don't see that changing this year as well. So that's number one. Number two, on the OpEx. I think a couple of things will happen. Quarter 2, we'll see a slight bump in the expenses from quarter 1 and that's precisely for 2 reasons. One is the EoE trial is ahead of schedule and that's a good news. So there may be a little bit more expense timing-wise in quarter 2 than we had earlier thought about. And number two is the sales force is fully in place. In quarter 1, we were still hiring and that hiring is now complete and the sales force is fully on board. That impact will also reflect in quarter 2. But that's going to be marginal. And after that, I expect our operating expenses to be more or less stable. Operator: Our next question or comment comes from the line of Martin Auster from Raymond James. Martin Auster: There was some pretty interesting data about new-to-brand prescription share amongst the top 300, top 3,000 GIs. Curious if you could give us a little bit more context around that snapshot in terms of sort of how much progress has been made since the new GI-focused strategy has come in? And then if you have a sense of sort of what's a realistic ceiling for higher prescribers in terms of new-to-brand Rx? Steven Basta: So Martin, I mean, the growth to -- thank you for the commentary. I share your enthusiasm that the new-to-brand data actually is a really strong clarifying indicator for where we expect the business is evolving. And it's a metric that we use internally in our forecasting and in a lot of our planning activities is how those trends are going. What we have seen in every category of physician that we call on, whether it's a gastroenterologist or a gastroenterology APP or primary care physician or primary care physician APP as well, as we look at the new-to-brand prescription trends and one of the metrics we use is new-to-brand prescriptions per sales call, those numbers continue to go up. They've been going up for the last 2 years. They continue to go up. On a quarter-over-quarter basis, we are driving increasing effectiveness in those categories. And obviously, now we're focusing on GI and GI APPs as the core call point. But those haven't capped out. Those are continuing to improve and we would expect to continue to improve those over time. And so that I don't have a clear sense for where a cap is in that process. It is encouraging that we are already at the 45% level. I don't know if it caps out at 50%, 70%, 90% of their new-to-brand prescriptions get converted. But one of the other things that happens is as we convert more new-to-brand prescriptions and those patients stay on, the underlying TRx percentage in those offices continues to grow because more -- higher and higher percentage of their patients are already on VOQUEZNA and we're continuing to convert to new patients. So you'll see the TRx percentage grow toward the NBRx percentage. So where right now, we've got 20% penetration in TRx volume in the top 300 accounts, we've got 45% penetration in NBRx, which suggests that we're going to be growing that 20% number toward the 45%. The 2 may never completely match up, but one drives the other. And that's part of why we're focusing on that as a core growth metric and one of our core effectiveness and efficiency metrics in our call strategies and the call allocations. Martin Auster: It was really helpful incremental context and hope it's a metric you'll periodically revisit in the future with us. Steven Basta: Yes. I don't know that we'll do it every quarter, but we will certainly provide periodic updates. Operator: [Operator Instructions] Our next question or comment comes from the line of Chase Knickerbocker from Craig-Hallum. Chase Knickerbocker: Maybe just one quick one for me. And sorry for it to be on competition again here. But Steve, I just wanted your thoughts on one thing specifically. So the way that the potential competitor, the next P-CAB potentially or the way that study was constructed, there's a chance that there might be a couple more superiority claims at launch. So to what extent do you think that matters? And then kind of compare and contrast to how you think the first-mover advantage that you've built up with the 1 million-plus prescriptions since launch and the clinical experience here kind of pairs that? Steven Basta: So I don't have complete visibility on exactly how this competitor is going to launch or what kind of sales force they're going to build. And so it's hard to predict exactly what happens in that marketplace. But as for the data, when we look at the core data from the abstract that's available from -- or the abstracts that are available from DDW and we think about what's important to a physician, again, we were talking earlier about the natural pattern of adoption, the natural pattern of adoption for a physician considering switching patients to a better acid suppression strategy if their prior PPI strategy wasn't working, is that they start their adoption curve with their most severe patients. And then as they see a product work, they move into a broader population of patients. What we see with our data is when you put erosive esophagitis patients on VOQUEZNA, 93% of them heal their erosions within 8 weeks. That's exactly what a physician wants to see. Every physician who is seeing that today and every physician who sees that over the next year as they put erosive esophagitis patients on VOQUEZNA is going to see that their erosions are healing and this product clearly works and it clearly produces really good outcomes. And they're having clear conversations with their patients about how much better they feel because their pain is substantially relieved almost immediately, literally within hours and on the first day and I'll tell you the patient, the first day that I took VOQUEZNA, I felt a whole lot better. It's just really quick how this product works. And so what the physician experience is with VOQUEZNA is enormously satisfying and enormously positive. They see their patients heal. They see -- they hear feedback from their patients that they feel better and they grow their utilization over time. That doesn't get disrupted at all because someone has some statistics measure in some other clinical trial when you know you've got a product that's going to produce 93% healing rates and really good outcomes for your patients. So I just don't see that having any impact in the market in any meaningful context. Operator: I'm showing no additional questions in the queue at this time. At this time, I would like to thank everyone for participating. Thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day. Speakers, stand by.
Operator: Hello, everyone. Thank you for joining us, and welcome to Hippo First Quarter 2026 Financial Results. [Operator Instructions] I will now hand the conference over to Charles Sebaski, Head of Investor Relations. Please go ahead. Charles Sebaski: Thank you, operator. Good morning, and thank you for joining Hippo's First Quarter 2026 Earnings Call. Earlier today, Hippo issued an earnings release announcing its Q1 results and financial results presentation, which will be webcast during today's call, both of which are available at investors.hippo.com. Leading today's discussion will be Hippo President and Chief Executive Officer, Rick McCathron; and Chief Financial Officer, Guy Zeltser. Following management's prepared remarks, we will open up the call for questions. Before we begin, we'd like to remind you that our discussion will contain predictions, expectations, forward-looking statements and other information about our business that are based on management's current expectations as of the date of this presentation. Forward-looking statements include, but are not limited to, Hippo's expectations or predictions of financial and business performance and conditions and competitive and industry outlook. Forward-looking statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from historical results and/or from our forecast, including those set forth in Hippo's Form 10-Q. For more information, please refer to the risks, uncertainties and other factors discussed in Hippo's SEC filings, in particular, in the section entitled Risk Factors in our Form 10-Q and 10-K. All cautionary statements are applicable to any forward-looking statements we make whenever they appear. You should carefully consider the risks and uncertainties and other factors discussed in Hippo's SEC filings. Do not place undue reliance on forward-looking statements as Hippo is under no obligation and expressly disclaims any responsibility for updating, altering or otherwise revising any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. During this conference call, we will also refer to non-GAAP financial measures such as adjusted net income. Our GAAP results and description of our non-GAAP financial measures with full reconciliation to GAAP can be found in the first quarter 2026 earnings release, which has been furnished to the SEC and is available on our website. And with that, I'll turn the call over to Rick McCathron, our President and CEO. Richard McCathron: Thank you, Chuck, and good morning, everyone. Thank you for joining us. Hippo kicked off 2026 with strong momentum, accelerating the top line growth of our business in the first quarter while announcing initiatives to support our technology-driven insurance platform and delivering a fourth consecutive quarter of profitability on both a stated and adjusted basis, with $7 million of net income and $17 million of adjusted net income in the quarter. In the quarter, we generated over $332 million of gross written premium, up 58% over last year, driven by our commercial lines business capitalizing on recent market opportunities and a return to growth in Homeowners. This growth was coupled with a continued focus on underwriting discipline and sustainable profitability. For the quarter, we generated an underwriting profit with a 99.5% combined ratio, an improvement of 60 percentage points year-over-year. These results and our continued momentum highlight the strength of our model and the progress we've made as an organization over the past several years. We expect to build on this progress as we continue advancing the core drivers of our technology-native insurance platform. We continue to make progress towards our 2028 targets of over $2 billion in gross written premium, $125 million of adjusted net income and an 18% adjusted return on equity, driven by our focus to drive long-term profitable growth. This quarter, we made several advancements across our key value drivers. First, we supported our long-term growth and diversification goals by announcing our strategic distribution partnership with Progressive. We have now created a truly differentiated distribution platform for our Homeowners product by combining Progressive with our existing Westwood partnership, with the 2 partnerships complementary to each other and most importantly, supportive of profitable growth. Progressive provides a scaled high-volume platform that allows us to efficiently identify and target our ideal customer segments, while Westwood offers direct access to homebuilders and new homebuyers at the point of purchase. Second, improving operating leverage at scale requires a technology-driven approach, and our platform was purpose-built for this moment, reinforcing the value of continued investment in our technology, which has long been a source of strength for Hippo. As such, we are able to quickly apply new AI capabilities without the need to replatform fragmented legacy systems. I now want to talk about three areas where we have been investing and implementing AI to support growth and drive operational efficiencies. First, we are fundamentally changing how claims are handled at Hippo. By embedding Agentic AI directly into our claims workflow, our adjusters are operating at roughly 30% higher efficiency, and we believe that improvement is sustainable, not as a one-time gain. Claims expense is one of our largest controllable costs. Historically, efficiency gains require either more people or outsourcing. Instead, we are scaling intelligence. Over time, we expect more than 70% of our first notice of loss to be filed digitally, improving the customer experience and quality of data captured for claims processing. This technology also enables a rapid increase in claims handling capacity following catastrophic events, enhancing the customer experience at a time of great need, and claims is just the beginning. Second, services. Later this year, we will announce a transformation of the customer experience through Agentic AI designed to redefine service with a fully AI-powered first-line support that reduces costs, improves the net expense ratio and resolves a significant share of inquiries without human intervention. This is enabled by our modern AI-ready tech stack. Our AI service voice agent is already live for 100% of inbound calls and after-hour support. It handles authentication, triages, attempts to resolve, then seamlessly escalates calls to the relevant agent or creates follow-up tickets as needed. Over the next 1 to 2 years, we expect Agentic AI to resolve 50-plus percent of customer producer support requests across e-mail, chat and voice. Early indications following our Q1 launch is that we are already seeing a 10% improvement in average handle time, accelerating customer outcomes while significantly reducing outsourced call center expenses. Third, underwriting. We've begun deploying AI in our Homeowners business to assist our underwriters and accelerate their ability to review new business, supporting rapid growth from our Progressive and Westwood partnerships without adding headcount. This AI-driven underwriting platform will enable continuous risk evaluation from submission through renewal, empowering underwriters to manage every policy and program, all enabled by our roots as a technology-native carrier. Our continued multiyear investment in technology is expected to improve the customer experience, increase profitability, enable us to scale efficiently as we grow towards $2 billion in premium and beyond. We'll share additional updates throughout the year as we achieve key milestones. I'll now provide some updates on core lines of business. First, In Homeowners. For the quarter, we wrote $87 million of gross written premium, up slightly as we turned the corner on growth as we had previously indicated. Recent initiatives and partnerships more than offset continued pressure in the E&S market. Our Homeowners book remains rate adequate. Rate increases averaged roughly 10% this quarter, but we expect that momentum to moderate in the quarters ahead. Turning to our Renters business, which produced $41 million gross written premium for the quarter, a 17% increase over the prior year quarter. This remains a book we view very favorably and are pleased to support despite the lower retention this year, which Guy will discuss in more detail shortly. Now turning to our diversified commercial lines business. Commercial Multi-Peril delivered a strong quarter of growth, increasing 89% over last year to $96 million of gross written premium, now similarly sized to both the Casualty and Homeowners books. Fundamental to our program strategy is supporting programs we know well and/or have long track records of performance, and our growth originated largely from existing program partners focused on commercial property and business owners policies. Our Casualty business experienced even faster growth, increasing 193% to end the quarter with $101 million of gross written premium. Importantly, this growth came from a well-diversified group of programs, and the book overall maintains relatively modest limit profiles. As we outlined last quarter, our intention was to start increasing our retention rates in the Casualty business. And this quarter, we launched a new program with a long-term operator who we are very familiar with and have taken the opportunity to retain increased portion of the risk. This was a strong start to 2026, both in our quarterly results and more importantly, in the progress we have made towards achieving our longer-term aspirations. Now I'll turn the call over to our Chief Financial Officer, Guy Zeltser, to walk through the highlights of our first quarter, and then we'll open it up for questions. Guy? Guy Zeltser: Thanks, Rick, and good morning, everyone. In the first quarter, we once again delivered strong top line premium growth, improved underwriting and increased profitability. Q1 gross written premium grew 58% year-over-year to $332 million, up from $211 million in Q1 of last year. Growth in the first quarter was driven primarily by strong performance in Casualty and Commercial Multi-Peril lines, continued steady expansion in Renters and as Rick mentioned, a modest return to expansion in Homeowners. I'll highlight now a few additional details of how diversified our gross written premium has become. Casualty generated $101 million, representing 30% of total gross written premium, up from 16% last year. Commercial Multi-Peril with $96 million of gross written premium accounted for 29% of total gross written premium, up from 24% last year. And Homeowners, which grew slightly to $87 million, representing 26% of the total gross written premium, down from 41% of gross written premium in Q1 of last year as our portfolio continues to diversify. Net written premium in Q1 grew 1% year-over-year to $101 million, trailing behind the expansion of gross written premium. This equates to a 31% retention rate in the quarter compared to 48% last year. As reflected in our 2026 guide, this change was largely expected given the overall mix shift as we retained less in our fastest-growing line, Casualty. In addition, a change in our Renters retention rate had a meaningful impact this quarter, which I will provide a bit more color on. In Renters, net written premium was $11 million compared to the $37 million in Q1 last year, and this change was almost entirely driven by a $26 million unearned premium adjustment related to a change in retention in both Q1 of this year and last year. The Renters line is structured such that when the retention rate changes at time of the treaty renewal on January 1 each year, the new retention rate is applied to both new gross written premium and to all unearned premium outstanding from the prior period. This unearned premium adjustment had an impact of $26 million year-over-year as our Q1 '25 net written premium was boosted by this adjustment as retention increased versus prior year, and our Q1 '26 net written premium was slightly lower due to this adjustment as retention slightly decreased versus prior year. For the remainder of the year, we expect retention rates to normalize and get closer to 40% on the Renters line. Going forward, we would expect net written premium growth to be more directionally in line with gross written premium growth. Total revenue in the first quarter was $122 million, up 10% over Q1 of last year, a period which also included a $5.5 million of fee income from the homebuilder distribution network, which was sold last year. As we continue to grow the business and as prior periods will stop having the benefit of fee income from the homebuilder distribution network sold last year, we expect revenue growth to accelerate. In Q1, our net combined ratio improved 60 percentage points to 99.5% compared to Q1 of last year. This was achieved by improvement to both net loss and expense ratio. Our Q1 net loss ratio improved 58 percentage points year-over-year to 48%, driven by favorable trends in both CAT and non-CAT loss experience. CAT loss ratio improved 57 percentage points to 4%, driven primarily by a low level of CAT losses during the quarter and the impact of California wildfires in 2025. Non-CAT loss ratio improved 1 percentage point year-over-year to 44%, reflecting that we have largely gotten the underlying pricing where it needs to be from a rate adequacy perspective. In Q1, net expense ratio improved 2 percentage points year-over-year to 51.5%. As Rick mentioned previously, our continued focus on operating leverage through AI and impact of scale continues to drive the expense ratio down. It is also worth highlighting that we achieved this year-over-year improvement despite the benefit in prior year quarter of roughly 4.5 percentage points from profits generated by the homebuilder distribution network we sold in Q3 of '25. Q1 net income came in at $7 million or $0.27 per diluted share, a $55 million improvement year-over-year. The year-over-year improvement was primarily due to the lower CAT activity year-over-year, followed by the continued improvement of core underlying underwriting results. Q1 adjusted net income grew by $52 million year-over-year to $17 million or $0.65 per diluted share. Total Hippo shareholder equity at the end of the quarter was $449 million or $17.23 per share, up 2% from $436 million or $16.97 per share at last quarter end. Following this quarter results, we are updating a few of our guidance metrics for full year 2026. We're increasing gross written premium from a range of $1.4 billion to $1.5 billion to a range of $1.45 billion and $1.525 billion. We are increasing net written premium from a range of $500 million and $540 million to a range of $520 million and $550 million. We are introducing a new revenue guide of between $560 million and $570 million, which represents a growth of 19% to 22% over full year 2025. We are maintaining our net combined ratio at a range of 103% and 105%, inclusive of a 13% CAT loss ratio, given the second and third quarters are typically elevated CAT quarters. And finally, we increased our expected adjusted net income from a range of $45 million to $55 million to a range of $48 million to $56 million. And with that, operator, I'd now like to open the floor to questions. Operator: [Operator Instructions] Your first question comes from the line of Andrew Andersen from Jefferies. Andrew Andersen: This is Sid on for Andrew. First, on the updated guidance, you raised the growth outlook but left the combined ratio unchanged. So just curious what you're expecting for the balance of the year to prevent margin expansion despite the higher growth? And then I guess, similarly, how should we be thinking about the incremental loss ratios with elevated growth in Casualty and CMP? Guy Zeltser: Hi Sid, this is Guy. Happy to take this question. So first of all, to start off, we're very happy with how we started the year. This is why on both the GWP and NWP and the bottom line profitability, we felt comfortable to raise it a bit. The combined ratio, we kept it the same. Every point is $5 million. So we didn't want to -- so by and large, we feel that's still the appropriate number. The other thing I will remind is that Q2 and Q3 are the quarters with the highest cap load as we had. So we didn't want to get ahead of that. But directionally, all the metrics are moving in the right direction. Your other question about the Casualty, yes, we grew Casualty significantly on the GWP. It's still the line that we're retaining the least. What we are retaining is one program that we -- it's with an operator that we know well, and we feel very good about the pricing. So we still expect the same loss ratio, if I would say, non-CAT of about 45% for the year and the CAT load of about 13%. So we still feel really good about that, just generally the loss cost trends. Richard McCathron: Sid, this is Rick. One thing that I'll answer about your combined ratio comment is when we think about combined ratio, we recognize that our loss ratio portion is doing quite well, and we expect that barring any unforeseen circumstances to continue. The expense ratio is the area in which we're putting significant focus on as a company. And much like when we had to improve the loss ratio a few years ago, that same level of energy and emphasis is being driven towards improved expense ratio, thus a pretty significant reduction in combined ratio over time. The difference, I think, with expense ratio is that some of these initiatives build upon themselves. And so as we continue to get into future quarters and future years, you'll see continued improvement in that particular area, really driving for an expense ratio ultimate target or ultimate goal in the mid-30s as opposed to close to 50% where it is today. Andrew Andersen: Okay. Great. And then maybe I'm just hoping you can remind us how you think about managing collateral adequacy and counterparty risk and fronting? Richard McCathron: Yes, I'll go ahead and take that, Sid. I think that's a great question. And frankly, I think it's very important for everybody to understand there is a difference in quality of programs, of reinsurers, of partnerships. And I'll remind everybody that when there were challenges with Vesttoo a few years ago, Spinnaker had zero exposure to that loss. There's been some recent news on challenges with a few others. I'll just tell the audience that Spinnaker had zero exposure to those, which just emphasizes that we put quality above quantity and above growth every time. And so we very much monitor the collateral. We are very careful on who we select or who we accept as reinsurance risk-bearing partners. And more importantly, we're very cautious on who we sign up as a program partner versus those that approach us who want to be signed up. So I think the message here is we have not sacrificed one bit of quality. We continue to have a high bar, and you should expect that from us going forward. Operator: [Operator Instructions] Your next question comes from the line of Timothy D'Agostino from B. Riley Securities. Timothy D'Agostino: Congrats on the quarter. One question for me is just, I guess, a little more color on the Progressive partnership and how that's rolling out, understanding that it's still a month in since the announcement, but it would be great to just get more additional color on how the relationship is building. Yes, and if you could just add anything to that? Richard McCathron: Yes, Tim. Happy to answer that. We could not be more pleased with how the partnership is developing, although we announced it a month or so ago, we actually went live at the beginning of the year. So we now have 4 months of history with them. It's exceeding our expectations, and I'd like to think it's exceeding their expectations as well as we're talking about how do we add additional states to the partnership. I will emphasize that both companies wanted to take a fairly conservative approach on growth, making sure that both are aligned with the quality of customers that are being placed on the Hippo program. I've been impressed, frankly, with Progressive and their collaborative partnership on this. And we're really excited to continue to grow it and continue to ramp and add additional states in the coming quarters, which will certainly continue to accelerate our renewed growth in our Homeowners line. Timothy D'Agostino: Okay. Great. And I heard you say that enter new states in the coming quarters. I guess from their lens and from your lens, what's it going to take for that growth to accelerate and for maybe by year-end '26, we see you enter a couple more states? Richard McCathron: Yes, it's a great question, Tim. Like any partnership, both sides have a desire to grow in particular geographic regions. So we work closely with them to identify where they may need additional carrier support in their agency and then obviously, where we feel like we can grow where we're both, A, price-adequate; and B, not overly concentrated. I think we launched with approximately 10 states initially with Progressive, we expect to grow that. I think, actually 8 states. We expect to grow that in the coming quarters. I would imagine by this time next year, that will be doubled in areas that both support their desires and where we believe will be accretive to the bottom line. Operator: Your question next comes from the line of Tommy McJoynt from KBW. Thomas Mcjoynt-Griffith: As you're starting to reengage in growth in the Homeowners book, can you remind us, does your 2028 targets or guidance there contemplate any certain mix of Homeowners and so we can back into what a CAGR for growth you're expecting in your Homeowners book? Richard McCathron: Tommy, I'll go ahead and start, and then Guy can elaborate. When we put the 2028 targets out, we considered essentially, if we keep doing what we're doing, what will happen to the ultimate performance of the company. I said last quarter, and I will reiterate this quarter, we are ahead of pace on those targets. So we're very, very pleased with that. I think relating to the question on mix, we don't have a specific mix right now because the mix is dependent on a couple of different things. What's going on with the various market cycles, both on property and casualty, what opportunities present themselves where we believe we can grow meaningfully in a particular or group of product lines, and we want to take advantage of that opportunity. And then, of course, the overarching theme is we will not get out of whack in terms of broadly diversified portfolio against the major product lines. So we want to make sure that the portfolio is diversified throughout 2028, leveraging for opportunity and market conditions to give us a little bit of freedom and flexibility on which we may choose to grow win and which we may choose to grow a bit larger. Guy, do you want to take the CAGR? Guy Zeltser: Yes. So Tommy, so as we said during our Investor Day, the implied CAGR to get to the $2 billion target was about 22%. So as you can see, this quarter, last quarter, we are ahead, as Rick mentioned, this is why we feel comfortable to say that we are ahead of that target so far. We like the mix as it is right now on a gross written premium basis. It was relatively even between the 3 largest 3 lines, Casualty, CMP and Homeowners. What I will say is that on a net basis, you should expect the pie to also continue to diversify and will be more diversified than it is right now because it's still more concentrated with the property programs. And we do expect slowly as we learn more about the newly launched programs to slowly dial up the risk retention on the other lines as well. Thomas Mcjoynt-Griffith: If I look at Slide 7 of your Investor Presentation, you have the down arrow next to E&S home under increased competition. First off, can you remind us what is the mix between admitted and E&S in your home book? And then is that comment there saying E&S at this point in home is unattractive or it's just more selective in certain markets? Could you elaborate on that comment? Richard McCathron: Yes, happy to, Tommy. I think my -- one of my roles as the CEO of Hippo is to give the company maximum optionality and create as many levers as possible to take advantage of particular market cycles and particular themes and particular opportunities. We've spent a lot of time over the last 12 to 24 months, making sure we have the capabilities to toggle up admitted business, toggle up E&S business or toggle them down when we feel like the market conditions aren't right. Predominantly, the reason that we're toggling down the E&S marketplace is we think that it is less competitive given the fact that more competition exists within the admitted and standard market. But having these toggles and these levers are by design so we can take advantage of various market cycles. Guy, do you want to talk about the mix? Guy Zeltser: Yes. So Tommy, about the mix, about 70% of the Homeowners line in Q1 was HHIP, our owned MGA and then the rest was the partner program, which is predominantly E&S. So within that line, HHIP actually grew about 15%, and that's also driven by the Progressive and Westwood partnerships. The other side of the book shrank by about 20% to 25% -- we -- what we like about E&S, it has -- it's very value accretive from a profitability perspective, and we absolutely prefer with our partner to prioritize underwriting discipline and not compromise on the profitability. And because of the competition, we do see a volume growth there. But again, we have no problem playing the right cycle and maintaining profitability over volume. Richard McCathron: Yes, Tommy, the ability to lever against various cycles and various opportunities I think, is a differentiating factor for us versus some of the others that might be really emphasizing or focusing on a single product line. As you know, in our history, we focused on a single product line, and we got bit a few different times. And so it was really within our objectives to make sure that we have these toggles and these levers where we can continue to grow the business where attractive and slow the business where less attractive. Operator: At this time, there are no further questions. I will now turn the call over to Richard McCathron for closing remarks. Richard McCathron: Well, I'd like to thank everybody for joining us today. We're very pleased with the quarter, but I think we're more excited about what the future will hold and what the future will bring. So we look forward to speaking with you again next quarter. Have a great morning. Operator: This concludes today's call. Thank you all for attending. You may now disconnect.
Operator: Good day and welcome to the MoneyHero Group Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Also note that this call is being recorded. I would now like to turn the call over to [ Gretchen Kwan ], Corporate Communications Lead. Please go ahead. Unknown Executive: Hello, everyone, and welcome to MoneyHero 2025 Q4 and Full Year Earnings Conference Call. I'm Gretchen Kwan, Corporate Communications Lead at MoneyHero. Before we begin, I would like to remind you that today's call will include forward-looking statements, which are inherently subject to risk and uncertainties and may not be realized in the future for various reasons as stated in our earnings release, which was issued earlier today and is also available on our IR website. In addition, please note that today's discussion will include both IFRS and non-IFRS financial measures for comparison purpose only. For reconciliations of these non-IFRS measures to the most directly comparable IFRS measures, please refer to our earnings release and SEC filings. Lastly, a webcast replay and a script of this conference call will be available on our IR website. Joining me on the call today is Danny Leung, Interim CEO and CFO, who will go over our strategy and business updates, operating highlights and financial performance of the Q4 and full year 2025. This will be followed by a Q&A section. With that, let me turn the call over to Danny. Danny Leung: Thank you, Gretchen. Good evening, everyone, and thank you for joining us today. It is a privilege to speak with you as we close out what has truly been a transformative year and quarter for MoneyHero. Before diving into our results, I want to briefly address the leadership transition announced earlier this month. Since stepping into the interim CEO role, I've reflected on my time with MoneyHero since late 2024 when the company began navigating a strategic repositioning. I want to thank Rohith for his contribution during his tenure. As MoneyHero pivots to scaling profitable growth, the Board has initiated a search for permanent CEO to lead this next phase. Having guided us through our 2-year transformation, I'm fully confident in our management team's ability to execute seamlessly during this interim period. Our strategic vision remains unchanged and our focus is entirely on capitalizing on the opportunities ahead and those opportunities are built on a rapidly strengthening foundation. I'm pleased to report that we delivered fourth quarter net profit of $0.5 million, a significant turnaround from a net loss of $18.8 million in the same period last year. This was achieved alongside adjusted EBITDA of $0.7 million marking our first-ever adjusted EBITDA gain since we listed on NASDAQ. Our performance throughout 2025 demonstrates this clear sequential execution towards achieving better revenue mix, cost base and technology platform. This momentum was built consistently throughout the year with our adjusted EBITDA path improving quarter by quarters. We systematically progressed from an adjusted EBITDA loss of $3.3 million in the first quarter to a loss of $2 million in the second quarter, narrowing further to a loss of $1.8 million in the third quarter before finally crossing the breakeven point this quarter. For the full year, adjusted EBITDA loss improved 73% to $6.4 million from $23.7 million last year. And our net loss narrowed 86% to $5.2 million from $37.8 million. This performance validates our strategic repositioning towards achieving better revenue mix, cost base and technology platform. Fourth quarter revenue grew 27% year-over-year to $20 million driven by a strong performance in our core markets with Singapore revenue surging 56% year-over-year and Hong Kong growing 27% year-over-year. Together, these 2 markets represent 86% of revenue during the quarter, up from 79% a year ago reflecting our deliberate concentrations on markets with the strongest unit economics. At the same time, Taiwan and the Philippines continue to gradually recover as the operational issues seen earlier in the year following the exit of Citibank fade. Full year 2025 revenue was $73.4 million representing our strategic pivot towards healthier revenue quality and accelerating momentum toward year-end. Crucially, our cost of revenue for the full year also declined 7 percentage points year-over-year to 51% of revenue. This structural improvement was driven by a shift in revenue mix and optimized reward cost. Our deliberate shift towards higher-quality, higher-margin verticals, particularly insurance and wealth, is directly expanding our margins and reinforcing the structural strength of our business. During the fourth quarter, revenue from insurance and wealth products together accounted for approximately 30% of revenue highlighted by wealth revenue accelerating strongly with 50% year-over-year growth. We see a clear path for our high-margin verticals to make a meaningfully larger share of our revenue mix over next few years. These verticals already delivered twice the incremental profitability of our lower-margin verticals and generate steady recurring customers even before AI upside. This deliberate mix shift we have seen signaling all year combined with disciplined capital allocation into these segments is central to how we are building durable compounding earning power rather than chasing volume-led growth. Ultimately, this structural evolution in our mix coupled with better approval rates and optimized reward cost is expanding our margins and elevating the overall quality of our earnings. For the full year 2025, total operating cost and expenses, excluding foreign exchange difference, fell 27% year-over-year while fourth quarter expenses declined 15% year-over-year. Technology costs dropped 59% and employee benefit expenses fell 33% in the full year supported by AI automation, which now touches up to 70% of customer service queries. This is a clear demonstration of margin first execution. In practical terms, this means our cost base will not reinflate as we scale. Instead, incremental revenue will increasingly flow through to the bottom line reinforcing our confidence in sustaining and compounding the profitability we have now achieved. We have made strong progress with our AI initiatives. During the year, AI automation touched up to 70% of customer service queries. Crucially, in December 2025, AI successfully resolved 47% of customer service queries without any human intervention demonstrating how we are scaling operations and product support without proportionally adding headcount. The impact of this leverage is already highly visible in the fourth quarter allowing us to deliver 12% more approved applications year-over-year in the fourth quarter while simultaneously cutting employee benefit expenses by 32%. We are systematically driving improvements in approval quality, customer acquisition cost efficiency and funnel conversion. For example in Singapore, our Car Insurance SaverBot is now in beta in WhatsApp delivering a natural conversational AI experience that replaces complex forms and meaningfully reduce acquisition cost. In Hong Kong, Credit Hero Club is building a recurring base of high intent users through personalized credit insights and monitoring. Importantly, our AI are continuously trained on proprietary intent, behavioral and approval data from our 9.4 million members. This creates a highly defensible data mode positioning MoneyHero as one of Southeast Asia's most advanced AI-native financial decisioning platform. I will take the next few minutes to walk through the mechanics of our P&L focusing on the data, the operational drivers behind these numbers and how our financial profile has structurally evolved across both the fourth quarter and the full year. Let me begin with revenue. For the fourth quarter, we reported $20 million in revenue, 27% year-over-year increase. This represents the strongest quarterly top line growth we have seen in 2025 proving that the recovery pattern we established midyear has compounded into sustainable momentum. When looking at the full year, revenue fell 8% year-over-year to $73.4 million. That decline needs to be interpreted precisely in the context of the deliberate reshaping of our volume mix, particularly in the first half of the year. We intentionally scaled back low-margin, high-volume products to prioritize margin discipline and healthier revenue quality. Crucially, this strategy yields exactly the structural leverage we intended. Our cost of revenue for the full year decreased by 19% year-over-year to $37.3 million dropping 7 percentage points to account for just 51% of revenue. The modest annual headline revenue decline is a sign that our strategic pivot is a success. We shed unprofitable volume, optimized reward cost and are now growing rapidly again on structurally stronger higher margin base. What gives us absolute confidence in this path is the rapidly improving quality of our revenue base. During the fourth quarter, combined revenue from insurance and wealth products increased 31% year-over-year to $5.9 million accounting for 30% of total revenue. Looking at the full year, wealth revenue grew 19% to $10.1 million accelerating to a massive 50% year-over-year growth in Q4 alone while insurance revenue grew 11% to $9.1 million. Together, they now represent 26% of our full year revenue, up from 21% a year ago and just 12% in 2023. The fundamental shift in our foundation is the core engine of our margin expansion, improving the predictability and durability of our earnings. At the same time, we saw a resurgence in our core credit card vertical, which grew 38% year-over-year in the fourth quarter proving we can rapidly expand high margin products without sacrificing the strength of our core business. Looking geographically, Singapore and Hong Kong continue to serve as the primary growth engines. Singapore was a standout performer in the quarter with revenue surging 56% to $7.9 million. Hong Kong also delivered exceptional growth, up 27% to $9.4 million demonstrating our ability to build a recurring base of high intent users. Together, these 2 high unit economic markets represent 86% of our total Q4 revenue. Meanwhile, Taiwan and the Philippines generated $1.2 million and $1.5 million, respectively, in the fourth quarter. These markets are steadily recovering as the operational disruption seen earlier in the year following the exit of Citibank are now firmly behind us. Now let me turn to operating expenses. Our focus has been on driving operating leverage across every major category. Total operating costs and expenses, excluding foreign exchange differences, decreased 15% year-over-year to $21.4 million in the fourth quarter and 27% year-over-year to $84.2 million for the full year 2025. Looking at the specific expense lines. Technology costs declined sharply by 71% year-over-year to $0.4 million in Q4 and 59% year-over-year to $3 million for the full year. By retiring legacy platforms, consolidating vendors and embedding AI-driven automation; we are enabling the business to ship features faster without inflating our cost base. Advertising and marketing expenses decreased 20% year-over-year to $17.3 million for the full year reflecting more target data-driven campaign allocations. Employee benefit expenses were notably lower decreasing 32% year-over-year to $4 million in Q4 and 33% year-over-year to $16.2 million for the full year. As we highlighted earlier, this sets the stage for multiyear operating leverage. Increases in approved application volumes, which grew 12% this quarter, no longer require proportional increase in personnel. For the fourth quarter, it contributed to our first positive adjusted EBITDA of $0.7 million and a net profit of $0.5 million, a substantial turnaround from the $18.8 million net loss a year ago. For the full year, our adjusted EBITDA loss narrowed sharply by 73% to $6.4 million, and our net loss improved at 86% to $52 million (sic) [ $5.2 million ]. From a balance sheet perspective, we are operating from a position of resilience. We ended the year completely debt-free with $31.2 million in cash and cash equivalents and $37.5 million in net current assets. Crucially, our cash position represents a sequential increase of $3.3 million from $27.9 million from Q3 highlighting our gradual transition into a cash-generative business. We have now reached this profitability point in Q4 as we have been working toward. These milestones validate the difficult, but deliberate choice we made over the past 2 years and set a strong foundation as we transition from turnaround to sustainable cash generative growth in a capital-light member-centric model. Looking ahead, we expect our full year 2026 adjusted EBITDA to exceed 2025 levels. This will be driven by the continued expansion of our high-margin insurance and wealth verticals, AI-driven operating leverage and the strong conversion of member base into recurring multiproduct customers. Thank you. So perhaps, we can start the Q&A section. Operator: [Operator Instructions] And our first question comes from William Gregozeski with Greenridge Global. William Gregozeski: Danny, congratulations on the great quarter. Can you provide a bit more color on the sudden leadership transition? Why was the decision made to change CEOs right as the company hit profitability inflection point? Danny Leung: Sure. Thank you for the question. I understand why the timing might seem sudden, but this transition is actually very deliberate and comes at a pivotal moment for us. We have just finished a 2-year strategic repositioning of the entire company. As you can see from our fourth quarter results specifically hitting our first adjusted EBITDA profit since listing, that foundational work is now successfully complete. Essentially, we are moving into a scaling phase. Because the mission has changed, the Board decided it was the right time to find a permanent CEO whose specific expertise aligns with this next chapter of the profitable growth. While that search is underway, my focus is on maintaining the absolute operational discipline that got us to where we are in the first place. I want to focus on improving our EBITDA in 2026 from 2025. Our strategy is already clearly mapped out in our financials. We are shifting our revenue mix toward those higher-margin insurance and wealth products, keeping a very tight lead on cost and using AI to drive massive operational efficiency. So this leadership transition isn't a change in direction. It is about supporting our momentum and ensuring we have the right leadership structure in place as we execute on the next level of growth. Operator: Our next question comes from [ Calvin Wong ] with [indiscernible]. Unknown Analyst: I have a few questions. Maybe I'll ask one by one. What are the key -- the first one is about the business segment. What are the key opportunities to grow within the insurance segment? Are there more insurance verticals the company can start offering? Are you having measurable success with the SaverBot beta on WhatsApp? Danny Leung: Thank you, Calvin, for the question. Yes, insurance is a core high-margin part of our business and the growth we are seeing there is incredibly strong. To give you the hard numbers. Our full year 2025 revenue for this segment grew 11% to $9.1 million with $2.3 million of that coming in just the fourth quarter. What is even more exciting is how much this segment is shifting the weight of our entire business. If you look back to 2023, insurance and wealth made up only 12% of our total revenue. That jumped to 21% last year and today, it represents over 1/4 of our business at 26%. We see a significant runway to keep this going by leaning into deeper partner integrations and using AI to personalize the experience for our users. We are also looking at expanding our product offering even further by leveraging the dominant market positions we already hold in Singapore and Hong Kong. Moving on to your question about SaverBot. The early results from our beta in Singapore are very encouraging. The bot provides a seamless conversational experience on WhatsApp that fundamentally change how users discover products. It is a triple win for us because it simplifies the journey for the customer, lowers our acquisition cost and improves the quality of the application we send to our partners. This isn't just a pilot project. It's a core part of our infrastructure that is already driving real operating leverage. You can see the proof in our efficiency metrics. In December 2025 alone, our AI successfully resolved 47% of all customer service queries without any human intervention at all. We can scale our volume significantly while keeping our costs under control, which is exactly why we plan to continue driving profitable growth. Unknown Analyst: Great to hear that. My next question is more related to the revenue. We've seen that full year revenue was down 8%. By looking at the current quarterly trends, do you feel you have now established a stable baseline for future revenue growth? Danny Leung: That's a very good question again, Calvin. To answer your question directly, yes, we absolutely feel we have established a stable and much healthier baseline. While the full year revenue of $73.4 million was down 8%, that was actually a very deliberate result of our strategic transition. We moved away from a model that was focused on scaling top line and moved towards one focused on healthy unit economics and real profit. It is important to remember that our 2025 results were compared against a very high base from the first half of 2024, which is a period where the company was spending aggressively to grab market shares. Since then, we have completely repositioned the business to prioritize the quality of our revenue over the size of it. If you want to see our new baseline, the fourth quarter is a better indicator of where we are now. In Q4 our revenue actually grew 27% year-over-year hitting $20 million, but the real story is the mix of that revenue. We are shifting towards much higher-margin products. For example, wealth and insurance grew to represent 30% of our total revenue this quarter with wealth specifically growing by 50% year-over-year. By focusing on these high-margin areas and keeping a strict eye on our expenses, we managed to bring our group-wide cost of revenue down from 58% to 51% for the full year. What we have built is a structurally resilient engine. It is designed to be efficient ensuring that we generate real profit on every single incremental dollar we bring in from here on out. Unknown Analyst: Looks amazing. I have 2 other questions, if I may. Maybe I'll start with the first one, which is more related to the expenses side. You reported a significant 27% reduction in total operating cost this year with technology costs specifically falling by 59%. As the business stabilizes, as you mentioned, how much of this cost savings is permanent? And how are you using AI to ensure you can scale efficiently without cost returning to negative levels? Danny Leung: Thanks, Calvin, again for the questions. Yes, the efficiency gains you are seeing are structural not just a temporary dip. We didn't simply cut spending. We fundamentally changed how we operate by retiring our legacy systems and consolidating our entire technology stack. A major driver for this shift is our transition into an AI-first organization. We are already seeing the financial benefits of this transformation in our daily operations. Today, a significant majority of our customer service interaction involve AI automations. What is even more promising is the resolution rate. Our AI tools have reached a point where they can fully handle and close a large portion of all customer queries without any help from our staff. It is exactly how we are able to support a much larger user base while keeping our team significantly leaner. Beyond customer service, we are using advanced tools and generative AI to boost productivity across every department. For example, we are piloting solutions that help our team scale content production much more efficiently than before. By embedding these technologies directly into our workflows and our conversational interface like SaverBot, we have built a highly automated engine. This allows us to handle much higher transaction volumes like the 12% growth in approved application we saw this quarter while maintaining the disciplined cost structure we have worked so hard to build. This efficiency is exactly what led to our Q4 net profit of $0.5 million and our first ever positive adjusted EBITDA of $0.7 million. So we are confident that we can continue to grow our top line without letting our costs return to those old legacy levels. Thanks again for your questions. Unknown Analyst: Great to hear about the AI deployment. Okay. Sorry to keep it long. But finally, just a small question. Why did you restate your historical members and applications metrics this quarter? Danny Leung: Thanks again for the question. It's very good that someone caught that information. Just to explain the reason. As part of our broader structural repositioning, we conducted a full audit of our legacy data infrastructure and then we realized that some of our old methods for tracking operational metrics were based on fragmented logic that simply couldn't scale as we grew. So because of that, we have updated our numbers to ensure they are accurate moving forward. Just to give you an example, we found 2 main issues with how we are counting members. First, there was a legacy processing error where certain e-mail address weren't being standardized properly before they were encrypted. This occasionally led to the same person being assigned multiple IDs, which created duplicate counts. Second, specifically in the Philippines, we have moved our source of truth directly to our core CRM. This eliminates the discrepancies we were seeing from our older layer reporting systems. We saw something similar with how we track applications. Historically, that system was a bit of a patchwork. It relied on very specific hard-coded rules for different banks or dual stage. The problem was that if we added a new partner or a new stage, it didn't perfectly match that old logic. Some valid applications were accidentally left out of the total count. We have now replaced that with a standardized system-wide definition for submission dates. So we are capturing our true volume accurately across every partner we work with. It is important to note that these revisions had absolutely no impact on our financial statements. Our revenue has always been recognized based on actual confirmed product approvals and fulfilled actions with our partners. This change was strictly about cleaning up our internal operational metrics to make sure that the data we use to run the business is as precise and accurate as possible. Operator: [Operator Instructions] And our next question is a follow-up from William Gregozeski with Greenridge Global. William Gregozeski: Danny, 2 more questions. I'm going to ask them together real quick. How is your AI initiative advancing beyond the cost reductions and what are the CapEx and OpEx implications for that for 2026? And then second is, if you can, can you comment on the news article talking about the merger talks with you and Voltech? Danny Leung: I'll get your first question first about AI. So our AI transformation is doing a lot more than just cutting cost. It is fundamentally reshaping how we generate revenue. To give you an idea of the operational side first, the benefits have been structural and very clear. By consolidating our platforms and embedding AI across the business, our technology costs dropped by an incredible 71% in the fourth quarter and 59% for the full year. Today, AI automation handles up to 70% of all customer service queries. This is a game changer because it allows us to scale our user base significantly, but without needing to hire a proportional number of new staff. And moving forward, we are shifting our focus to the revenue side as well essentially using AI as an advanced marketing engine. We are already seeing this work through better approval quality, more efficient customer acquisition costs and higher conversion rates. You can see this leverage play out in our core credit card business, which grew 38% year-over-year in the fourth quarter. We have proven that we can scale volume efficiently. In Q4 our approved application grew by 12% to 190,000. Yet at the same time, our employee benefit expenses actually declined by 33%. So this shows that we are getting more output from a leaner, more tech-driven organization. And as we look forward to 2026, the beauty of this strategy is that the savings we have generated from AI are now actively funding our next round of innovation. Because of this, we don't anticipate needing any outsized capital expenditure. Our goal for the coming year is to integrate our back-end system directly with our AI to hit a 60% 0 touch resolution rate even for more complex inquiries. This will allow us to provide true 24/7 support and continue to grow our top line revenue without reinflating our cost base. We are effectively decoupling our growth from our expenses. And on to your second question about the recent news about the acquisition, the merger between Voltech and MoneyHero. Yes, we are aware of the recent media reports regarding potential acquisition activity involving MoneyHero Group. As a matter of company policy, we do not confirm, deny or comment on market speculations. Our management team remains fully focused on executing our long-term strategy. Our priority is now sustaining and scaling profitability. This includes driving growth across our high-margin insurance, wealth and lending verticals while continuing to leverage our AI-driven operating model across our 4 core markets. Shareholders are reminded to rely only on official announcements and disclosures made by the company and to exercise cautious when considering information from unofficial or media sources. Operator: Thank you. This concludes our question-and-answer session. I'd like to turn the call back over to Danny for any closing remarks. Danny Leung: Thank you, Michelle. So thank you all for being here today. 2025 was a crucial year for MoneyHero. We have successfully completed our 2-year strategic repositioning by delivering our first-ever adjusted EBITDA gain and a net profit this quarter. As we head into 2026, our mandate is clear. We are here to scale profitable growth. A central part of that evolution is our shift into an AI-first organization. We have already used AI to separate our operating cost from our growth and our road map for 2026 is focused on plugging that AI even more deeply into our revenue engine. We are excited about the momentum we have and we look forward to sharing our next set of results with you on the next call. Thank you, everyone. Operator: Thank you for your participation. You may now disconnect. Everyone, have a great day.
Operator: Welcome to the Cimpress Third Quarter Fiscal Year 2026 Earnings Call. I will now introduce Meredith Burns, Vice President of Investor Relations and Sustainability. Please go ahead. Meredith Burns: Thank you, Lisa, and thank you, everyone, for joining us. With us today are Robert Keane, our Founder, Chairman and Chief Executive Officer; and Sean Quinn, EVP and Chief Financial Officer. We appreciate the time that you've dedicated to understand our results, commentary and outlook. This live Q&A session will last about 45 minutes or so, and we'll answer both pre-submitted and live questions. You can submit questions live via the quest-answers box at the bottom left on the screen. Before we start, I will note that in this session, we'll make statements about the future. Our actual results may differ materially from these statements due to risk factors that are outlined in detail in our SEC filings and the earnings document we published yesterday on our website. We also have published non-GAAP reconciliations for our financial results on our IR website, and we invite you to read all of those. Now I will turn things over to Robert Keane. Robert Keane: Thanks, Meredith, and thank you to our investors for joining us today. Before Sean reviews our Q3 financial results and our guidance updates, I'll share my thoughts on the recent progress we've made on the strategic and the operational themes that we've covered in detail in our annual letter of July 29 and in our September Investor Day. Our Q3 earnings document highlights recent examples in a number of categories. First, elevated products are fueling a step function improvement in our per customer lifetime value and our wallet share. Every quarter, we're improving our ability to help millions of businesses build their brands, stand out and grow, thanks to our customized physical marketing products and branded merchandise. One metric which demonstrates our progress is that Vistaprint's variable gross profit per customer grew 13% year-over-year in Q3, and that's also our 13th consecutive quarter of growth in this metric. We see similar themes in our Upload & Print businesses as well. Second, investments in the Cimpress MCP in our manufacturing operations in cross-Cimpress fulfillment and in artificial intelligence are reducing COGS and operating expenses while increasing the velocity of new product introductions and user experience improvements. In the earnings document, we provide multiple examples of where we are leveraging our deep expertise and scale advantages in manufacturing, where we're using AI to improve customer experiences and to drive operating leverage. Also where we're using our shared software services to reduce costs and improve performance and where we are growing the collaboration between our businesses, for example, deploying shared marketing capabilities. And third, we continue to march along a clear path to fiscal 2028 adjusted EBITDA of at least $600 million and significantly lower leverage. Progress in the areas I just spoke about has allowed us to start driving down the cost of goods sold and drive up the operating efficiencies that support our previously communicated plan to achieve these financial results. Our gross profit is growing in part due to the scale advantages we have in manufacturing, new product introductions and many production optimizations within our plants and between Cimpress businesses. We expect more financial benefits in fiscal '27 and fiscal '28 as larger COGS efficiencies from ongoing manufacturing network optimizations kick in and our new production facility start-up costs, which are currently burdening our P&L shift to incremental profitability, thanks to volume growth. Additionally, we drove advertising efficiency in Q3 while continuing to grow revenue and gross profit. We expect more here in the coming years as we launch more elevated products that grow our wallet share with higher-value customers. We also implemented several OpEx reductions this quarter that will generate annualized savings of $11 million between Vistaprint and National Pen. In last year's earnings -- I'm sorry, in last night's earnings release, we announced two tuck-in acquisitions that we made in April. The first is PrintBrothers acquisition of 85% of Truyol. They're the Spanish leader for elevated brand-building print, packaging and signage products. This acquisition allows us to expand our product offering into higher-end products while capturing immediate cost synergies through materials and shipping savings, which we bring due to our much larger purchasing power. Second, we've taken a 50% stake with operating control in Mixim, and that will marry Mixim's market-leading customer experience for books, catalogs and magazines with the Print Group's manufacturing strength and their experience for these products. Both of these are in our Upload & Print segments, and we see them as great examples of where we can allocate capital to tuck-in acquisitions. We expect each of these acquisitions to generate base case returns on our capital well in excess of 20%. They continue a string of about a half dozen acquisitions within our Upload & Print segments over the past 3 years, and they are positioning us to bring our mass customization capabilities into the core of the very large markets, which still remain offline with traditional and less competitive production techniques. We always horse race the capital we allocate to acquisitions against share repurchases, against debt reduction and against organic capabilities development. We generally have a higher hurdle rate for acquisitions given they're typically higher risk. However, our experience in these particular types of tuck-ins is that they are proving to be relatively low risk because of the attractive prices we're paying relative to the post-synergy cash flow. In other words, we are proving to be relatively low-risk, high-return capital outlays. So to sum it up, we're executing well, and we remain confident in our multiyear plan to significantly grow profits and to significantly reduce our net leverage. We are strengthening the value we deliver to customers, increasing operational efficiency and accelerating the velocity with which we drive these improvements. We still have more work to do to deliver the shareholder returns we expect, but we are on the right path and our path is clear. Now I'll turn things over to Sean to discuss the financial results for the quarter and our outlook. Sean Quinn: Great. Thanks a lot, Robert, and thanks, everyone, for joining us today. Cimpress delivered a strong third quarter. Our adjusted EBITDA surpassed $100 million for the first time in the Q3 period, growing 11% year-over-year. And with strong year-to-date execution, we're again raising our fiscal '26 revenue and profit guidance, which I'll go through in a moment. Consolidated Q3 revenue grew 12% on a reported basis and 4% on an organic constant currency basis. Reported revenue was again aided by currency tailwinds and also the acquisition in our PrintBrothers segment that we completed during the second quarter. Vistaprint revenue grew 7% on a reported basis and 3% on an organic constant currency basis. The expected decline in business cards and stationery was more than offset by growth in our elevator products. As we noted in last night's release, severe weather in North America dampened results during January and February, and then we saw an acceleration in growth in March. Our Upload & Print businesses combined organic constant currency revenue grew 8%, driven by order count growth and Cimpress fulfillment with support also from regional elections. Reported revenue for these businesses grew 26%, combined with currency benefits and again, the tuck-in acquisition that we made in Q2, which contributed $15 million to reported revenue during the quarter. Turning to profitability. Adjusted EBITDA was $100.5 million in Q3, an increase of $9.8 million year-over-year. Q3 consolidated gross profit grew 10%, the result of revenue growth, cost improvements, benefits from currency and again, the tuck-in acquisition. And we did have $3.3 million of production start-up costs for the expansion of our North American production network, which weighed on EBITDA, although that was mostly offset by currency benefits of $2.7 million in the quarter. Adjusted free cash flow declined $23.9 million to an outflow of $54.6 million. As I think most of you know, Q3 for us is typically a seasonal working capital outflow. That working capital outflow was higher this year, mostly due to timing, but also unfavorable currency movements on working capital. Cash taxes were also about $5 million higher compared to last year. From a balance sheet perspective, net leverage at the end of Q3 was 3.0x our trailing 12 months EBITDA. That's as calculated under our credit agreement, and that's consistent with last quarter despite the fact that we repurchased approximately 288,000 shares at an average price of $76 per share in Q3. Maybe just as a point of reference, we have not purchased any shares in April. Turning now to our guidance. We again raised our revenue and profit expectations for fiscal 2026 based on the strong Q3 results, but also our expectations for the remainder of the year. It's worth noting that we do expect to experience cost increases associated with recent increases in energy and oil prices, and that is factored into this updated guidance. For the full year, we now expect revenue growth of 9% to 10% after incorporating the recent acquisitions and currency benefits, and that translates to 4% to 5% growth on an organic constant currency basis. We expect net income of at least $87 million and adjusted EBITDA of at least $465 million. We expect operating cash flow of approximately $298 million to $303 million and adjusted free cash flow of approximately $130 million to $135 million. And we expect net leverage to be at or below 3.0x by the end of fiscal 2026. That is also a slight improvement from our prior guidance. As we start to look now ahead to fiscal '27, we're going to provide more specifics with our year-end release in July, but we thought it was appropriate to start to share a little bit more as we expect to take another significant step towards our fiscal '28 targets next year in terms of adjusted EBITDA growth. We're still finalizing our plans for fiscal '27, but we do expect adjusted EBITDA growth next year to be in excess of 10%. And we also expect to have meaningful growth in adjusted free cash flow. And I think it's worth spending a few minutes here. Our free cash flow conversion this year was lower, and that was expected based on the guidance that we have had in place throughout the year. Capital expenditures and cash taxes were both higher this year. And then there's also some timing in working capital, and I just mentioned that was unfavorable for Q3. From a working capital perspective, there's nothing structural to that. It's really -- for us, it's not unusual to have some variability there. In fiscal '27, we expect the growth that we'll have in adjusted EBITDA that I just referenced greater than 10% to have much more flow-through to free cash flow. And I'll just go through a couple of components there to set expectations. Capital expenditures, we expect to still be at similar levels to this year as we complete the ongoing projects that we have in place. But we do expect capitalized software to be relatively flat. We expect cash taxes to be lower next year, and we expect working capital inflows to be more favorable. And so when you put that all together, we expect to have significant free cash flow growth in fiscal '27. And as Robert noted earlier, we do remain confident in our ability to deliver our fiscal '28 targets. which I'll again reiterate as 4% to 6% organic constant currency revenue growth, at least $200 million in net income, adjusted EBITDA of at least $600 million, adjusted EBITDA to free cash flow conversion of approximately 45%. Just doing the math, that implies at least $270 million of free cash flow. And from a leverage perspective, we expect to exit fiscal '27 with net leverage of approximately 2.5x and exit fiscal '28 with net leverage below 2.0x, subject to capital allocation choices. Each quarter this year, we've provided increased visibility to the pillars of how we'll meet those fiscal '28 targets. And of course, we still have more to go. If you go back to our September Investor Day, I went through a session that walked from fiscal '25 adjusted EBITDA to be at least $600 million in fiscal '28. And in each of those pillars, we've made good progress. I just wanted to run through them each quickly now. Starting with the growth in fiscal '26, our latest guidance that I just went through is now $15 million higher than the guidance that we started the year with. We still feel good about the $70 million to $80 million in efficiency gains. We had in that bridge, the midpoint there, $75 million that we expect to have exiting fiscal '27. And we touched on some tangible examples of these initiatives in last night's earnings and throughout the call so far today. But just to reiterate, we have meaningful COGS efficiencies from manufacturing projects, from our work with focused production hubs and cross Cimpress fulfillment. From an AI standpoint, we're seeing productivity improvements, and that extends well beyond the examples that we provided in the letter. Increased collaboration between Vistaprint, National Pen and BuildASign, including shared software services and marketing capabilities is starting to take hold and other operating cost efficiencies, including the $11 million of annualized cost reductions that we've already actioned between Vistaprint and National Pen late in Q3, as we talked about as well in the release last night. Our work on this one is not done in terms of the overall cost savings, but we remain confident in our ability to deliver this pillar, and these are clear examples of our progress. The next pillar is the plant start-up cost, which we expect to roll off as planned. That one is just math. On the M&A front, we touched on this in the letter as well, but with the three tuck-in acquisitions this year, we expect contribution in fiscal 2027 to be approximately $125 million of revenue and $13 million of adjusted EBITDA. That's well above the $10 million of adjusted EBITDA over a 2-year period that was in that bridge. And so we're ahead of plan there. Currency contribution is also tracking ahead of plan as well. The original contribution of which was set at $10 million total for fiscal '27 and '28 combined in that bridge. We're tracking ahead of that. And then the last pillar was just mathematically, what do you have to believe from organic growth contribution to get to at least $600 million of adjusted EBITDA. And when you update for everything I just stepped through, that leaves a minimal contribution needed from organic growth over the next few years to get to at least $600 million of adjusted EBITDA. Our results for this year and the momentum that we're building based on the progress that Robert outlined earlier, leaves us confident here as well. Achieving these fiscal '28 targets will generate very meaningful per share free cash flow growth and also significantly reduce our net leverage. From the Board down through our teams, we're laser-focused on this. And so with that, Meredith, let's turn it over to questions. Meredith Burns: [Operator Instructions] So our first question is for you, Sean. Can you explain why currency is benefiting operating income and EBITDA, but it had a negative impact on free cash flow this quarter? Sean Quinn: Yes, so that's been a theme throughout the year that currency has benefited adjusted EBITDA. And as I just said in the remarks on our forward-looking guidance as we -- really for fiscal '28, but it's true for fiscal '27 as well. We expect -- we continue to expect currency to be favorable year-over-year in '27 and '28 from an adjusted EBITDA perspective. And that really just has to do with the direction of travel of our main currencies relative to the dollar, the euro being our largest net exposure from an adjusted EBITDA perspective. And we have a currency hedging program where we average in over each quarter for some currencies over a 2-year period, for some currencies over a 1-year period depending on our forecast visibility. And so that means that as rates change, there's a little bit of a delayed effect of when we either benefit or get hurt from those currency changes. And right now, we're certainly in this period of getting help from that. So that's the story from an adjusted EBITDA perspective. And like I said, because we average in each quarter and we contract out for our largest exposures over a 2-year period, that gives us visibility also to what we expect in fiscal '27 and fiscal '28, which will continue in the direction of positive impact. So then on the -- we mentioned that the currency impact on working capital was negative. That operates under a little bit of a different dynamic. And what we saw in Q3, I mean, just to do the kind of maybe an illustration of how the math works, we have -- at the end of the December quarter, we typically have a bunch of liabilities in our working capital that then get flushed out in Q3, and the opposite is true in Q2 and Q4. And so if you think about it, at the end of December of 2024, I don't have the rates in front of me, but I think the euro, that's our largest exposure. The euro is at, I think, [ EUR 104 million ] or thereabouts. And at the end of December of 2025, it was somewhere around [ EUR 116 million ]. And so if you imagine you have, just for illustration, EUR 100 million of liabilities that will flush through in Q3. And at the end of December 2024, that was worth EUR 104 million. At the end of December of 2025, that was worth 116 million in U.S. dollar terms. And so that has a negative impact when you have an outflow quarter from working capital. The opposite is true as well, right? So in Q2, because it's a large working capital inflow quarter, also for Q4, the quarter that we're now in is a large -- typically a large working capital inflow quarter. There, we benefit from that dynamic. So that's all normal stuff. And over the course of a year, tends to even out and certainly over a multiyear period. But that was the dynamic that we had in Q3. Meredith Burns: All right. I'm going to go to Robert for the next question. Robert, here's some more math. This is a fun call. We got a lot of math. Robert, am I calculating correctly that you paid $35 million for three acquisitions that are expected to yield $13 million of adjusted EBITDA next year. Is that less than 3x forward EBITDA? Or am I missing something? Robert Keane: Your math is correct. But it is important to note that, that math is based on our consolidated reporting, and we have two of the acquisitions where we purchased less than 100% because the founder of each of those has stayed active and kept his investment or each of their investments in their -- the businesses they founded. And we really like that. It creates great aligned incentives for both Cimpress and the founder. But as we noted, we bought 85% of Turl. We expect to pay for the full acquisition amount, the 85% over 3 years. So not all of that is upfront, but it will be a small use of cash in fiscal '27 and '28. We also bought 50% of Mixim. So the implied valuation is higher if you're calculating off the enterprise value of 100% ownership. That being said, even if you adjust for that, we paid very attractive multiples of both profit, of EBITDA, of cash flow and our base case returns on the capital are also very attractive with a relatively short payback. Meredith Burns: Okay. A question for Sean on leverage. Sean, how will you be able to keep net leverage at 3x trailing 12-month EBITDA at the end of Q4 when you have already spent $25 million on M&A in April and your free cash flow guidance has come down? Sean Quinn: Yes. Under -- the way it works under our credit agreement, we're able to take credit for trailing 12-month EBITDA when we do an acquisition. So we don't get just what is in our reported results, but we look back over a 12-month period. And that makes sense. We also get to take pro forma benefit from any synergies that we expect to have. And really -- and there, we're limited to the things that are under our control. So that tends to be the things that are on the cost side, procurement savings and the like. The updated guidance that we provided for at least $465 million, that implies further year-over-year EBITDA growth in Q4. And so obviously, that plays into the leverage expectations for the end of Q4 as well. And then if you do the math on our full year free cash flow guidance, as is typical, like Q4 is a large free cash flow quarter, and we do expect significant free cash flow in Q4 as well. I think at the midpoint of the guidance range, it's somewhere around $80 million if you just do that math. So anyway, so that's how you get to the leverage guidance that we provided. And then just referencing back to the prior question as well that Robert just answered, we did pay less than 3x for the recent M&A because of the dynamics that Robert just went through. Meredith Burns: Sean, I'm going to stick with you on this next one. Can you please comment on each segment -- we get this question every quarter. Can you please comment on each segment's revenue performance in the month of April versus last year? What trends have you noticed? Sean Quinn: We try not to get into too much detail on a particular month's performance. And so we'll stay true to that here. But yes, I think I think the main takeaways, and I can understand why this question gets asked, especially in the current environment. I think the key takeaways are, one, we felt comfortable increasing our guidance for the full year. Obviously, we only have 1 quarter left. And so that's based on what we're seeing in April. It's also based on our forecast for the rest of the year. So I think that's a signal of confidence. I know that there's obviously a lot of focus right now on the health of SMBs, the health of consumers from a demand perspective. And I'll just say we haven't seen a change there in April. And so anyway, so we feel good about the updated guidance that we provided. And again, maybe I'll just also reiterate to the guidance that we have provided, which is increased for revenue and profitability does also consider increased fuel and energy costs in that guidance. And we will have some of that in Q4. Meredith Burns: Robert, I'm going to shift to you for the next one. You bought some shares this quarter and your Board authorized more purchases. That was in March for anybody who missed it, a $200 million authorization that replaced the last one. Will there be more repurchases in Q4? Robert Keane: So we don't provide forward guidance about repurchases. I will describe how we think about it. It's the same as we've said many times before. First of all, we do want to repurchase shares when we think they are undervalued, and we do think our shares are still undervalued, although less so than earlier this year. Second, like any capital allocation, we horse race share repurchases against other options, and we're in a cycle of higher-than-normal CapEx where we see excellent returns. And as we discussed a few moments ago, we have some very attractive tuck-in acquisition opportunities. So we just have to take those into account. And third, -- from the cash available, we are solving for a number of different things in fiscal '26, Sean talked about higher cash taxes, on favorable net working capital timing and very importantly, our commitment to deleverage plus the normal seasonality of the business. So we do have a very strong balance sheet, strong liquidity. We think we'd be able to continue to have attractive capital allocation opportunities in the future. We certainly will continue to look at M&A -- I'm sorry, excuse me, share buybacks is a use of that. But again, I would go back to that leverage once again because we have called for net leverage to be below -- at or below 3x by the end of this quarter. And it's really something that's important to us to achieve. Meredith Burns: Okay. Sean, a question for you. Based on everything you went through at the opening of the call, why aren't you updating your FY '28 targets at this point? I know you said there's still work to do on the cost savings piece, but every other part of that bridge was favorable? Sean Quinn: Yes. I think it's a fair question and fully expected that question. If you take a step back, we put these targets in place. I think the first time we started to talk about them was in Robert's letter to investors at the end of July. So we're talking about less than 1 year ago. And that was just after we finished the year where we did a little over $430 million in adjusted EBITDA. So at the time, we were basically saying that we'd grow our adjusted EBITDA around 40%. I think it's 39% or something over the next 3 years. and also with pretty sizable -- sizably improved free cash flow conversion on that as well. And so that's a lot of growth. So just to keep things in perspective. But when we put the targets in place, we did it as this at least framework, and we had that in the guidance that we've used throughout this year as well. So that, of course, means it could be higher. But from the Board down through the management team, we're completely committed to delivering what we said we would do. And hopefully, it's clear from what we outlined at the beginning of the call earlier that we're making good progress, and we're confident that we'll meet or exceed those targets. But we still have a long way to go. Our updated guidance for fiscal '26 that we just went through is $465 million. So we still have a long way to go to make sure that we deliver against at least $600 million over the next 2 or so years. In our view, I think if you just model out what the free cash flow per share would be in fiscal '28 based on the targets that we have and also knowledge that, that would also imply significantly lower leverage, and that's part of our targets as well. I don't think that these fiscal '28 targets are today reflected in how we're valued. And so we'll keep updating each quarter on our progress, but we're going to leave our fiscal '28 targets as they are. There are certainly areas that we're ahead of plan based on what I shared earlier. And so I think the main takeaway for investors should be that the probability of achievement has continued to increase each quarter based on the progress that we're making and the specific examples that we shared. And it is in at lease framework. So we're certainly -- we certainly could end higher -- but we have 2 years to go, and we don't want to get ahead of ourselves because we want to be sure that if we provide a committed target that we're sure that we hit it. Meredith Burns: Great. Sean, I'm going to stick with you for the next few questions here. So first up, are you able to estimate how much of a revenue benefit the Upload & Print business has got from regional elections during Q3? Sean Quinn: Yes. We didn't break that out. There's -- every quarter, there's always some change in activity. And this quarter, there happened to be in some countries in Europe, some nice volume growth attached to regional elections, and that tends to impact a few products in particular. It wasn't like the dominant trend by any stretch, but it definitely was a help including in France. And -- but we were not going to break out that specifically. But for posters, flyers, there was definitely some help there. It's sometimes hard to like the -- it's not like we can see it overall in the volume, but it's not like we're scanning the content of every order and then trying to categorize that as if we're an election or not. So that's why it's a little bit difficult to break that out, and we don't seek to do that externally, but definitely helps this quarter. Meredith Burns: Next question for you. Can you provide more color on the weather disruptions to Vistaprint's revenue in January and February? Sean Quinn: Yes. If you'll recall, in each of January and February, there were some very significant snowstorms -- and typically, like if we -- we'll look at bookings for each day on a map, right? And so you can see that by state, year-over-year trends, et cetera. You can get more specific than that if you really want to drill down even further geographically. But imagine you're looking at a map and you can see a bunch of green and red based on year-over-year bookings. Typically, what would happen when there is a severe snowstorm is all the impacted states that you might expect if it was happening in the Northeast or if it was happening in the Midwest or whatever, you could see very clearly in that visualization, the states that are impacted and that's pretty normal stuff. And one of the things that was different about the large storm that hit in January was that -- and also across the Southeast, there were significant issues with the electrical grid and freezing and winds and freezing rain. And so there are a lot of states where there are significant power outages. And of course, that impacts people's both focus on coming to Vistaprint in this case and ordering what they need, but also ability, right, because they were -- they had power outages. So we can see -- when that happens, like we can see it very clearly like what states are impacted whoever. And that was just a broader impact than what we would typically see when there's a snowstorm in the winter months. And so that's what we're referring to. And it's a real thing, like it has a real impact. That dampened the results in January. There were some similar storms in February that were pretty severe. And then as we got to the -- towards the end of February and then into March, in Vistaprint, we saw a definitive acceleration in results, leading to overall a strong quarter for Vistaprint. Meredith Burns: Okay. And can you provide more color on the cost increases that you expect from energy prices? And will you look to offset that with price increases? Sean Quinn: Yes. Well, there's -- obviously, energy prices or oil prices are, at some point, an input to a lot of our either raw materials or logistics cost inbound freight, outbound freight. So there's certainly impact. Some of that impact is a little bit delayed depending on the respective supply chain for the particular material. On the logistics side of things, again, for inbound freight, outbound logistics, that's a little bit more real time. The way a lot of our, for example, outbound logistics work is that contractually, there's a fuel surcharge that is a variable that can go up or down depending on where oil prices are and if they're outside of a certain bound. And so the cost increases will happen. They're real. And I think that's to be expected. We do expect that in large part, we would be looking to pass these on from a price standpoint. And to the extent that the increase specifically in oil prices and the flow-through that impact that has on logistics costs, especially for outbound logistics, that also then as hopefully, those prices at some point, normalize that we would then bring that back down. And so there's certainly -- we'll have some cost impact in Q4. It's not overly material, but it's notable, and we do expect that much of that will be offset by price increases, yes. Meredith Burns: That brings us to the end of our pre-submitted and live questions. So I'm going to turn the call back over to Robert to wrap things up. Robert Keane: Thanks, Meredith. The key takeaways from our announcement today are we've raised our FY '26 revenue and profit guidance for the second time. And we certainly expect to end the year -- the fiscal year with net leverage that is more favorable than our prior guidance. Strategically and operationally, we are progressing in key areas that I discussed briefly today that we covered in much more detail in my July letter to investors and in our September Investor Day. At the top level, what we continue to do is enable millions of businesses to build their brands, stand out and grow by leveraging our core competitive strength in manufacturing and supply chain excellence and by continuing to improve the customer experience to drive efficiency gains. Our ongoing progress reinforces our confidence in our path to fiscal '28 EBITDA of at least $600 million and approximately 45% free cash flow conversion, coupled with significant reductions in net leverage. And achieving that result should really drive significant returns for long-term investors. So I'll wrap up by saying thank you again for joining the call, and thank you for continuing to entrust your capital with us. Have a great day. Operator: This does conclude today's program. Thank you all for joining, and you may disconnect.
Operator: Good day, and thank you for standing by. Welcome to the NovoCure's Q1 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Adam Daney. Please go ahead. Adam Daney: Good morning, and thank you for joining us to review NovoCure's First Quarter 2026 financial performance. I'm joined on the phone today with our Executive Chairman, Bill Doyle; CEO, Frank Leonard; Chief Innovation and Medical Officer, Uri Weinberg; and CFO, Christoph Brackmann. Other members of our executive leadership team will be available for Q&A. For your reference, slides accompanying this earnings release can be found on our website, novocure.com on the Investor Relations page under Quarterly Reports. Before we start, I would like to remind you that our discussions during this conference call will include forward-looking statements, and actual results could differ materially from those projected in these statements. These statements involve a number of risks and uncertainties, some of which are beyond our control and are described from time to time in our SEC filings. We do not intend to update publicly any forward-looking statements, except as required by law. Where appropriate, we will refer to non-GAAP financial measures to evaluate our business, specifically adjusted EBITDA, a measure of earnings before interest, taxes, depreciation, amortization and share-based compensation. We believe adjusted EBITDA is an important metric as it removes the impact of earnings attributable to our capital structure, tax rate and material noncash items and best reflects the financial value generated by our business. We do not provide forward-looking guidance for adjusted EBITDA on a GAAP basis due to the inability to predict share-based compensation expenses contained in the reconciled GAAP measure net income without reasonable efforts. Reconciliations of non-GAAP to GAAP financial measures are included in the press release, earnings slides and in our Form 10-Q filed with the SEC today. These materials can all be accessed from the Investor Relations page on our website. Following our prepared remarks, we will open the line for your questions. I will now turn the call over to our Executive Chairman, Bill Doyle. William Doyle: Thank you, Adam. This morning, we reported results for the first quarter of 2026, and I am pleased to say we've had a strong start to the year. Both active patients and net revenues grew at double-digit rates year-over-year. Our launch in pancreatic cancer is off to a promising start, and we are making progress on our journey to profitability. With a number of additional catalysts expected this year, we look forward to building on this strong first quarter. On today's call, we will begin with a review of our pancreatic cancer program. Frank will then provide an update on our GBM and lung cancer programs. Christoph will conclude with a review of our first quarter financial performance before we open the line for questions. The leading news in the quarter was the FDA approval and subsequent U.S. launch of Optune Pax for patients with locally advanced pancreatic cancer. Physician feedback has been positive since the PANOVA-3 data were presented and published at ASCO last year. There is broad recognition of the importance of the outcomes observed, including extensions in overall survival and time to pain progression. We believe Optune Pax can play a significant role in the treatment of pancreatic cancer, and we are pleased to be bringing Optune Pax to pancreatic cancer patients. The early days of our Optune Pax commercial launch have been encouraging. We received FDA approval on February 11. In the 7 weeks, between the approval and quarter end, we certified 868 health care providers, 27 of whom are prescribers in academic centers. An exciting development as historically, we've seen slower adoption of TTFields therapy in academic centers. Through March 31, we've received 169 prescriptions and completed 90 patient starts. We ended the quarter with 83 patients on therapy and a backlog of starts in the funnel. We are also pleased to report our first major payer coverage policy for Optune Pax with Elevance Health, covering over 30 million lives. It will take a few quarters to fully understand the Optune Pax adoption curve and reimbursement dynamics. But again, the early signals are very encouraging. During the quarter, we also announced top line data from the Phase II PANOVA-4 trial, evaluating TTFields therapy together with atezolizumab and Gem-Abraxane in metastatic pancreatic cancer. PANOVA-4 met its primary endpoint with a disease control rate of 74% compared to 48% in the historical control. Median duration of therapy was 25.6 weeks, a strong indication that TTFields therapy is feasible for use in the metastatic population. As the pancreatic cancer treatment landscape evolves, we will evolve with it. After years of limited clinical success in pancreatic cancer, the medical community has seen positive outcomes in the PANOVA-3 and PANOVA-4 trials, and positive data from a trial testing the pan-RAS inhibitor, daraxonrasib in second-line metastatic pancreatic cancer. RAS inhibitors are likely to be an important backbone therapy in pancreatic cancer in the future, and we are working to understand the benefits of their concomitant use with Tumor Treating Fields. Earlier this month, at the American Association of Cancer Research, or AACR Annual Congress, 2 posters were presented, which evaluated in vitro and in vivo use of TTFields with daraxonrasib in pancreatic cancer models. The data presented show that KRAS inhibition, which blocks upstream oncogenic signaling and the down-regulation of the c-Myc protein caused by TTFields produced greater antitumor activity when used together compared to either therapy used alone. These data are promising, warrant clinical investigation and will be important inputs as we consider the next steps in our pancreatic cancer program. Finally, a quick update on our product development initiatives. Over the last year, we've launched a number of product enhancements aimed at making TTFields therapy easier for patients and prescribers. This includes an HCP portal, which simplifies the prescription process, lighter, more flexible, more comfortable HFE arrays for Optune Gio, a mobile app to help patients and caregivers navigate their TTFields experience. We are starting to see the fruits of these enhancements in our 90-day persistent rate, which hovered below 70% as recently as 2024. In 2025, we have seen quarterly persistence rates tick up to 73%. Our next major product improvement will be a new array for the torso. We are now finalizing the design, which will be compatible with Optune Pax and Optune Lua. The new arrays are designed to make major improvements in comfort and usability. We also expect these arrays to be more cost effective to manufacture. We have completed usability testing in healthy volunteers and are evaluating performance in non-small cell lung cancer patients. Our next aim is to have the new arrays available for use in future pancreatic and lung cancer clinical trials by year-end. I'll now pass the call over to Frank for an update on our GBM and lung cancer programs. Frank Leonard: Thank you, Bill. Our Optune Gio business remains the core driver of our commercial portfolio. We are off to a strong start to the year with 9% year-over-year growth in active patients globally. We saw our strongest growth in Japan, Germany and France, which contributed 20%, 12% and 9% year-over-year active patient growth, respectively. Our global market segment also had an outstanding quarter with 17% active patient growth, driven by a promising launch in Spain. We believe we can maintain low to mid-single-digit active patient growth in our mature markets and even higher growth in new markets like Spain and Czechia. The next major catalyst in our GBM program will be top line data from the Phase III TRIDENT trial expected in the second quarter. The TRIDENT results will provide us with a better understanding of how TTFields can work with radiation therapy. TRIDENT moves the start of Optune Gio earlier in the GBM treatment journey, beginning with chemoradiation rather than following chemoradiation. In TRIDENT, the patient population eligible for inclusion is broader than our EF-14 trial. In the EF-14 trial, patients who progressed in the short time between chemoradiation and screening were not eligible for randomization. In the TRIDENT trial, where randomization occurs prior to the start of chemoradiation, we are able to assess the use of TTFields in this previously ineligible cohort. We expect TRIDENT to give further insight into whether earlier use of TTFields therapy can drive additional survival benefit to a broader population of eligible patients. Turning now to Optune Lua. In March, we received national reimbursement in Japan and began treating commercial patients. Japan provides a promising market for Optune Lua as our LUNAR clinical trial data more closely reflect the standard of care in Japan. On March 15, we hosted a symposium with approximately 250 Japanese lung cancer physicians in attendance, including a number of leading key opinion leaders. We are in the early stages of our launch, but we're encouraged by the physician interest and engagement thus far. On the clinical trial front, as I have said from the beginning of my tenure as CEO, we need to update our strategy for the LUNAR-2 trial. We are exploring options now to modify the trial with the goals of compressing the time line to completion and significantly reducing the cost. We look forward to engaging with regulators to discuss the potential changes and providing a full update later this year. Overall, this was a very strong quarter, and we are pleased with our progress. Our commercial focus is on expanding adoption in GBM, maintaining the momentum of our Optune Pax launch and capturing value in the markets where Optune Lua potential is greatest. We've reached a number of exciting commercial and clinical milestones in the first quarter and look forward to sharing more information on additional catalysts throughout the year. Christoph will now walk through our financial results from Q1. Christoph Brackmann: Thank you, Frank, and thank you all for joining us this morning. We had a strong start to the year, continuing our momentum from 2025. Net revenue in the first quarter was $174 million, an increase of 12% year-over-year. The increase was driven primarily by continued growth in our markets outside the U.S., including increases of $6 million and $5 million from Germany and France, respectively. Germany benefited from increased approval rates, which provided a onetime benefit of $2.5 million and France benefited from contract performance improvements, which provided a onetime benefit of $1 million. We also had a $5.6 million tailwind from changes in foreign exchange rates compared to Q1 2025. Net revenue from Optune Lua in the first quarter was $3 million compared to $1.5 million in Q1 2025. Based on the strength of our first quarter results in GBM, we are updating our full year revenue guidance to a range of $690 million to $710 million, representing 5% to 8% growth. We are maintaining the range for combined revenue from Optune Lua and Optune Pax at $15 million to $25 million for the year. Gross margin in the quarter was 78% compared to 75% in Q1 of 2025. This was primarily driven by lower cost for arrays, resulting from improved array utilization and lower supplier prices. We continue to expect annual gross margin in the mid-70s for the full year 2026 as we bring more Optune Pax patients on therapy prior to establishing broad reimbursement. Research and development costs in the quarter were $58 million, an increase of 8% compared to the same period in 2025. This was primarily driven by increased costs associated with the KEYNOTE D58 trial. As a reminder, this is a 700-plus patient trial, which we expect to fully enroll by the end of this year. Sales and marketing expenses in Q1 were $58 million, up 5% from Q1 2025. This was driven by launch costs for Optune Pax in the U.S. and Optune Lua in Japan. G&A costs in the quarter were $86 million, up 92% from the same period last year. As we mentioned last quarter, we incurred a $43 million share-based compensation charge triggered by the approval of Optune Pax. I do want to note, this expense is included for GAAP accounting purposes and the grant associated with this charge did not vest and shares were not distributed. Our net loss for the quarter was $71 million compared to $34 million in Q1 2025. Excluding the onetime share-based compensation expense, net loss was $28 million. Loss per share in the quarter was negative $0.62. Adjusted EBITDA in the quarter was negative $0.3 million compared to negative $5 million in the first quarter of 2025. We are updating our full year adjusted EBITDA guidance this morning to a range from negative $15 million to breakeven. This reflects our strong start to the year as well as accelerated expenses from our Optune Pax launch. Our cash and investment balance as of March 31, 2026, was $432 million. Thank you all for joining us this morning. We will now open the line for Q&A. Operator: [Operator Instructions] And our first question will be coming from Jonathan Chang of Leerink Partners. Jonathan Chang: Can you provide any more color on the early Optune Pax launch, like the number of prescribers, the types of centers where you're seeing utilization, the early clinician-patient feedback and help us contextualize how does this compare to the early lung cancer launch experience? Frank Leonard: Thanks, Jonathan. I appreciate the question. We are seeing -- we're really proud of the Optune Pax launch, both our preparation and also the response from the market. As Bill mentioned in his opening remarks, we had over 800 certified prescribers in just the opening months essentially of approval. And as Bill mentioned, 27% of the certified prescribers are from academic centers. So -- and while we haven't given specific statistics on the number of prescribers who actually wrote in the first quarter, I will say that we were pleased it was a breadth across both community and academic centers as well as prescribers who even in the first 5 weeks wrote multiple prescriptions. So I think as we get into the second quarter, we will be able to give a little bit more color on that, quantitative color on the prescribing trends and who's prescribing and where. But in terms of just the aggregate demand experienced in the first month of launch, we're very pleased. And to your question about how this compares to our lung launch, we would say this is across whatever metric we want to look at, it is multiples of demand and really just a significantly different reception from the prescribing community. Operator: And our next question will be coming from the line of Jason Bednar of Piper Sandler. Jason Bednar: Congrats on a really nice quarter here, and let's start with Optune Pax. So I'll start there. The launch here is significantly better than what we were thinking. It's really nice to see. Wondering if you could expand a bit more on those results, where you're at with physician onboarding versus the prescribing process? And I guess what I mean there is your early metrics are so strong and it has me wondering about the steps of converting certified prescribers into active prescribers. Are those prescribers predominantly those that were part of your trial and that's why they were able to move so quickly with prescriptions? Just any color you can add here as we think about the launch curve after physicians are certified and then moving into that prescribing of Pax? Frank Leonard: Jason, thank you. I appreciate the question. I -- what I would say is the -- to your question sort of around who are those initial prescribers, I would -- I'd actually start by just referencing back to the fact that this is the first significant approval for this indication. It's really -- if we look just to the stage of locally advanced pancreatic cancer, this is the first successful trial in that space. And so while we've seen very strong engagement from the PIs who participated in the trial, the interest is much broader and it was essentially a buildup of demand that we were able to meet at centers we've never worked with before, academic centers where we've previously had very difficult times gaining access, wanted to have us in there in the first week so that they could immediately add to the standard of care. So I think we'll really go into some more numbers as we move forward into the next quarters. But it's -- again, I would say this is very broad-based. There's not one single cohort that was able to go first. And more on that process, to remind everyone, as a device, we do have to train and certify our physicians as a first step. Once that training and certification takes place, they're able to prescribe right away. Those who have worked with us before might be a little bit more sophisticated about how to transfer prescriptions to us. But what I'm also really pleased to say is we've made significant investments over the last year into our HCP portal, the ways in which we work with physicians to transfer the prescription and the related data that's required, such that I think we've lowered the bar in terms of the burden on the physician. And as a result, we've seen that speed to prescribe. William Doyle: Yes. And the only thing I'd add is, the enthusiasm really started to build at ASCO last year when the data were first presented. We saw just a great reception from the podium. And so to your specific question, the interest has certainly had an opportunity to build and was far broader than the investigators. Jason Bednar: Okay. Excellent. Maybe one quick follow-up and then a separate one on guidance. But the quick follow-up. Just as we think about that launch curve, you've been in market here for now 3 months or almost 3 months, what does that look like in February to March to April, if you can share any real-time feedback on that launch trajectory? And then separately on the guidance question, for revenue, you bumped the midpoint by $10 million. You beat consensus by $6 million. So that's a pretty strong statement out of the gate here. Maybe talk about, if you could, what you're seeing real time over the balance of the year that left you comfortable raising the revenue guide by more than the beat. Frank Leonard: Jason, thank you. I'll comment on the trajectory and then pass to Christopher -- to Christoph. We can't comment on the trajectory in the current quarter, only on the prior quarter. I would just say that when you look at the -- there's FDA approval, then there's a bit of time where we have to refile our labeling with the FDA. And you look at the last quarter really in the context of essentially 4 weeks in market. I'd go back to what I said before that we were very pleased by the results. We see real strength in that initial interaction with our customers, and we are very excited for the rest of the year in terms of continuing the momentum. Christoph Brackmann: And Jason, Christoph here. So to your guidance question, I would say we came off the back of a very strong 2025 and also Q4. And we have seen in Q1 that we were able to carry that momentum into 2026, which gave us the confidence combined with the strong revenue also in Q1 to increase the guidance to what we have seen, $690 million to $710 million. Operator: And our next question will be coming from Kevin DeGeeter of Ladenburg Thalmann. Kevin DeGeeter: Congratulations on the great quarter reimbursement payers. Specifically, can you comment on kind of what you're seeing in terms of your funnel for contracting and coverage with some of the commercial payers and provide any updated thoughts on engagement and potential for CMS coverage for initiatives for Optune Pax? Frank Leonard: Sorry, Kevin, I think we were getting a little bit of a breakup as you were speaking. But I believe the question was directed towards our pathway to coverage and reimbursement for Optune Pax in the United States. I'll start by highlighting, we're very pleased to have our first major payer in the United States covering Optune Pax with the coverage policies from Elevance Health. And we will continue to work through the reimbursement process with the other major payers, private payers in the U.S. What we typically said is that we expect around a year to 2 years to work through a coverage process in the U.S. for private payers and more on that full 2-year window to have a revision to the LCD for the Medicare coverage. In terms of contracting, we have existing contracts in place with most payers in the United States. So we actually do not have a contracting step on Pax. So once a coverage policy is issued, the reimbursement is in place on the private side. Lastly, I'll just close by noting, yes, we do have a -- we do view NCCN guideline inclusion as an important step, and we are continuing to -- we have filed with the NCCN to request that guideline inclusion, and we are monitoring the situation closely. Operator: And our next question will be coming from the line of Vijay Kumar of Evercore ISI. Vijay Kumar: Congrats on a nice print here. I guess, Bill or Frank, my first one was on this pancreatic, you noted RAS inhibitors. I'm curious on -- just to be clear, right, I think Revolution Medicine had some good data. Just to be very clear, their approval is not a headwind to your -- to Pax, correct? Because correct me if I'm wrong, the indications for your trial are very different versus Revolution Medicine. Could you just clarify that, please? Frank Leonard: Thank you. Vijay, thank you very much. Thank you for the question. We are -- when we think about Optune Pax and TTFields for pancreatic cancer, I always want to highlight back to the fact that pancreatic tumors have a low bioavailability for drugs, which is a big reason for why so many drugs have failed in this indication in clinical trials. It's also a reason why we see that excitement from the treating community because using a physical modality against the tumor is intuitive when the tumor has low bioavailability. And so we see this strength of interest in Optune Pax that you see in the commercial launch numbers. But we also do see that in clinical interest in the number of IST proposals we receive and the interest in helping us to design our next wave of trials in pancreatic cancer. And so we think our device has a unique biophysical rationale for being used in this tumor type that is definitely recognized by the treating community. In addition, as you know, we are approved for locally advanced pancreatic cancer, which is a unique indication from where the current RAS inhibitor Phase III data is. And we think -- we feel very confident that we have and we have a path forward to continue the excitement that we've seen in the first quarter. And I'll ask my colleague, Dr. Uri Weinberg, to comment also on the exciting work that we've been doing to study TTFields with RAS inhibitors. Uri Weinberg: Thank you. Vijay, nice to hear you. So first, we certainly continue to monitor developments in all of our areas of interest, and we are encouraged to see the new advancements in the field of KRAS inhibition, first and foremost, for the patients, but also with a direct relation to TTFields. TTFields were found to inhibit c-Myc, which is a master regulator of cancer cell proliferation and growth. And therefore, TTFields mediation of down regulation of c-Myc may actually complement the upstream KRAS inhibition and that would support a potentially more effective therapeutic strategy when the 2 treatments are used together. And in particular, c-Myc can also be activated through bypass pathways. And as Bill mentioned in his opening remarks, this data has been recently presented at AACR. And in a very complementary fashion, an independent group of researchers from Mayo Clinic looked into the concomitant use of TTFields and KRAS inhibitors and also repeated these same preclinical effects and reported even a synergy when the 2 therapies were used concomitantly. So we're very encouraged by that. William Doyle: Yes. And if we take a step back, we have always maintained that with Tumor Treating Fields, there's an opportunity to use with whatever the prevailing pharmacological therapy may be. We've never seen anything less than additivity. And in certain circumstances, we see the synergy. And now we've seen synergy with checkpoint inhibitors, and we're pursuing that strategy with our KEYNOTE D58 trial in newly diagnosed GBM. And we can see a future here where synergy with RAS inhibitors is also a very interesting treatment strategy for these very difficult to cure cancers. Vijay Kumar: That's helpful. And then maybe one big picture question. Look, when I look at the stock, clearly, you're not getting any benefit or credit for some of the positive data you've had, whether it's lung or pancreatic. I'm curious, maybe The Street wants to see a revenue acceleration rate. When I look at your assumptions here for GBM in pancreatic, could NovoCure get back to double-digit growth in fiscal '27? Generally talk about big picture, how we should be thinking about the revenue profile for this company going forward? Frank Leonard: Thank you, Vijay. I'll comment first on big picture themes around the GBM business and the panc launch, and I'll turn it to Christoph to talk a little bit more about how we think about the long-term financial forecast. So first, we were very pleased to see growth last year in our GBM business, not just international growth and opening new markets, but also in the core original business in the U.S. growing. And as we've said before, we believe there are many more patients that can benefit from the therapy as we currently have a penetration rate in our active markets of around 40%. And so what we've continued to do is invest into our GBM business, both the capabilities on the sales and marketing side to essentially dual cover doctors. So if we have a call in a community practice for pancreatic cancer, that same rep is now able to reach the community doctors to detail on GBM. We've also improved our sales operations and targeting capabilities. And we really do feel like we've -- in our core businesses and particularly in the U.S., we have the right team and the right skill sets in place right now to continue driving growth. And so we think that foundation alone is really an exciting way to think about the next few years. And what we've seen in panc right now gives us really an incredible amount of confidence that we can turn this into the second major revenue pillar for the company in the coming years. William Doyle: Yes. And maybe just to add to this. So to reiterate our strategies very clearly to get to double-digit revenue growth and also to profitable growth and to profitability. Now we gave you a revenue guide for this year that is ranging from 5% to 8% at the midpoint, 7% growth, with what I would classify as very initial contributions from new indication launches. So with more material contributions from new indication launches, we expect to get into the double-digit revenue growth in the future. Operator: And our next question will be coming from the line of Lawrence Biegelsen of Wells Fargo. Larry Biegelsen: I wanted to ask, of course, about pancreatic launch. When we look at newly diagnosed GBM, I mean, we only have one quarter here, but it looks remarkably similar on prescriptions, better on active patients. I know it's early, but what can you say when comparing prescription launch in the U.S. and active patient ramp for newly diagnosed GBM to pancreatic? Let me just -- I'll just ask all my questions upfront. Was there any pent-up demand for Q1 for panc? And then just OUS timing, remind us of that, please. Frank Leonard: Larry, this is Frank. Thank you for the question. I would say we are -- we haven't really focused on comparing panc to our prior GBM launch for a technical aspect, which is simply that, in GBM, we have been approved in second-line therapy and had existing relationships. And then in first-line therapy, the data had been out for over a year before the FDA approval. So it's sort of, on a technical basis, becomes difficult to take an exact comparison point. So what I would anchor back to is the almost 900 prescribers who sought certification in the first month of commercial availability, that was -- as we said before, that was multiples of the certification levels that we saw in our LUNAR launch. We did -- we do think that reflects some pent-up demand, but I don't -- I wouldn't -- I would absolutely not describe it as a bolus of patients waiting and that it then normalize to a different level. We do just see really strong interest from the community in using Optune Pax to treat their locally advanced pancreatic cancer patients. Larry Biegelsen: And OUS? Frank Leonard: OUS, I'm sorry. Thank you. In terms of OUS, Christoph, can you remind me of the timing? Christoph Brackmann: Yes. So we said second half for both Germany -- PUD approval as well as for Japan approval. William Doyle: Yes. And all the applications are in. We're now just sort of waiting for those submissions. And if everything proceeds as expected, we would launch in the second half in those regions. Larry Biegelsen: I mean just maybe one follow-up, Frank. I mean do you think pancreatic could ultimately be bigger than GBM overall? I think you've said that in the past. Frank Leonard: Well, I certainly -- so I think the pancreatic -- I think in our current indication in locally advanced pancreatic cancer, we believe there's around 16,000 patients, which is already bigger than the eligible patient population for Optune Gio. As we build our evidence base out and when we're able to secure those additional FDA approvals, it just keeps growing from there. So we are absolutely committed to success in this indication. And we think it has -- as I said before, have a tremendous potential to be our second major revenue driver. And ultimately, the population is bigger than the population for our current business. Operator: And our next question will be coming from the line of Emily Bodnar of H.C. Wainwright. Emily Bodnar: Congrats on the strong first quarter. Curious if you could comment a bit on your confidence for converting the full 169 prescriptions to active patients. And if you can kind of comment on what the average timing has been to converting patients from prescription to active therapy? Frank Leonard: Thank you. Yes, I appreciate the question because it was a big difference between prescriptions and active patients. And that simply reflected the timing of having 1 month at the very end of the quarter. So we don't intend to give the number of starts every quarter, but what I will highlight is that we had 90 starts, which led to that active patient number. And we saw typically about 2 weeks -- a little bit less than 2 weeks from a prescription to a start. And so those -- that 163 reflects a lot of prescriptions right at the very, very end of the quarter that we'll be talking about on the next earnings calls. Emily Bodnar: And maybe on metastatic pancreatic cancer, obviously, you have the PANOVA-4 data and then you also touched on kind of potential synergy with RAS inhibitors. So maybe just kind of talk about general strategy moving forward for the metastatic setting. Uri Weinberg: So thank you for the question. Yes, we were very pleased to read out the results of the PANOVA-4 study. As a reminder, our single-arm study in metastatic pancreatic cancer patients using a combination of gemcitabine, Abraxane, atezolizumab, Roche's PD-L1 inhibitor and TTFields. The primary endpoint was met. The primary endpoint was the disease control rate, and it was significantly increased as a result of using the therapeutic regimen in PANOVA-4 from the historical 48% into 74%. I think that the most important message and takeaways from the PANOVA-4 study is seeing again the relevance of TTFields therapy as a therapeutic approach to be developed in the metastatic setting in pancreatic adenocarcinoma and following our demonstration of the clinical effectiveness in locally advanced pancreatic cancer in the PANOVA-3 study and the approval, that paves the way to continue the studies and development in this space. And the population used TTFields therapy at a very desirable usage rate. They use it for the entire protocol indicated duration of treatment. So again, a great evidence of TTFields' role in metastatic pancreatic cancer, and we continue to explore directions and may come back to this regimen at a later point in time. Operator: And our next question will be coming from the line of Jessica Fye of JPMorgan. Tanmay Patwardhan: This is Tanmay on for Jess. I wanted to ask for Optune Pax. You mentioned the backlog of starts in the funnel. So I was wondering if the conversion from prescriptions to patients on therapy is going on as expected. And what do you expect the ultimate throughput to be from these -- from those getting prescriptions to those patients who eventually initiate on therapy? Frank Leonard: Thank you for the question. We -- again, we wanted to be clear that with 1 month of -- essentially 1 month and a few days of activity where we could take prescriptions and convert to starts, it's hard to give definitive answers around trends about the rate at which prescriptions will convert to starts. But the consistent theme I want to emphasize is that we are very pleased with the results so far. We -- in particular, I'm really proud of our team who helps the patients, our technical support team that's helping our patients. This is a new patient population for them. And I think the main takeaway in that first month is that we can execute quickly to move from prescription to start. And as I mentioned, we had a good strong correlation between active patients at the end and the starts that occurred in the quarter, which means we're giving them the right support to make the treatment feasible and practical. Operator: And I'm showing no further questions at this time. I would like to turn the conference back to Bill Doyle for closing remarks. William Doyle: Thank you. I'd like to end the call today by noting that NovoCure was able to maintain the momentum of the fourth quarter last year with strong and consistent execution in Q1. We're very pleased to see growth in both -- double-digit growth in both active patients and net revenue compared to Q1 last year and very promising early signals, both from our LUNAR launch in Japan and, of course, from our Optune Pax launch in the U.S. Our 2026 catalysts remain on track. We look forward to continued reporting on the developments in the commercial business as well as the top line data from TRIDENT up next in next quarter. We didn't talk about it much in this call, but our company remains focused not only on achieving the double-digit growth that Christoph underlined, but also on bringing the company to profitability. And we were also very pleased with our numbers in that regard. And we are focused as we have updated in our guidance on our path to profitability. So thanks to the team at NovoCure, thanks to our patients and clinicians. And it's an exciting time to be at the company, and we look forward to reporting our progress in the next quarters. Operator: And this concludes today's program. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to Gildan Activewear's 2026 Q1 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Jessy Hayem, Senior Vice President, Head of Investor Relations and Global Communications. Please go ahead. Jessy Hayem: Thank you, Angela. Good morning, everyone, and thank you for joining us this morning. Earlier today, we issued a press release announcing our results for the first quarter while maintaining our guidance for 2026 as well as our 3-year objectives for the 2026-'28 period. The company's management discussion and analysis and consolidated financial statements are expected to be filed with the Canadian securities and regulatory authorities and the U.S. Securities and Exchange Commission today and will also be available on our corporate website. As a reminder, please note that we'll be holding our Annual General Meeting today at 02:00 p.m. Eastern Time with more information available on the Events page of our corporate website. Now joining me on the call today are Glenn Chamandy, President and CEO of Gildan, Luca Barile, Executive Vice President, Chief Financial Officer; and Chuck Ward, Executive Vice President, Chief Commercial Officer. This morning, we'll take you through the results for the quarter and then a question-and-answer session will follow. Before we begin, please take note that certain statements included in this conference call may constitute forward-looking statements, which involve unknown and known risks, uncertainties and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. We refer you to the company's filings with the U.S. Securities and Exchange Commission and Canadian securities regulatory authorities, including in the case of our fiscal 2026 outlook and our 3-year objectives for the 2026-'28 period, as well as certain risks and assumptions related thereto and our earnings press release dated April 30, 2026. During this call, we'll also discuss certain non-GAAP financial measures Reconciliations to the most directly comparable IFRS measures are provided in today's earnings release as well as our MD&A. Before I turn it over to Glenn, a few items to note: Remember that the first quarter represents the first full fiscal reporting period during which the results of Hanes brands are fully consolidated into the company's financial statements. Please note that we may refer to Hanes brand as Hanes throughout this call. Then, as previously announced, the Hanes brands Australian business, which we refer to as HAA, has been classified as held for sale and reported as discontinued operations as of December 1, 2025, the date of closing of the Hanes brands acquisition. So unless otherwise indicated, the figures we'll be discussing today are from continuing operations and therefore, exclude the results of the HAA business. With this in mind, we are only in a position to confirm that the sale process is progressing as expected and will not provide any further updates at the moment. Also, as we announced last quarter, we have transitioned to reporting disaggregated net sales by wholesale and retail as of the first quarter. You will find in our press release, supplementary pro forma net sales from continuing operations disaggregated by channel and geographic area on a quarterly and full year basis for 2025. In addition, you also find supplementary pro forma net sales from continuing operations for the same period, showing Gildan on a stand-alone basis and adjusted for Hanes brands sales. For reference, wholesale comprises sales to distributors, screen printers, embellishers and global lifestyle brand customers, which we refer to as GLB, whereas retail comprises sales to mass merchants, department stores, national chains, specialty and online retailers and directly to consumers. And now I'll turn it over to Glenn. Glenn Chamandy: Thank you, Jesse, and good morning, everyone, and thank you for joining us on this call. As we highlighted in this morning's press release, we are pleased with our first quarter performance, reflecting disciplined execution and continued progress against our strategic priorities. We delivered record Q1 sales from continuing operations of nearly $1.2 billion, which were up 64% versus last year, primarily due to the Hanes Brand acquisition. We also reported adjusted diluted earnings per share from continuing operations of $0.43 compared to $0.59 in the first quarter of 2025, reflecting the short-term impact of integration initiatives that we have put in place to accelerate synergies captured. We remain very excited about the Hanes acquisition and the opportunities we see. We are progressing well with our integration initiatives and relocating [indiscernible] production volumes from the Hanes to the Gildan facilities, leveraging our low-cost manufacturing and supply chain structure. We are working fast but with a well-thought approach to be able to unlock the benefits of operating as one integrated company. And we continue to optimize and expand our capacity in 2026 to support growth in 2027. We are also enhancing our distribution network. Our plans to standardize IT systems, key supply chain and manufacturing processes all remain on track. Given the progress so far, we remain confident in attaining our objective of approximately $250 million in run rate cost synergies over the next 3 years including approximately $100 million in 2026, and we continue to pursue additional synergies beyond the 3-year target. Now with the situation in the Middle East, the external environment around us becomes increasingly uncertain, but Gildan has navigated through uncertain situations in the past with agility and discipline. That said, I'd like to address 2 key elements related to this situation: First, despite inflationary environment, we have good visibility for 2026 when it comes to our input costs, including cotton, polyester as well as energy. Second, our Bangladesh operations have been running normally until now and we have built in temporary contingency plans should the situation deteriorate. This is what our agility and our vertical integration enables us to do. So we have a clear line of sight into our plans for the rest of the year, and we are focused on what we can control, driving operational excellence, advancing on our integration of Hanes, maintaining our cost discipline and consistent execution. With that in mind, considering the strength of our competitive positioning across our product lines, channels and geographies, driven by our scale and our strong pipeline of innovation, we are maintaining our guidance for 2026 and remain confident and our ability to achieve our 3-year objectives for 2026, 2028 period. I look forward to answering your questions after our formal remarks. And now I'll turn it over to Luca for a financial review. Luca Barile: Thank you, Glenn, and good morning, everyone. Thank you for joining us today to discuss our first quarter results. Let me start with the specifics of the quarter, then turn to our 2026 outlook and guidance. First, the quarterly results. We reported record first quarter sales from continuing operations of $1.17 billion, up 63.8% year-over-year, in line with guidance of approximately $1.15 billion. The increase reflects the Hanes Brands acquisition, partially offset by our integration initiatives undertaken to optimize the company's manufacturing footprint and accelerate synergy capture. Now compared with pro forma net sales from continuing operations of $1.29 billion, the year-over-year decline was primarily driven by lower volumes stemming from our proactive inventory reduction across customer channels, which temporarily reduced sell-in as we previously communicated. Now looking at wholesale. Net sales were $552 million compared to $626 million in the prior year, due primarily to the impact of the voluntary inventory reduction across customer channels as well as the non-recurrence of some preemptive buying ahead of tariffs in the comparable period last year. This was partially offset by pricing initiatives, which were implemented to partially offset a portion of the impact from tariffs, the contribution of paint brands and favorable mix. We continue to see robust demand for comfort Colors and our new brands such as Champion, which is under a licensing agreement and Alpro. Now turning to retail. Net sales were $614 million compared to $85 million in the prior year, primarily reflecting the contribution from the Hanes Brands acquisition and higher net selling prices. To a lower extent, retail sales were also affected by the lower sell-in previously detailed and the non-recurrence of preemptive buying ahead of tariffs. As previously mentioned, our key underwear brands captured additional market share in the quarter and new programs launched in mid-2025 are performing well. Shifting to margins. We generated gross profit of $278 million or 23.9% of net sales versus $222 million or 31.2% of net sales in the same period last year. Adjusting for an inventory fair value step-up charge of $106 million recorded as part of the Hanes brands acquisition, adjusted gross profit was $385 million or 33% of net sales compared to 31.2% in the prior year. The 180 basis points improvement mainly reflects favorable pricing initiatives implemented to partially offset the impact of tariffs, the favorable contribution from Hanes brands and to a lesser extent, lower raw material and manufacturing costs. SG&A expenses were $219 million compared to $87 million in the prior year. Adjusting for charges related to the proxy contest and leadership changes and related matters, adjusted SG&A expenses were $218 million or 18.7% of net sales compared to $86 million or 12.1% of net sales for the same period last year. The increase in adjusted SG&A in the quarter reflects the acquisition of Hanes brands, partially offset by synergies realized as part of the Hanes brands integration process. As we bring all these elements together and adjusting for the restructuring and acquisition-related costs and the inventory fair value step-up charge as part of the acquisition, as well as the costs relating to proxy contest and leadership changes and related matters, adjusted operating income was $167 million, up $31 million year-over-year. Adjusted operating margin was 14.3% of net sales, was down 470 basis points versus last year and ahead of guidance provided of approximately 12.9%. The year-over-year decrease in adjusted operating margin is mainly a reflection of the Hanes brands acquisition and gains as lower operating margins due to historically higher levels of SG&A relative to Gildan. Net financial expenses were $67 million, up $37 million year-over-year, primarily due to higher borrowing levels related to the Hanes brands acquisition. Now taking into account all of these factors and a higher outstanding share base as a result of the acquisition, GAAP diluted loss per share from continuing operations was $0.30 compared to GAAP diluted earnings per share of $0.56 in the prior year. And adjusting for restructuring and acquisition-related costs, inventory fair value step-up charge and an income tax recovery of $33 million related to restructuring charges and other adjustments. Adjusted diluted earnings per share from continuing operations were $0.43, down 27.1% from $0.59 in the prior year. Now turning to cash flow and balance sheet items. Cash flows used in operating activities, which includes discontinued operations, totaled $279 million for the first quarter compared to $142 million in the prior year primarily reflecting lower net earnings from continuing operations. After accounting for capital expenditures totaling $30 million, the company consumed approximately $310 million of free cash flow. We ended the quarter with net debt of $4.868 billion and a leverage ratio of 3.3x net debt to trailing 12 months pro forma adjusted EBITDA. As previously announced, we are pursuing a sale of HAA and the net proceeds from the potential divestments will be used to pay down a portion of the company's outstanding debt and further accelerate our objective to return to a leverage framework of 1.5 to 2.5x net debt to pro forma adjusted EBITDA. Turning to the outlook. For 2026, with respect to our continuing operations, we are maintaining our guidance as follows: revenue of $6 billion to $6.2 billion, full year adjusted operating margin of approximately 20%, CapEx to come in at approximately 3% of net sales. Adjusted diluted EPS in the range of $4.20 to $4.40, an increase of 20% to 25% year-over-year and free cash flow to be above $850 million. Furthermore, the assumptions underpinning our outlook are essentially the same as we previously communicated and are detailed in our press release issued earlier today. Finally, we have also provided guidance for our second quarter. We expect net sales from continuing operations to be approximately $1.6 billion. This continues to reflect the proactive temporary reduction of inventory levels across customer channels, which is reducing sell-in as we complete the consolidation of manufacturing facilities to accelerate synergy capture. Furthermore, a timing shift in shipments from the second quarter into the second half of 2026 is also reflected and is due to the non-recurrence of some pre-buying in the second quarter of 2025 ahead of pricing actions. Our adjusted operating margin is expected to be around 19.7%, reflecting the higher SG&A levels, which includes higher amortization of intangible assets and depreciation of property, plant and equipment resulting from the fair value purchase accounting impacts of the Hanes brands acquisition, in addition to a timing differential between some integration-related costs incurred and the flow-through of their benefit in subsequent quarters. Finally, the company's adjusted effective income tax rate in the second quarter is expected to be slightly lower than the expected full year 2026 adjusted effective income tax rate. In summary, we are pleased with the quarter and our integration progress. The broader operating environment remains uncertain, and we feel cautiously optimistic about the remainder of 2026, while being mindful of the Middle East conflict and the heightened concerns on the end consumer. Nonetheless, we are focused on what we can control. We believe that our low-cost vertically integrated business model and the ability it provides together with strong industry positioning, provide a solid foundation for us to navigate evolving external conditions and support continued financial performance. Thank you. And now I'll turn it over to Jesse. Jessy Hayem: Thank you, Luca. This concludes our prepared remarks, and now we'll begin taking your questions. [Operator Instructions] Operator: [Operator Instructions] Your first question comes from the line of Jay Sole with UBS. Jay Sole: Great. Two questions for me. I love if you could give us a little review of the point of sale, both for the Gildan [indiscernible] business, but also for the Hanes business that you saw in the quarter that you're kind of seeing second quarter to date. And then also maybe if you can take a step back and tell us how the strategy that you're developing for the Hanes business is evolving, how you're thinking about investing in marketing, investing in products. If you can give us an update on that, that would be terrific as well. Glenn Chamandy: Well, I'll let Chuck go with to discuss the market conditions and all volumes on the other side. Chuck Ward: Okay. Yes, as we look at net sales for the quarter, as Luca said, we were in line with guidance. Both markets were a little bit softer than we expected with some impacts in the U.S., obviously, with some tough weather during Q1 that everybody experience. But overall, as Glenn mentioned, we performed well, and we outperformed both markets. We continue to gain share in those markets. And as we mentioned in his comments, we typically perform well in challenging markets. But if I break it down, we really, Jay, look at a wholesale retail as Jesse mentioned in her opening remarks. So I'll really address it from a wholesale retail perspective. As we look at the wholesale market, the market was down low single digits, while we performed up low single digits. So again, continuing to take share in the market. If you really dive into that market, Jay, it's continuing strong performance with our premium products. Luca mentioned Comfort Colors, for example, and the strength that we're seeing continue that brand, our growth in Champion, the license that we have for that product, our [indiscernible] program. So really continue to perform well in that market. From a retail perspective, we'll say the market was flattish in the retail market, but we were also up low single digits in that market as well really with underwear performing exceptionally well, not only in men's, but also in women's and kids as well. We also continue to gain momentum in activewear in retail. But we did see a little bit of softness in intimates and in socks. And then when we look at it from an international perspective, we were slightly below the plan in international, but it's mainly due to the uncertain macro conditions and the rising energy costs we're seeing. We continue to see what we've been seeing for some time, which is a strong performance in Continental Europe, continued pressure in the U.K. and some pressure in Latin America. So we feel really good about how we performed in the markets. As we shifted into Q2, we're seeing some improvements in both markets overall. We're continuing to grow in our key growth categories and outperform those markets. Glenn Chamandy: Great. And maybe just a second part of that question. Look, as we continue to go forward, I mean we're very excited, obviously, about the opportunity. I mean the big -- the big thing for us right now is to continue to integrate Hanes into Gildan and leverage really everything that Gildan has offered because we're taking, I think, what we think is one of the most highly iconic brands in the industry and putting it together with the world's global low-cost manufacturer. And what we're able to do is basically just provide an innovation platform that we think is going to excel and open up doors. And we've already accomplished a lot of that. Like the reason for us obviously to wind down the Hanes facilities integrated into Gildan's network is to capture what we believe is the future value creation that we have to offer with the brand from an innovation perspective. So all those things are in place. And we're really excited about it. We've started showcasing some of this with our retail partners. Like we said in our last call, we're going to have our Investor Day in December, and we'll be really excited about showing off all the things we're doing from our product innovation positioning, our advertising, how we're really -- our whole go-forward strategy. And there's a lot of work that's been done. We're moving -- like I said earlier in my comments, very effectively. It seems quick, but I think we're doing it in a very organized fashion to be able to make sure that we achieve all of our goals, including the synergies that we set forth, but it's not just synergies. For us, it's important to make sure that we get back on the growth trajectory and you need to make an investment and our investment is the synergies are an investment because as we bring those synergies and as we bring their product into our environment, we create synergies and those synergies turn into innovation because we have Gildan, that's our whole secret sauce really is to be able to improve the quality of the product and the consumer experience for what we're going to be doing. So we're well positioned and we're excited, and we can't wait to show it to you. Operator: Your next question comes from the line of Paul Lejuez with Citigroup. Paul Lejuez: Could we just go back to Glenn, what you said on the Bangladesh facility, I think you said it's been operating normally. And so now, I just wanted to clarify but it's still running normally. Curious what your expectation is in terms of the Bangladesh facility or if you did see something change recently? And then second, without you could share your gross margin and SG&A targets for the year and just how each compare to what would be the adjusted numbers the same line items last year. Glenn Chamandy: Okay. So look, like what I said in my comments, yes, we're running normally. We haven't had disruption. The facilities is running as it was before the crisis. And in fact, I mean, the volume is a little bit higher. So things are going as planned. We have a lot of redundancy in our energy there. We have solar. We have different energy sources that we use. So we have our own LNG facility, basically on-site in our [indiscernible] campus. I mean we're pretty well insulated. And I wouldn't say that things are not tight in the country because, obviously, the energy situation is tight. But so far, we've been operating effectively and like what I said earlier, we built a contingency plan, not that we don't think we can operate, but if there's an arm we get and the whole group in the Middle East. I mean, obviously, we're going to have to react to any type of situation that could happen. So we're very diligent. We're very focused, we have a good plan, and we're comfortable with our positioning and the guidance that we set forth. Luca Barile: Yes. And with respect to your question on the margin, so we've given the guidance for the full year in terms of our adjusted operating margin of approximately 20%. [indiscernible] to understand the composition of that margin, we can start with sort of the performance already to date, the adjusted operating margin in the first quarter of 14.3%. That was higher than our guide of 12.9%. Some of that was driven by some timing of SG&A versus the remainder of the quarters. But why I start with the first quarter is because what you're going to see as we navigate through the year is a sequential improvement in adjusted operating margin and the guidance we're giving for the second quarter is an adjusted operating margin of 19.7%. Now what's driving that sequential improvement and why we're providing the guide not only for the second quarter, but the visibility of the full year is because as an organization based on our operating model and as well as the solid cost control that we put in place, we have visibility on the costs that are flowing through our P&L, right? So the strength that underpins the margins are the same elements that we had last year, right? We had the optimization of our Central American facility. We have the investments we made in the [indiscernible] spinning, the investments we made in Bangladesh. So that's the foundation. Then we have the synergies that are starting to flow through, right? We've got about $100 million of synergies called out for 2026. So as that materializes, that's going to lend itself to an improvement in the operating margin. And finally, when you do look at gross margin versus SG&A, gross margin also expect it to sequentially improve. I would say the contribution there is you have a pricing tailwind from some of the pricing actions taken in the prior year, lower year-over-year fiber cost from a cotton perspective, we have full visibility for 2026 because of our hedge strategy and our head position and our operating model. The synergy realization is coming through gross margin, although in the first year, it were pronounced on the SG&A side. And those proactive actions that we're taking in order to manage costs as we go through the integration. On the SG&A side, there were higher levels of SG&A from the Hanes perspective. We have higher SG&A coming through because of the impact of the acquisition, the PPA adjustments such as the amortization of intangibles and new property, plant and equipment. But again, as synergies are realized on the SG&A side, which we're well on our way, that will lend itself to improvement. So the headline adjusted operating margin of approximately 20% for the year and in the second quarter, a sequential improvement up to 19.7%. Paul Lejuez: Got it. When you say gross margins specially improve, is that each quarter of the year? And you want to put out there at your target gross ... Luca Barile: Correct. So we have the Q1 results. The adjusted gross margin for Q1 is at 33%. The adjusted SG&A is at 18.7%. Those will sequentially improve -- will sequentially improve in order to yield an adjusted operating margin for the full year of approximately 20%. Paul Lejuez: [indiscernible] in terms of exit rate on the SG&A. Luca Barile: Well, in terms of our guidance, we provide the adjusted operating margin. We provide guidance on our adjusted EPS. So I think with the color that I provided you, you can infer that for sequential improvement. We're not providing a specific guide on the gross margin and the SG&A in isolation. Operator: Your next question comes from the line of Brian Morrison with TD Cowen. Brian Morrison: Two questions. Glenn, should we expect optimization of the Hanes facility integration in the second half of this year? And then what are the next major buckets of synergies? Is it you aren't spending more vertical integration? Just some color on the major buckets still to do. And then Luca, on the back half, the forecast margin is about 22%. Can you build off that in 2027? Or should we take into account a seasonally weaker Q1 to build off a bit lower base? Glenn Chamandy: Okay. So just on the integration, look, we're fully advancing on the integration, including yarn. The bulk of Hanes' volume is being produced in Gildan's world today, yearn being in all of our supply chain, the processes we use in chemicals, distribution, everything that we do in terms of Gildan's world, from a supply chain perspective, there's pretty much going through a process, and we'll be fully integrated. And basically, that's why we're comfortable, and that's why we chose to wind down and manage our inventory and the customer channels because we wanted to really accelerate as best as possible, the transition of Hanes into our world for 2 reasons. Obviously, one is to capture these synergies, but the second is to provide the innovation that we really need to drive the revenue growth for 2027. So all that is in place, and that's why we're confident, and that's why the margin is expanding in the back half of the year. And although this year, there'll be a smaller portion on the synergy side of COGS, but there'll be a lot of SG&A. But as we really roll into '27, that's where we're going to see the COGS input as we start turning the inventory into 2027. So everything is on plan, and we're excited about our position. Luca Barile: Great. And then -- go ahead. Brian Morrison: I just sort of -- on that drawdown that you referred to, what's the magnitude of it? How much will be a tailwind as we get into 2027? Glenn Chamandy: Well, I mean Luca [indiscernible] yours. Luca Barile: Yes. So again, when you take a look at the first quarter performance and what we're guiding for the second quarter, right? So you have to take a look at that from an understanding that the fundamentals are growing, right? We're growing both in wholesale growing in retail. Chuck alluded to the market conditions and how we're outperforming the market. So that growth is then offset by the proactive production in inventories across channels that's reducing selling and that there's also sort of the timing right between the quarters and the cadence of the quarters because of some nonrecurrence of pre-buying before tariffs, which is a Q1 phenomenon and pre-buy from last year ahead of price increases in the second quarter. So -- and when you take these 2 elements together and you have growth that's outperforming the rates that Chuck was alluding to, and then you see the results. And that should give you a good indication of the value of the inventory reduction. Glenn Chamandy: And then as we go through the year, look, we're working diligently to get that capacity that we've installed up and running. So we have really very comfortable with our supporting our capacity for 2027 to take advantage of any opportunities to restock the channel. Luca Barile: And Brian, the tail end of your first question on the margins as we move into '27. Obviously, we're giving the guide for 2026. But as you would recall, we have $100 million of synergies coming in this year. We've got $100 million slated for '27 and at least $50 million for 2028. So the strong fundamentals of the margin that we articulated continued to come through and additional run rate synergies come through. That is definitely part of the algorithm that supports our 3-year targets, right, of our earnings effect of their adjusted EPS CAGR growth of low 20% range. So margins will be continuing to be healthy. Operator: Your next question comes from the line of Stephen MacLeod with BMO Capital Markets. Stephen MacLeod: Lots of great color so far. Just wanted to ask if you're able to quantify kind of the amount of synergies you achieved in Q1 relative to your $100 million target for '26. Luca Barile: Yes. So what I can say about that is, look, we're confident in achieving the $100 million in our results for this year. What I can share with you is that we're well on our way. As you know, we've taken proactive actions in order to accelerate the synergy capture as Glenn has alluded to those. So although I going to give you a full quantification of that, what I can tell you is we have visibility to the [ 126 ] and we're well on our way in achieving that number. Stephen MacLeod: Okay. That's great. And then maybe for my second question, just with respect to the temporary inventory reduction, and that obviously lingers a little bit into Q2. I'm just curious on operationally, like how long that overhang is meant to -- is expected to impact your sales? Is it isolated to Q2? Or will it be something that trickles into the back half of the year as well? Luca Barile: Yes. So the way I would say is that we've seen a pronounced impact in the first quarter. It's -- the remainder of that impact is penciled into the guide of the second quarter, where revenue will be approximately $1.6 billion and then given our guide for the full year of $6 billion to $6.2 billion, and when you take a look at the back half, the back half is a return to growth. So you can infer that phenomenon that will complete in the second quarter. Operator: Your next question comes from the line of Mark Petrie with CIBC. Mark Petrie: I just want to come back to the demand environment and how that has evolved as macro uncertainty has sort of ramped up. I think you've made some -- a couple of comments on this. but just hoping for a bit more granularity. And then specifically, I think your full year guide is based on an assumption of industry flat to low single-digit growth. And just wanted to gauge your comfort level of with that today versus end of February when you initiated it. Glenn Chamandy: I think on the -- I'll answer to the growth part, [indiscernible] it, we believe that things are on track in terms of the flat to low single-digit growth, I mean, from what we see out in the marketplace today. That's a snapshot in where we are today. I mean it's not $10 -- the $10 gasoline prices in the United States, for example, that could change things in the future. But where we are today, I would say and what we're seeing so far as we started Q2, I mean, that's sort of -- we've seen improvement since Q1. So I think that, that's still a very good assumption for us as we move through the back of the year. Luca Barile: Yes. And Mark, on the markets, I mean, I'll dig in a little bit more. As I mentioned, both markets were -- Well, wholesale was down low single digits during the quarter with -- and retail was somewhat flat. I mean we're -- as I mentioned, going into Q2, we are seeing some improvements. As Glenn said, I mean we'll continue to monitor closely what happens with inflation and so forth as it comes through in the future. But as we mentioned, we performed -- typically perform well in those markets. And sometimes there's trade downs and so forth. So we're cautiously optimistic of where we are and where we're headed. As Glenn said, we feel good about our future growth. And again, if there's a trade down from inflation, we trend well. and we take opportunity from that. If there's poly-based impacts from -- polyester going up because of cost, it sometimes drives people towards cotton products, so we can capture that as well. But what I would say is we're well positioned to capture wherever the trends move. Glenn Chamandy: And maybe look at -- also, I would say that look, we're really well positioned from a nearshore perspective. I mean, one thing I would take in account is that the bulk of our volume being in this hemisphere has allowed us to, I think, have a competitive advantage not just because of the closeness to the marketplace, but now also from a cost perspective. As of March 1, obviously, we're not paying tariffs on product coming in from Central America anymore, which has allowed us to continue driving a good cost structure in this hemisphere. We'll wait and see what happens as all the global 301s and tariff situation works itself out in the next couple of months. But we're well positioned. We think that there's opportunity for us. And look, what we also said is that look, you create an opportunity like every -- in every situation, and we're well positioned and we're taking advantage of, we think, is the Hanes positioning the their brand strategy and our low-cost manufacturing and the products that we can enhance in the innovation, but also looking into the active side of the business where we really can leverage idle cost manufacturing for new programs. And these are all things that we're in the process of doing. So as we go through this year, we'll see, but our lines and sights are really now are focusing on 2027 and beyond as we reposition the brand, the strategy and the innovation and really gear the company up for future growth. Operator: Your next question comes from the line of Chris Li with Desjardins. Christopher Li: My first question is, I know it's well understood of how you guys are gaining market share in the wholesale channel. I wanted to ask if you can elaborate on what's sort of is driving the market share gains in underwear, which obviously is a much bigger part of your business now. Luca Barile: Yes, Chris, I mean, as Glenn mentioned, a couple of things. On the wholesale side, part of it is we continue to expand our categories as well. We're opening up new parts of the market there. We're doing half and accessories, and we actually launched shrubs this year. We're expanding our performance products and as well, as I mentioned before, and we're continuing to grow in those premium offerings and [indiscernible] colors and AA. Then on the retail side, as you talked about on the underwear side, Glenn mentioned it, we're -- a couple of things. We're starting our innovation cycle with the Hanes products, as he mentioned. We presented those to retailers. We have great reception. There's actually a lot of excitement in the retailers by what combined we can do with our supply chain and our cost structure, combined with the Hanes brands. I think that's going to open up expanded opportunities in retail. I think you're going to see us not only expand the core products but also be able to come trade up products as well. And again, we're working closely with those retailers on the space, the programs. the packaging really across the board of how we go to market with the Hanes brand. Glenn Chamandy: And maybe just to add 1 more point, Luca. I mean, the good news is that Hanes is winning today with what they have. And they've been consuming before we acquired Hanes, they've been taking market share in the market. And so -- which is a good thing. And that's why 1 of the reasons why we're so excited about the opportunities. So they were taking share and now all of a sudden, you're going to see, okay, with a product which is okay, but not anywhere near what Gildan is going to innovate. And as we bring in our innovation, that's why we're so excited about this thing because they're already winning, but they're going to win even more. And I think that that's really the key for us as we go forward and launch all of our product offerings and the innovation as we move into 2027. I think that's the key. So we're already in a good position. We're already taking share. And I think that for us, I think we're -- with the value-add and innovation, I mean, it's going to be, we think, a game changer for the industry, and we're totally excited about it. Christopher Li: That's very helpful. And maybe I just have a follow-up question on that, Glenn. I know you mentioned many times before that you think activewear in the retail channel is also a big opportunity. I'm just wondering where are you on that journey in terms of sort of rejuvenate that growth? And is that more of a 2027 story? Or can we actually see some of that growth being manifested in latter part of '26 on the activewear side. Glenn Chamandy: Look, the thing about retail, look, it takes time to develop retail programs as we're always 9 months out. So obviously, it will be more of a 2027 story. But we're working diligently right now with our retail partners. And look at -- nothing happens overnight, okay, because the key thing you have to understand is that you have to basically put the positioning, get the product right, it's a whole package that happens. So we're working closely with our retail partners. We're in a process of, I think, driving an innovation cycle. And they see what Gildan can do for Hanes as a brand. And Hanes is one of the most iconic brands in retail. Its recognization is 1 of the highest in all or brands within in the consumer space. So with our innovation and everything else we have to do, we think that, look, we're very confident that we're going to see growth. And it's not going to happen overnight. But as we do this, we're going to -- we'll be on a trajectory for 2027. And then you have to make an investment. The investment is either in advertising, innovation and quality. Those are all the attributes that you have to continue to look at it. Things don't happen overnight, but they will happen. And that's the point that I think we need to make sure that we resonate with our shareholders is that you have to make an investment sometime to get a return, and those investments are being made early quickly, diligently and we expect to see fruit from our investments as we move into 2027. Operator: Your next question comes from the line of Martin Landry with Stifel. Martin Landry: I understand that your cotton needs are hedged for this year, but I think energy costs have gone up as well and freight costs have gone up. So in the past, there's been occasions where you have absorbed higher costs and other times, you've passed on -- that you've passed it on to your customers. So I was wondering what's going to be your pricing strategy this time around to deal with your rising input costs? Glenn Chamandy: Well, first of all, Mark, one thing to take into account is we also hedge energy as well, okay? So we hedge a lot of our exposure to make sure that we have visibility and deliver our operating results when we give guidance. So we have very good visibility for 2026 and all those components that I mentioned, cotton, poly, energy, for this fiscal year. So look, we'll wait and see. I mean, if you look at Gildan's history, we've always been able to offset any type of inflationary pressure with price because we're the price leader. We set the prices in the market. Our competitors are typically high-cost manufacturers that don't have the low-cost opportunity like Gildan and don't forget, what we said earlier is all the things we're doing from the Hanes perspective was that with the scale and the combined companies we're widening our competitive advantage. So we're reducing our costs much as by in-sourcing the Hanes products of the Gildan facilities, but Gildan in generally is lowering its overall cost because of the fact that our scale continues to grow, the company becomes bigger. So look, we'll see how that goes as we move into 2027. But for now, I would say that prices will remain stable for 2026 because we're in a position that we have very good visibility and we'll see what happens as we move and we'll guide to that as we go to '27. Operator: Your next question comes from the line of Luke Hannan with Canaccord Genuity. Luke Hannan: I wanted to focus on the printwear market for a second. Can you just speak to -- I mean what is the health overall of the distributor network there? I guess, more specifically looking to learn a little bit more about maybe the smaller distributors and how they're sharing against this backdrop as opposed to some of your larger customers there? Glenn Chamandy: Look, I mean, look, the market obviously is consolidated over the years. And -- but everybody is pretty much in the equal playing field. So I would say that the bigger distributors represent a larger portion of the market today. So it's -- I think it's -- this is the way the market has evolved and consolidated over time. So the customer base is healthy. I mean the industry itself has probably gone through 24 months of probably [indiscernible] robust sales, I mean, to say the least, I mean, for various reasons. But we're still think that the long-term trajectory and all the work that we've done that the industry should continue to grow at low to mid-single digits actually is all the work that we've done, and we're projecting flat to low this year only because of the, I think, the overall environment. But I would say that the industry and the customers in large are cautiously optimistic. Luke Hannan: And then for my follow-up, sticking with the printwear market for a second. And maybe we'll hear more about this in December as well. But I know in the past, for past Investor Days, it's been framed up the corporate promotional channel, for example, was a big piece of the end market, the collegian channel as well travel and tourism, et cetera. Has there been any big shifts in the sizes of each of those end markets since we would have last spoken at the Investor Day? Glenn Chamandy: I would say the only real shift is that I think that from what we see in the industry is that people are gravitating to higher-value products. So for example, our copper colors brand, our champion, our Alpro, I mean, these are -- our fleece, I mean, all these product categories are ringspun T-shirt, basically our [indiscernible] T-shirt are all growing, basically, and the price points of these shirts are much higher than the typical basics. I mean, so people are spending more money on products. They're looking for innovation. So those are all great opportunities for us, basically, and we've been able to capitalize on them. And our Comfort Colors brand is growing 25%, 30% a year over the last 3 years, right, and continuing to growing this year. And these are shorts that are selling for $5 and $6 versus $2 to be honest with you. So it's -- the industry is evolving, and it's good for us. I mean, it's a value-add situation. It's good for our mix in terms of what we sell the channel. Operator: Your next question comes from the line of John Zamparo with Scotiabank. John Zamparo: I wonder if you can comment on the Bangladesh expansion, in particular, I appreciate the commentary on existing operations. So I wonder if you could update us on this initiative and whether it's progressing at the same pace as what you'd expected when you reported Q4. Glenn Chamandy: Yes. Well, first of all, it's definitely on the same pace as it was for Q4. We're confident in the long-term viability of Bangladesh, and we're proceeding as planned. Obviously, we're in the early stages of development and facilities. So that's the stage we're at. And it's important to understand even the long-term levers in terms of the energy of Bangladesh and our commitment to be there, we believe that the infrastructure even today, obviously, from what you read in the papers that there's limited to some of the infrastructures in terms of the energy, et cetera. But Bangladesh is doing a lot to overcome that. They have 2 nuclear reactors that are coming online. That is going to take up a majority of -- a big portion of their power electrical costs. One that is going to be starting in 2026 and probably after Q2, maybe Q3 or Q4 and another one that will be starting in early 2047. They have a big push for renewable energy basically, particularly in solar. They're drilling -- continue drilling. They have a lot of offshore capabilities in drilling gas offshore. And they've also built a much bigger infrastructure for being in LNG and we do is a combination of all these things in our facilities, including LNG, but we have the capabilities of turning LNG into gas in our facilities. We're running also renewables, et cetera. So whatever being said, we're full steam ahead in terms of Bangladesh. We also believe that Bangladesh longer term, will be positioned, we believe, from a trade perspective favorably. And so yes, we're moving forward as planned with our plan for Bangladesh. John Zamparo: Okay. That's great color. And then as a follow-up, you referenced the contingency plans perhaps in place already in case there's further disruption to the business. I don't expect you to fully reveal that playbook. But can you share at a high level what those plans entail what Gildan views as the primary risks from the war, whether it's higher costs or disruptions to the business, how you would navigate those. Glenn Chamandy: Well, I think, look, I mean, at the end of the day, we have facilities in this hemisphere that we're shuttering down right now. So obviously, we have capacity that may not be at the same cost curve as Gildan's current operations. So what we're doing is we're basically -- we can manage -- and we're looking at a [indiscernible] situation because like I said earlier, we're running. We have energy today. We're meeting our objectives. We haven't lost any volume whatsoever. But if we were to lose all the oil in the Middle East, what would we do? I think we'd have a contingency plan for that. That's what I would say to you. Operator: Your next question comes from the line of Vishal Shreedhar with National Bank. Vishal Shreedhar: Glenn, obviously, the backdrop is uncertain, and you've expressed that, and it's nice to know that you do have plans in place to -- and comfort in the 2026 outlook. Notwithstanding historically, the Gildan business on the printwear side has been sensitive to confidence levels and business confidence levels. I'm wondering if you're seeing any of that manifest in these quarters as it relates to the outlook, the energy price in the war. Luca Barile: Yes. No, I mean -- again, we feel like from a consumer sentiment perspective and our customers as well, they're cautiously optimistic. We're not seeing that come through yet. Again, so we feel good about where we are in the market and where we think the market is going. I think the things Glenn was talking about were just as if there's a drastic deterioration, then obviously, we'll have to adjust and deal with that. But we're set to do so, and we feel good about kind of where we are. Glenn Chamandy: And maybe also just add 1 more point, we're comping weak sales from '25 and I think even '24, particularly in Printwear as there's -- we've seen the market was more like down low single digits to, in certain cases, mid-single digits and printwear over '24, '25 year -- year '24 and year '25. So we took share in those markets during those years in which we're continuing to take share now. So we're positioned. Our business is positive today, even though the market is, we think, is down a little bit in Q1 and -- but we're continuing to take share. We're well positioned with our brand strategy. And what I said earlier in terms of Comfort Colors and [indiscernible] and all the things that are selling. It's opened up new avenues of opportunity for us. So typically, before we are always selling into the basic T-shirt, but now we've got hats. We got bags. We've got performance products. We're going after the other 60% of the channel, which we've never really catered to before. So all in all, I think that we're well positioned to weather even if the market continues to be at the same level in Q1, I mean we're comfortable as we go through the year with our guidance. Vishal Shreedhar: Okay. So when Chuck indicated that the market was down low single digits and Gildan was up, was that due to -- was that in volume, was that in dollars? Was that due to these new products that you've introduced? Or is it due to mix? Can you give me some more color on that because given your... Glenn Chamandy: Yes. Look, as we go forward, looking into revenue, it's dollars really at the end of the day because when we're looking at -- from a unit perspective, when we saw a comfort color versus [indiscernible], obviously, we sell it at a higher price point, right? So there's a little bit of a mix shift within our numbers. But I would say that our revenues in terms of how we see our POS and that's how we measure retail as well. So our POS revenue is definitely on the positive side. And that's -- and we look at the market in the same way. So we're looking at both the same way. Operator: Your next question comes from the line of Ryland Conrad with RBC Capital Markets. Ryland Conrad: With the transition to retail and wholesale revenue reporting, you guys at a high level, how should we think about kind of a normalized organic growth profile for each of those channels within your 3% to 5% growth framework through 2028. Glenn Chamandy: Yes. So thanks for your question. So when you take a look at the -- I think not only for this year but over the '26 to '28 midterm guide, net sales the CAGR will be growing at 3% to 5% range. And what we've articulated and what we've seen in the first quarter as well is that both in wholesale and retail and you're right, that is exactly how we're looking at our business is wholesale and retail as we move forward. We've seen growth in both. And the only reason that hasn't fully translated into sales being up versus the pro forma numbers is because of the actions that we're taking and a little bit because of the reference of prebuy in the first quarter. So the underlying strength and the underlying growth profile is actually quite similar when you think about the wholesale and in retail, but they do channels. And that will come through over the course of the 3-year midterm guide that we provided within the 3% to 5% range. So that's the way I think you have to think about it. And you're absolutely right. And that's why we've given the extra disclosure in our disclosures around the pro forma for wholesale and retail. That is the way we normally look at our business, report our business but manage our business. Ryland Conrad: Okay. Got it. I appreciate that. And then just with the recent step-up in leverage, I'm curious if you can maybe share your latest expectations for leverage rate at the end of this year. I mean, whether the timeline to reset the buyback has changed at all relative to the initial, I think, 12 to 18 months those are [indiscernible] communicated. Luca Barile: Yes. Good question. So -- and I appreciate that question because that's where we're very focused. I'm very focused, right, is from a financial perspective, as we navigate through this year, we are in a position where we're very -- we're targeting working capital to come down at a level that's going to be sub 30% by the end of the year. We're very focused on delivering the transaction. We're at 3.3x leverage at the end of the first quarter, and that was in line with our internal plans. We're actively in a process for the investment of our HAA, our Australia business, which I can't really comment on, but it's a competitive process, and it's actually progressing as planned. And so once that comes to fruition, the funds from that divestment will be put towards paying down our debt. And our target is to be back within our leverage framework as quickly as possible, which is 1.5 to 2.5x, and we have not changed our position that once we are back close to the midpoint of that leverage, which is around 2x, we will be in a position to return to buying back stock through an NCIB program. I do think I want to remind you as well that one of the items is also a focal point for us, is a generation of free cash flow. We're really generating -- at least $850 million of free cash flow this year, which underpins the guidance that we've provided. So strong free cash flow generation. Within that, we're investing 3% of our top line into net sales and very focused on bringing down that working capital to a level that we will be able to operate in and be efficient with our cash return to the leverage framework and return to buying back our stock. Operator: That concludes our question-and-answer session. I would now like to hand the conference back over to Jessy Hayem for closing remarks. Jessy Hayem: Thank you, Angela. Once again, we'd like to thank everyone for joining us and attending our call today, and we look forward to speaking with you soon. Have a great day. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Option Care Health First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Nicole Maggio, Senior Vice President of Finance. Nicole Maggio: Good morning, and welcome to the Option Care Health First Quarter 2026 Earnings Conference Call. With me today are John Rademacher, President and Chief Executive Officer; and Meenal Sethna, Executive Vice President and Chief Financial Officer. Before we begin, a reminder that today's discussion will include certain forward-looking statements that reflect our current assumptions and expectations. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations. We assume no obligation to update any forward-looking statements, except as required by law. We will also use non-GAAP financial measures when talking about the company's performance and financial condition. For more information on the specific risks and uncertainties as well as non-GAAP measures, we encourage you to review the information in today's press release and presentation posted on the Investor Relations portion of our website as well as our Form 10-K filed with the SEC. Additionally, for the Q&A portion of today's call, we ask that you limit questions to one question and one follow-up participant. With that, I will turn the call over to John. John? John Rademacher: Thanks, Nicole. Good morning, and thank you for joining us. We're pleased to share updates on our first quarter of 2026 today. Before I do this, I want to take a moment to say thank you to the Option Care Health team for managing through a dynamic first quarter with an unwavering commitment to our mission of transforming health care by improving outcomes, lowering the total cost of care and delivering hope to patients and their families. As the nation's largest independent provider of home and alternate site infusion therapy, our strategy is built on national scale with the patient at the center of everything we do. Our network of home infusion pharmacies and specialty pharmacy centers of excellence that focus on chronic and rare disease therapies along with our comprehensive nursing capabilities uniquely positions us in the marketplace. We combine consistent high-quality clinical care with local responsiveness, leveraging our platform of infusion suites and clinics to drive clinical innovation while meeting patients where they want to be. This model helps us deliver reliable, clinically excellent care for hospitals and health systems, specialty physician practices and health plans across the country. In an environment of ongoing economic pressures across health care, we are on the right side of the cost curve, partnering to deliver high-quality care at the appropriate cost in settings where patients prefer to receive it. As affirmation of the great work our team does every single day, we continue to receive patient satisfaction scores in the low 90s and Net Promoter Scores in the mid-70s. Turning to our results. The first quarter reflected mixed performance for our business. Adjusted EBITDA and adjusted EPS performance were aligned with our expectations, but our revenue growth of 1% did not meet our expectations. We had strong execution across our acute therapy portfolio, a transitional period for our chronic therapy portfolio and continued focus on strategic initiatives that will better position us to win. On the acute side, our commitment to strengthening our capabilities to transition patients on to service, invest in broadening our referral source relationships and focus on resources driving clinical value realization helped us deliver revenue growth in the high single digits, well above market growth. As I've mentioned previously, providing these therapies require strong partnerships with hospitals and health systems, are very time-sensitive and demand tight coordination across our expert and clinical resources. This area of service is hyper local, and our teams continue to operate at a very high level and position Option Care Health as the partner of choice. Across our chronic therapies, revenue for the quarter was a slight decline versus last year, reflecting certain industry dynamics that were more challenging than we anticipated. Breaking this down across the larger therapeutic categories we serve, we delivered solid growth in our IG neuro portfolio in alignment with our expectations. Across our Autoimmune and Chronic Inflammatory Disease Portfolio, which we refer to as CID, we saw a greater reset than anticipated in patient census. Our guidance from earlier this year included a number of assumptions given the multitude of variables impacting shifts in our patient census and therapy mix. As we discussed on our last earnings call, patient registration activities throughout the first quarter are a key input in understanding whether results align with our assumptions. We saw a significantly higher volume of patients that had insurance plan, benefit design or formulary management changes, doubling the number of patients requiring benefit reverification and reauthorization versus last year. This elongated many approval decisions into late March. As we closed out the quarter, therapy transition and patient retention patterned differently than we expected, reducing our patient census more than we anticipated. In addition, the therapy mix of our remaining patient census was less favorable than originally planned. As we have previously discussed, given the recurring nature of revenues for patients on chronic therapies, an unfavorable drop in census will take some time to recover. Moving beyond CID, in our other specialty portfolio, we saw slower-than-expected growth of certain therapies. We expanded the breadth of our targeted specialty call points but did not achieve the acceleration we initially expected. Across our rare and orphan program portfolio, we were also notified of launch delays or slower ramp for a few of our rare and orphan programs due to regulatory or commercial launch readiness that will impact our growth expectations for later in the year. We remain confident in the strength of our platform to support these clinically complex therapies and the value they will provide despite these delays. With these forces converging as we exit Q1, we are revising our full year revenue guidance as the industry dynamics are more impactful than anticipated. Meenal will provide additional details in her commentary. In response, we are taking decisive actions to sharpen execution, focus and invest in the most attractive growth opportunities and strengthen our commercial and operational competitiveness. We are increasing the strength and size of our commercial team, realigning resources and rebalancing coverage across our top specialty practices and accounts. We continue to focus on operational excellence to further capture therapy level economics and enhance our admission conversion rate while deploying technology designed to ensure a more seamless workflow from referral to start. And we are refining our go-to-market model to scale efficiently, simplify the provider experience and strengthen our specialty pharmacy offerings for chronic and rare disease. Moving on to our alliances. We continue to foster positive momentum across the relationships with payer and pharma partners. Our relationships with health plans and conveners continue to provide significant value to their members as we partner to rightsize care. Our existing site of care initiatives are performing better than expected, and we anticipate this momentum to carry throughout the year. The consistent feedback from the various plan sponsors who have active programs with us is that these initiatives bring real cost savings to the plans and provide increased choice and satisfaction to their members. Our portfolio breadth of both acute and chronic therapies as well as our ability to provide clinical insights and our quality and cost efficiency make us well aligned with our payer partners to help them lower the total cost of care and reduce waste in the system. We believe our performance positions us well to both capitalize on current programs as well as capture new offerings. Pharma program development also progressed as expected, and we are preparing for new launches later this year. We continue to actively pursue additional opportunities to support pharma partners in commercialization of their new-to-market products, and we believe our unique pharmacy network, nursing excellence and clinical competencies make us a logical choice. We are also seeing a strong pipeline of infused and injectable drugs to treat clinically complex patients, and we are engaged with pharma manufacturers and innovators who are seeking partners with our capabilities to add to our over 600 therapies already in our portfolio. We believe these opportunities will continue to be an important catalyst to drive our growth. Our ambulatory infusion clinic utilization continues to increase with visits growing 14% year-over-year, driven by commercial and operational collaboration and market access expansion. We are now operating in 28 locations with advanced practitioner capabilities in key markets, and we will continue to drive performance through deeper partnership with local providers. These trends reinforce our confidence in clinic-based growth as an important complement to our diversified model. And we continue to leverage our entire network of infusion suites, conducting 34% of our nursing visits in one of our suites or clinics during the quarter. We also saw continued traction in our oncology portfolio, a small but growing part of our business. We believe this represents a meaningful opportunity for continued growth as the market dynamics shift and more oncology products move into the infusion clinic and home setting. I want to close by emphasizing that while I am not satisfied with our revenue growth momentum, I do believe our business fundamentals remain intact and solid. We are in an execution-driven organization and are focused on building from this reset through coverage, conversion and enhanced service levels, which we believe will translate into sustainable growth and long-term value creation. And with that, I will turn the call over to Meenal. Meenal? Meenal Sethna: Thanks, John, and good morning, everyone. Our first quarter revenue was $1.4 billion, up slightly over 1% compared to last year. Our acute revenue growth was in the high single digits and our chronic revenue declined slightly versus last year. Total company revenue growth in the quarter was negatively impacted by approximately 600 basis points due to headwinds within our CID portfolio. As a reminder, our CID portfolio incorporates a number of different therapies, and we still expect the Stelara and related biosimilar subsets of these therapies to represent less than 1% of 2026 company net revenue and gross profit. Gross profit dollars also declined slightly over last year due to the decline in chronic revenue. We had previously estimated that the gross profit dollar headwind related to the CID portfolio would be $25 million to $35 million. With clarity of those CID portfolio resets, we now estimate an approximately $55 million gross profit headwind for the year, which includes the additional patient loss John spoke about earlier. SG&A grew 4%, reflecting the wraparound of investments made in 2025, along with ongoing investments in commercial resources to support future growth. Adjusted EBITDA of $105 million was down 6% over prior year, but in line with our expectations as the acute performance and execution on our strategic initiatives offset the dynamics in the chronic portfolio. Adjusted EPS of $0.40 was flat with prior year with an uplift of $0.02 from the year-over-year benefit of share repurchases. Operating cash flow for the quarter was a usage of $12 million, in line with our seasonal expectations. First quarter is typically the lowest quarter in the year due to seasonal patterns and incentive compensation payments. We saw measurable improvement from our early inventory management initiatives in the quarter, including better supply and demand alignment. We expect to see additional benefits from our working capital initiatives as the year progresses. And we ended the quarter at a net debt to leverage ratio of 2.2x. During the quarter, we also expanded our revolving credit facility to enhance financial flexibility from $400 million to $850 million. This increased capacity better aligns our capital structure to our capital allocation strategy. As a reminder, our capital allocation priorities start with organic investments to drive revenue growth, capacity and optimization of our cost structure. Acquisitions are next, focusing on adjacencies and tuck-ins that align with the breadth of our portfolio. And our final priority is periodic share buybacks. In the first quarter, we repurchased over $17 million of our shares. Moving on to our full year forecast. We are adjusting our full year net revenue guidance to a range of $5.675 billion to $5.775 billion. This represents just over 1% growth versus prior year at the midpoint. This incorporates a negative 600 basis point revenue growth headwind higher than the 400 basis point headwind we had previously estimated due to the lower CID patient retention and therapy mix noted earlier. We are maintaining our full year EBITDA and adjusted EPS ranges with our February guidance with projected EBITDA of $480 million to $505 million and adjusted EPS range of $1.82 to $1.92. That corresponds to growth at the midpoint of 5% and 9%, respectively. Our EBITDA guidance range incorporates the forecasted $55 million CID portfolio headwind noted earlier. We expect that to be realized evenly through the year. Our EBITDA guidance also reflects reductions in variable operating costs, including variable incentive compensation and other cost management actions. We now expect SG&A growth to remain at or slightly below gross profit growth for the full year 2026. Additionally, for the year, we're maintaining our estimates of net interest expense to be in the range of $50 million to $55 million and a full year tax rate in the range of 26% to 28%. We are adjusting our operating cash flow target to at least $320 million, which incorporates the lower revenue and cash-based EBITDA reduction. I also wanted to provide some color on the second quarter for modeling purposes. The following assumptions are on a sequential basis, reflecting second quarter growth over the first quarter of 2026. We expect second quarter sequential revenue growth in the mid-single digits with EBITDA sequential growth in the high single digits. We anticipate seasonality to be consistent with prior years with sequential growth over the course of the year. And with that, I'll turn it over to the operator to open up for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Lisa Gill of JPMorgan. Lisa Gill: Just two things I just want to try to understand a little bit better. I understand looking at the [ IQVIA ] data, what happened with Stelara in the quarter. But can you help me to understand the increase in the headwind versus the initial on the gross profit side? I understand the revenue side, but help me to understand that. And then just secondly, I just wanted to follow up on the benefit reverification that you talked about as far as timing goes and what you saw in the quarter? Is that commercial? Is that some of the changes that we've had, whether it's the ACA or something else? Just want to understand what's happening there and how we'll see that come back around as we go through the other quarters. John Rademacher: Yes, Lisa, it's John. I'll start with your second question first, and then I'll turn it to Meenal to talk about the product profit drivers and the headwinds from that perspective. So as we went through the quarter, we called out, and I think everyone is aware that the first quarter is a really important quarter as you go through the process of turning the calendar and all of the things associated with benefit reverification and authorizations and those types of things. As we had called out in the prepared remarks, we saw a significant increase in the patients that we had on service that either had a switch in health plans, had a benefit design or a formulary change that increased the amount of work we had to do to qualify them and to move them on to service as we went into the new year. And this doubled the amount of patients that were impacted on that. We also saw that the payers increased some of the standards that they had set to qualify patients for the enhanced clinical services that were provided and also that influenced some of the product selection that the formulary management moved forward. This elongated that process over the quarter. And many of those determinations and decisions really weren't made until the March time frame as we went through the process and really worked through that bolus of activity. And as we exited the quarter, we saw not only that changes in the portfolio and the census due to the switch out of Stelara, but also the mix of products we had talked about not all biosimilars have the same economic value to us. on that as well as not all of the products, and there's about 40 different products in what we categorize as the chronic inflammatory disease have the same profit dynamics. So as we looked at the -- as we rolled through the end of the quarter and looked where we were exiting, we saw that this was different than how we had originally modeled and planned for it due to these different factors through that process. And so starting with that lower census and then carrying that through the rest of the year is really what is driving a big portion of where the revenue reset is, knowing that it's going to take time for us to fill, knowing that you lose that annuity of a patient that is on census for a chronic condition and carry that forward. So that's what we saw, and it was really pushed towards the back half of the quarter as that increase in volume and the increase of activities associated with all of the changes given this year and the dynamics in Medicare Advantage plans, the IRA implications and the biosimilar switch in a formulary management perspective. Meenal Sethna: And then, Lisa, it's Meenal. So your first question was about the GP headwind and the increase to the $55 million. So just going back a couple -- a few months here, we had originally, as we put forward our assumptions for our full year guide back in January, we had assumed that, that headwind would be $25 million to $35 million, somewhere in the middle there, really with a focus around Stelara, the Stelara IRA and then the biosimilar conversion. As John just mentioned, as we've gone through the quarter, through the first quarter, what we found was there were some significant changes versus what our assumptions were, one, in the patient census itself. but then also therapy mix. So this $55 million now represents. The bigger part of that change is really related to the change in the patient census, where we had assumed a number of Stelara patients converting to some other therapy as part of our portfolio, and that didn't happen. So the loss of that patient is what that is. And then secondly, with the patients we did retain on census, we saw a slightly unfavorable mix when all is said and done given the multiple therapies out there. I'm sure that one of the next questions will be how do you feel about the $55 million over the course of the year, given the fact that we have this reset in the first quarter, and we -- it's going to take us a while to build up the census, but we're assuming this particular headwind will pattern out evenly through the rest of the year through the rest of 2026. John Rademacher: And the only thing I would add to that, Lisa, is we now have clarity around how we are -- how the portfolio evolved and how the patient census moved forward. We believe that we have gone through the process of the reverification and reauthorization with the patients as you do at the beginning of the year. And the first quarter is really that driving force to give us that clarity and now confidence that we will build sequentially moving forward. Operator: Our next question comes from the line of Pito Chickering of Deutsche Bank. Pito Chickering: On the guidance, you talked about 2Q EBITDA up high single digits. So that's $112 million, $114 million range, which implies a very large ramp-up into the back half of the year. Can you bridge us, one, how we get to the 2Q EBITDA growth of high single digits? And then two, I think just solving into the back half of the year ramp, I'm looking at teens sequential growth in 3Q and 4Q and how we accelerate from, I guess, from 2Q. So basically, how can you bridge us from 1Q to 2Q growth? And then can you bridge us from the large back half of the year ramp? John Rademacher: It's John. Let me start. As I said in my prepared remarks, it was a mixed result, but there were positive aspects of the business. And again, we remain -- we believe that the fundamentals remain intact. When you look at the progress that we've made and really the strength of the results in our acute therapies, which tend to have higher gross profit as well as really good dynamics for us on that. You look at the growth that we saw that was continue to move forward in our IG neuro portfolio. You look at how we have been partnering with payers on site of care initiatives and that moving better than we had expected, the continued work with our pharma partners and the programs and the pipeline that remains, and we're going to continue to move that forward. As well as what we're seeing in the infusion clinic, there is a lot of areas that continue to make really solid progress and continue to drive that growth, which is why you saw the adjusted EBITDA strength that we had in the first quarter, even though we were going through this reset. So I do want to emphasize that there are really positive things happening in the business and the foundation, and we're going to continue to focus our energy and effort on driving the growth, not only in those areas where we're having success, but then shoring up in these areas where we know we have to accelerate, reaccelerate our growth through that process. Meenal Sethna: Sure. And Pito, it's Meenal. I'll add just a few other comments to what John mentioned. Specifically, we wanted to give -- wanted to offer just some ramping thoughts, which is why we provided the second quarter guidance. As I mentioned in some of my prepared remarks, there's work that we have been doing around some cost reductions. And so that's some of the carry that goes forward as well as naturally, we, of course, have some variable costs also that are aligned to revenue. So we're doing a little more scrubbing there with some cost down. But importantly, I also want to reiterate what John said, we've got large parts of our business that are doing very, very well, like on the acute side of the house, on the IG neuro side of health within our chronic portfolio. So we expect to drive some growth through there, which will also help us from an EBITDA perspective as well as gross profit dollars that we're working on also. On your question on the back half of the year, I'll take a step back and also say, look, we have a normal seasonal pattern on top of everything else, which is in any normal year, we tend to see sequential growth starting from the first quarter, which we've always said is our lowest point up to the fourth quarter, which tends to be our busiest quarter of the year. So there is a natural lift that we have. And then also, John talked about, look, it's going to take us some time to rebuild that census loss that we have. Our expectation is that rebuild starts now, right? We're working on the rebuild starting in the second quarter, a number of actions that we're taking going forward to move that. So we would expect to get some continued tailwind from our efforts with all the investments that we're making in our commercial resources as well to really drive some additional growth on a sequential basis, Q3 and Q4. Operator: Our next question comes from the line of David MacDonald of Truist. David MacDonald: John, just a quick question. You talked about conversion and that being a little bit lower. which I just want to make sure I'm interpreting this right, suggests to me that on the front end, you guys weren't able to kind of muscle through some of the administrative workload just given the heavier design changes and things like that. A, is that correct? And then B, in terms of fixing that, is it a matter of kind of adding more resources on the front end? And was it just competitors were processing these folks a little bit more quickly than you guys and you were losing a little bit of share? Just a little bit more detail there would be helpful. John Rademacher: Yes, Dave, thanks for the question. What we saw is that elongated process was really part of the -- just the reverification process. I would say, yes, it passed the team, but we're prepared for that. I don't want to make it that it was -- we were not processing them through. What we found was there are some PBMs that have preferred biosimilars. And so we expect that we lost some of the patients to some of the competitors through that process. The economics are not the same on all of the biosimilars for us. So there are some that just didn't make sense for us to take if that was the preferred route of therapy. And then as I said in my comments, there were higher standards. If you remember, a lot of our patients required additional or enhanced clinical services that wrapped around that. And therefore, there were some denials and other aspects where patients no longer qualify based on those higher standards. And so they moved to other forms of administration, whether it's self administration with the products that within that. So that's where we really looked at it. Yes, we're always looking at making certain we have the right staff in place and that we're being responsive as possible in that it took longer this time around given all of the different things associated with it. But I think as we're moving forward and we've gotten through the bolus of activity, I don't see that as being anything that would be -- would hold us back for getting back on and reaccelerating our growth as we're looking to bring on new referrals and new patients into Option Care Health service lines. Meenal Sethna: And Dave, I just wanted to add one other point to John's is what we were trying to emphasize when we talked about really double the number of patient authorizations and reverifications that we needed to work through, it just took a bit longer, not because of necessarily just us and our resources, but also the multitude of back and forth that had to happen, and it really went into late March this year, which is longer than the typical cycle that we see given a lot of the market dynamics going on with plan changes, I'd say, a lot more dialogue around the verification and prior authorization work. Operator: Our next question comes from the line of Brian Tanquilut of Jefferies. Brian Tanquilut: Maybe just to double-click on this, right? I mean these patients need to go somewhere is my guess. I mean they obviously still need the drug. So just curious, like, I mean, back to David's question, how confident are we? I mean, it seems like this is a market share loss situation on one hand. And also curious like your visibility into this given that you did your earnings call in March, and it feels like it's the first time we're hearing about it. So just curious like how can you impart confidence in the investor base to believe that this is an issue that will improve quickly and to have visibility into guidance for the year? John Rademacher: Yes, Brian. So as we called out, the first quarter is the busiest quarter for all of the work associated with the benefit reverification and authorization process. And as we exit the quarter, we have gone through the entire patient census as part of that activity associated with it. So to your -- I guess, your question, but again, we reaffirm, yes, we lost those patients to other service providers. So it was retention loss and those patients went somewhere. As we have talked about before, there is a portion of this where there is self-administration as part of the therapy plan moving forward. And so some of those patients potentially converted over to self-administration. We can continue to try to support them through our specialty pharmacy capability set. But there's also opportunities where it just didn't make economic sense for us to hold on to those patients given some of the dynamics with different biosimilars and others through that process. So we expect that they did go somewhere else and they're not on census with us. But we believe we are through the work that's necessary in that first quarter to get through the entire patient census and understand where that is. And now this is the base that we believe is where we're building on as we move forward. To your comment, when we had the earnings call and as we've called out, a vast number of the patients that we had on service had not gone through that process. If you look at the therapies, many of the patients aren't receiving care for 8 to 12 weeks is their cycle. So many of them had not even gone through the process of their next dose by the time we had and we laid the earnings call. So there was still a lot of unknown. We tried to call out that the first quarter was going to be something that we were monitoring closely. But at that point in time, we didn't have enough evidence to know where the patient census was going to land. And so that's where, again, as we now have this clarity, as we're exiting the first quarter, we are bringing forward kind of our new view that is different than the modeling that we've done as we entered into the year. Meenal Sethna: And Brian, I just wanted to take a step back and maybe just add some comments. This was a really unique situation across Stelara and one that is -- we expect at this point, this is onetime and it's done, and this gives us clarity going forward. But when we've been -- I know talking about this for a while, with the IRA backdrop, which really drove some significant shifts that we see now in the first quarter around categories and a lot of different category economics going on. Separately, there were a lot of market shifts that also occurred, right, significant changes in Medicare Advantage plans and memberships and enrollments and transfers. And actually, a large portion of our patient Stelara patient census were skewed towards MA plans as well. So that added to the complexity of this, along with this particular transition also included a large number of biosimilars and other brands. So I would call this a pretty unusual, pretty unique set of circumstances. We believe at this point that we've had the reset. We have a patient census now we have clarity. And from here, we're going to move forward with the -- starting with the second quarter sequential growth that I talked about earlier. Operator: Our next question comes from the line of Joanna Gajuk of Bank of America. Joanna Gajuk: So a couple of follow-ups. Just to confirm, when you're talking about the therapy mix changes and lower patient census, are we still talking about Stelara and therapies sort of in that category? Or are we talking about the sort of impacting some other therapies like ENTYVIO, I guess, which is also big for you? John Rademacher: Yes. I mean it's primarily around the shift of the Stelara patient census. Again, as we had outlined, the full chronic inflammatory disease therapeutic set was in alignment with that. But the vast amount of this is the reset of those Stelara patients as they have transitioned to other products moving forward. Meenal Sethna: Yes. I think, Joanna, you could think about it this way, right? We had a census of Stelara patients, there were multiple different therapy choices that those Stelara patients had, which were when we refer to the CID portfolio, there are a number of different therapies, some of which you mentioned that those patients could go to as well as some other biosimilars as well as potentially staying on Stelara. So that's how we think about it is Stelara patients with a lot of different choices as they were working with their providers and their particular insurance plans. Joanna Gajuk: And if I may, a clarification. So I appreciate the answer around the ramp-up you expect. And it sounds like there's some cost savings that allowed you to keep your EBITDA guidance the same even until now this headwind is $20 million or so higher than previously assumed. So is that really the $20 million is the cost savings? Or can you help us kind of break down that offset, that number into buckets? Meenal Sethna: Sure. So I think just for reference, what you're referring to is back in January, we talked about a gross profit headwind of approximately $25 million to $35 million relating to Stelara and the biosimilar conversion. Based on where we are today, we estimate that headwind to be $55 million. And again, in large part because of the patient census and the loss of the patient census and a little bit on the therapy mix. For us, as we took a step back and looked at this, I don't want us to forget that we had really good momentum across other parts of the business. So when we take a look at the acute side of the business, which was growing in the high single digits, very solid growth across our IG neuro portfolio as well. So part one, to answer your question is we really want to maximize the momentum across areas of the business to really drive some additional gross profit, and we've been successful doing that. I think that's part of it. Clearly, we are going to have to take a look at cost. We've already been doing that. We've already taken some actions this year, and there's some other things that we will do. That's also net of reinvesting into the business with the additional commercial resources that John spoke about. So we're continuing to do that. And then invariably, we have some -- as we've reduced our revenue guidance, we have some variable costs now that we're going to scrub through and as we reduce some additional variable costs, including, frankly, some incentive compensation that will be reduced. The combination of all that is why we felt comfortable maintaining both our EBITDA and our earnings per share EPS guide. Operator: Our next question comes from the line of Constantine Davides of Citizens. Constantine Davides: Just a couple of quick ones. Maybe a follow-up on guidance. Can you just talk about maybe some of the assumptions, low end versus high end? Is that purely a function of kind of the revenue brackets you provided? And where is your conviction? Or what would have to happen to get to the higher end of your EBITDA outlook? And then second, John, you kind of called out the acute performance still pretty strong in the first quarter. What are you seeing now that you've kind of lapped that competitor withdrawal? And what's your expectation for growth here as you're seeing it in the second quarter? John Rademacher: Yes, Constantine, it's John, I'll start and then I'll let Meenal reply to really the first part of your question. On the acute, again, the team continues to perform extremely well. As you called out, I mean, we've lapped some of the competitive closure and continue to see strength in the growth of that business. We believe there still is opportunity. We are deepening our partnerships with health plans or with health systems and hospitals in those local markets. We know this business is one that requires to be very local and very responsive in helping to transition those patients on to care. The investments that we've made into our people, our process, our technology allows us to do that. Our nursing network is a strength of this enterprise and one that we will continue to rely on as we move forward. So we are extremely confident that we can continue to grow and be that partner of choice given the investments we've made, but also given the way that the team is executing and performing and deepening those relationships. Meenal Sethna: Yes. And Constantine, just your questions on the guidance, I would say, one, first quarter for us really gave us the clarity that we've been talking about, right? We've had this patient reset. And from here, we're going to grow, we'll grow sequentially throughout the year. I'd say our confidence, we feel good about the guidance that we put out from a revenue perspective. And if you'll -- you probably noticed that we reduced the range of the guidance and that's part of that confidence. I would say what are some of the levers that we have. First of all, at close to a $6 billion revenue, there's always going to be some puts and takes that go on over the course of the year. But our team is very execution oriented. So I would say everybody is on deck, all of our commercial resources and those supporting those commercial resources are on deck to really look at how do we grow? What are the vectors of growth that we have, ones that we've been going after, new ones that we're going after? How do we rebuild that patient census? What are some other areas of growth opportunities that we can add into the pipeline, and I feel good about that. So that's what gives us confidence in the low end -- or sorry, in the high end, but just thinking about a number of variables. And I would say revenue growth for us is the single largest opportunity when you think about fall-through from an EBITDA perspective. So that's our primary growth. But again, we're not going to forget that as needed, we will make adjustments into our cost structure if that's what it takes. So I feel confident about both the revenue guide we put forward as well as the EBITDA and the earnings per share guide. John Rademacher: And the only other thing I'd add is, look, our decisive actions and what we're looking to do to really drive the reacceleration of the business focuses around coverage, conversion and enhanced service levels. And so we have plans in place that we are executing around that, that elevate the commercial execution, that increase the size and strength of our commercial presence to capture more of the market demand. We're focusing around converting more of the patients that we receive as referrals on to service with us. And we are focused around some of the enhancements in our service capabilities and service levels to not only attract with payers and pharma partners, the strength of that portfolio, but also to continue to execute and be that partner of choice for the providers that are referring patients on to us. Operator: Our next question comes from the line of Erin Wright of Morgan Stanley. Unknown Analyst: This is Michelle on for Erin. So I just wanted to check for this headwind with Stelara and the chronic therapies. So would you still expect now that there's any risk transitioning into 2027, where prior, we thought we would be through this period now that we have this reset census data? And is it possible that throughout the rest of 2026, there would be any other resetting expectations or that it won't sequence kind of the way you're thinking in terms of being relatively stable over the next few quarters in terms of the headwind? Meenal Sethna: Sure, Michelle. It's Meenal. So I'll give you the short answer is no, we don't expect additional headwind in 2026 nor any carryover in 2027. As we've been talking about, we feel that Q1 was the reset. We now have clarity and we now know what our patient census is from here. We don't expect any shifts other than normal patient shifts as they're working with their particular provider, but we don't expect anything outsized from that. We expect 2026. Our hope is also that this is the last year that we're having to talk about Stelara. And from here, we really want to be able to talk about the other growth vectors and other growth opportunities that we have as we continue to expand our portfolio. Operator: Our next question comes from the line of Charles Rhyee of TD Cowen. Lucas Romanski: This is Lucas on for Charles. I want to ask about the strong acute revenue growth you saw in the first quarter, high single digits above your medium- to long-term target of mid-single digits. Does your '26 guide assume that this high single-digit growth continues throughout the rest of 2026? And then also thinking about the margin profile in the past as well as on this call, you talked about acute having a higher gross margin compared to the chronic portfolio. Can you help us understand how those two categories compare at the EBITDA margin level? Meenal Sethna: Yes. Why don't I -- Lucas, why don't I start with just the acute growth? So we've been -- as both John and I've talked about, we've been very pleased with how well the team has really been driving the growth opportunities that we believe we have in acute. I would say we have lapped the number of the competitive closures that we've been talking about for a while. But at the same time, the team has done a great job at really building those even more relationships with referral sources and really driving both additional patient growth, but also clinical value realization opportunities as well. So our -- as we look ahead to the acute side of the business, we feel really good about being able to continue a momentum that is above market growth, which we're doing right now. And I think the team is really executing on all cylinders when we think about that. Beyond that, we haven't gotten into a lot of detail around profit markers between acute and chronic. But I would just say that overall, both parts of the business are important to our portfolio. They really fit together when we think about the value that we provide to all of our stakeholders, the payer communities, the pharma communities and frankly, to our patients at different points in time, there may be patients who need both sets of therapies. So we become a real important part of the health care ecosystem to all of our stakeholders. And that's why we really want to ensure that portfolio we have, the therapy mix we have is quite broad. Operator: Our next question comes from the line of Michael Petusky of Barrington Research. Michael Petusky: So I guess probably this is for Meenal. In terms of what you guys expect from the mix between Sonic and acute and sort of putting together what you said about the second half and full year guidance and all the rest. And I know historically, you guys like to talk about gross profit dollars. But to me, it looks like gross margin needs to lift for the remainder of the year sort of to get to your guidance. I mean, is that a fair statement in your view? Meenal Sethna: Look, I would say as it comes to both gross profit dollars and margin, we do look at both. So I don't want to minimize one or the other. I think ultimately, right, the dollars are the ones that drop to the bottom line when we think about are we growing our EBITDA, are we growing our earnings per share. But we also do take a look at the margin profiles of the different therapy mixes and the different parts of our business. So we are focused on both, but ultimately, it's the gross profit dollars. And by the way, we always ensure that the therapies that we are providing are profitable. So that's a key element of what we're doing. The gross profit dollars really allow us to reinvest back into the business as we've talked about the commercial resources and other areas, but the margin is one of the many metrics we keep an eye on. Michael Petusky: Okay. And then just sort of a follow-up in terms of the modeling of this. You alluded to stock comp may be one place that you guys can look to. The last year, 1.5 years or so, including the first quarter, you guys basically have sort of looked at sort of $40 million on a yearly basis and sort of track to that in the first quarter. I mean, what might that look like for the remainder of the year? I mean could that go more towards like a run rate of $30 million in terms of stock comp going forward? Meenal Sethna: Yes. And if I misspoke, I apologize. When I was talking earlier about cost reduction opportunities, I was referring to variable cash comp more than anything without getting into a lot of detail. So that's really -- look, if I take a step back, we have lowered our guidance. That was not a decision that we took lightly. And if we don't achieve what we felt was our guidance, there are going to be implications to our variable compensation, but it's more on the cash side. It was not a comment about our stock compensation. Operator: Our next question comes from the line of Matt Larew of William Blair. Matthew Larew: John, if I think back over the years, I think this is one of the first times probably where you referenced losing some patients to competitors. And I realize there's some idiosyncrasies involving Stelara here that maybe make it an anomaly. But this is also the time, I think, in an industry has always been competitive, where there's been more competitive entrants that have been popping up. You've had a number of the larger payer-owned entities that have exited acute and are exclusively focused on chronic. So it does seem like that market may be becoming more competitive. So I'm just curious, as you think about -- you referenced the reset of patient census in March and then the guide and sort of your forward outlook being predicated on building back that census and getting patients back. You referenced needing to deploy or expand commercial resources. I guess what do you assume about your share going forward or about your ability to get patients back on census? And is it possible, I guess, that the sort of costs for patient acquisition may be higher either temporarily or sustainably going forward given the competitive dynamics? John Rademacher: Yes, Matt. So it has always been a competitive environment. As we have called out before, I mean, there's over 800 providers of home infusion and alternate site infusion therapy. So it's -- the competitive dynamics have always been there, and we believe we have a competitive product that we can sell and service in the marketplace. I think what you called out is what we're seeing. There's just some very unique circumstances with the Stelara and the IRA that changed this part of our portfolio dramatically, right, as these events happen, both with -- you look at a significant number of patients that change their health plans. You look at benefit design changes and formulary changes with the introduction of all of the biosimilars and some preferred products that are in those formularies for some of the different payers through that process. So I would say this is unique to that situation. I do believe in the strength of the enterprise. I do believe in the strength of the foundation that we have. When you think of a position for being both a national provider, but also being very local in our responsiveness, I think we will continue to be well positioned as we move forward. This is just one of those situations where there was a shift away from some of the enhanced clinical services that we were providing for the patient cohort. And I think that has been the biggest driver behind the changes that we've seen as well as some of the formulary management aspects that have driven different decisions around what product to move on and how that either remains or moves away from our service model. Operator: Our next question comes from the line of Raj Kumar of Stephens. Raj Kumar: Maybe just some data-related questions here on the kind of chronic growth. You called out the strength in IG and neuro, but you kind of also saw some weakness in some of the other specialties just related to delays of program integration. So it would be helpful just to kind of see how that chronic business grew relative to the kind of high single digit to low double digit that you kind of had at the beginning of the year ex the CID impact. John Rademacher: Yes. We -- again, as we had called out, when we take a look at some of the other categories, we were very pleased with the progress that we're making on IG neuro. That was an area, again, that had really solid growth across a broad spectrum of products within there. We saw across various other specialty products, again, continued strong growth on that. What we called out on the other specialty is we had made some shifts in our commercial resources and made some investments in having better coverage across other specialties in order to enhance and to grow through that process. That has not accelerated the way that we had anticipated in the first quarter. It is one that we are continuing to be focused on and drive forward. But we think that when you look at the breadth of the portfolio that we have, there are still opportunities for us to drive that growth as we move forward. But we were calling out that we had less than expected performance and that, that is an area that we will focus on as we move ahead. I don't believe that the rest of the portfolio is feeling what we felt in the chronic inflammatory. We are still seeing growth in those areas. It's just not at the pace that we had anticipated given some of the investments that we made. Raj Kumar: Got it. And then just maybe following up and kind of appreciate all the color on the revenue acceleration efforts. And so as we kind of think about what it means from a capital investment standpoint and then some of the time lines associated with the different pillars, I guess, does that kind of drive still confidence in the overall long-term framework of high single-digit top line growth? And maybe just kind of any color around the conviction around that going forward? John Rademacher: Yes. Our investments are to reaccelerate growth, right? And we are clear around the mandate. And as Meenal called out, I mean, the organization entirely, not just our commercial team, our entire organization understands the importance of getting us back on a growth trajectory in alignment with those expectations that are set. These investments and really our focus on the near term around these three pillars is to drive that acceleration and reacceleration and the focus as we move forward. Again, our belief in the fundamentals of this business, our belief in the foundation that we have, our belief in the clinical value and the clinical realization that we can drive given this platform remains intact. This was a reset based on some of these unique market dynamics. And our belief is that we are going to drive the business and as an execution-minded organization, we are going to be able to get back on that moving forward. Operator: Our next question comes from the line of A.J. Rice of UBS. Unknown Analyst: This is James on for A.J. My question is kind of similar to the last one you just answered, maybe just expanding on a little bit about the capital deployment priorities. It sounds like maybe that M&A and share repurchases, will that kind of just be on the back burner for the remainder of the year, more of a 2027 item as you focus on getting back to that stronger revenue growth? Meenal Sethna: Sure, James. This is Meenal. I'd say the short answer is no, we have priorities, and we're going to continue to focus on all of those. We have been talking a lot on the call and even recently about the organic investments that we're making, but that's also because that's really our first priority is how do we reinvest in the business to grow organically. We're absolutely still committed to M&A activity. We've talked about adjacencies and tuck-ins. We have a very active process and an active funnel going on. And you probably saw that we expanded our revolving credit facility. We more than doubled it. And that was in large part to be able to enable us to fairly seamlessly move forward with some nice M&A deals. So that's why we've expanded that revolver because it gives us quick access to capital when that happens. And then lastly, I've been talking about for several months now that we would continue to focus on periodic share buyback, but that's our third priority. So you're not going to see us in the market all the time with a standard program. But where it makes sense on multiple variables, we'll definitely -- you'll definitely see us in the market buying back shares. So our capital allocation priorities remain intact, organic M&A, periodic share buyback, and there's no change to that. Operator: This concludes the question-and-answer session. I would now like to turn it back to John Rademacher for closing remarks. John Rademacher: Thanks, Elliot. In closing, we have demonstrated consistently over the years that we are a resilient and agile organization with a team that recognizes the important role we play in serving patients and delivering on our promises. We are moving quickly to develop and execute our near-term recovery plan while we continue to invest in the long-term growth of Option Care Health. The resolve of our team has never been stronger nor have the opportunities been greater. Thank you for joining us this morning. Take care. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Independence Realty Trust First Quarter 2026 Earnings Conference Call. As a reminder, today's call is being recorded, and a replay will be made available on the Investors section of the company's website shortly after this concludes. At this time, I will turn the call over to Stephanie Krewson-Kelly, Senior Vice President of Investor Relations and Capital Markets. Ms. Krewson-Kelly, you may go ahead. Stephanie Krewson-Kelly: Thank you. Good morning, and welcome to Independence Realty Trust conference call to discuss first quarter 2026 results. On the call with me today are Scott Schaeffer, Chief Executive Officer; Jim Sebra, President and Chief Financial Officer; Janice Richards, Executive Vice President; and Jason Lynch, Senior Vice President of Investments. Before we begin, please note that any forward-looking statements made during this call are based on our current expectations and beliefs as to future events and financial performance. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially. Such statements are made in good faith pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and IRT does not undertake to update them, except as may be required by law. Please refer to IRT's press release, supplemental information and filings with the SEC for further information about these risks. A copy of IRT's earnings press release and supplemental information is attached to IRT's current report on the Form 8-K that is available in the Investors section of our website. They contain reconciliations of non-GAAP financial measures referenced on this call to the most direct comparable GAAP financial measure. With that, it's my pleasure to turn the call over to Scott Schaeffer. Scott Schaeffer: Thanks, Stephanie, and thank you all for joining us this morning. First quarter results were in line with our expectations and represented a solid start to the year. Same-store revenue and NOI increased, reflecting stable year-over-year occupancy and a 40 basis point increase in effective rents. Our performance this quarter reinforces 3 themes: portfolio stability, improving market fundamentals, and disciplined capital allocation. While certain markets are still working through late cycle supply, the trajectory we are seeing in asking rents, along with the stability of demand supports our outlook for sequential improvement in revenue as we move through the leasing season. On the supply front, new deliveries in our markets continue to decrease and are trending well below the long-term average. On a macro level, job growth, population growth and household formation in our markets are forecasted to meaningfully outpace the national average. First quarter operating results reflect these improving market fundamentals. Average occupancy was stable at 95.2% and resident retention of 60.5% remained high, both consistent with our expectations. Asking rents in our markets have increased an average of 2.8% this year, and every one of our markets has seen asking rents increase since January 1. Our recent strategy of prioritizing occupancy now positions us to prioritize rental rate growth during the upcoming leasing season. Concession activity has started to moderate, but is still elevated compared to historical levels. The combination of normalizing concessions and the trajectory of market rent growth against our known lease expirations supports our confidence that new lease trade-outs will reach breakeven this leasing season. Turning to capital allocation. Value-add renovations continue to be our most attractive investment opportunity. During the quarter, we completed 426 units, generating an average unlevered return of 15.4%. First quarter volume supports our full year assumption of completing 2,000 to 2,500 units in 2026. On the capital recycling front, we continue to make progress on the 2 assets held for sale and our joint venture in the Las-Colinas submarket of Dallas, known as The Mustang, is currently marketed for sale. The proceeds from these recycling efforts will be redeployed based on the best risk-adjusted return opportunities at that time, including stock repurchases, deleveraging and/or new investments. Finally, during the quarter, we took advantage of the ongoing dislocation in the public markets by repurchasing 1.8 million of our shares at a cost of $30 million, bringing total repurchases since the fourth quarter of last year to 3.7 million shares and $60 million. With that, I'll turn the call over to Jim. James Sebra: Thank you, Scott, and good morning, everyone. Core FFO per share for the quarter was $0.26, in line with our expectations. Same-store NOI grew 1% during the quarter, driven by revenue growth that was consistent with expectations and modest outperformance on operating expenses. Same-store revenues grew 1.4% year-over-year, supported by stable occupancy of 95.2%, higher average rental rates, growth in other income and bad debt that is 60 basis points lower than Q1 of last year. On the expense side, lower property insurance and repairs and maintenance partially offset higher personnel and utility costs, resulting in same-store expense growth of 2%. The leasing environment remains competitive but continues to improve as new supply is absorbed. Asking rents across our same-store portfolio have increased 2.8% since the beginning of the year, up significantly from the 73 basis points we cited on our February call. Within our top 10 markets, those with the largest asking rent increases to date are Raleigh, which is up 5.7%; Indianapolis, up 5.2%; Oklahoma City, up 4.8%; Columbus, up 4.6%; and Nashville, up 4.5%. In our 2 largest markets, Atlanta is up 80 basis points this year and Dallas asking rents are up 2.1% year-to-date. Concession activity increased materially late last year and continued into the first quarter. In the first quarter, approximately 27% of our right-term leases had a concession that averaged $1,241. Early second quarter trends are directionally encouraging as leasing activity accelerates in the peak leasing season. Blended rent growth of 70 basis points for the first quarter was in line with the trajectory of our full year guidance assumption of 1.7%. Renewal rate growth of 3.2% and resident retention of 60.5% were also in line with our expectations. April and May renewal trade-outs are tracking modestly ahead of plan at approximately 4% and retention has remained steady. New lease trade-outs of negative 4% in the quarter were in line with our previous commentary and our expectations. Given the rise in asking rents, our gross lease trade-outs are at breakeven levels with almost all of the negative trade-out on new leases due to the higher-than-normal concession activity in the first quarter. As mentioned previously, we are seeing an improvement in concessions early in Q2 and expect them to continue trending lower during leasing season. Before moving on to our balance sheet, let me give you an update on our property WiFi initiative. As mentioned previously, we are installing property WiFi across 19,000 units this year with an expectation that all will be done and operating on July 1. I'm pleased to announce that we are slightly ahead of schedule with residents excited about the new gig-speed WiFi and halfway converting over to the program. I look forward to updating you further on our Q2 call later this year. Our investment-grade balance sheet remains strong with ample liquidity and no debt maturities to refinance until 2028. Net debt to adjusted EBITDA was 6.5x at quarter end, reflecting seasonally lower first quarter EBITDA and the impact of consolidating our Austin joint venture asset in January. We expect leverage to trend lower towards the mid-5s over the course of the year. As Scott mentioned, we expect to use some of the proceeds from pending asset sales to reduce leverage. And longer term, we will further reduce leverage organically through EBITDA growth. Based on the results to date, we are affirming our full year core FFO per share range of $1.12 to $1.16 and are comfortable with the major assumptions that support that range. Scott, back to you. Scott Schaeffer: Thanks, Jim. We are firmly on track to achieve our 2026 plan. Portfolio performance remains in line with our expectations and market fundamentals are improving. While select markets continue to work through elevated concessions, demand in our submarkets remains durable and continues to be supported by population inflows into the Sunbelt and Midwest for quality of life, employment opportunities and long-term affordability trends. We are encouraged by the increase in market rents to date and our ability to capture market pricing without meaningfully sacrificing occupancy. Early signs of improvement in new lease trade-outs during April represent a constructive start to the leasing season, and we believe we are well positioned to benefit as conditions continue to normalize. We thank you for joining us today. And operator, you can now open the call for questions. Operator: [Operator Instructions] Your first question is from the line of Austin Wurschmidt with KeyBanc Capital Markets. Austin Wurschmidt: Scott, you highlighted in your prepared remarks about prioritizing lease rate growth over occupancy. Just wondering if this is a change in the operating strategy or consistent with what was assumed in initial guidance? And can you kind of share where you're sending out renewals for the months ahead, what you expect to achieve and just how aggressive you really think you can be on renewals given the competitive landscape? Scott Schaeffer: Thanks, Austin. It is clearly consistent with our original guidance. This was the plan that we put in place towards the end of last year as we saw the pressure of new supply starting to subside. So during that period of excess deliveries, we really were focused on keeping our occupancy high. And now we feel that we're well positioned with that stable occupancy and the supply-demand equation flipping better to for landlords that we can now start pushing rents while still keeping occupancy stable. I'm going to let Jim talk about what we're doing with growth tradeoff. James Sebra: So on the -- you asked a question about renewal growth and what we're sending renewals out in the future. Obviously, April is done, May is almost done. We're right in the kind of the low 4% range for those 2 months. June is still a little early, so I don't want to get too far ahead, but it's approximately a little bit ahead of that 4% and then July is even a little ahead of that. So again, we expect to -- and they are the rate that we expect to secure. So we actually see a lot of really great opportunity here to capture rate during peak leasing season. Austin Wurschmidt: Then just kind of sticking with the lease rate growth, you underwrite an improvement through the year in new lease rate growth as well. And I think, Scott, you even mentioned kind of that hitting kind of positive territory in the months ahead. How confident are you that, that trajectory is kind of consistent with what you originally underwrote, again, going back to the competitiveness that you highlighted earlier in the call? James Sebra: Yes. Good question. I'll take it for Scott. I think from a new lease perspective, we kind of commented on it pretty much kind of in line with what we expect in the first quarter. We see new lease pricing improving kind of as you move into April and certainly May. I think it's right around the kind of plus or minus 130 basis points better in April and May. And we just see the opportunities there -- it's in our prepared remarks, we see this kind of asking rents have improved, and we do see concessions beginning to come down a little bit that gives us that confidence around kind of hitting that breakeven level here during that leasing season. As you kind of look out into kind of the May, the June, the July months and you look at what our expiring rents are, they are all lower than our current asking rents, meaning we are clearly moving in the positive territory. It just comes down to kind of the concessions ebbing and flowing in the market dynamics, which we are still very much positive on and is developing as kind of we expected. Operator: Your next question is from the line of Eric Wolfe with Citigroup. Eric Wolfe: You mentioned that asking rents were up 2.8% year-to-date. You're seeing improved new leases in April, lower concessions. Can you just put that in context for us? Is that normal seasonality? Did the same thing on concessions happen last year? I'm just trying to understand what's normal seasonality from your perspective versus maybe signs that supply impact is easing? James Sebra: Yes. So the 2.8% asking rent growth is a little bit ahead of what we would say is a normal growth in the beginning part of the year. Again, this is pretty kind of supply ebb and flowing. The concessions in terms of broad views right now in the first quarter and certainly in April, they're all higher than historical periods, right? We do expect them to continue to wane. So I would say that kind of the plus or minus on the asking rent side, again, is kind of slightly ahead of where you would see a typical seasonal pattern. Eric Wolfe: I guess based on your answer to the previous question, June and July, it sounds like the expirations are a bit lower. I guess my question is, you're expecting this big sort of ramp in the back half of the year. I guess when do you think we'll see signs of that happening? Is it sort of in the June, July time period that you'll see that sort of plus 2% type of blend? Because I guess at some point, you would expect, right, for asking rents to be sort of better than normal seasonality or maybe it's just the comp is so easy. I'm just curious when you kind of see that sort of 2% blend that you're expecting. James Sebra: Yes. You start seeing that not as much in the month of July, but you start seeing that in the kind of the September forward months, especially because, again, the concessions in 2025, you suggest the comp is easier. I think the concessions were heavier. So the renewal growth that we're anticipating in the back half of the year is expected to be sizably better in the first part of the year. Operator: Your next question is from the line of Jamie Feldman with Wells Fargo. James Feldman: Can you talk more about your blended rent growth across your key markets and how this compares to your expectations? And then I know you've kept your outlook for the year, but any that are trending better or worse than you would have thought on both the blended rent side and the concession side? James Sebra: Yes. I'll ask Janice or Jason to kind of jump in here in a minute. But I would just say, broadly speaking, the trajectory of the kind of the blended rents and stuff -- for this year are very much kind of trending aligned with what we expected. As I mentioned, concessions are a little heavier. But as we said, we're getting a little bit better asking rent growth, but Janice will go through it market by market. Janice Richards: Sure. From a market perspective, we've got Atlanta, Raleigh and Nashville showing positive momentum supported by moderating supply and improved pricing power year-to-date. Atlanta achieved an 80 basis point rent buildup on top of what we saw at the tail end of last year. Raleigh is leading with the 5.7% growth, as Jim alluded to, and then followed by Nashville at 4.5%. Looking ahead, both Raleigh and Atlanta are expected to benefit from this meaningful decline in supply as a percentage of inventory, down 31% and 69%, respectively, compared to 25%. So that further supports continued rent growth and stabilization of occupancy. James Feldman: Any other markets to call out? Janice Richards: I mean, we have some markets that we're keeping close eye on as well. So relative to expectations, all of our markets are generally in line. Denver and Austin remains supply driven and will continue to experience pressures from elevated new deliveries. However, Austin continues to stand out with the highest household formation across all of our markets at 2.3%, which would help support absorption as supply begins to moderate. Orlando, Tampa and Houston showed some softness in Q1. In Houston, we believe the softness is temporary as the second half of the year will benefit from continued strength in oil production. Anecdotally, in Orlando, we're seeing some movement tied to return to office activity while still working through late cycle supply pressures. And in Tampa, we're seeing some impact from the hurricane-related displacement that followed in Q4 of 2024. However, as Tampa local, I remain very encouraged with the growth coming in the market and optimistic about the back half of 2026. James Feldman: Then just thinking about like the other income contribution to same-store revenue in the back half of the year. Can you talk about any change? I know you kept your guidance again, but like how are you trending on that part of the earnings model? And anything we should be thinking about in terms of your ability to hit those numbers? James Sebra: So yes, I think generally speaking, for the first part of the year so far, other income has grown about 5% over the prior year. We obviously expected in our guidance a fairly significant ramp with the property WiFi program. And as I mentioned in my prepared remarks, we're ahead of schedule. We're obviously not prepared at this very moment to give any kind of significant update to that, but we do see a little bit of potential upside to that assumption with respect to guidance. Operator: Your next question is from the line of Brad Heffern with RBC Capital Markets. Brad Heffern: On Atlanta, you called it out as having positive momentum, but you also quoted, I think, the lowest asking rent changes of any of the numbers that you quoted. I guess, can you just give a broader perspective on that market given it is your largest and maybe reconcile those things? James Sebra: Yes. Brad, I'll start and then maybe I'll ask Janice to kind of chime in here. If you look at the asking rent growth that we talked about on our third quarter call in Atlanta, that was one of the biggest in 2025 by almost 5%. And Janice's prepared remarks were another 80 basis points on top of that. So a lot of really great things are happening. When you look at kind of blends for the first quarter, Atlanta was roughly 1.5% blended rent growth, and that's double what it was in the fourth quarter. So that's the kind of the positive trajectory that we're seeing there. Janice, feel free to add. Janice Richards: No, I think from Atlanta, what we're also seeing on the concession side is we're seeing some decrease in submarket specific areas where we're going to be able to optimize and grow revenue holistically without the use of concessions. Brad Heffern: Jim, I just wanted to clarify your comments on reaching breakeven on the new lease side. When you say that expiring rents are below asking rents, is that including the impact of concessions? Like if concessions are flat year-over-year, would you get to positive leasing spreads in the summer months? Or does that need concessions to go away? Basically, just wondering like what you mean by asking rents and expiring rents and how those incorporate concessions. James Sebra: All great question. I think if concessions kind of stay at the current level, we should still reach breakeven. Operator: Your next question is from the line of Ami Probandt with UBS. Ami Probandt: How much of an impact, if any, do you think that the winter storms had on your blended rent growth, which decelerated in the first quarter? Janice Richards: We did see some change and some slowness in demand in January and February. However, we've seen it pick back up and come back within expectations. We actually exceeded our demand expectations by about 10% for Q1 holistically. So I think we're good to go with the expectation going into leasing season to have that demand back in place. Ami Probandt: There have been some soft results in some of the smaller markets like Huntsville. Could you highlight what's happening in some of those markets? Is it competitive supply? Or have you seen any demand challenges? Janice Richards: Huntsville is still working through supply pressures. We actually were just in Huntsville recently on a town hall and joining with the team and really saw some great opportunity there and are still very bullish on the market. So no challenges from a demand side as we work through this lingering supply. Operator: Your next question is from the line of John Kim with BMO Capital Markets. John Kim: Your value add -- so your value-add performance, it's underperformed your non-value-add portfolio in terms of both blends and occupancy. I'm wondering how you see that trending for the remainder of the year? And how much of a driver is the value-add portfolio to the improvement in blended lease growth in the second half of the year? Scott Schaeffer: Good question, John. I think from an occupancy perspective, the value-add portfolio is inherently going to run at a lower occupancy just because it's -- the units are vacant for plus or minus 20 to 30 days, where a typical turn time in our non-value-add portfolio -- sorry, I get this in my head. Non-value-add portfolio is 7 to 10 days, right? So inherently, the occupancy there is going to be always a little bit lower structurally than a typical non-value-add portfolio. I think from a blend perspective in the first quarter, you saw just a desire to kind of keep retention a little bit higher and therefore, a little bit, call it, softer blend growth because it's the retention renewal growth. The renewal rate growth wasn't as strong in the value add as opposed to the non-value add. But I think fundamentally, when you look at the whole value-add portfolio versus the non-value-add portfolio from an NOI perspective, the value-add portfolio generated about 3.2% NOI growth in the first quarter versus about 50 basis points of NOI growth in the non-value-add portfolio. So we're really still very bullish on it. We really think it's going to continue to produce the returns. Now for the rest of the year, I think, obviously, the guidance is pretty strong with respect to kind of the benefits the value-add provides to that, and we still expect it to do what we -- we still expect to hit those targets. John Kim: I may have missed this, but did you provide the blended that you've seen in April and what you're seeing in terms of how the rest of the quarter plays out? Scott Schaeffer: We had spoken about it on one of our first questions here. But from the standpoint of as we see kind of April and May developing, specifically on renewal rates, April and May are kind of right around the low 4%, 4% range. June is a little bit higher than that, but June is still a little bit early. On the new lease trade-outs, April and early kind of May, we do see them kind of getting better to the tune of about 130 basis points from where they were in the first quarter. Operator: Your next question is from the line of Jason Wayne with Barclays. Jason Wayne: Thinking about capital allocation from here. So you said you wanted to pay down debt, but just wondering how you're thinking about more share repurchases from here? James Sebra: So obviously, capital allocation is very important as we move forward. And we are continuing to analyze the portfolio for -- to recycle capital, recycle out of properties where we think the capital has a better use long term. And as that recycling happens, we will then consider what the best use is. And our stock price will help determine whether share buybacks are better than deleveraging and/or new investments. So it's hard to say sitting here today what the use of that capital will be. We have to really determine it when the capital is available and then determine what the best use is. Jason Wayne: Yes, makes sense. And just on the value-add completions, I think you gave a guidance range last quarter of 2,000 to 2,500 completions this year. Is that still the assumption? And how are you trending on that this year so far? James Sebra: Yes. As Scott had mentioned in his prepared remarks, that's still the expectation and 426 units that we did do in the first quarter are right in line with that goal for the year. Operator: [Operator Instructions] Your next question is from the line of Mason Guell, Baird. Mason P. Guell: How the development performing so far versus expectations? James Sebra: The 2 on-balance sheet developments -- well, there's 2, call it, historical on-balance sheet developments. That's the Arista in Broomfield, Colorado, and Flatiron in Broomfield, Colorado. Arista is fully occupied, stabilized. It's in our same-store pool, so performing just fine. Flatirons, as we mentioned last year, is in the process of lease-up. As we disclosed in the supplement, 82% leased and it's about 66% occupied. It should hit stabilization here in the low 90% in the month of June, maybe early July. And again, as we mentioned, rental rates there are a little behind our initial underwriting expectations, but we believe it's still a great market and a good long-term investment, and we'll be able to push rate once we get it stabilized. The additional asset that was added to our in-development disclosure in the quarter is our joint venture asset called the Tisdale at Lakeline Station in Austin, Texas. That deal is in lease-up is still very early. It's about 33% leased -- 37% leased. 33% occupied, 37% leased, which is up from roughly 25% occupied when we took it over. So again, leasing up as we would have expected at this point since we now are managing it and consolidating it. Mason P. Guell: Great. And is the anticipated timing for the 2 consolidated held-for-sale properties still around midyear? James Sebra: Jason will answer. The question is what's the timing of disposition for the 2 health care. Jason Lynch: Sorry. Yes, we're still aiming towards the midyear. We are actively marketing those and working towards a sale. Operator: At this time, there are no further questions. I will now hand the call back over to presenters for any closing remarks. Scott Schaeffer: Well, thank you all for joining us this morning, and we look forward to seeing many of you at NAREIT and then speaking with you again next quarter. Operator: This concludes today's call. Thank you for joining. You may now disconnect your lines.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Q2 2026 Plexus Earnings Conference Call. I will now hand the conference over to Shawn Harrison, IRO. Shawn, please go ahead. Shawn Harrison: Good morning, and thank you for joining us today. Some of the statements made and information provided during our call today will be forward-looking statements, including, without limitation, those regarding revenue, gross margin, selling and administrative expense, operating margin, other income and expense, taxes, cash cycle, capital allocation and future business outlook. Forward-looking statements are not guarantees since there are inherent difficulties in predicting future results, and actual results could differ materially from those expressed or implied in the forward-looking statements. For a list of factors that could cause actual results to differ materially from those discussed, please refer to the company's periodic SEC filings, particularly the risk factors in our Form 10-K filing for the fiscal year ended September 27, 2025, and the safe harbor and fair disclosure statement in our press release. We encourage participants on the call this morning to access the live webcast and supporting materials at Plexus' website at www.plexus.com, clicking on Investors at the top of that page. Joining me today are Todd Kelsey, President and Chief Executive Officer; Oliver Mihm, Executive Vice President and Chief Operating Officer; Pat Jermain, Executive Vice President and Chief Financial Officer; and David Abuhl, Senior Vice President, Finance. With today's earnings call, Todd will provide summary comments before turning the call over to Oliver, Pat and David for further details. Before I turn the call over to Todd, I would first like to express my gratitude to Pat for his partnership, mentorship and friendship and offer my best wishes for an amazing retirement. Second, I'm excited to announce that Todd will be appearing on CIBC's Fast Money this evening to discuss Plexus and our fantastic results and outlook. With that, let me now turn the call over to Todd Kelsey. Todd? Todd Kelsey: Thank you, Shawn. Good morning, everyone. Please advance to Slide 3. Before I begin my prepared remarks regarding the business, I want to celebrate Pat's incredible 12-year tenure as Plexus' CFO and wish him all the best during retirement. He's been an extraordinary business partner to me over the years. I also want to express my deep gratitude for Pat's leadership and integrity, establishing a strong tone from the top. Pat has been instrumental in our growth journey, fostering and cultivating a high-performing finance team that has played a significant role in Plexus' tremendous financial results over the years. I'm also excited to welcome David Abuhl as our next CFO. Since joining Plexus last fall, David's impact on the organization has already been meaningful. I'm confident that as we continue our growth journey, David's extensive financial expertise, global perspective and strategic mindset will position him to be an exceptional CFO. Please advance to Slide 4. Plexus' momentum is accelerating broadly. We now expect to deliver mid-teens or greater fiscal 2026 revenue growth from the contribution of numerous program ramps, ongoing market share gains and improving end market demand. Our team generated a record $355 million in new manufacturing program wins with broad-based contributions across our market sectors. Against this tremendous result, we also expanded our funnel of qualified manufacturing opportunities. We're delivering non-GAAP operating margin expansion, while increasing our already significant investments focused on expanding operational efficiency and capitalizing on continuing revenue growth momentum. Finally, we are sustaining strong financial discipline, delivering better-than-expected working capital performance amid substantial acceleration in revenue growth and tightening supply chain conditions. Please advance to Slide 5. Fiscal second quarter revenue of $1.164 billion exceeded our guidance range, representing our fifth consecutive quarter of sequential revenue growth and a robust 19% year-over-year increase. While growth was strong throughout all of our market sectors, we experienced specific strength in aerospace and defense as a result of increasing demand for our industry-leading solutions and support of disruptive technologies and in semi-cap, where our ongoing share gains are amplifying surging market demand. Non-GAAP EPS of $2.05 exceeded guidance. We delivered a robust 6% non-GAAP operating margin, while continuing to heavily invest in program ramps, operational efficiency initiatives and technologies. Please advance to Slide 6. For the fiscal second quarter, we secured 30 new manufacturing programs with a record $355 million in annualized revenue when fully ramped into production. All market sectors contributed to this tremendous performance, which included broad-based opportunities in aerospace and defense, expanded relationships and share gains in surgical and imaging platforms and new engagement in data center power solutions and continued share gains in semiconductor capital equipment. Through expanded business development efforts, synergies with our engineering solutions and sustaining services and our focus on providing unmatched quality and delivery, we are also seeing an increasing breadth of customer interest for our industry-leading solutions. As a result, for the second fiscal quarter, our funnel of qualified manufacturing opportunities expanded sequentially and year-over-year. We produced particularly notable growth in our industrial market sector, where we are generating significant interest in automation and robotics, data center and energy solutions and our aerospace and defense market sector. Please advance to Slide 7. At Plexus, we are committed to advancing sustainability through our value of innovating responsibly as we boldly drive positive change and promote a sustainable future for and through our people, our solutions and our operations, all of which is built on a foundation of trust and transparency. Critical to our success is our people who are at the heart of who we are and what we do. Our second fiscal quarter was particularly memorable as we celebrated 2 major organizational milestones. First, I was honored to join members of our Plexus leadership team at NASDAQ's market site in Times Square to ring the closing bell in celebration of our 40th anniversary as a publicly listed NASDAQ company. This significant accomplishment was a celebration of the trust we've created with our customers and the unwavering dedication of our people. Additionally, our Kelso, Scotland site celebrated its 25th anniversary. Since opening in 2001, the Kelso team has evolved from printed circuit board assembly to manufacturing complex life-impacting products, an evolution made possible by our team members, many of whom have been with us since day 1. Our commitment to delivering excellence and innovating responsibly also continues to earn external recognition. We are proud to be named a finalist for the 2026 Manufacturing Leadership Awards in 2 categories: AI vision and strategy and sustainability in the circular economy. The awards will be presented in June by the Manufacturing Leadership Council, which is part of the National Association of Manufacturers. These awards highlight our emphasis on innovation and delivering a positive environmental impact as we help create the products that build a better world. Finally, we are excited to announce the upcoming release of our annual sustainability report during our fiscal third quarter. The fiscal 2025 report highlights our continued commitment to innovating responsibly as we've always been driven to do something more for our customers, our team members and the world. Please advance to Slide 8. For our fiscal third quarter, we are guiding revenue of $1.2 billion to $1.25 billion, representing 5% sequential and 20% year-over-year growth at the midpoint. We are guiding non-GAAP operating margin of 5.9% to 6.3% and non-GAAP EPS of $2.02 to $2.18. We believe we are outgrowing our end markets, many of which are seeing improving demand by leveraging new program ramps, market share gains and our support of disruptive technologies. As a result, we anticipate double-digit revenue growth in each of our market sectors in fiscal 2026 with particularly strong performance in aerospace and defense and industrial, led by significant growth in our semicap subsector. Accordingly, for fiscal 2026, we now expect to deliver mid-teens or greater revenue growth overall, a substantially increased forecast from our initial expectations last October. We anticipate delivering this revenue growth performance with robust profitability, anticipating a 6% or greater non-GAAP operating margin for fiscal 2026 and continued strong working capital efficiency. In closing, our consistent focus on redefining excellence through our unmatched quality and delivery is shaping our decision-making and sustaining our tremendous momentum. We are expanding and accelerating investments in technology, capabilities and our people to enable customer success, drive greater long-term operational efficiency and increase our revenue growth potential. These efforts will position us to sustain our momentum well beyond fiscal 2026. I'll now turn the call over to Oliver for additional analysis of the performance of our market sectors. Oliver? Oliver Mihm: Thank you, Todd. Good morning. I will begin with a review of the fiscal second quarter performance of each of our market sectors, our expectations for each sector for the fiscal third quarter and directional sector commentary for fiscal 2026. I will also review the annualized revenue contribution of our wins performance for each market sector and then provide an overview of our funnel of qualified manufacturing opportunities. Starting with our Aerospace and Defense sector on Slide 9. Revenue increased 19% sequentially in the fiscal second quarter, significantly outperforming our expectation of a mid-single-digit increase. Improved end market demand across all subsectors and our team's efforts to expand component availability drove the result. For the fiscal third quarter, we expect revenue for the aerospace and defense sector to be up mid-single digits as we see programs scaling up in our space and defense subsectors. Our fiscal second quarter wins for the aerospace and defense sector were $44 million. Our Kelso, Scotland site won a follow-on share gain award from an existing customer in the defense subsector. The customer noted the strength of our partnership and the operational excellence as factors in their decision. Relationship strength and operational excellence were also factors in a significant follow-on award from an existing unmanned defense customer. This product is built in our Boise, Idaho facility. We anticipate fiscal 2026 revenue growth for the aerospace and defense sector to exceed our 9% to 12% goal with growth expected to be well into the double digits. The sector's growth continues to gain momentum, supported by new and existing customers with strong demand growth in the commercial aerospace and space subsectors and exceptional growth in the defense subsector. Please advance to Slide 10. Fiscal second quarter revenue in our Healthcare/Life Sciences market sector was up 1% sequentially, aligned to our expectation of flat to up low single-digit performance. For the fiscal third quarter, we expect the Healthcare/Life Sciences market sector to be flat ahead of an anticipated return to sequential revenue growth in our fiscal fourth quarter. Our fiscal second quarter wins were strong at $116 million. Our team in Xiamen, China won a next-generation point-of-care ultrasound system due to the strength of our new product launch capabilities. Our seamless engineering to production transition capabilities also contributed to a significant award for our Neenah, Wisconsin facility. The products support a robotic surgical platform. We continue to have a robust fiscal 2026 outlook for the Healthcare/Life Sciences sector, anticipating revenue growth to exceed our 9% to 12% goal, supported by contributions from ongoing and new program ramps, share gains and strong end market demand across our therapeutics and monitoring subsectors. Advancing to the industrial sector on Slide 11, fiscal second quarter revenue was up 12% sequentially, in line with our forecast. Our industrial sector fiscal third quarter outlook of a low double-digit increase is supported by substantial growth within the semicap subsector and strength in the industrial equipment subsector from new program ramps and strengthening demand. The industrial market sector had record high wins of $195 million for the fiscal second quarter. Wins included a substantial award from an existing customer that is launching a new product line for data center power solutions. Our long-term strategic partnership and strength of value proposition contributed to the win. The product will be built in our Bangkok, Thailand facility. We also won a substantial follow-on award from an existing robotics customer. A strength of execution and ability to quickly ramp to fulfill their demand supported the win. This product is assembled in our Guadalajara, Mexico campus. Our Guadalajara, Mexico campus is also welcoming a new customer to Plexus as we are selected to support production of an energy storage system for electric commercial vehicles. Our outlook for the industrial sector for fiscal 2026 continues to gain momentum. We are now anticipating growth well in excess of our 9% to 12% growth goal. Our growth outlook is supported by new program ramps and robust growth that's in excess of market for our semicap subsector and demand improvement and program ramps offsetting pockets of demand softness within other subsectors. Please advance to Slide 12 for a review of our funnel of qualified manufacturing opportunities. In recognition of Plexus' industry-leading capabilities and focus on building partnerships, our customers are providing increasing opportunities to capture share and new program wins. As evidence, our funnel of qualified manufacturing opportunities expanded 11% sequentially in the fiscal second quarter and is now $4 billion. This expansion is due in part to record high funnels in our aerospace and defense sector and our industrial sector. The funnel in those 2 sectors has expanded in excess of 45% as compared to the fiscal second quarter of 2025. In summary, the revenue growth we are experiencing from ongoing and new program ramps, inclusive of share gains and improving end market demand support our revised outlook for Plexus to now deliver mid-teens or greater fiscal 2026 revenue growth. Before I turn the call over to Pat, I'd also like to wish Pat well in his retirement. You've been an incredible partner and done a lot in support of the success of Plexus and the incredible journey that we are on. Congratulations. Now over to you. Pat? Patrick Jermain: Thank you, Oliver, and good morning, everyone. Our fiscal second quarter results are summarized on Slide 13. Gross margin at 10.2% was at the top end of our guidance due to a favorable mix of service offerings and fixed cost leverage. In addition, productivity improvements associated with ongoing operational efficiency initiatives helped to offset the impact from our typical seasonal compensation cost increases. Selling and administrative expense of $57.3 million was slightly above our guidance due to additional incentive compensation expense driven by our robust revenue growth and strong ROIC performance. In addition, we expanded our technology and automation investments in support of future efficiencies and sustaining revenue growth momentum. The result was a non-GAAP operating margin of 6%, which was at the top end of our guidance. Non-operating expense of $4 million was favorable to expectations due to foreign exchange gains and lower-than-anticipated interest expense. Non-GAAP diluted EPS of $2.05 exceeded the top end of our guidance due to the items mentioned and a favorable tax rate. Turning to our cash flow and balance sheet on Slide 14. For the fiscal second quarter, we delivered $28.5 million in cash from operations and spent $12.5 million on capital expenditures, generating $16 million of free cash flow, which exceeded our forecast of breakeven to a slight usage of cash. For the fiscal second quarter, we acquired approximately 109,000 shares of our stock for $20.6 million. At the end of the quarter, we had approximately $42 million remaining on the current repurchase authorization. Similar to last quarter, we ended the fiscal second quarter in a net cash position. We had $137 million outstanding under our revolving credit facility with over $350 million available to borrow. For the fiscal second quarter, we delivered a return on invested capital of 13.8%, which was 480 basis points above our weighted average cost of capital. Despite an increase in invested capital to support robust revenue growth, we continue to generate healthy ROIC given strong operational performance. Cash cycle at the end of the fiscal second quarter was 64 days, which was favorable to expectations and 5 days lower than last quarter. Please turn to Slide 15 for additional details regarding this positive result. Sequentially, days in receivables improved 3 days due to exceptional collection efforts by our team. Days in inventory sequentially improved 4 days from continued progress on working capital initiatives and increased revenue. Accounts payable days increased 3 days due to the timing of supplier payments and procuring inventory in anticipation of a significant revenue growth. Last, our days in advanced payments experienced a 6-day reduction with a net $15 million being returned to customers during the quarter. Before I hand the call to David, I'd like to make a few closing comments. It has been an absolute pleasure and honor to serve as CFO for Plexus under Todd's leadership and guided by our outstanding Board of Directors. I want to thank Todd, our Board and everyone at Plexus for your support and trust over the last 12 years. I especially want to thank our finance organization for maintaining the highest standards and integrity, something I'm confident will endure. The company is in great hands with David moving into the CFO role, and I know the transition will be seamless over the coming months. It has been a true privilege to be part of this fantastic organization. I will now turn the call over to David to discuss additional details regarding our fiscal third quarter expectations as well as some commentary regarding fiscal 2026. David? David Abuhl: Thank you, Pat, and good morning, everyone. Let me begin by offering my congratulations to Pat and wishing him all the best in this next chapter. I'm excited to step in and lead a tremendous team and carry on the legacy of a really strong finance organization. I'm also optimistic about Plexus's growth journey and confident that our consistent strategy will sustain our momentum as we help create the products that build a better world. Now let me turn to our guidance for the fiscal third quarter, summarized on Slide 16. As Todd has already provided the revenue and EPS guidance, I will review some additional details. Fiscal third quarter gross margin is expected to be in the range of 9.9% to 10.2%. At the midpoint, gross margin would be slightly below last quarter, impacted by the timing of program ramps, capability investments and ongoing higher incentive compensation given our robust revenue growth and strong financial returns. We anticipate ongoing productivity improvements and additional fixed cost leverage will serve as offsets. Our outlook for selling and administrative expense for the fiscal third quarter is in the range of $69 million to $70 million, including our typical stock-based compensation expense and additional stock-based compensation expense as a result of executive retirement. Excluding these expenses, we expect to gain leverage sequentially on higher revenue. Fiscal third quarter non-GAAP operating margin is expected to be in the range of 5.9% to 6.3%, exclusive of stock-based compensation expense. At the midpoint, this would demonstrate sequential improvement and good progress toward our goal of consistently delivering at or above a 6% non-GAAP operating margin. Non-operating expense is anticipated to be approximately $5.4 million in the fiscal third quarter, up sequentially primarily due to higher interest expense and foreign exchange comparisons. We are estimating a non-GAAP effective tax rate of between 16% and 18% for the fiscal third quarter and the same range for fiscal 2026, unchanged from our previous outlook for the year. Now turning to the balance sheet. For the fiscal third quarter, we are expecting higher investments in working capital to support the accelerating revenue growth outlook. We anticipate cash cycle days will be in the range of 67 to 71 days. As a result, we expect a usage of cash of free cash flow for the fiscal third quarter. In support of our accelerating revenue momentum, we are strategically increasing our working capital investments in fiscal 2026. Yet through our focus on working capital efficiency, we continue to expect to end the fiscal year with cash cycle days in the low 60s. We also continue to expect fiscal 2026 capital expenditures in the range of $100 million to $120 million. Our focus on operational efficiency is creating tangible benefits by generating higher throughput on existing production lines, which is deferring new equipment purchases while also increasing site revenue capacity. We are now forecasting fiscal 2026 free cash flow of $50 million to $75 million. Over the longer term, we remain confident that by leveraging our focus on working capital efficiency and our significant investments in operational efficiency, we will capitalize upon our substantial revenue growth opportunities and generate robust free cash flow. With that, Ben, let's now open the call for questions. Operator: [Operator Instructions]. Your first question comes from the line of Melissa Fairbanks with Raymond James. Melissa Dailey Fairbanks: Congratulations on the quarter. Of course, congratulations to Pat. We're going to miss you, but Dave, I look forward to working with you more in the future. I would be remiss if I didn't ask Pat about cash cycle days one more time. I know I'm a little bit focused on it. Dave, thanks for additional color looking into cash cycle days exiting the year. We're obviously seeing a really strong acceleration in growth in the near term. I know they're going to trend higher next quarter. It sounds like they're going to trend slightly lower exiting the year. Just wondering how to think about working capital investment longer term to support this level of growth, whether it's through CapEx, through new site investments or just working capital investments. Patrick Jermain: Yes, I can start and then maybe David can add on to it. I'd say 2 things, Melissa. I think from a days perspective, I think we're in a really good spot in this low to mid-60s going forward. I think that would carry into fiscal '27. I think the other thing to look at is with revenue growth, we're probably around 10% to 15% additional working capital dollars associated with any growth in revenue. I think that's a good barometer if you're looking at from a dollars perspective. From a days perspective, I think low to mid-60s is a good range for us. David Abuhl: Melissa, maybe I'd build the other part of your question was about investing in even capital in the long term. We just reconfirmed our $100 million to $120 million of capital investment Recently, in the last 6 months, our teams have actually improved the throughput of some of our assets by 10%, which has avoided in the neighborhood of $20 million of capital investments. We're able to grow revenue on a very similar capital base. Those types of efficiencies are not only happening in CapEx, but also there's the same type of efficiencies in our working capital environment as well. Hence, that gives us confidence in the long term. Melissa Dailey Fairbanks: Just one more question that's maybe for Oliver because he kind of touched on some of this in his commentary. I wanted to ask about some trends in industrial. We focus on semi cap and test equipment so much, but it sounds as though one of your customers, I think you do some energy storage solutions for them. They raised their full year outlook for this year, almost doubling the growth rate. In part, because of strength in power supply. I know you kind of touched on you've got some new wins in industrial for these types of applications. You've been winning in there for a long time. Just wondering how you're looking at some more near-term demand, assuming that some of these new wins are going to be longer term in scope. Oliver Mihm: Thanks, Melissa. Happy to talk about that. Yes. We are excited about our customers in the energy infrastructure space. We've talked about some wins there over the past few quarters. We also referencing back a few quarters ago, we talked about a specific regulatory compliance standard that we have for our Boise facility that enables us to do control systems for nuclear power. We think that gives us a bit of competitive differentiation, which enables some of this growth that we're seeing in this subsector. Yes. I would lead that through to saying our excitement there also extends into the adjacencies that we're seeing here relative to data centers. We talked about a win here this quarter specific to a power platform solution, but just the funnel that we have related to items in the data center, whether that's power management and storage, thermal cooling, thermal density, fluidics, really well aligned to our value proposition and capabilities. Then again, the energy distribution and infrastructure, we just talked about storage control systems, we're also seeing companies push AI out to what has been referred to as at the edge. On equipment, on devices, these are often ruggedized applications, and so the redesign to put that -- those solutions in place, the manufacturing and then the need to sustain those and service those, we view as being really well aligned to our capabilities and strength, and we have a very strong and active funnel in that space.. Operator: Your next question comes from the line of Ruben Roy with Stifel. Ruben Roy: Congratulations to all, but especially Pat, thanks for all the help, Pat. David, obviously, congratulations, too. Pat, before you go, maybe we'll start with you. Todd, in his prepared remarks, mentioned sustained momentum well beyond fiscal '26. I'm wondering if we can just maybe think a little bit about the operating margin structure of the company as you sort of line up a funnel of new wins, etc. It's probably premature and you're probably not going to give us a longer-term target above what above 6 means. Just in terms of some of the wins that are coming into the funnel, etc., maybe you could walk us through the puts and takes across the different segments on how we should think about that operating margin? I have a follow-up, which is sort of similar for Oliver after we talk about this a bit. Patrick Jermain: Sure. Yes, and I'll start if others want to join in. Ruben, the margin differential between market sectors is not that different nowadays with the markets we're serving. With the additional wins, there is some ramping costs that's involved. That's a little bit of a drag on our margins, but the fixed cost leverage we're gaining both on our fixed costs and SG&A definitely overrides that and provides that target of 6% or above. As we look to F '27, yes, we're not going to make any new commitments at this point, but seeing a consistency in that margin performance. Going back a few years ago, when we saw that consistency is when we started to think about what is that next target. I think we'll be in that position, but obviously not wanting to commit to anything at this point. I think there's definite opportunity with the fixed cost leverage, some of the services we're providing around sustaining services and engineering that carry higher margins. Then probably around the automation efforts, David talked about some of that with capital spending, the impact that has on margin is pretty pronounced. I think you'll see benefits there as well. Todd Kelsey: Yes. One of the things that I would add is with the -- what we would expect is improving or increasing margins as we continue to move out, and that's because of the leverage that we'll be gaining as well as the operational efficiency initiatives. We're probably not too far from establishing a new target. Pat's been working on it with David and the finance team, and we'll let David get comfortable in the chair for a couple of quarters perhaps before coming out with a new target here. Ruben Roy: If I pull that sort of discussion and maybe pull in working capital near term, Oliver, you called out some tightening supply chain conditions, and that's been a consistent sort of theme across a lot of calls so far in earnings season. Wondering if you could maybe give us a little more detail on what you're seeing around supply and whether or not that's acting as a little bit of a gating factor as you think about some of the program ramps embedded in your Q3 or fiscal year guidance here. Obviously, the raise is great to see, but what are the puts and takes against supply and sort of the demand improvement you're seeing across the end markets? Todd Kelsey: Yes. Maybe I'll start with this, Ruben, and Oliver can jump in and provide additional color. I think as we set our forecast, we certainly have taken into account the realities of the supply chain. I think I don't feel like we have undue risk as a result of supply chain within our forecast right now. Now there's certainly more upside that exists should things go in the right direction for us. The other thing that we're doing is we're working very proactively with our customers around, call it, the golden screws to make sure that we get supply for those tough to obtain parts. Oliver Mihm: Yes. More specifically there, the specific commodities that we are seeing allocation or tightening, Ruben, portions of semiconductor, portions of passives, memory, no surprise for anybody, raw PCB fabs, Behind that, lead times extending, but not allocation yet around extended lead times around high-performance passes, magnetics and some portions of microcontrollers. As Todd noted, a lot of proactive work here, asking our sourcing teams to identify risk early that enables a consultative engagement with our customers, asking them to extend forecast visibility, expand alternates, enable some advanced materials planning from our side, for instance, early PO placement, extended PO horizon. Then I would just generally say that the interconnection between those teams and the processes around that were well honed during the constrained market post-COVID, and so we're seeing that bring to bear today, including some AI tools that we had developed to help interrogate the open market and find supply for us. Operator: Your next question comes from the line of David Williams with Needham. David Williams: Pat, let me say congratulations, and we will certainly miss you very much. I hate to see you go. David, welcome, and I look forward to working with you. Maybe first on the capacity side, you've talked about that $100 million to $120 million this year. Just kind of curious, do you think that you can keep up some of the automation efforts and some of these efficiencies? Can you keep up with the type of demand that you're seeing in front of you? Or should we think maybe next year, you'll need some additional greenfield capacity expansion that you haven't considered or haven't thought in the past that you would need just given the strength of the demand? David Abuhl: Yes. Thanks, Dave. That's a good question. We're really pleased with the results our teams are delivering with those efficiencies and throughput we talked about. At this point, if we think about our capacity around the world, it's really well balanced. We think we can service well in excess of $5 billion in annualized revenue, but then as the growth continues, we're going to just going to continue to reassess how our sites are doing, where we might need to invest in capacity. At the moment, we're feeling pretty good about what we have. With the growth, it depends on the type of product and the location, but at the moment, we're sticking to that guidance, and we're going to continue to drive efficiency with our footprint. We have a lot of initiatives that are increasing the utilization within our current sites. That progress is going to continue. So far, so good, David, but we're constantly assessing the situation for sure. Oliver Mihm: One of the things I'd also note is with -- David, with our newer building deployments that we do, the way we put those into play enable us to add incremental capacity without substantial CapEx. That enables us to add some additional bricks-and-mortar footprint when we need to. David Abuhl: Yes, I thought that was an important point to add. David Williams: Then maybe secondly, just you talked about the exceptional strength of defense and the semicap. I guess in this environment, as we think about this demand, how much of this do you think is demand driven from the efforts you put in previously versus just the backdrop is so heavy in terms of that demand that you're just seeing more shifting to you. I guess I'm trying to ask how much is share gains because of your operational excellence versus what do you think just the market overall is being pushed towards you? Todd Kelsey: Yes. There's large components from both, David. We've got significant share gain in semiconductor capital equipment that's going on right now and continues even through this quarter. We also are gaining share within aerospace and defense on several of the subsectors with defense being a significant one, but those markets are good, too. We're getting a double benefit, I would say, in that we're taking share in a really strong market. We expect some excellent growth within those markets that far exceeds market growth. Operator: [Operator Instructions]. Your next question comes from the line of Steven Fox with Fox Advisors LLC. Steven Fox: First of all, Pat, thanks very much for all your help over the years. Always a pleasure to work with you. I guess, first of all, just maybe following up on that operating margin question. Can you give us a sense for how operating leverage is developing numerically? Obviously, not an exact number, but qualitatively from the sense you have some puts and takes in there. You're seeing margin expansion. How do we think about sort of the drop-through in this type of environment? Is it similar to what you've seen in prior up cycles? Or is there more investment going on that we should maybe consider a little less margin expansion? I was curious if you can provide more perspective there. Then I have a follow-up. David Abuhl: Yes, Steven, this is David. As we think through the leverage and drop-through, typically, we can see maybe a 10% to 12% drop-through on revenue growth. Obviously, as we're driving our efficiency initiatives, we can see not only that leverage, but also some drop-through of other improvements, but we're also investing in capabilities. For example, we've got the next generation of cybersecurity maturity models we're investing in to help us win new revenue, and so we need to balance what we're doing with the efficiency, whether it's dropping to the bottom line, but or enabling the next level of revenue growth. We're confident that we're going to see that leverage come through and it's fairly typical to what we've seen before, and we're in a great period of driving efficiency and balancing that with investment. So yes, that 10% to 12% drop-through is probably what you should keep in mind. Steven Fox: Then in terms of the aerospace market, you guys threw a lot at us just now? I know last quarter, you also had a huge amount of wins in that space. Can you give us a little more sense on sort of ranking the drivers here? How much is just some of these new markets like space really accelerating? How much is your own market share gains or new wins or new capabilities? There's a lot to unpack there. I was wondering if you could just sort of give us a sense for what's most important. Oliver Mihm: Yes. Steven, this is Oliver. I'll take that. If I break that sector down within -- and this is going to build a little bit on what Todd just talked about a second ago or a minute ago. Within defense and space, we see both the benefit of new program wins as well as end market demand driving the growth there. Within commercial aerospace, that's largely just organic growth. Then within commercial aerospace, I'll also note that similar to prior quarters, our message that we really haven't seen a significant pull-through of additional end market demand due to recovery at the primes and how they're doing the production, right, or the OEMs and how they're doing their production. We still have upside to bring to bear there as their production rates increase. Does that give you the insight you're looking for? Steven Fox: Pretty much. I mean just to follow up real quick, like the new programs that you won last quarter, I guess, can you talk about how that influences maybe the growth in coming quarters? When would we start to see it and whether it fits within all those buckets like you described? Or is there's something different going on that we should think about as an inflection? Oliver Mihm: Yes. Certainly, it fits within those buckets. I recognize the answer it depends, isn't going to be super helpful, Steven, but let me add some more words there. As we look at new program ramps, based on sectors, based on customers, we can get quite a bit of variation in terms of how long that we can hit that revenue rate. If we're starting from scratch, say, it's a new customer win, and we've got to ramp up the supply chain, potentially the customer, they have some end market regulatory work that they got to do if it's in, say, healthcare, life sciences, that can be a 6- to 8-quarter ramp for us to get into production and start hitting some volumes. We try to note in our comments this morning, if it's an existing customer, an add-on product or even with an existing customer, if it's a new product, you've got some supply chain work already there and our ability to ramp into production is faster. Shawn Harrison: Steve, it's Shawn. Just to get a bit more acute for you, some of the wins we had in aerospace and defense in our first fiscal quarter will contribute to the latter part of this fiscal year. Capacity is already coming online, and so that is a little bit of a help this year, but it's actually a greater contributor to fiscal 2027 and beyond. A lot of the growth we're seeing right now is based either upon programs or market share gains that we had over the course of the past couple of years. This sustains the momentum as Todd talked about into '27 and beyond. Operator: Your next question comes from the line of Anja Soderstrom with Sidoti. Anja Soderstrom: Congratulations on the great quarter and guidance and on the retirement path and appointment, David. Looking forward to be working with you. A lot of my questions have been addressed already. In terms of -- I just want to check with the Malaysia facility. You mentioned last quarter that you expected that to break even in terms of margins in the second quarter. How is that tracking? Todd Kelsey: It was a little bit behind breakeven this past quarter and the reason being that the revenue is actually ramping faster there. We're making additional investments early on, but we're still on track to exit the fiscal year with having strong profitability. Anja Soderstrom: Then just with the targets that you set for the Healthcare and Life Sciences for the full-year and the third quarter, how should we think about the growth there going forward? It seems like that's going to be slowing down a bit or coming down. Oliver Mihm: Yes. I would say that we see -- I talked about the sequential growth we're looking at in Q4. We also talked about the wins here this quarter, historical wins from F '25, quite strong, which will help to create some sustained growth as we look to F '27. Anja Soderstrom: Just one last question on the competitive environment. Have you seen any sort of changes there at all in the... Oliver Mihm: Yes. I'm reflecting, Anja. I don't think we've seen any significant changes from the competitive environment. In fact, we have noted that in this past quarter, the number of large opportunities that we've won had a slight uptick, which we view as positive both for how we're conveying ourselves in the marketplace and our ability to differentiate. Operator: There are no further questions at this time. I will now turn the call back to Todd Kelsey for closing remarks. Todd, please go ahead. Todd Kelsey: Thank you, Ben. I'd like to thank our shareholders, investors, analysts and our Plexus team members who joined the call this morning. In closing, we're generating significant momentum, and I anticipate that fiscal 2026 will be a great year for Plexus and set us up for a strong fiscal 2027. Thank you again to our team members, our customers and our shareholders. Have a great day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day and thank you for standing by. Welcome to Kirby Corporation 2026 First Quarter Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Matt Kerin. Please go ahead. Matthew Kerin: Good morning and thank you for joining the Kirby Corporation 2026 First Quarter Earnings Call. With me today are David Grzebinski, Kirby's Chief Executive Officer; Christian O'Neil, Kirby's President and Chief Operating Officer; and Raj Kumar, Kirby's Executive Vice President and Chief Financial Officer. A slide presentation for today's conference call as well as the earnings release, which was issued earlier today, can be found on our website. During this conference call, we may refer to certain non-GAAP or adjusted financial measures. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings press release and are also available in our website in the Investor Relations section under Financials. As a reminder, statements contained in this conference call with respect to the future are forward-looking statements. These statements reflect management's reasonable judgment with respect to future events. Forward-looking statements involve risks and uncertainties, and our actual results could differ materially from those anticipated as a result of various factors. A list of these risk factors can be found in Kirby's latest Form 10-K filing and in our other filings made with the SEC from time to time. I will now turn the call over to David. David W. Grzebinski: Thank you, Matt, and good morning, everyone. Earlier today, we announced first quarter earnings per share of $1.50, a 13% year-over-year increase compared to 2025's first quarter earnings per share of $1.33. Our first quarter results reflected improving market fundamentals in marine transportation with utilization and pricing strengthening as the quarter progressed, alongside continued strength in underlying demand for Power Generation in Distribution and Services. While results were partially impacted by weather-related disruptions and navigational delays in our inland marine transportation operations and ongoing OEM-related supply constraints in Distribution and Services, underlying demand conditions remained strong across both segments. Overall, our combined businesses executed well and generated positive momentum entering into the second quarter. In inland marine, market fundamentals improved throughout the quarter as customer demand strengthened, refinery utilization increased and barge availability remained limited. As expected, operations were impacted by typical seasonal weather, lock delays and other navigational disruptions. However, market conditions became increasingly constructive with barge utilization strengthening as the quarter progressed and averaged in the low 90% range for the full quarter. Spot pricing improved in the low single digits sequentially. Term contract renewals were flat to slightly up year-over-year and pricing momentum continued to build during the quarter. Overall, the inland business delivered strong operating margins in the high-teens range for the quarter, driven by improved pricing and disciplined execution. Entering the second quarter, demand visibility has continued to improve, supported by strong refinery utilization and improving conditions across petrochemical markets, contributing to strong utilization and improved pricing. Coastal marine transportation fundamentals remained strong throughout the first quarter with barge utilization averaging in the mid-to-high 90% range, which was supported by steady customer demand and limited supply of large capacity vessels. This favorable supply-demand dynamic continued to drive pricing gains with term contract renewal rates rising in the 20% range year-over-year. Our team delivered strong operational execution and maintained a disciplined focus on cost and efficiency, and this resulted in operating margins in the high teens range. Turning to the Distribution and Services segment results reflected mixed conditions across our end markets with Power Generation remaining a key growth driver. Segment revenues increased 12% year-over-year, but declined sequentially due to OEM engine availability and continued softness in conventional Oil and Gas activity. Operating income increased modestly year-over-year, though declined sequentially as margin performance varied across our businesses. In Power Generation, revenues grew 45% year-over-year from solid backlog execution and significant demand for behind-the-meter power solutions. However, revenues declined sequentially as OEM engine deliveries were lower in the quarter. Operating income increased year-over-year with margins remaining in the mid-single-digit range. In Commercial and Industrial, revenues increased 8% sequentially and operating margins were in the high single-digit range, supported by strong marine repair activity and disciplined execution. In Oil and Gas, revenues improved 13% sequentially, though results continue to be pressured by softness in conventional oil and gas markets and resulted in margins in the mid-single-digit range. Overall, the segment remains well positioned with steady execution across a diverse portfolio of end markets. In summary, Kirby continues to operate from a position of strength. Marine transportation fundamentals remain constructive with high utilization and improved pricing across both inland and coastal markets. In Distribution and Services, strong activity in Power Generation and Commercial and Industrial markets continued to offset softness in our conventional Oil and Gas business. With this backdrop, combined with solid execution and ongoing cost discipline, we announced in this morning's press release that we are increasing our EPS guidance range for the year to up 5% to up 15%, which is up from flat to up 12% previously. I will discuss our outlook in more detail on the call. But first, I will turn it over to Raj to discuss the first quarter segment results, balance sheet and capital allocation in more detail. Raj Kumar: Thank you, David, and good morning, everyone. In the first quarter of 2026, Marine Transportation segment revenues were $497.2 million and operating income was $89.7 million with an operating margin of 18%. Compared to the first quarter of 2025, total marine transportation revenues increased $21 million or 4% and operating income increased $3 million or 4%. When compared to the fourth quarter of 2025, total marine revenues increased 3% and operating income decreased 11%. As David mentioned, typical seasonal winter weather produced a 25% sequential increase in delay days and negatively impacted operations and efficiency in the first quarter. Looking at the Inland business in more detail. The Inland business contributed approximately 79% of segment revenue. Average barge utilization was in the low 90% range for the quarter, which was an improvement over the fourth quarter of 2025 and in line with the first quarter of 2025. Long-term inland marine transportation contracts or those contracts with a term of one year or longer contributed approximately 65% of revenue, with 56% from time charters and 44% from contracts of affreightment. Improved market conditions resulted in spot market rates moving up in the low single digits sequentially but were down in the mid-single-digit range from a year ago. Our term contracts that renewed during the first quarter were flat to slightly up. Compared to the first quarter of 2025, inland revenues were flat but increased 4% compared to the fourth quarter of 2025 due to improved market conditions. Inland operating margins were in the high-teens range. Now moving to the Coastal business. Coastal revenues increased 23% year-over-year, driven by strong customer demand and limited availability of large capacity equipment. Overall, Coastal had an operating margin in the high-teens range, benefiting from higher pricing and effective cost management. The coastal business represented 21% of revenues for the Marine Transportation segment. Average coastal barge utilization was in the mid-to-high 90% range, which was in line with both the first quarter of 2025 and the fourth quarter of 2025. During the quarter, the percentage of coastal revenue under term contracts was approximately 92%. Renewals of term contracts were on average approximately 20% higher year-over-year. With respect to our tank barge fleet for both the inland and coastal businesses, we have provided a reconciliation of the changes in the first quarter as well as projections for the full year. This is included in our earnings call presentation posted on our website. At the end of the first quarter, the inland fleet had 1,124 barges, representing 25.1 million barrels of capacity and is expected to be slightly up in 2026. Coastal Marine is expected to remain unchanged from the first quarter of 2026. Now I will review the performance of the Distribution and Services segment. Revenues for the first quarter of 2026 were $347 million with operating income of $23.3 million and an operating margin of 6.7%. Compared to the first quarter of 2025, the Distribution and Services segment revenue increased by $37.4 million or 12%, with operating income increasing by approximately $1 million or 3%. This growth was primarily driven by Power Generation and strong marine repair activity. When compared to the fourth quarter of 2025, revenues decreased by $23.2 million or 6% and operating income decreased by $7 million or 22% as a result of lower power generation shipments due to OEM engine availability, weakness from on-highway repair and continued softness in the conventional frac market. Moving through the segment in more detail. In Power Generation, we continue to see meaningful order activity for the behind-the-meter prime power and backup power solutions for data centers and other industrial applications. This has resulted in continued growth in our backlog. However, engine availability from OEMs is limiting how quickly some of that demand converts to revenue. Overall, total Power Generation revenues were up 45% year-over-year with operating margins in the mid-single digits. Power generation represented 44% of total segment revenues. On the Commercial and Industrial side, activity was strong in marine repair. And as a result, commercial and industrial revenues increased 1% year-over-year and 8% sequentially. Commercial and industrial made up 46% of segment revenues and had operating margins in the high single digits. In the Oil and Gas market, we continue to see softness in conventional frac-related equipment as lower rig counts and fracking activity softened demand for new engines, transmissions, service and parts throughout the quarter. Revenue in oil and gas was down 25% year-over-year, but increased 13% sequentially, while operating income was down 53% year-over-year and down 28% sequentially. Oil and Gas had operating margins in the mid-single digits in the first quarter and represented 10% of segment revenue. I will now move to the balance sheet. As of quarter end, we had $58 million of cash with total debt of $983.4 million, and our debt to capitalization ratio was 22.3%. We ended the first quarter with $635.4 million of available liquidity. During the first quarter, we entered into an amended and restated credit agreement that extended the facility maturity date to March 26, 2031, and increased the revolving credit facility commitments to $750 million, and eliminated the term loan credit facility. During the quarter, net cash provided by operating activities was $97.7 million and capital expenditures were $48.3 million, resulting in free cash flow of $49.4 million. In the first quarter of 2026, Kirby returned $52.7 million of capital to shareholders through share repurchase at an average price of $123.18. We continue to execute on our focused and disciplined acquisition strategy by agreeing to acquire 23 barges and three high horsepower boats from an undisclosed seller in the Inland Marine business for $95.8 million, of which $81.4 million was paid during the first quarter. With respect to CapEx, we continue to expect capital spending to range between $220 million and $260 million for the year. Approximately $170 million to $210 million is associated with marine maintenance capital and improvements to existing inland and coastal marine equipment and for facility improvements. Approximately $65 million is associated with growth capital spending in both our businesses. We remain on track to generate cash flow from operations of $575 million to $675 million for the year, resulting in expectations for another year of very strong free cash flow generation. As always, we remain committed to a balanced capital allocation approach using free cash flow to return capital to shareholders while pursuing long-term value-creating investment and acquisition opportunities. I will now turn the call back to David to discuss our full 2026 outlook. David W. Grzebinski: Thank you, Raj. We are off to a solid start in 2026. Global macro and geopolitical developments, including the Iran conflict, the Venezuelan oil situation and the broader geopolitical uncertainty continue to create near-term variability. That said, the current conditions are proving somewhat supportive for our operations. In Inland Marine, we anticipate positive market dynamics driven by limited new barge construction and strong demand from refining and petrochemical customers. Barge utilization is expected to be in the low 90% range as we move through the year. This is supported by strong -- strong refinery utilization and improving chemicals activity. However, we do expect near-term cost headwinds in our inland marine operations during the second quarter due to rising fuel, particularly diesel costs. We currently expect the cost escalators and rate recovery mechanisms in our contracts will lag the near-term fuel cost increases during the second quarter, but will ultimately be realized in the following quarters in the second half. As most of you are aware, there is generally a 30- to 120-day delay or lag before term contracts adjust for fuel. We anticipate this timing issue could result in approximately $0.05 to $0.10 of earnings per share impact in the second quarter. Overall, we expect inland revenues to grow in the low to mid-single digits on a year-over-year basis with margins averaging in the high-teens to low 20% range for the full year. In Coastal Marine, market conditions remain favorable with balanced supply and demand across the fleet. Steady customer demand is expected to continue through the balance of the year with barge utilization in the mid-90% range. While we anticipate elevated shipyard activity in the second quarter, we continue to expect mid-single-digit revenue growth year-over-year and operating margins in the high-teens, driven by gradual pricing improvements as term contracts renew. In Distribution and Services segment, ongoing demand in power gen and marine repair activity is expected to help offset softness in on-highway service and repair and low levels of Oil and Gas activity with results remaining mixed overall. In Power gen, underlying demand fundamentals remain strong. Results, however, continue to be impacted by engine availability. Delayed OEM engine deliveries continue to contribute to variability. And as a result, we expect approximately $0.10 to $0.15 of earnings per share impact in the second quarter as certain projects shift into the second half of the year due to delayed engine deliveries from OEMs. As we have discussed in the past, engine availability rather than end market demand continues to be the primary constraint in this business. Within Commercial and Industrial, marine repair demand remains healthy, while on-highway service and repair demand continues to be constrained. In Oil and Gas, results continue to be pressured by lower overall activity as the shift away from conventional frac continues and customers maintain a disciplined approach to capital spend. However, the current Oil and Gas ecosystem may become a potential upside if it persists much longer. Overall, the Distribution and Services segment continues to benefit from its diversified end market exposure and in particular, the power gen ecosystem. Overall, the company expects segment revenues to be flat to slightly up for the full year with operating margins in the mid-to-high single digits. To conclude, we're off to a solid start in 2026 and have a favorable outlook for the remainder of the year. With a strong balance sheet and solid free cash flow, we continue to allocate capital in a disciplined manner, balancing share repurchases with opportunistic investments and acquisitions. Overall, we expect solid financial performance this year as is reflected in our decision to increase full year EPS guidance, and we see supportive fundamentals driving continued earnings growth beyond 2026 and well into '27 and '28. Operator, this concludes our prepared remarks. Christian, Raj and I are now prepared to take questions. Operator: [Operator Instructions] Our first question comes from the line of Greg Lewis from BTIG. Gregory Lewis: Congrats on a good quarter. Question around the inland barge business. Clearly, it seems like things are strengthening. Like I guess what I'm kind of curious about is what is kind of driving that incremental tightness? Is it those -- it looks like Venezuelan barrels are up over the last couple of months. Crack spreads are obviously higher, so refiners are making more money. Is it -- are we seeing actual incremental volumes? Or is it just everybody else is making more money? David W. Grzebinski: Yes. Greg, thanks for the question. Yes. No, throughout the quarter, we started January kind of a continuation of what we were seeing in the fourth quarter. the Venezuelan crude was starting to come in. We started to see that as a positive impact. So we started in January pretty strong. And then crack spreads started to gap out and refinery volumes just got really tight. So it built throughout the quarter. And so it's actually more volumes moving. Also, we're very pleased to see some more chemical activity. Some of the chemical companies' supply chains were disrupted in the Middle East, and there's more volumes moving here in the U.S. because of that. It's been very constructive. We were happy to see it. And the good news is it's continued. We're seeing momentum actually build a little bit right now. Gregory Lewis: Okay. Great. And then I did have a question, and you kind of called it out about engine availability to kind of keep driving the power gen market higher. Is there any kind of way to think about like Kirby's or KDS' visibility around, like what kind of lead times do you get from the OEMs about engine availability? Is it yes, I'm just trying to understand like clearly, we've raised guidance. We're confident we're going to be getting them. But I'm just kind of curious about that visibility around being able to get engines and turn around and put them in customer hands. David W. Grzebinski: Yes. We have good visibility through '27. And I would tell you, in certain OEMs we're sold out through '27. So we have a good idea. A lot of it's in the backlog. Some of it we know we've got sales for. The good news here is the engine OEMs are flat out. They're running hard. They're all trying to increase capacity. They're sold out to '29, most of them. So we feel really good about our allocation. We're considered one of the premier system integrators out there, and we continue to get good allocation. It's just really tight. And that's the good news. They're very tight. Everybody wants the engines. The fun thing for us is it's not just standby diesel applications anymore. It's behind-the-meter. And we love the behind-the-meter stuff. It's more sophisticated. It's highly engineered. We have a great offering in it. We stemmed. It started really with our e-frac offering, but we have a good set of engineering capabilities in behind-the-meter 24/7 power. And the great thing about that is it's going to run -- the equipment is going to run is going to have a repair and parts replacement cycle that's going to come in the outer years. So it's all about good demand that's shifting engine deliveries, and we see that lasting for quite some time. These behind-the-meter contracts that some of our customers are having, some of them go for seven to, in one case, we know of a 15-year contract. So the co-locators and hyperscalers are not using behind-the-meter power as bridging anymore. This is becoming prime. So we're pretty excited about the way it looks. And when we look at our backlog, behind-the-meter is now eclipsing just standby diesel generation. Gregory Lewis: Which means a lot more service. Raj Kumar: I was just going to add, Greg, with the behind-the-meter, as we've always talked about it, the margins are better than the backup stuff, right? And David referenced the service revenue, that's going to be even better margins. Gregory Lewis: And Raj, I mean, not to paint you in a corner, but any kind of sense you can disclose about -- I mean, when we say better, is it single basis points or tens of basis points? Raj Kumar: So it's -- this is how I'll describe it. On the behind-the-meter on the prime side, you're probably looking at low double-digit margins. And when I talked about the service revenue, that's -- you're looking at about a couple of years out, that's probably going to be north of that. Operator: Our next question comes from the line of Ben Mohr from Citi. Benjamin Mohr Mok: Congrats on the great results and also the raise. Just wanted to piggyback on Greg's first question there, looking at the drivers from crack spread widening, petchem exports, Venezuela heavy crude imports that you mentioned and possibly the Valero fire, bypass moves. Just wanted to get a sense of those contributors. Can you tell us how is it that you're able to raise your EPS target range but maintain your revenue and margin targets? And maybe talk to some of those contributors on what's driving the guide raise, but maintaining the revenue and margin. David W. Grzebinski: Yes. I mean the revenue and margin -- Ben, thanks for the question. The revenue and margin guidance is a range, and this just moved it up to the higher end of that range, in my opinion. We'll see. The good thing about pricing on the inland side is it does fall through the bottom line. So the margin side is where we'll see it. Anyway, I think the more important thing on the inland is the supply and demand dynamic. I'm going to let Christian give you some color there because that's really what's driving this, the raise and also it portends really well for '27 and '28. Christian, why don't you give them some color on supply and demand? Christian O'Neil: Yes, you bet. Thank you, David. Yes, what we see right now is a tremendous amount of momentum that started building in March. We've already referred to the conflict in the Middle East and what that's done to crack spreads and to an awakening in petrochemical margins and activity. Beyond that, the supply side is still in great shape. There were only 66 barges built last year. It's an inexact science. We think maybe 70 on the books for this year. That's replacement capacity. We don't see anybody measurably growing the fleet. And some of that building is for a shipper, their own internal moves, and they're going to retire some older equipment. So we feel really good about the supply setup. Barges are still very expensive. It's still $4.5 million to build a typical plain vanilla clean 30,000-barrel tank barge. We see capital discipline in the market. And so supply is in a great spot. Beyond the petchem momentum and the refining margins, we see some other nuanced things like on the horizon, the Calcasieu lock will shut down daytime hours only in May. And that's going to be another tailwind for us. That will unfortunately cause some congestion on the Intercoastal Canal, but that is the most highest traffic lock in the inland waterway system, and we'll add a day transit either East or West when that goes down. So it's a very constructive setup for inland as well as coastal, and we're feeling really good about the momentum we have right now. Benjamin Mohr Mok: That sounds great. And you mentioned that it portends well for '27, '28. And maybe if I could just ask where could you see your inland and coastal roughly 20% margins and your power gen roughly 5% to 10% margins. Where could they go in a strong market? David W. Grzebinski: Yes. Look, last really up cycle before people started building, we got to, I'd say, 27% margins for a quarter or so. I think it will be slow and steady. We won't pop there next year. It will take a couple of years, but I certainly believe that we'll go above the last cycle peaks margin on the inland side. I think on the coastal side, it probably won't get that high. The cost structure is a little different, but it certainly can move into the mid-20s in terms of margin. As Christian referenced, there's just no building. It doesn't make sense to build right now. The cost of new barges and the cost of new boats is very expensive. Rates need to be -- if you have good capital discipline, rates need to be a good 40% above where they are right now to justify new builds. So we look at a slow and steady ramp into '27 and '28. It's hard to predict exactly when we'll get to peak margins. I would just add, in the last couple of years, we had a maintenance bubble. These barges have a 5-year maintenance cycle. So starting at the end of '27, the beginning of '28, we're going to have another maintenance cycle. So things could get pretty sporty in '28. We'll see. On the power gen margins, as Raj talked a little bit about, behind-the-meter power systems have a higher margin than just standby diesel. So I'd like to see our KDS business get to high single digits and ultimately into the low double digits. But that's going to take some time. It is very mix sensitive. As you've seen, our margins were down a little bit sequentially because of mix. But it should be building. And then when you get to out years, as Raj said, there's the service component that's going to start kicking in. These behind-the-meter running 24/7 engines, they're going to need serious maintenance after about 3, 4 years of running heavy. So that's a long-winded answer, Ben. I hope it gives you some color. Benjamin Mohr Mok: Really appreciate that. Long-winded is always great. Maybe if I can squeeze one last one in. Last quarter, you gave that your power gen backlog grew 30% year-over-year. And then you guided to power gen revenue growing 10% to 20% with the bottleneck coming from the OEMs. Could you give us an update on that? Any changes up or down on both those numbers, the 30% backlog growth and the 10% to 20% revenue guide? David W. Grzebinski: Yes. I think I gave -- I mentioned backlog. We don't want to get into the backlog announcing backlog every quarter, but I gave a range you could drive a truck through, I said $500 million to $1 billion backlog. We may have to update that because we're going to go at the top end of that range, but we're not just ready to do that just yet. But it continues to grow is what I would say. Book-to-bill is well above 1. Things look really positive in the space. Operator: Our next question comes from the line of Ken Hoexter from Bank of America. Adam Roszkowski on for Ken Hoexter. Adam Roszkowski: Adam Roszkowski on for Ken Hoexter. I guess to start, maybe just remind us what portion of the inland book is going to reprice in 2Q, 3Q, 4Q? And anything that you're seeing on early renewals, so flat to slightly up, trending better? Any thoughts there? David W. Grzebinski: Yes. Sure, Adam. Christian and I'll tag team this a bit. As we've indicated in the past, term renewals are very fourth quarter heavy. About 40% of the term portfolio reprices in the fourth quarter. Just to give you some quick numbers, term contracts are about 65% of our revenue right now with the other spot. Christian, do you want to talk some more about the pricing dynamic and how term and spot roll? Christian O'Neil: Yes. You asked about what the flow is through Q2 and Q3. Excuse as far as renewals. David W. Grzebinski: Christian got choked up. You choked them up. So sorry, he's got a frog in his throat. Yes, the term contracts, as I said, 40% in the fourth quarter. So the remaining 60% kind of gets spread between the other three quarters. As you would expect, the third quarter is probably heavier than the first and second quarter. In our prepared remarks, we said the term pricing so far was flat to up just slightly. The good news is that spot pricing is a good 10% above term pricing, maybe even more. And that's a healthy market when the spot usually leads term, both on the way up and on the way down. So we're very constructive about how term contracts should renew throughout the remainder of the year. But the fourth quarter is the bigger piece. I think Christian has got his voice back. Anything you want to add? Christian O'Neil: No, I think you covered it. Adam Roszkowski: Glad to have you back, Christian. Maybe just on the recent strength, you mentioned improved conditions in petrochem markets, stronger refinery utilization. Clearly, you called out a Venezuela kind of incremental impact. It sounds like some Middle Eastern activity or flow-through is favoring this as well. So is there any sense of what is being driven by which or how much is being driven maybe by incremental Venezuela impacts or Middle Eastern activity? Any broad thoughts there? Christian O'Neil: It's hard to exactly kind of put a number on it. I will say we do see moves that we know of from refineries that are chomping through a lot of Venezuelan crude, creating more intermediates and more heavies. We have seen some refiners term up some equipment that has thermal capability, the ability to move the heavier residual barrel. So we definitely have seen the impact, but it's hard to sort of peg the exact amount of crude oil that's going through -- Venezuelan crude oil that's going through any refinery on any given day. So it's just sort of more of a nuance. We see more volumes. We see more intermediates, we see more heavies. A couple of other interesting demand anecdotes. With the release of the SPR and the Venezuelan crude coming into the Gulf of Mexico, we have seen the traditional crude pipeline capacity that moves crude around the Gulf of Mexico get sort of overwhelmed. So we have seen incremental crude oil barge movements as a result of the pipeline capacity being oversubscribed at this point. Probably not something that goes on in perpetuity, but just thought I would mention it as an interesting demand driver that's sort of tied to Venezuelan crude in your question. David W. Grzebinski: Yes. I mean shale crude, if you look at WTI, Brent, the spread has opened back up. And generally, when that -- when the spread between WTI and Brent starts to gap out, we start to see some incremental U.S. crude moves. So we watch that. I mean if you're looking for crude moves for us on the inland waterways, just look at that spread and you can pretty much get a feel for where -- what direction it's headed. Adam Roszkowski: That's helpful. And just one last follow-up. Jones Act waiver was recently extended for another 90 days. It seems like this isn't impacting fundamentals in a major way or at all at this time. But just any thoughts on near or medium-term impacts if this is extended further? David W. Grzebinski: Yes. I mean the near-term impacts are almost nonexistent, as you would expect, Adam, on the inland side, there's really no foreign tonnage that can come into the inland waterways. So we feel pretty good about that. And as you know, inland is about 80% of our Marine segment. The blue water side is a little different. MR tankers and foreign tonnage can come in and trade. And we have seen it come in a bit. But as you know, we're booked up. Our fleet is essentially 100% contracted on the blue water side. Those contracts run about a year. If waivers go beyond that, we could start to see some impact. We have seen a number of non-Jones Act moves in the market. I would characterize -- well, let me back up. We know what the administration is trying to do. They're trying to deal with the war. They're worried about national security and military readiness and getting fuel where it needs to be to support their efforts, and we're all for that. But I would say the blanket waivers that are out there, we'd rather see it be a specific waiver. So we have seen some Jones Act moves that I would call arbitrage related where traders are making some money rather than actually serving military readiness. So we watch it. We're not concerned about it if it's short term, but if it starts to extend past a year, it could have some impact. And I think Christian has some anecdotes about some mariners asking about it. Why don't you hear that? Christian O'Neil: Yes. No, I think the "elephant in the room", I know I personally have seen no impact on the price of gasoline or I fill up my car as a result of the waiver of the Jones Act. But I have 40 captains in today that I'm going to have lunch with and looking forward to that. I caught up with one this morning, had a cup of coffee. And unintended consequences, I'm sure, is the administration has been a strong advocate for the blue-collar worker, but this captain was worried about the Jones Act Waiver, was worried about his job, was worried about his son that wants to get into the industry. So these type of things can have a chilling effect on the merchant mariner, which is a real strength of this country and a chilling effect on our ability to recruit and retain. So I think the administration has good intentions, but we certainly don't want to do anything to disincentivize our hardworking merchant mariners. And there's units out there on the West Coast and some other places that have lost jobs to foreign flag tonnage. And I don't -- let's get back to targeted waivers, as David mentioned, if anything, rather than this blanket waiver. Sorry, I can get on a soapbox on this topic. I'm going to get off and get back to the call. Operator: Our next question comes from the line of Scott Group from Wolfe Research. Scott Group: So helpful color on spot. I just have a couple of follow-ups. So where is spot trending on a year-over-year basis? And that 10-point spread of spot over contract, I'm just curious, like where did that trough last -- middle of last year when things were challenging. When -- like when a couple of years ago, when things were really, really good in terms of pricing, where was that spread? I just want to put some context around this sort of double-digit spread. David W. Grzebinski: We'll try and give you some color here. Scott, 10% is a healthy gap above spot. I think when it really gets sporty, it's more like 10% to 15%. Obviously, when it's going down, spots below term. Last year, we -- as you know, we -- third and fourth quarter were a little tighter. And I would say that, that gap was more like 5% to 10%, maybe 7.5% on average, if I had to pick a number. But right now, we're at least 10% and probably growing a bit. And I think Christian can add some more color. Christian O'Neil: Yes. I think the recent momentum as of March and what we're seeing, the pace at which we're pushing spot rates and achieving that is clipping pretty good, and David pegged it right at 10% and it's probably headed to 15% in the not-too-distant future. Scott Group: Okay. That's helpful. And then maybe just a little bit of an update on the M&A environment. So we did some tuck-in barge -- acquired some barges. Do you think that's going to continue? Is that more likely than doing something larger? Just any sort of overall thoughts on barge acquisition? David W. Grzebinski: Yes. Well, Scott, as you know, we love acquisitions in our core businesses, particularly in the inland space. Our ability to integrate them is really powerful. I think Christian had this latest little tuck-in integrated within four hours. Raj Kumar: That's right. David W. Grzebinski: All the barges were working within four hours of the closing. So we love those inland transactions. We're always looking at them. We still have 25 or so competitors out there. We'd be happy to buy any one of them. But we remain very capital disciplined. And so there's always a bid-offer spread. Predicting a larger one is difficult at best. We certainly have the balance sheet capacity for it. You'll -- you'll see like our debt-to-EBITDA is probably 1.1, 1.2. So we have plenty of balance sheet capacity. Raj upped our revolver from $500 million to $750 million. We'd certainly -- well, we're always looking at acquisitions. We're certainly open-minded to them. But I would just add on capital deployment, as Raj mentioned in his prepared remarks, we -- as we generate free cash flow, if we can't put it to work in a good acquisition, you'll see us buy back our stock. We like our stock where it's at, and we're happy to deploy our free cash flow back that way. That said, we always do prefer acquisitions, particularly in the inland space, but any of our core businesses, we are always looking. It's just hard to predict though, Scott. Scott Group: Okay. And then one last thing. I apologize if I missed this during the prepared comments. So I know you said there's going to be some pressure on coastal margins in Q2, but any sort of color around like the magnitude of that or maybe just overall sort of margin expectations for the quarter? David W. Grzebinski: Yes. We just have a -- actually, we got -- our margins in the first quarter were a little better in coastal. One of the big units moved from first quarter into second quarter. And as you know, these big units can run $60,000 a day. So when they're out, they can be impacted. I don't have good guidance for coastal on the margin. I think maybe Raj and Matt can give you some color there. Raj Kumar: Yes. I think, Scott, I mean, it depends on the shipyard, right? How long the shipyard is going to last for. And as David mentioned, this could be quite long. What we do well is we try and manage the duration of the shipyard, working very closely with them, and we do a very good job. We had some good progress last year. I think we talked about it the last time where in the Q2, Q3 time frame, we were able to get out of the shipyard quicker than what we expected. We'll see how it goes in Q2, but that's what we're going to do. We control what we can control. Operator: Thank you. This concludes the question-and-answer session. I would now like to turn it back to Matt Kerin for closing remarks. Matthew Kerin: Thank you, James, and everyone on the call for participating in our call today. If you have any additional questions or comments, please feel free to contact me. Thank you, and have a good day. Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.