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Operator: Morning, ladies and gentlemen, and welcome to the Cousins Properties Incorporated First Quarter Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press 0 for the operator. This call is being recorded. On Thursday, 04/30/2026. I would now like to turn the conference over to Pamela Roper, General Counsel. Please go ahead. Pamela Roper: Thank you. Good morning, and welcome to Cousins Properties Incorporated first quarter earnings conference call. With me today are Colin Connolly, our President and Chief Executive Officer; Richard G. Hickson, our Executive Vice President of Operations; Jane Kennedy Hicks, our Executive Vice President and Chief Investment; and Gregg D. Adzema, our Executive Vice President and Chief Financial Officer. The press release and supplemental package were distributed yesterday afternoon as well as furnished on Form 8-Ks. In the supplemental package, the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. If you did not receive a copy, these documents are available through the Quarterly Disclosures and Supplemental SEC Information link on the Investor Relations page of our website, cousins.com. Please be aware that certain matters discussed today may constitute forward-looking statements within the meaning of federal securities laws and actual results may differ materially from these statements due to a variety of risks, uncertainties, and other factors, including the risk factors set forth in our Annual Report on Form 10-Ks and our other SEC filings. The company does not undertake any duty to update any forward-looking statements whether as a result of new information, future events, or otherwise. The full declaration regarding forward-looking statements is available in the supplemental package posted yesterday and a detailed discussion of the potential risks is contained in our filings with the SEC. We will now turn the call over to Colin Connolly. Colin Connolly: Thank you, Pam, and good morning, everyone. We had an excellent start to 2026 at Cousins Properties Incorporated. On the earnings front, the team delivered $0.73 per share in FFO during the quarter, which was $0.02 per share above consensus. In addition, we increased the midpoint of our FFO guidance by $0.02 per share to $2.94 per share for the full year 2026, which represents 3.5% growth over 2025. This would be our third consecutive year of FFO growth and represents a 3.9% compounded annual growth rate since 2023. Cousins Properties Incorporated earnings growth during this three-year time frame is unmatched among traditional office REITs. Leasing remained robust. We completed 932,000 square feet of leases during the quarter, which is one of the highest quarterly volumes in the history of the company. Our cash rent roll-up on second generation leasing was 15.2%, which marks 48 consecutive quarters of positive rent roll-ups. Significant leasing wins included our large renewal with our largest customer at The Domain in Austin, and new leases with Oracle at Newhof in Nashville, and KPMG at Precinium in Midtown Atlanta. These results underscore the strength of our portfolio and depth of customer demand for high-quality lifestyle office space. I will start with a few broader observations on the trends driving the office. First, most major companies are phasing out remote work. Yesterday, Fidelity became the latest to announce a five-day-a-week office mandate. At Cousins Properties Incorporated, we call it the return to normal, and it is boosting demand across all of our markets. Second, the flight to quality is unrelenting. Customers are prioritizing high-quality, well-amenitized, and well-located buildings to promote engagement and collaboration. According to JLL, nearly all of the positive net absorption in the office sector since the onset of COVID has occurred in buildings that delivered from 2010 to present. Third, the Sunbelt migration has reaccelerated. We have seen a significant uptick in relocation activities as proposals to meaningfully increase personal and business taxes in New York, California, and Washington have advanced. Starbucks recently announced a major East Coast headquarters in Nashville. Apollo is looking for a second headquarters in Texas or Florida. Capital Group announced a major hub in Charlotte. Each of these companies specifically state access to the growing talent pools in these markets is a major reason for their decisions. These are not back-of-house or support jobs that they are creating. We believe that we are still in the early innings of this migration trend and expect these announcements to continue. Lastly, record-high office conversions combined with record-low new development starts are leading to shrinking inventory of office properties. Given the three- to four-year lead time to deliver a new project, this is unlikely to change until 2030 at the earliest. Simply stated, demand is increasing while supply is decreasing. The net result is an emerging shortage of premier lifestyle office space in the best submarkets of the Sunbelt, and one that will become increasingly acute over the next several years and favor landlords. Cousins Properties Incorporated is uniquely positioned to benefit from these trends. Before moving on, I want to briefly address a topic that has received a lot of attention recently, that is artificial intelligence. While AI is shaping how companies operate internally, we are not seeing evidence that it is reducing long-term demand for high-quality office space. In fact, many of the companies most actively deploying AI are also prioritizing collaboration, talent density, and physical presence, which aligns well with our lifestyle office portfolio in the Sunbelt. Ultimately, space decisions are still being driven by people, culture, and access to talent. In that respect, the trends we are seeing in our leasing activity remain very encouraging. Turning to our strategy, as we outlined in prior earnings calls, our focus remains unchanged. We are sharply focused on driving sustainable earnings growth while maintaining our best-in-class balance sheet and continuing to enhance the quality of our Sunbelt lifestyle office portfolio. Our team’s ability to drive both internal and external growth is key to this effort. During the quarter, we advanced that strategy. First, we increased occupancy to 88.9% across the portfolio as a result of robust leasing activity. Second, we closed on the acquisition of 300 South Tryon, a 638,000 square foot trophy office asset in Uptown Charlotte, for approximately $317.5 million. Third, we repurchased 3.9 million shares of our own stock at a weighted average price of $23.36. Lastly, we sold Harborview Plaza in Tampa for $39.5 million and entered into an agreement to sell 111 Congress in Austin. Looking ahead, the number one priority for Cousins Properties Incorporated is to continue to grow occupancy. We have modest lease expirations this year and a robust late-stage leasing pipeline that will support this effort. More broadly, we remain focused on optimizing our portfolio, maintaining flexibility, and creating optionality in our capital allocation decisions. As I mentioned earlier, everything we do is guided by a disciplined approach that prioritizes earnings accretion, balance sheet strength, and continuous improvement in our portfolio quality. We are excited about what lies ahead for Cousins Properties Incorporated. The office market is rebalancing, new construction is virtually nonexistent, and high-quality lifestyle office space is becoming increasingly scarce. Despite ongoing macro concerns and volatility in the public markets, Cousins Properties Incorporated continues to outperform, supported by a strong operating platform, a highly efficient G&A structure, and one of the strongest balance sheets in the office REIT sector. Before turning the call over to Richard, I want to thank our talented Cousins Properties Incorporated team for their commitment to excellence and to serving our customers, the foundation of all of our success. Richard? Richard G. Hickson: Thanks, Colin. Good morning, everyone. Our operations team delivered the strongest start to a calendar year since Cousins Properties Incorporated began its focus as a pure-play owner of trophy Sunbelt office. In the first quarter, our total office portfolio end-of-period leased and weighted average occupancy percentages were 91.8% and 88.9%, respectively. Both metrics increased sequentially and were driven by a combination of organic growth and our recent investment activity. Our portfolio lease percentage increased in nearly every market, with Atlanta, Charlotte, and Austin as the largest contributors in terms of organic growth, while Nashville’s lease percentage increased materially with our recently signed 116,000 square foot new lease with Oracle at Newhof. That project will not be included in our overall portfolio statistics until it is stabilized. The largest market contributors to organic growth in our weighted average occupancy were Atlanta and Austin. Our lease expirations through 2027 now total only 8.3% of contractual rent, which is 320 basis points lower than at the end of 2025. Coming off of a very strong fourth quarter, our leasing activity in the first quarter was record-setting on a number of levels. Our team completed 49 office leases totaling 932,000 square feet during the quarter, with a weighted average lease term of 6.6 years. Our square footage volume was the highest for a first quarter in well over a decade, and was also our highest quarterly level in general since the second quarter 2019. On a square footage basis, 52% of our completed leases this quarter were new and expansion leases, totaling 483,000 square feet. New and expansion leasing volume was essentially in line with our very strong fourth quarter, which we view as a great repeat performance. The team also completed 19 renewals during the first quarter, including a material renewal in Austin that took care of what was previously our largest 2027 expiration. Regarding lease economics, our average net rent this quarter came in at $44.54, approximately 18% higher than the full year 2025. This quarter’s average leasing concessions were essentially in line with the full year 2025. As a result, average net effective rent this quarter came in at a solid $32.28, second only to 2024. Finally, second generation cash rents increased yet again in the first quarter at a strong 15.2%, with cash rents rolling up in every market where we had activity. Beyond our excellent recently completed activity, our overall leasing pipeline remains very healthy, at a level comparable to this time last quarter. In our early March investor presentation, we shared that 1.2 million square feet of activity was either signed first quarter to date or in lease negotiations. Even after completing 932,000 square feet of volume in the first quarter, as of today, we have 1 million square feet of leases either signed second quarter to date or in lease negotiations. This late-stage pipeline has been growing nicely throughout the second quarter. In fact, it has grown by about 200,000 square feet just in the past two weeks and currently includes 450,000 square feet of new and expansion leases. We believe our late-stage pipeline has us very well positioned for continued strong leasing performance in the near term. Turning to our markets, in Atlanta, according to JLL, leasing activity was strong with 2.3 million square feet of leases signed in the first quarter. Sublease availability declined for the eighth consecutive quarter and is now at its lowest level since the start of 2021. Additionally, average asking rents had the largest quarterly increase in two and a half years. We continue to see solid demand in our own portfolio where we signed 192,000 square feet of leases in the first quarter. This included a 105,000 square foot new lease with KPMG at Precinium in Midtown. Subsequent to first quarter end, we also signed a new 46,000 square foot lease with CallRail at 725 Ponce in Midtown. CallRail is a homegrown Atlanta-based technology company that decided to relocate to 725 Ponce from Downtown because of the property’s location, quality, and direct access to the BeltLine. We are excited to welcome them as a customer. Our Atlanta portfolio was 89.3% leased at first quarter end. In Austin, JLL notes that tenant demand increased 30% year over year from about 3.9 million square feet of requirements in 2025 to nearly 5 million square feet today. The market continues to digest speculative development delivered since 02/2023. However, new speculative development is now at its lowest level since 2013. Across our Austin portfolio, we signed an impressive 339,000 square feet of leases in the first quarter, including a 273,000 square foot renewal of a Fortune 10 technology company at Domain 8. This sizable renewal demonstrates a strong commitment to the Austin market and to the value of high-quality office in the core of The Domain. Our Austin portfolio also increased to 95.3% leased as of first quarter end, driven primarily by encouraging new activity in the CBD. In fact, our Austin team has seen a notable increase in overall tenant demand in the CBD since the beginning of the year, and it is focused primarily on availability in the highest-quality office segment. In Charlotte, market-level leasing activity maintained strong momentum in the first quarter with a 74% increase year over year. In our portfolio, we signed 181,000 square feet of leases in the first quarter, 58% of which were new and expansion leases, and the team rolled up cash rents 26%. Activity included a 72,000 square foot new lease with Scout Motors at 550 South, and a 54,000 square foot renewal and 27,000 square foot expansion with a major law firm at our newly purchased 300 South Tryon. Touching on our redevelopments, our 550 South project is very close to completion—within weeks—and with that, we have seen a nice uptick in early-stage leasing interest. Regarding 201 North Tryon, that redevelopment project is well underway and should be substantially complete during 2027. Looking at our recently completed redevelopments—whether it be Buckhead Plaza, the Promenade buildings in Atlanta, or Tempe Gateway and Hayden Ferry in Phoenix—we generally saw a meaningful boost in demand and, importantly, in lease economics once the projects approach completion and prospects could see the finished product. Based on this experience, and also knowing the shortage of available premier space in the market is becoming more acute, we are taking an intentionally patient approach to leasing at the property. In short, we are willing to trade some number of months of timing of occupancy in return for meaningfully better net effective rents and outcomes for shareholders. In Dallas, the market recorded 3.6 million square feet of leasing activity during the first quarter, above first quarter 2025 levels. New supply also remains limited, which is helping to boost top-tier assets and drive rent growth. Flight to quality remains the dominant theme, consistent with all of our markets, with Class A space accounting for 73% of quarterly lease volume. In our 800,000 square foot portfolio, we signed 65,000 square feet of leases, rolling up cash rents over 32%. This past quarter, we also took over the management of Legacy Union One in Plano, and I am pleased to report that subsequent to first quarter end, we signed a 52,000 square foot long-term lease with U.S. Renal Care, representing our first direct lease with an existing subtenant at the property. Our Dallas portfolio was 98.1% leased at the end of the first quarter. Finally, and as I mentioned earlier, our leasing volume this quarter included a 116,000 square foot new lease with Oracle at Newhaft in Nashville. We are very encouraged by this activity, and Kennedy will share more details about Newhof in her remarks. As always, a big thank you to our entire team for the work you put in to make the start of this year an incredibly positive one. We appreciate everything you do. I will now turn the call over to Kennedy. Jane Kennedy Hicks: Thanks, Richard. I will start with updates from our recently completed Newhof project in Nashville. As you may have noticed, we moved this mixed-use project off of our development schedule in our supplement this quarter, given its near-stabilized status. The approximately 400,000 square foot office component is now 84.3% leased, up from 55.3% last quarter, largely driven by the 116,000 square foot new lease with Oracle. The company leased five floors on a long-term basis to accommodate its ongoing rapid growth in Nashville, citing it as the center of Oracle’s cloud and AI growth. We are excited for the company’s employees to take occupancy later this year and add to the vibrancy of this unique project. I am also pleased to share that we are now in lease negotiations for the remaining two full floors of the project, which, if executed, will bring the office component to almost 96% leased. The accelerated interest in Newhof is indicative of the demand we continue to see across our portfolio for best-in-class, differentiated assets. The 542-unit apartment component at Newhawk stabilized this quarter at 92.6% leased. I want to point out that we added Nuhawk Phase Two to the land inventory on page 27 of the supplement. As part of the Phase One development, we completed significant infrastructure including all of the parking for a future office building that is planned to be approximately 300,000 square feet. The costs for this work, including the allocated land value, are now reflected in our total land inventory number, whereas they were previously part of the overall Nuhof project spend. Given the work and investment already completed for this next phase, we believe we will have a significant competitive advantage in terms of both speed and pricing when the time is right to move forward with the development. As a reminder, we own Newhop in a 50/50 joint venture. Turning to our investment activity, we had another busy quarter. In February, as we previously disclosed, we closed on the off-market acquisition of 300 South Tryon in Uptown Charlotte. We acquired the building for $317.5 million, or $497 per square foot, a basis that represents a significant discount to replacement cost. The 638,000 square foot, highly amenitized asset is an excellent strategic fit for our portfolio and representative of the continued advantage we have in the market as a buyer for large, tricky assets. As Richard said in his remarks, we have already executed a renewal and an expansion of a large customer there, enhancing the remaining lease term and validating the mark-to-market in rents that can be achieved at the building. Across the country, the office transactions market has opened up, with sales volumes steadily increasing. Both equity and debt sources are realizing the strengthening fundamentals and are now more constructive around opportunities. Smaller transactions are generating the most depth. Accordingly, we continue to pursue select dispositions within our portfolio that we think line up well with market demand. I will add that we are in the fortunate position that we do not need to sell any of our assets, so we plan to remain disciplined in our approach. In late February, we closed on the previously discussed sale of Harborview Plaza in Westshore, Tampa. The building sold for $39.5 million, or $191 per square foot. The pricing equates to a low 9% cap rate. As I mentioned last quarter, this standalone asset needed capital upgrades and we believed our capital was best focused elsewhere. We remain under contract with a residential developer to sell our 303 Tremont land parcel in South Bend, Charlotte. The contract price for the 2.4 acres is $23.7 million and we expect it to close before the end of the year. We are always evaluating the highest and best use of our land bank and resources and determined that this site is now better suited for residential development as opposed to the office towers that we originally contemplated. We are also now under contract to sell 111 Congress in Austin. This 519,000 square foot asset was built in the late 1980s and is prominently located in Austin’s CBD. Our ownership of this asset dates back to the Parkway transaction in ’20, and similar to Harborview, our view is that this asset is better off in the hands of private capital going forward and we intend to redeploy the proceeds as part of the funding of 300 South Tryon. We were pleased with the process and the positive sentiment towards the asset and the Austin market. We will disclose more details around pricing after closing, which is anticipated to be early in the third quarter. These dispositions are representative of our strategy to continuously monitor our portfolio and identify opportunities to recycle out of non-core assets to fund acquisitions—acquisitions of either assets or our own stock, if that is a better use of proceeds at the time. We only intend to do so in a manner that is neutral or accretive to earnings. We believe that this ongoing portfolio optimization will only enhance the resiliency of our assets and future cash flows. Going forward, we plan to be opportunistic when it comes to both acquisitions and dispositions, as well as other investment opportunities such as development. We have the flexibility to invest in a variety of ways throughout a capital stack, including preferred equity and mezzanine positions, as we have demonstrated in the past. Given the emerging scarcity of available lifestyle office space, we believe that there will be select instances where development is compelling and offers an appropriate return premium to trophy acquisitions. We are currently evaluating opportunities with the goal of breaking ground within the next year. We will provide more insights if and as those transactions materialize. With that, I will turn the call over to Greg. Gregg D. Adzema: Thanks, Kennedy. I will begin my remarks by providing a brief overview of our results, spending a moment on our same property performance, then moving on to our property transactions and capital markets activity, before closing my remarks by updating our 2026 earnings guidance. Overall, as Colin stated upfront, our first quarter results were outstanding. Second generation cash leasing spreads were positive, same property year-over-year cash NOI increased, and leasing velocity was exceptionally strong. Focusing on same property performance for a moment, cash NOI grew 5.5% during the first quarter compared to last year. This was comprised of a 4.5% increase in revenues and a 2.7% increase in expenses. These numbers were positively impacted by a combination of increased occupancy and the expiration of rent abatements, primarily at Promenade Tower, Tempe Gateway, 300 Colorado, and Hayden Ferry. Before moving on, I wanted to take a moment to highlight our recent same property expense performance. Despite lots of talk around accelerating property-level inflation—including taxes, utilities, payroll—we have held same property expenses to an average annual increase of just 1.95% over the past four years. I suspect this sub-2% number is well below most investors’ perception of office expense growth over the past few years. A new and efficient portfolio located in affordable and business-friendly markets is what has allowed us to contain expenses. As Kennedy discussed earlier, we acquired a property in Charlotte during the first quarter. We will fund this acquisition with the sale of three non-core properties. We already sold Harborview during the first quarter, and we are under contract to sell 111 Congress during the third quarter and 303 Tremont land during the fourth quarter. We also received repayment during the first quarter of our $18.2 million mezzanine loan secured by an equity interest in the 110 East property in Charlotte. Moving on to our capital markets activity, it was very busy and very productive. We started by issuing a $500 million seven-year unsecured bond immediately after announcing fourth quarter earnings in early February. It was a great execution, generating a yield to maturity of 5%. With this issuance, we have effectively taken care of all of our 2026 refinancing needs. In total, we have issued four unsecured bonds for $1.9 billion since receiving our investment-grade credit rating in April 2024. As Colin stated upfront, we also repurchased 3.9 million shares at a weighted average price of $23.36 per share during the first quarter. Please note that subsequent to quarter end, the board authorized an increase to our recently launched share repurchase program, taking the authorization from $250 million to $500 million, of which approximately $410 million remains available. We now have both a share repurchase program as well as an ATM program available for use, and we have actively employed both over the past 12 months. In addition to shares we repurchased this past quarter, we issued 2.9 million shares on a forward basis under our ATM program during 2025 at an average price of $30.44 per share. We have not yet settled these forward shares. Finally, on April 1, we closed a new five-year $1.2 billion unsecured credit facility, increasing the prior facility that was scheduled to mature in April 2027 by $200 million. As part of this process, we also amended our existing $400 million and $100 million unsecured term loans, adding two six-month extensions to each. The borrowing spread improved by 15 basis points on both the credit facility and the larger term loan and by 30 basis points on the $100 million term loan. Before closing with guidance, I wanted to briefly provide some context on the leverage. Our goal remains, as it has since 2014, to maintain net debt to EBITDA in the low five-times range. The metric is a bit elevated this quarter at 5.66 times, but it is only a timing issue. Once we complete the asset sales to fund the Charlotte acquisition and we complete the funding of the share repurchase, leverage will return to its historic level. With that, I will close my prepared remarks by updating our 2026 guidance. We currently anticipate full year 2026 FFO between $2.90 and $2.98 per share, with a midpoint of $2.94. This is up from our prior midpoint of $2.92 and represents an increase of approximately 3.5% over the prior year. The increase in FFO guidance is primarily driven by the share repurchases I just discussed as well as better-than-forecast execution of the debt financings, partially offset by the elimination of a prior mid-year SOFR cut assumption. We now have no SOFR cut assumptions during 2026 in our guidance. Our updated guidance assumes the 3.9 million share repurchase that we executed in the first quarter is funded with proceeds from the settlements of the 2.9 million shares we previously issued on a forward basis. In reality, we may ultimately fund some or all of this share repurchase with non-core asset sales. As Kennedy stated earlier, we are constantly monitoring the sales market and exploring additional sales candidates. However, for modeling purposes, we have assumed the settlements of all outstanding forward shares during the second quarter, and this is what is in our guidance. As I mentioned earlier, our guidance also assumes the 300 South Tryon acquisition is funded with proceeds from Harborview, 111 Congress, and 303 Tremont. Finally, our guidance does not include any additional property acquisitions, dispositions, or development starts in 2026. If any of these take place, we will update our guidance accordingly. Bottom line, our first quarter results are among the best we have reported in recent memory. Important operating metrics that we track were outstanding, and we raised full-year guidance. Office fundamentals in the Sunbelt remain strong, and we continue to deploy capital into compelling and accretive opportunities. We look forward to reporting on our progress in the coming quarters. I will now turn the call back over to the operator. Operator: We will now open the call for questions. If you wish to ask a question, press 1 on your touch-tone phone. If you would like to withdraw from the queue, press 2. The first question comes from the line of Blaine Heck from Wells Fargo. Blaine Matthew Heck: Thanks. Good morning. Colin, you commented on the leasing pipeline in the earnings release and again here. Can you, and/or maybe Richard, give any more detail on the size of the pipeline today versus maybe a year or 18 months ago and versus your historical average? And maybe give a little bit more color on any trends you are seeing with respect to tenant size or industry? Are you seeing any specific segments or markets strengthening or weakening? Richard G. Hickson: Sure, Blaine. This is Richard. I will take that and then Colin can add on if he would like. For starters, you specifically asked the size of the pipeline overall today. Certainly, the late stage is what I would focus on more versus, say, a year ago, and it is about 2x the size of this time last year. That is the late-stage pipeline. It is about the same size right now as this time last quarter, but year over year it has grown significantly. Just some additional detail on the overall pipeline: I would note that the number of prospects in the pipeline overall has increased quite a bit—on the order of about 15% since last quarter—so that is encouraging to see. The net size, again, is comparable to last quarter. The mix of industries is roughly the same. I would say technology is slightly ahead of financial services at this point, but they are both neck and neck and very big drivers of our activity. Legal continues to be a significant component of our industry mix, with professional services coming in last and then a good mix beyond that. We have seen particularly strong growth— I mentioned we had about 200,000 square feet that built into the late-stage pipeline here in the last couple of weeks. It has been growing nicely throughout the quarter. We have seen the most increase in activity migrating through the pipeline in Atlanta, especially in Buckhead and in Midtown. Phoenix has had a nice bump, Nashville certainly is contributing as well—as Kennedy mentioned, we are going to leases with two more floors there—and some good activity in Austin. So it is pretty broad-based. Colin Connolly: And, Blaine, it is Colin. I would just add too, as it relates to the 900-plus thousand square feet we leased this quarter and this kind of million-plus square foot pipeline. One piece of commentary that I have seen is that the Sunbelt is largely back-office and support function, and I would characterize just about all of the leasing activity that we are doing as very much front-of-house, revenue-producing employees for very dynamic companies, whether it be in technology, financial services, investment firms—you name it—particularly also AI companies beginning to infiltrate the Sunbelt. So I can very much push back on that narrative. While there are certainly suburban properties in Atlanta with back-office employees, the same holds true with back-office employees in suburban New York. The quality of the pipeline for the portfolio that we have in our lifestyle properties is very much attracting very well-educated, knowledge, revenue-producing employees. Blaine Matthew Heck: Great. That is really helpful commentary. And you all mentioned that asking rents had grown the most this quarter in 2.5 years. I was hoping you could quantify that increase. And also, can you comment on what you think is a reasonable forecast or range for net effective rent growth in your segment—Class A, A+, or trophy—within your markets, and whether there are any standout markets on the positive end of that metric or any that could be more muted? Richard G. Hickson: Sure. This is Richard again. In terms of rent growth, we have a number of different examples we can give on really impressive rent growth across markets. In Atlanta, for instance, at Buckhead Plaza, we have been able to grow rents 20% in the last year or so. In Dallas, Uptown—it has really been breathtaking how much rents have grown, particularly in Uptown. I think the general number is about 40% in growth since 2021, and I think new product and top-of-market asking rents right now are $80 net. So extremely impressive rent growth there. If you look at Charlotte, all the new products that have leased up in the last year or so in the market as they were taking down large blocks, we pegged that rent growth during that process at roughly 10% during that time. In Phoenix, lastly, where we have done our redevelopment of Hayden Ferry, which is now complete, we have grown rents about 20% since 2024. So those are just some examples of some really bright spots where we have been able to push rent growth. It is really just a dynamic market where, as Colin has mentioned, supply is shut down. We are not going to see any new supply really added to virtually any of our markets that is not already leased, and demand is still allowing us to push net effective rents. In terms of how much those will grow, we certainly posted very impressive net effective rent growth this quarter, and it was broad-based. The mix of where we did our leasing this quarter was very favorable in a lot of our highest rent markets. We feel good. It is always hard to pinpoint exactly how much we are going to grow net effective rents in any given quarter versus another, but over time we are confident that we are going to continue to grow them in a manner that we have done so here in the recent past. Blaine Matthew Heck: Great. Thanks. And then just lastly, can you talk a little bit more about the optionality you have for funding the share repurchases? I believe you have issued the forward shares yet. So can you talk about the strategic and economic merits for stock issuance versus additional sales? Are there certain cap rates or other factors that would make you lean towards sales instead of the forward equity? Gregg D. Adzema: Hey, Blaine. Good morning. It is Greg. We have issued the forward shares; we just have not settled them. I just want to make sure everybody understands that. And we have the flexibility right now to settle those shares through year-end 2026, but that can be extended with the banks that helped us issue those shares. So we have ultimate flexibility there. In terms of modeling, you need your models to put in some type of assumption, and so this is the most conservative and cleanest assumption, and that is what we provided. Is that what we actually do at the end of the day? Maybe, maybe not. But as Kennedy talked about in her opening remarks, we are always in the market, exploring the market and liquidity and pricing for our non-core assets. We do not have a lot of non-core assets left, but we do have a handful, and so we are out there exploring. I think how we ultimately pay for the $90 million share repurchase that we executed in the first quarter will depend upon the clarity that we get over the next month or two or three on some of these efforts that Kennedy is out there doing with the non-core assets. We are in a sources and uses business, and ultimately, at the end of the day, we are trying to drive accretion on a leverage-neutral basis. I think one of our secret sauces here at Cousins Properties Incorporated is that we have been very nimble and in a position to be nimble with this balance sheet that we have—to figure out a way to maximize shareholder value but maintain the balance sheet. I think we have done a good job of that in the last few years, and I think we will continue to do so. This transaction—the share repurchase and the funding of it—will just be one more example as we process that strategy. Blaine Matthew Heck: Great. Thank you all, and congrats on a great quarter. Colin Connolly: Thanks, Blaine. Operator: Your next question comes from the line of Analyst from Evercore. Please go ahead. Analyst: Perfect. Thanks for taking the question. In light of the really good leasing volumes, I just wanted to ask about your expectations for second generation CapEx spending going forward. I know you do not necessarily guide to FAD, but I am just trying to understand and square FFO versus FAD growth in the near-term future. Gregg D. Adzema: It is Greg again. Second gen CapEx, as you know if you have looked at our earnings supplement over the last few years, can be super lumpy. It just depends upon the leasing that we do and then, honestly, when the tenants that we lease to come to us and want their TI dollars back. FAD is a cash-basis metric, and so we base it upon when the actual cash goes out the door. Some tenants can ask for it very quickly; some tenants can wait a while before they ask for the money. So it is really hard for us to predict, but it is loosely tied to leasing at the end of the day. You have seen it elevated a little bit over the last few quarters because we have been leasing so much space, and so you could see it for calendar year 2026. Again, I do not want to comment on quarterly numbers because they are very difficult to predict with any accuracy. But for the full year, I think you could see second gen CapEx be a little higher this year than it was the last couple of years, just because we are leasing so much space. But once we stabilize the portfolio in the midterm, as Colin has talked about, you will see second gen CapEx decline to its more historic levels. Analyst: Got it. That is appreciated. I know that you previously talked about your year-end occupancy target for 2026. Now being a quarter in and obviously with leasing being very strong and the pipeline being very large, how do you feel about the occupancy trends by year-end 2026 and how bullish it makes you going forward into 2027? Richard G. Hickson: Sure. This is Richard. When you step back and look at all the building blocks—which we typically do not give at that level of granularity for occupancy guidance—but when we look at all of the building blocks, we are seeing a relatively modest amount of new leasing that we need to do incrementally to what we already have in the pipeline or have already completed to get to a year-end 90% number, which is our goal. We are confident that that modest amount is achievable and still feel good about our expectations for getting to 90%. Analyst: Okay. Thank you so much. I appreciate it. Operator: Your next question comes from the line of John Kim from BMO Capital Markets. Please go ahead. John P. Kim: Thank you. So you have a million square foot pipeline already signed in the second quarter, and that is versus roughly 800,000 square feet expiring this year. You are also selling 111 Congress, which is a little bit under-leased versus your portfolio. So I am just wondering, where do you think occupancy or lease rate could go to either by year-end or maybe over the next 12 months? Colin Connolly: Hey, John. It is Colin. As Richard just outlined, the goal for the end of the year—which we think is achievable—is 90%. And I think over the medium term, our intention is to drive this portfolio back to historical stabilized levels, which is absolutely in the low to mid-90%. That will take a little bit longer to get to. Just keep in mind while we are leasing a lot of space— we leased a lot of space in the first quarter, and we think we are going to lease a lot of space in the second quarter—there is typically a lead time, in many cases of a year plus, from signing of a lease to actual occupancy. So our ability to incrementally keep driving occupancy up will be dependent upon the timing of the need of our customers. But the underlying demand is there, and it is robust, and it is being driven by, certainly, the return to office, which might be more temporary, but more longer term, this flight to quality is insatiable, and the migration to the Sunbelt is only accelerating. John P. Kim: And the large renewal you had in Austin—it sounds like that was with Amazon just based on your commentary—but I am wondering if you could share any insights that you have on your largest tenant, given they talked about reducing a lot of desks, almost 14 million square feet of office space globally. Is there anything we should read in the renewal term? It was a little bit lower at 4.7 years versus the new leases signed this quarter. Colin Connolly: Hey, John. It is Colin. I cannot be overly specific due to certain confidentiality provisions, but you can go look at our supplement, and it seems like you are on a pretty good track there. A couple of thoughts. I shared this last quarter—some commentary specifically around Amazon, which has gotten a lot of publicity for announcing some small reduction in their workforce of, I think, 40,000 employees—but you have to put that in perspective that they grew their headcount over the past five years [inaudible].
Operator: Good afternoon and welcome to Offerpad Solutions Inc.'s first quarter 2026 earnings conference call. My name is Christine Nguyen, and I will be your conference operator today. At this time, all participant lines have been placed on mute to prevent any background noise. After management's prepared remarks, we will open the call for a question and answer session. If you would like to ask a question, please press star followed by the number 1 on your telephone keypad. To withdraw your question, press 1 again. With that, I will turn the call over to Cortney Read, Offerpad Solutions Inc.'s Vice President of Investor Relations and Communications. Cortney, please go ahead. Cortney Read: Good afternoon, and welcome to Offerpad Solutions Inc.'s first quarter 2026 earnings call. During the call today, management will make forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are inherently uncertain, and events could differ significantly from management's expectations. Please refer to the risks, uncertainties, and other factors related to the company's business described in our filings with the U.S. Securities and Exchange Commission. Except as required by applicable law, Offerpad Solutions Inc. does not intend to update or alter forward-looking statements whether as a result of new information, future events, or otherwise. On today's call, management will refer to certain non-GAAP financial measures. These metrics exclude certain items discussed in our earnings release and under the heading non-GAAP financial measures. The reconciliations of Offerpad Solutions Inc.'s non-GAAP measures to the comparable GAAP measures are available in the financial tables of the first quarter earnings release on Offerpad Solutions Inc.'s website. With that, I will turn the call over to Brian Bair, Chairman and Chief Executive Officer. Thank you. Brian Bair: On the call with me today is our Chief Financial Officer, Peter H. Knag. Offerpad Solutions Inc. is executing. Over the past two years, we have evolved from a single product company into a multi-solution real estate platform, and that platform is now producing measurable results. Today, that platform includes Cash Offer, Cash Offer Marketplace, brokerage services, and Renovate. The macro environment has shifted since our last call. Geopolitical uncertainty has increased, including ongoing conflict in the Middle East, and interest rates have moved higher in response. Transaction volumes remain below historical norms, and affordability continues to limit mobility. For some sellers, this brings uncertainty around timing and proceeds, keeping many on the sidelines. We continue to refine and enhance our model through diversified revenue streams, multiple solutions, disciplined capital allocation, and AI-driven precision, positioning us to operate effectively in environments like this. While some sellers are still cautious, we are seeing greater stabilization with increased engagement and clearer alignment on pricing and expectations. That shift is supporting improved conversion, and we expect it to remain a tailwind through the remainder of 2026. With all that said, our Cash Offer strategy is not dependent on the macro backdrop changing. We run this business as a capital allocator first and an operator second. Every transaction competes for capital. If it does not meet our return thresholds, we do not transact. Our philosophy is simple: volume follows return, not the other way around. Throughout 2025, that meant deliberately widening spreads, tightening our buy box, and slowing acquisitions rather than chasing volume into an unstable market. That approach pressured short-term volume, but it strengthened the portfolio and preserved optionality. As we move through 2026, we are deploying capital with the same discipline. The result is a portfolio that is cleaner, fast returning, and better positioned for returns than at any other point in recent history. Our aged inventory, homes beyond their target period of hold time, stands today at fewer than 30 homes, down from fewer than 60 at the end of Q4. For remaining homes, we deployed buy-down mortgage rate incentives along with pulling other levers to accelerate movement. In addition, we made an important shift in how we operate. By moving to a post-inspection offer model, we are entering commitments with greater certainty, which means stronger transaction quality, more efficient capital deployment, and a better experience for sellers. But the bigger narrative is what is happening at the top of our funnel. Seller engagement with Offerpad Solutions Inc. is growing, and more importantly, sellers are finding solutions. Our multi-solution platform means that when a Cash Offer is not the right fit, we have options ready: the Cash Offer Marketplace or through our brokerage services with an agent-led listing path. More sellers are staying in our ecosystem, converting across more pathways, and leaving with a solution that works for their situation. Conversion is what we are focused on: the quality and completeness of every seller engagement. That should position us to scale transaction volume with confidence through the remainder of 2026. A key part of the execution and central to how we move forward is AI. Real estate is a data-intensive, decision-dense industry, and we have spent the last decade building the foundation to do this right: thousands of transactions, deep market coverage, rich data across pricing, renovations, and homeowner behavior. We believe this is a real operating advantage. With Scout and Henry, we are turning it into a faster, smarter, and more consistent operating model across stages of the transaction. From the moment a seller first engages with Offerpad Solutions Inc. to the final disposition of properties in our portfolio, AI will be embedded in that decision. That is a fundamentally different way to operate and should be a durable advantage that compounds with every home we touch. Let me start with what it is producing. From January through March, following the deployment of Scout across all operating markets, we saw over a 200 basis point improvement in home contracting rates. Let me explain how. Scout is an internally developed AI-powered homeowner intake and routing platform that is being rolled out to better understand our seller intent by cross-referencing seller-provided data with third-party sources, public records, and importantly, our own proprietary transaction history to improve acquisition accuracy and routing decisions before every single offer is made. Looking ahead, we are building Scout to make our homeowner intake experience fully dynamic and adaptive in real time by personalizing the seller journey based on the solutions available to them. A seller whose home falls outside of acquisition criteria will not be shown a Cash Offer path. Instead, they will be routed to the solution that works for them, guided by our customer solutions advisers every step of the way. That capability is in active development and is a core part of how Scout scales in 2026. Scout also enhances our call center operations with AI-driven conversation analysis evaluating homeowner interactions in near real time, giving our advisers live coaching and providing leadership visibility into performance trends and customer intent across thousands of conversations each month. Additionally, that intelligence has been extended upstream into our marketing demand generation, improving how we manage spend, optimize performance, and drive efficiency across channels. As a result, cost per qualified lead is down 37% year-over-year. We are reaching more sellers, more efficiently in the markets where we can win. Where Scout powers the seller journey, Henry will help govern the asset. We are expanding Henry's capabilities throughout 2026, deliberately and in stages. AI-driven property inspection and renovation estimation tools are now live, powered by computer vision models that analyze property images and inspection data to generate renovation cost estimates based on our historical outcomes. Looking ahead, Henry will guide decisions across renovation scope, listing price, holding time, and overall disposition strategy for every home in the portfolio. A core part of what Henry will enable is a new segmentation framework that combines macro market dynamics with property-level signals, allowing us to move beyond traditional static pricing approaches. This data-driven model will enhance how we assess demand and liquidity, giving us more consistent and scalable ways to make pricing and acquisition decisions across markets. As we scale this across the platform, it is being designed to improve turn times, strengthen risk management, and drive more disciplined, consistent returns over time. Together, Scout and Henry are the operating architecture of Offerpad Solutions Inc.'s future that will compound with every transaction we complete. On our last call, I shared more details on our focus with our four-solution platform. Next, I will go into updates and progress on each. Cash Offer remains our core differentiator. It gives sellers speed, certainty, and flexibility, and it continues to be the foundation of everything we build on top of. In Q1, Cash Offer continued to perform within our underwriting guardrails, and with Henry coming online, we expect our acquisition precision is only going to improve. The Cash Offer Marketplace grew over 60% year-over-year in 2025 and remains one of the most capital-efficient revenue streams we operate, generating fee income without balance sheet deployment. The residential investment landscape may be shifting, with regulatory and capital market dynamics continuing to influence how institutional buyers participate in residential real estate. That environment remains fluid, and we are well positioned by expanding our network designed for depth and durability, diversified across buyer segments so no single regulatory or market shift could disrupt the channel. Led by Rich Ford, we are executing against that strategy with discipline. As the network matures, we expect the Cash Offer Marketplace to become a meaningful contributor to gross profit in 2026. Offerpad Solutions Inc.'s brokerage services is a core driver of our platform. In Q1, we referred more qualified sellers to HomePRO agents than in all of 2025, and one third of Cash Offer requests now come through our agent partnership program. This capital-light model expands our reach, lowers acquisition costs, and drives profitability. Offerpad Solutions Inc. Renovate broke records nearly every quarter in 2025, and we are raising the bar in 2026. In Q1, Renovate generated $5.7 million in revenue compared to $5.3 million in 2025, continuing to deliver margins of 20% to 30% with no balance sheet capital required. Each solution serves a distinct need, generates its own revenue, and strengthens the whole, ensuring more sellers find the path with us. That breadth improves conversion, reduces risk, and keeps more customers in our ecosystem from first touch to close. Our focus remains on building a profitable, scalable business with superior returns on capital and a platform that performs across market cycles. In closing, I want to speak plainly about where we stand and what I believe. I believe we have built a strong home selling platform. I believe our four solutions give sellers and partners more control, more certainty, and more options than traditional alternatives. I believe the technology we are building in Scout and Henry will make us smarter, faster, and more precise with every single transaction we complete. And I believe the people at Offerpad Solutions Inc., the team that has worked tirelessly to build this platform, enhance our model, and serve our customers, are among the best in the industry. Our near-term objective remains approximately 1 thousand transactions per quarter, the level at which the business reaches adjusted EBITDA breakeven and the foundation from which we scale. We are building towards that milestone, and the progress we are making every quarter gives us confidence in that direction. But let me state again, 1 thousand transactions per quarter is not the finish line. It is the foundation. The platform we have built is designed to scale, and as it does, every incremental transaction carries more operating leverage, more data, and more intelligence back into the system. What we have built over the last two years is not a set of improvements; it is a fundamentally different operating model. The window to understand what Offerpad Solutions Inc. is becoming before the market fully reflects it is right now, and I intend to use every day to close that gap. I will now turn the call over to Peter. Thank you. Peter H. Knag: Thank you, Brian. What Brian described is not just a vision; it is already showing up in our financial results. The investments we have made in our platform, our people, and our operating model are translating into measurable progress, and Q1 is evidence of that. We guided to a range of $70 million to $95 million in revenue and 250 to 300 transactions, and we delivered, generating $80 million in total revenue across 263 transactions in Q1. That consistency matters. It reflects an operating model that is becoming more predictable, more disciplined, and more capable of scaling efficiently. Gross profit was $5.6 million in Q1 2026, resulting in gross margin of 6.9% for the quarter compared to 6.5% in Q1 2025. As we continue to scale transaction volumes and our mix of fee-based solutions grows, we expect gross margin to improve throughout the remainder of the year. Operating expenses, excluding property selling costs, were approximately $12.2 million, roughly in line with Q4 2025 and down from $16.7 million in Q1 2025. With over $140 million in annualized expenses removed since 2022, our cost base can support significantly higher transaction volumes without proportional overhead growth. That operating leverage is one of the most important drivers of our path to profitability. Adjusted EBITDA loss for the first quarter was $6.7 million, a sequential improvement from Q4 2025 and reflecting continued progress towards our goal of achieving positive adjusted EBITDA before 2026 year-end. We entered Q1 in a position of strength, and we exit in the same way. At quarter end, total liquidity was over $60 million, reflecting unrestricted cash plus the estimated fair market value of our inventory, including $41 million of unrestricted cash. Our 2026 operating framework, based on current plans and assumptions, does not anticipate requiring incremental equity capital to execute. We have the liquidity, the facilities, and the cost structure to scale within our defined guardrails. I want to address directly what I know is on everyone's mind: can we reach approximately 1 thousand transactions per quarter and return to profitability, and how do we get there? Here is the strategy. We closed Q1 with 163 transactions. That is our baseline. To reach our goal, we need to grow sequentially each quarter, and the drivers of that growth are already in motion. Scout is improving conversion rates at the top of the funnel. Our Cash Offer Marketplace partner network is expanding, routing more homes to more buyers without balance sheet deployment. As Brian stated, brokerage services referred more sellers in Q1 alone than in all of 2025, and Renovate continues to grow, adding high-margin fee revenue with every project it completes. Our Q2 guidance represents sequential growth of 14% to 33% in transactions over Q1. We expect continued sequential improvement in Q3 and Q4 as conversion improves. Based on our current cost structure and expected product mix, we believe approximately 1 thousand transactions per quarter represents our path to adjusted EBITDA breakeven. Every transaction above that threshold is expected to contribute incremental margin to the bottom line. That is the power of the operating leverage we have built. We do not need to add significant overhead to grow; we need to convert more sellers. That is exactly what our platform is designed to do. Turning to Q2, we entered the second quarter with a stronger pipeline than we had entering Q1 and continued conversion momentum across the platform. For Q2, we expect 300 to 350 real estate transactions across Cash Offer, Cash Offer Marketplace, and brokerage services; total revenue of $80 million to $90 million; and a narrower adjusted EBITDA loss compared to Q1, continuing our sequential progression towards positive adjusted EBITDA before year-end. Our priorities are clear, and our execution is improving, with sequential gains each quarter, a healthier portfolio every month, and a smarter AI system with every transaction. That is how we are building our business to scale, and I am excited by the progress we are seeing and what we are building to drive what comes next. With that, we will now take your questions. Operator: We will now open the call for questions. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute yourself. Please stand by while we compile the Q&A roster. Our first question comes from the line of Ryan Tomasello with KBW. Ryan, your line is now open. Analyst: Hi, everyone. This is Huang Chung on for Ryan. Thanks for taking the questions. So just taking the midpoint of Q2's guidance, that is $85 million revenue over 325 transactions. That gets us to a revenue per transaction that is about 14% lower than Q1. Is that just going to be the mix shift? And if so, could you help break down how you are thinking about the mix between the products? Peter H. Knag: Sure. That is right. So the mix, the revenue per transaction is a little bit different across the products. As you heard in the prepared remarks, we are heavily focused on conversion. That is the most important driver or KPI operationally for us. We historically, very roughly, have had two-thirds/one-third mix between the products, so two-thirds Cash Offer and one-third the other products, including HomePRO and Cash Offer Marketplace. Cash Offer, we target around 5% of the home value for gross profit. The Cash Offer Marketplace is similar to that, and then HomePRO is lower. HomePRO is about—we split the fee for a traditional real estate listing service with the broker, so it tends to be around 1% or 1.5%. So as we broaden our product set and increase conversion across these other products, you will see that per-transaction figure adjust accordingly. Analyst: And on just the top of funnel of home sellers, how has that trended to start the year? Recall that you have previously called out that it is roughly 10 thousand to 20 thousand in any given month. So has that accelerated at all? Brian Bair: Yes, that has actually stayed very strong, and we are continuing to even see some growth there as well. Our marketing team has really focused on not just bringing in more leads or more sellers but the quality of sellers, and so we are seeing really strong, engaged sellers that are coming top of funnel. So that has definitely stayed strong. Analyst: Great. Thank you. Operator: Your next question comes from the line of Dae Lee from JPMorgan. Dae Lee, you are live. Dae Lee: Alright. Great. Thanks for taking the questions. I will go back to the 1 thousand per quarter target you guys have out there. I mean, those kind of suggest, like Peter said, a meaningful ramp in the second half to get to that target, and also have to factor in the seasonality aspect of that. So just curious to hear where the conversion of your platform stands today and where do you see the opportunity to improve that? Is it on the Cash Offer side? Is it on the other transactions? Does it vary by geography? Does seasonality help? Could you help us bridge where you are today to the end of the year, and what gives you the confidence for bridging that? Brian Bair: Sure. Peter H. Knag: Thanks for the question, Dae. There are a couple of things that I would point out. One is, while we have historically been really one product—or a little bit one to two products—now we are three products, and so particularly with the addition of the brokerage services solution, we are seeing conversion going up based on having additional offers for the top-of-funnel customer and just increasing the likelihood that they choose a solution. Second, 1 thousand transactions—we came down intentionally over the last couple of quarters last year on our Cash Offer volume as we worked on our operations, and so we are able to ramp that up just based on the adjustments that we are making in the price point that we are putting out there and our buy box characteristics. If you look back in 2024, we were doing almost 800 or 900 transactions per quarter, and at our high point a couple of years ago, we were doing 1 thousand transactions per month, not per quarter. So we have high confidence that we can get there. Brian Bair: Just a couple of things on that as well. With our current volume, it is going to take a conversion increase of 1% to 2% a month to make that happen. And one of the things that is important is we are able to now serve customers we were not able to serve before with our listing services. So, for example, if there were homes that were outside of—or out of area, out of our buy box—we simply could not offer on that with a Cash Offer or through our Cash Offer Marketplace. Now with brokerage services, it changes conversion because we can find a solution for them. And with our listing services, the customer gets free moving services and home warranties. So it is a really strong, compelling product on why to list with one of our HomePROs. If we increase conversion, which we are starting to see now with our different products, and are able to serve customers we were not before, that is what gives us the confidence towards that 1 thousand transactions per quarter. Operator: Our last question comes from the line of Gaurav Mehta with AGP. Gaurav, your line is now open. Gaurav Mehta: Yes, thanks for taking my question. I wanted to ask you on the 1 thousand transactions and adjusted EBITDA. So does your adjusted EBITDA breakeven expectations include renovations in those transactions, or is Renovate separate from transactions? Peter H. Knag: Hi, Gaurav. I think I heard the question correctly. Does adjusted EBITDA include the cost of renovations? Absolutely. It is in there in the cost of goods sold as part of the Cash Offer product, and then separately for the B2B third-party Renovate business, it is also in the cost of goods sold. Gaurav Mehta: Okay. No, I actually wanted to ask you on the Renovate revenue. So to get to adjusted EBITDA, how much Renovate revenue growth are you guys assuming? Peter H. Knag: I see. So it is not in the 1 thousand transactions. We think of the business really in two buckets, perhaps. One, the customers that are coming to us and are looking to sell their home—we have three products for that, and that is what we are focused around on the 1 thousand transactions. And that business is a little bit more variable, and so that is the reason for the focus on 1 thousand transactions across those three products. The Renovate business is very consistent and is part of reaching EBITDA and cash flow positive, but it is not part of that 1 thousand metric. It is part of the total financials, of course, and part of EBITDA. It is growing fairly rapidly, and we expect it to continue to grow. Gaurav Mehta: Okay. Thanks for that color. Second question I have is on the transaction mix. What was the mix between Cash Offer and other services in the current transactions you reported in Q1? And I know in the past, you have talked about maybe 50/50 as you approach adjusted EBITDA breakeven. Is that still the expectation? Peter H. Knag: Yes. In the mix—you can see on the trending schedules on the IR site—we break out all those details, but the mix has been, as I have mentioned, about one-third/two-thirds: two-thirds Cash Offer. And yes, we do expect, as we move across the year up towards 1 thousand transactions, a larger share coming from the other two real estate transaction products. Brian Bair: Yes. The one thing I will just add to that as well is our Cash Offer Marketplace—we continue to add other cash offer partners in there as well. People come to Offerpad Solutions Inc. because they want a cash offer. It does not necessarily need to be an Offerpad Solutions Inc. Cash Offer. We want to find the best solution for them. And so in our Cash Offer Marketplace, having short-term hold companies as well as long-term hold companies helps us find the best customer and the best solution for them on the Cash Offer Marketplace. As we continue to grow towards the 1 thousand, we are expecting the Cash Offer Marketplace to continue to grow and to ramp as we add more and more, even up to some of the smaller customers on there. It is actually good because we help them source; they can find homes off of our marketplace. Then also, we are doing the renovation for those groups as well, and so Offerpad Solutions Inc. is benefiting from both of those segments. Gaurav Mehta: Okay. Thank you. Maybe one more for me. On the operating expense side, as you ramp up the transactions, do you expect the operating expenses to remain where they are, or do you expect any further improvements or any increases on the operating expense side? Peter H. Knag: Yes. If you look on the P&L, for this quarter there is $14.5 million of operating expenses. If you look on the non-GAAP reconciliation table, you can see that there are some selling and holding cost expenses in there—around $2 million for this quarter. That small piece of operating expenses, as in the GAAP reporting, is variable, but the large majority of it, which is about $12 million—which we highlighted in the prepared remarks, or $12.5 million—is not variable. In fact, there are a few more levers that we are working to pull that are harder than the other cost-outs that we have done across the last few years, and so we expect that to actually continue to come down—not as dramatically as we have over time. A couple of years ago, it was as much as $80 million per quarter, and now we are down to $12.5 million, or with the holding costs, $14.5 million. So it will not come down too much more, but we expect it to go down, not up. Gaurav Mehta: Alright. Thank you. That is all I have. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning. My name is Myron, and I will be the conference facilitator today. At this time, I would like to welcome everyone to the Granite Construction Incorporated 2026 First Quarter Conference Call. This call is being recorded. All lines have been placed on mute to prevent any background noise, and after the speakers’ remarks, there will be a question-and-answer period. It is now my pleasure to turn the floor over to your host, of Granite Construction Incorporated, Vice President of Investor Relations, Michael Barker. Thank you, and over to you. Michael Barker: Good morning, and thank you for joining us. I am pleased to be here today with President and Chief Executive Officer, Kyle T. Larkin, and Executive Vice President and Chief Financial Officer, Staci M. Woolsey. Please note that today’s earnings presentation will be available on the Events and Presentations page of our Investor Relations website. We begin with a brief discussion regarding forward-looking statements and non-GAAP measures. Some of the discussion today may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are estimates reflecting the current expectations and best judgment of senior management regarding future events, occurrences, opportunities, targets, growth, demand, strategic plans, circumstances, activities, performance, shareholder value, outcomes, outlook, guidance, objectives, committed and awarded projects or CAP, and results. Actual results could differ materially from statements made today. Please refer to Granite Construction Incorporated’s most recent 10-Ks and 10-Q filings for a more complete description of risk factors that could affect these forward-looking statements. The company assumes no obligation to update forward-looking statements, except as required by law. Certain non-GAAP measures may be discussed during today’s call and from time to time by the company’s executives. These include, but are not limited to, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share, cash gross profit, and cash gross profit per ton. The required disclosures regarding our non-GAAP measures are included as part of our earnings press releases and in company presentations, which are available on our website, graniteconstruction.com, under Investor Relations. Now I would like to turn the call over to Kyle T. Larkin. Kyle T. Larkin: Thanks, Michael. Before turning to our first quarter results, I want to take a moment to discuss our recent acquisition. As a reminder, our approach to M&A is guided by a disciplined investment framework that we use to allocate capital across CapEx and M&A in ways that support growth and enhance shareholder value. That framework is anchored by two pillars: support and strengthen, and expand and transform. Over the last several years, we completed numerous acquisitions to strengthen our Western businesses while also building and expanding our Southeastern platform through disciplined, materials-focused acquisitions and targeted investments. With an expanded corporate development team, a dedicated integration management office, strong operational engagement, a solid balance sheet, and strong cash flow, our approach to M&A has fundamentally changed from the past. The ability to self-source and integrate bolt-on transactions, while simultaneously pursuing larger bank-led deals, is a differentiator that allows us to accelerate our growth through acquisitions. Consistent with this strategy, we recently announced the acquisition of Kenny Sain Construction. Kenny Sain Construction is a leading provider of infrastructure construction services and construction materials in Utah County, Utah. Founded in 1985, the company has built a strong reputation for operational excellence and end-to-end project delivery across a diverse set of infrastructure end markets. Kenny Sain Construction operates a vertically integrated business model with capabilities that include earthwork and site preparation, concrete work, utility installation, project management and contracting, aggregate production, and materials processing. The business brings end-market diversification with over half of its revenue derived from education infrastructure and the remainder from civil infrastructure and private sector work. These markets align well with our focus on public funding and infrastructure demand. We expect Kenny Sain Construction to add $150 million in revenue annually with an accretive adjusted EBITDA margin in the high teens. This acquisition expands our home market presence in a strong Utah market while deepening our capabilities in attractive end markets. We are excited to welcome the team to Granite Construction Incorporated. Now let us move to the Construction segment. We ended the quarter with CAP of $7.2 billion, a $200 million increase from the fourth quarter. CAP increased despite a reduction of approximately $300 million related to the cancellation of a public sector highway project in California where expanded scope exceeded available funding. While cancellation of a project in CAP can occur and happened in this circumstance, it is very rare in our experience. The increase in CAP reflects a bidding environment that remains robust at the federal, state, local, and private levels. We added a second tactical infrastructure project to CAP and ended the quarter with $1.3 billion of federal CAP, of which $640 million is related to tactical infrastructure projects. We are proud to support the infrastructure needs of the various branches of the federal government. We have made significant investments in our federal business and expanded this platform significantly over the last several years. These projects are evidence of the progress we have made building capabilities and customer relationships over time. Looking forward, I believe that our federal business is positioned to generate more than 15% of our Construction segment revenue as we continue to grow this part of our business. At the state level, funding and bidding opportunities remain strong. As we ramp up for our busy season, our CAP and potential new projects give us confidence that we will meet our organic growth expectations for the year. In the private sector, we are focused on end markets that can drive growth and further improve the quality of CAP. First, we are seeing opportunities in the rail market, including intermodal facilities for Class I railroads. We have relevant experience and strong customer relationships in this end market, and we have successfully completed multiple intermodal projects for rail clients. Second, we are seeing growing opportunities in mission-critical data center projects, which include civil site development as well as water and power generation for the data centers. We have formed a dedicated team to oversee and focus on key client relationships and support our regional teams from pursuit to execution on pursuing or building projects with these clients. We have completed numerous data center projects in several of our home markets, and we believe Granite Construction Incorporated is uniquely positioned to construct these schedule-intensive projects. Overall, we believe we have a great opportunity to continue to build CAP. We have built what we believe is the highest-quality project portfolio in Granite Construction Incorporated’s history by focusing on our home markets and best-value projects that better position us for success. With our CAP, the opportunities ahead of us, and the continued emphasis on operational excellence, we believe the Construction segment is well positioned to deliver sustainable growth and margin expansion. I will now turn to the Materials segment, which had a fantastic start to the year. The first quarter has traditionally been seasonally slower. We are encouraged by demand across our geographies and by the performance of our newly acquired companies, led by Warren Paving. Our margin improvement expectations for 2026 were based on the inclusion of acquired businesses for a full year, modest volume growth across the company, mid-single-digit aggregate price increases, and improved cost efficiency through plant automation and process improvements. Through the first four months of the year, I believe we are on track to meet or exceed our expectations. Aggregate and asphalt orders were ahead of the prior year, and we are meeting our pricing expectations. During the quarter, oil prices increased due to the conflict in Iraq. Granite Construction Incorporated’s primary oil exposure is through purchases of liquid asphalt and diesel usage in equipment and barge transport. We regularly work to mitigate exposure to pricing fluctuations in the energy sector. For instance, we enter into fixed forward contracts, maintain physical storage, apply financial hedges, and include energy surcharges for material sales. While we will continue to monitor the market closely, we do not presently expect that the current increases in oil prices will have a significant impact on our annual outlook. Overall, we believe the Materials segment is well positioned for continued growth and transformation. Now, I will turn it over to Staci M. Woolsey to review our financial performance for the quarter. Staci M. Woolsey: Thanks, Kyle. Building on the momentum from Q4, we are off to a strong start in 2026 compared to the same period of the prior year. Revenue increased 30% to $912 million; gross profit increased 31% to $110 million; adjusted net income increased by $12 million to end at $12 million; and adjusted EBITDA increased by $30 million to arrive at $58 million. In the Construction segment, revenue increased $151 million, or 25% year over year, to $756 million. Of the growth in the quarter, $43 million came from the acquired businesses, and the remaining $108 million was organic. With record CAP entering the quarter, we achieved revenue growth in a number of home markets across the company. While gross profit margin decreased due to a revision in estimate related to a favorable claim settlement in the prior year, which did not recur in the current year, gross profit increased with the higher revenue. As we enter the heart of the construction season, we believe the Construction segment is on track for an outstanding year. Materials segment revenue increased $61 million year over year to $146 million, with gross profit up $9 million to end at $8 million. The revenue increase was primarily due to $50 million from the acquired businesses, led by Warren Paving. Cash gross profit increased $15 million year over year to $26 million, or 18% of revenue, a great result in what is typically our most weather-impacted quarter. While most volume increases came from the acquired businesses, we also saw organic volume increases ahead of expectations. With materials orders ahead of the prior year and pricing meeting expectations, the segment is on track for another year of growth. In the first quarter, SG&A as a percent of revenue is typically higher due to seasonally lower revenue and the timing of stock-based compensation expense. SG&A in the quarter was in alignment with our expectations. Turning to cash flow, we used $31 million in operating cash in the quarter compared to an inflow of $4 million in the prior year. The prior year benefited from the collection of a long-outstanding contract retention balance as well as the receipt of funds from a settled legal dispute. As expected, in the first quarter, there was a seasonal use of cash as plants and projects ramped up across the business. Our operating cash flow expectation of approximately 10% of revenue for the year remains unchanged. In the first quarter, we completed privately negotiated transactions to settle $100 million principal amount of our convertible bonds that were scheduled to mature in 2028, leaving $274 million outstanding. The total cash used to settle the bonds, net of the associated capped call unwind proceeds, was $233 million. As we have said previously, we continue to evaluate the capital markets and opportunities to proactively manage our capital structure, including our convertible bonds. Our balance sheet remains well positioned to execute on capital allocation priorities. Following the quarter, we utilized our revolving credit facility to fund the purchase of Kenny Sain Construction, and we now have $1.4 billion of debt outstanding and $415 million available under our revolving credit facility. Now let us turn to an update on guidance for the year. With our strong start to the year, we are increasing our revenue guidance to a range of $5.2 billion to $5.4 billion from a range of $4.9 billion to $5.1 billion. This increase reflects an additional $200 million of revenue from our new tactical infrastructure contract and $100 million in revenue from Kenny Sain Construction. With this revenue growth, we are decreasing our SG&A as a percent of revenue guidance to a range of 8.25% to 8.75%, down from a range of 8.5% to 9%, inclusive of approximately $48 million in stock-based compensation expense. As we continue to grow organically and through acquisition, we believe there are additional opportunities to further improve SG&A leverage over time. With the decrease in SG&A as a percent of revenue, we are also increasing our adjusted EBITDA margin guidance to a range of 12.25% to 13.25%, up from 12% to 13%. We continue to build high-quality CAP in strong public and private markets, and we believe we will realize our expected margin expansion in 2026 and our 2027 targets. Finally, our CapEx guidance of $141.16 billion and our estimated adjusted effective tax rate in the mid-20s remain unchanged. Now I will turn it back over to Kyle. Kyle T. Larkin: Thanks, Staci. I will close with the following points. The start of 2026 reinforces my confidence in Granite Construction Incorporated’s ability to achieve the financial goals that we have set for both 2026 and 2027. Our federal, state, local, and private markets continue to fuel growth in CAP. During the last two years, the public transportation market has led the way. While this market remains robust, we are also benefiting from years of investment in our capabilities and relationships across federal, rail, and mission-critical data center markets. I expect each of these end markets to continue to grow and be meaningful components of our Construction segment in the future. In the Materials segment, the acquisition of Warren Paving continues to transform the performance and trajectory of the segment. We have seen demand exceed our original expectations and expect to see further gains as the integration of the Southeastern platform continues throughout the year. There continues to be a long runway of growth and margin expansion for this segment, both in the Western footprint and Southeast platform. We raised our 2026 guidance this quarter. It is still early in the year, but we see many great opportunities ahead of us to continue to raise the bar in 2026. Finally, we are already in the process of integrating Kenny Sain Construction into our Utah operation, and I am excited to see growth in our Utah home market. Our M&A pipeline continues to evolve as we evaluate new targets, and I believe we have the opportunity to add several acquisitions this year to bolt on to our existing businesses or further expand our footprint. Operator, I will now turn it back to you for questions. Operator: Feel free to jump back in the queue if you have additional questions. We have the first question from the line of Steven Ramsey from Thompson Research Group. Please go ahead. Steven Ramsey: Good morning. Congrats on the good results and the acquisition. Maybe we can start with the acquisition of KSC, clearly very strong margin. Can you talk about the growth story that you can bring to KSC on a revenue or margin basis as it touches your existing operations in the area? And then, sticking with the M&A theme, the Warren deal seems to be going very well, and you pointed out demand was better than expected. Can you talk about or give us a flavor of what that demand is, and is it still something that is shaping up to be good this year? Lastly, on the SG&A leverage, is there any way to break that out a bit on how much of that is the border wall work flowing into the year versus the Kenny Sain contribution? Kyle T. Larkin: Yes, Steven, and thanks for the question. We are obviously very excited to have Kenny Sain Construction as part of our business moving forward. As I mentioned, it does about $150 million a year in terms of revenue, and we expect it to contribute about $100 million in 2026, and it is a high EBITDA margin business. The business operates at a high level. It is essentially a contractor of choice in that market and really just well positioned. I would say there are really three things that we would point to around Kenny Sain and why we are the right owner and the value that we can bring to it. One is we can support their scale in the market. We think that their materials business is an opportunity for us to also scale and grow. And then they just bring a different end market to us within our Utah business around education, health care, and even some mission-critical work around data centers as opportunities. I think we can really share each other’s client base, both inside the Utah market as well as outside of the Utah market. On Warren Paving and overall materials demand, we could not be more pleased with the Warren Paving acquisition, the integration, and the performance of the business. It is just an incredible team to have as part of Granite Construction Incorporated, and they are performing at a really high level so far this year. We expect that to continue. In our materials business, we had a really nice quarter. We saw volume growth and also cash gross profit margin growth, and a lot of that did come from our Warren Paving acquisition, particularly on the aggregate side. But even outside of that, our legacy business also had some really nice growth in the quarter in our aggregates business and our asphalt business. So in general, Warren Paving is performing well, and our legacy business is doing the same. Staci M. Woolsey: On SG&A leverage, with our SG&A change in guidance, really that is being driven a lot by the revenue increase. The increase in our guidance on revenue of $300 million for the rest of the year is about $200 million coming from the tactical infrastructure job and $100 million of revenue from Kenny Sain Construction. We are working to continue to get better efficiency out of SG&A, but at this time, it is the revenue piece that is driving the improvement. Steven Ramsey: Okay. Thank you. Operator: Thank you. We have the next question from the line of Michael Stephan Dudas from Vertical Research Partners. Please go ahead. Michael Stephan Dudas: Good morning, Staci and Michael. First, Kyle, maybe your comment about your federal exposure. Certainly very solid performance getting those projects down south of the border. But also, maybe you can touch on a little bit of what is going on in Guam and other parts of federal, and that move to 15% of your total revenues over time seems pretty reasonable. How does that compare? Is there any margin difference or any risk difference or cash collections difference in that business versus some of the others? Kyle T. Larkin: We have been working on our federal business and really that division for years. I think it is one of the first opportunities for us to take an end-market strategy and overlay it across our geographical home market strategy, and our teams have done a really nice job. We started off with revenues in that space of less than 5% of our revenue. We have grown it up to around 10% previously. Now, with the additional tactical infrastructure work at the border, we see that contribution being right around that 15%. We think, with our continued focus—whether it is in Guam, which continues to have tremendous opportunities, or military installations within our home markets, or shoreline protection work that we see as opportunities down in the Southeast—we can continue to grow that to being above 15% of our revenue even as the projects along the border wind down over the next couple of years. Michael Stephan Dudas: As a continued diversification theme, you touched on some pretty interesting private sector opportunities—you say rail, you say data center. Is that something that can continue to grow as a percent of total? Is that because the overall market is coming to you there and because of your positioning, and even some of the acquisitions in the Southeast certainly give you better exposure to those types of markets? Kyle T. Larkin: We have engaged in mining, rail, and industrial for a while. It is more an overall company strategy. We still see what we call mission critical, which includes the data center work, having tremendous opportunities for the company. As mentioned in the remarks, we actually have dedicated leadership in place to pursue that work and support our teams. Most importantly for us, it is about aligning that dedicated leadership with our local business unit leaders so we can leverage those key clients, and we can support the work with the local resources we have within the home markets. We have been making a lot of progress. We are successfully delivering or supplying materials to projects in Washington, Oregon, Nevada, Arizona, Louisiana, and Mississippi within those home markets today. We are able to tackle it from a civil component, water component for the lane business, and materials. We do expect it can grow up to around 10% of our overall revenues moving forward, with opportunities to grow. We will see how we perform, but so far, we are off to a very good start. Operator: Thank you. We have the next question from the line of Kevin Gainey from Thompson Davis. Please go ahead. Kevin Gainey: Good morning, Kyle, Staci, Michael. Congrats on the quarter. Maybe if we could start with a little discussion on the CAP outlook. How do you see that shaping up as you move through the year? And then maybe you could touch on the California job—what are the chances that job comes back? Kyle T. Larkin: We are excited about our CAP. One of the things we have been able to say consistently now is that we have had CAP growth as well as the highest-quality CAP, at least in our opinion, we have ever had in our company history. We are continuing to bid more work and capture more work, and that is driving CAP up and allowing us to see growth. We are off to a really strong start in the first quarter, and we think the CAP is going to allow us to continue to grow our business not just in 2026 but into 2027. Regarding the project in California, the scope exceeded the available funding. That project was one that we were selected on back in 2020, and the costs the state expected in 2020 did not end up being the costs of the project in 2026 dollars. It is unusual. I think the project will come back; I am not sure in what form and what size, so that is still to be determined. Kevin Gainey: Appreciate the color. And then expectations for Construction margins—how are they going to move throughout the year? I know Q1 had the year-over-year impact, but what gives you confidence in the outlook for the balance of the year for margins? Kyle T. Larkin: We feel great. In the first quarter, we had a solid Construction performance. We were about 60 basis points down in the first quarter year over year, but we did have a one-time insurance recovery in the first quarter last year that was about 130 basis points. If you adjust that out, we are actually 70 basis points ahead of where we were last year at this time. So our Construction margins, net of that insurance recovery, are trending well above last year. With our increased full-year adjusted EBITDA margin guidance, we are where we want to be—at the midpoint around 12.75%—on track with where we want to be in 2027, getting to that 13.5% adjusted EBITDA margin by the end of that year. We feel really good about our Construction margins. The CAP supports that, and we are right where we want to be. Kevin Gainey: Great. Sounds good. Thank you. Operator: We have the last question from the line of Adam Bubes from Goldman Sachs. Please go ahead. Adam Bubes: Hi, good morning. The tactical infrastructure projects—nice to see those come in. Those are a little larger in size and pretty quick burns. Which risk parameters or project attributes gave you comfort in taking on those projects that you have been evaluating for some time? And can you talk about how margins on those projects compare to the base Construction business? Also, can you expand on your cost tied to fuel or energy? Is there a way to frame what percent of COGS in Construction and Materials are tied to energy, the different levers to pull to offset fuel costs, and whether there is any higher cost impact you are baking into the balance of the year? Kyle T. Larkin: Thanks, Adam. You are right, some of these projects are getting a little bit larger than originally contemplated, but we are excited about the two projects that we have today. We have the one in Southeastern Texas that has about $140 million remaining, and then the recent win in Laredo, Texas, which is about $500 million. It is a quick burn. That project burns over around 14 months, and so we expect to be around 40% complete in 2026. That is one of the reasons why we are in a position to raise our guidance. As a reminder, we have decades of experience delivering on these projects, and we solicited resources from our entire company to ensure we can deliver successfully for both ourselves and our client. We actually have the capacity to take on more, and we continue to pursue these projects. We will see if we can be successful in picking up another one before they get through the letting process, which we think will probably occur between June and July. We are remaining very disciplined. I would frame the risk in three categories. One is schedule—these are fast-burn projects that move very quickly, which is why we had to ensure the resources were available. The second is remoteness—access, logistics, recruiting people—and we believe we have that risk largely mitigated. The third risk is subcontractors and suppliers. With a very large program along the border, there are many subcontractors and suppliers participating at levels they typically do not, so there is some risk that some take on more work than they can handle. We are being very selective about our partners. We feel we understand the risk because we have a lot of experience doing this work, and we have been able to mitigate it with these projects. On energy, the short answer is our teams have done a really nice job. I am proud of what our team has done to mitigate volatility within liquid asphalt, diesel, and natural gas. Overall, we have not seen a negative impact on the business; if anything, it has been slightly positive. A couple of things are important to point out. One is the energy surcharge we put in place after 2021 in our Materials business, which has provided good protection around cost increases. We also work for public owners that have escalators and de-escalators. A big part of our business is public works, and they have some sort of backstop related to liquid asphalt and diesel, and in some cases, cement and steel. Then there are fixed forward contracts, storage, and financial hedges. It is hard to provide a single number for what those cost increases are, but we have done a really nice job, credit to our team, and if anything, it has been more positive than negative. Operator: Thank you. This is the end of the Q&A. I would now like to turn the call back over to Mr. Larkin for closing comments. Kyle T. Larkin: Thank you for joining the call today. As always, we want to thank our teams for delivering a strong first quarter. Granite Construction Incorporated is an industry leader in safety, and I look forward to joining many of you next week as we recognize Construction Industry Safety Week. Let us continue to raise the bar and make 2026 our safest year yet. Thank you for joining the call and for your interest in Granite Construction Incorporated. We look forward to speaking with you all soon. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the NewtekOne, Inc. first quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during your session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Barry R. Sloane, president and CEO. Please go ahead. Barry R. Sloane: Thank you very much, and welcome to our Q1 2026 financial results conference call. My name is Barry R. Sloane, president, CEO, and founder of NewtekOne, Inc. Also presenting today is Frank DeMaria, chief financial officer of NEWT, the financial holding company that is publicly traded, and Frank is also chief financial officer of Newtek Bank National Association. For those who want to follow today's presentation along, please go to newtekone.com — n e w t e k o n e dot com. Go to the investor relations section and the presentation section. Appreciate everyone's attending today. Given that this is our 25th year as a publicly traded company, and our 13th quarter reporting as a bank holding company, after acquiring National Bank of New York City. We have accomplished quite a lot from $180 million of total assets in National Bank of New York City to over $2 billion. The financial holding company is approximately $2.9 billion of assets. And the bank has over $2 billion of deposits, up from $140 million at the time we acquired it approximately three and a quarter years ago. We want to make sure in today's presentation, one of the biggest concerns I think people have, particularly in the current volatile market, is credit quality. I want to point everyone towards slide 21, where we are able to demonstrate that the bank clearly has stabilized credit. NPLs are down as a percentage, when you typically take out the government guaranteed for both the numerator and the denominator. With that said, let us go to slide number two under forward-looking statements. Let us absorb that. And then let us go to slide number three. Important always to note you look at NewtekOne, Inc. as its purpose, our mission has not changed since we were founded in 1998 at 120 West 18th Street, Apartment 4B, with three founders. The focus of NewtekOne, Inc. is to provide small to medium-sized businesses, small to medium-sized enterprises, and to business owners all across the United States financial and business solutions that are state of the art. We help our clients become more successful by growing their revenues, reducing their expense, and reducing their risk. I think more importantly, we are very much involved in the concept of real-time payments. We will talk about that quite a bit today. Moving money, and giving businesses the analytics that they really desire and require apart from what they typically get from the top four large financial institutions in the United States, regional banks, and community banks. On slide number four, how do we do this? NewtekOne, Inc. uses technology to tackle its mission statement. I think it is important to point out that although we have taken many different sizes and shapes as a publicly traded company, we started off as a 1933 Act company, converted in November 2011 to a 1940s Act BDC company, and then converted back into a financial holding company. We acquired National Bank of New York City primarily for the purpose of improving our client experiences historically. We believe that by using technology, we have solved the three primary challenges that the banking industry needs to overcome to be able to help the customer base. One, the high cost of infrastructure with too many branches and expensive traditional bankers. We are traditional bankerless, and branchless. If you take a look at the efficiency ratio at Newtek Bank National Association, this particular quarter it was 40%. Insufficient lending margins from riskless loans — we think this particular industry, their lending, generally is avoiding risk. They are not managing risk. And we think that there is very little margin in their business. Frankly, if they are not able to acquire deposits materially below the risk-free rate, there is not a lot of margin in their business. Lastly, from a deposit perspective, basically, taking in deposits with zero interest paid or noninterest-bearing deposits and charging excessive fees for the business client is not in the domain of NewtekOne, Inc. or Newtek Bank National Association. We have an extremely attractive platform that pays for business clients 1% on checking, 3.5% on business savings, and a true no-asterisk zero-fee bank account. Important to note, we are a major adopter of real-time payments. We can announce today that we now have FedNow for receiving payments for our client base. We have been approved by the Federal Reserve's FedNow program and the Clearing House RTP. So we are fully approved, this is live, and we are able to benefit our clients today with real-time payments appearing in their account. On slide number five, obviously, these are things I think many of you are already aware of in terms of our structure. NewtekOne, Inc. is considered a bank holding company regulated by the Fed Board of Governors. Newtek Bank National Association, which used to be called National Bank of New York City, is a depository offering great solutions, real-time payments, and is obviously the lender to the business community. Through its holding company investment in Newtek Merchant Solutions, we provide payment processing solutions, payroll solutions, and insurance solutions that support independent business owners all across the United States. We utilize our own proprietary and patented technological solutions to acquire customers cost-effectively. We receive 600 to 800 unique business referrals a day through our NewTracker trademark client acquisition tool, and we give cloud customers through the Newtek Advantage a far advanced business portal to help them manage the business, move money on a real-time basis, as well as get the types of historic data and analytics that they so rightly deserve. NewtekOne, Inc. provides a full menu of best-in-class on-demand business and financial solutions to independent business owners. Importantly, we do not leave clients to just software. We have staff over 300 that are available on demand on camera. So, in addition to great software and great technology in a frictionless manner, they can also get somebody on camera when they need them. On slide number six, we talk about our target market. I think the relevance of our target market is the SMB, SME, or independent business owner market is quite large and quite lucrative. It is estimated that there are 36 million independent business owners in the United States that identify themselves in this category. According to the U.S. Chamber of Commerce, it is 43% of U.S. GDP. Frankly, we have been tremendously supportive of this particular asset class. And according to the SBA, we have stabilized and supported over 110 thousand jobs over the last five years, the second highest amongst all SBA lenders. The independent business owner is a huge economic demographic that, frankly, the existing industry has taken advantage of by basically taking their deposits and not really providing them attractive lending solutions that enable them to grow their business or, for that matter, the ability to move money on a real-time basis. It is important to point out that in recent SBA data, NewtekOne, Inc. is the largest SBA lender by units and is top two or three by loan volume. Also important to note that even though the bank's balance sheet is a little over $2.1 billion, when we make an SBA loan 75% is government guaranteed. We typically sell it. So even though the bank is $2 billion, when you look at the government guarantees and the fact that we are servicing them, it is a much bigger infrastructure. I guess over our history, if we kept all the government guarantees on the balance sheet rather than selling them, it would be approximately $4 billion of total assets. On slide number seven, we are going to focus on the really attractive quarter that we just reported. A really good start to 2026. EPS of $0.43, beating Street consensus by about a penny. Reflected 1,923% growth over Q1 2025 basic and diluted EPS and was within our $0.37 to $0.47 guidance range. We want to reconfirm our 2026 guidance of $2.35 at the midpoint and establish a $2.60 midpoint for 2027. The current Street consensus for 2027 is $2.35, $2.40, $2.45, and $2.50 from four of the six analysts, to blend to $2.43. Also, for those that follow our stock closely, you are familiar we have done a very nice job in growing book value and tangible book value. So book value per share ended Q1 2026 at $12.35. Tangible book at $11.84. Started off at a tangible book at $6.92 in Q1 2023. Quite a substantial growth over the course of time. It is the technological advancements that are supporting a record number of originated loans and tremendous year-over-year growth. In the fourth quarter in 2026, we originated 961 loan units, a 40% year over year, with 500 loan units alone originated in March versus 287. In dollar terms, $391 million of loans versus March 2025. And March's momentum has continued in April with approximately 10% year-over-year growth. In addition, we are able to capture the operating leverage. Q1 2026 operating expense was just over up over 7.5% on year-over-year asset growth of 35% and a return on average assets of 1.96%, very favorable to the industry, but also important for those of you that follow the company. The first quarter is clearly our weakest from an earnings perspective. I think it is important to note using technology on a loan under $350,000. We are using AI to read tax returns, read lease agreements, read operating agreements, as well as alternative valuation methods. So, by being able to do this, we are able to really fund small business loans quite quickly. As a matter of fact, we talked about, which we will do in future slides, the seven-day loan. Once the loan application is completed, we can clearly fund that particular application under $350,000 within seven days. Slide number eight, deposit growth, extremely important for banks. We have two consecutive quarters of a record number of deposit accounts. Ended Q1 2026 with 37 thousand deposit accounts, more than doubling year over year. In 13 quarters, we have grown deposits from $142 million to $1.9 billion. Business deposits, which come in at a lower cost, increased quarter over quarter and year over year by $37 million and $173 million, respectively. Consumer deposits also climbing quarter over quarter and year over year by $392 million and $668 million. Since the acquisition of Newtek Bank in 2023, 54% of our lending clients have opened up a business deposit account. And since February 2024, when we initiated T Man Life to Newtek Bank business lending clients, 25% of those clients have purchased T Man Life and do so on an automatic, frictionless basis where they apply once and they can get a bank account, T Man Life. They can currently get flood insurance. In the menu in the very near future, we are also going to be able to offer property and casualty. All automated, one app, frictionless, and get that client their funds as quickly as possible for those who qualify. We just started in January originating C&I Long Am loans, nicknamed C&I LA. We used to call them ALP loans. And these are being originated at the bank. The C&I LA originations approximated $85.7 million versus $68.5 million in the same quarter a year earlier. We are now funding these, obviously, with bank deposits where historically, in 2025 and earlier than that, we funded them up at the holding company with warehouse facilities. Cost of those facilities are approximately SOFR plus 3.25%. But the bigger cost, which I will describe in a second, has been not using a warehouse facility, but the bank funding. We have historically securitized C&I LA loans on a regular basis and we may do so from the bank's balance sheet. Once again, let us take an example of, say, a $500 million portfolio. So a $500 million portfolio historically was originated at the holding company, with a 70% advance rate from a street warehouse line. And we should note we just paid two of those down to zero — one from Capital One, one from Deutsche Bank. That had a 30% equity haircut. So on $500 million worth of loans, you need $150 million of capital from the holdco. Once you securitize with a 15% OC or owner certificate, meaning that you had three classes of bonds above it — single A bond, a triple B bond, and a double B bond — to give you an 85% advance rate. An 85% advance rate on $500 million of collateral is $75 million. All would have to be contributed from the holding company. In the event that we securitize off the bank's balance sheet, it is dramatically less. You are funding it with core deposits at approximately a 10-to-1 leverage. Much more efficient and much more profitable. On slide number nine, tangible book value per share, one of my favorite slides. So, real simple for those people that like to invest based upon tangible book value growing, if you look at this slide, it is a little dizzy to a certain degree. $6.92 in Q1 2023. It is currently $11.84. Frank DeMaria will talk about where we think we will be at the end of the year, and it will be approximately $13.50. And then on top of that, you look at the dividends that we paid. $2.43 of cumulative common dividends declared. $4.92 of tangible book value growth since the conversion. We have delivered $7.35 of value to shareholders, more than double the Q1 tangible value of $6.92, something we are really proud of. On slide number 10, we touched upon this a little earlier, the technological advances that are supporting increased loan volume. Those advances have also helped us with deposit growth. I think once again, it is important to note we had tremendous unit and dollar growth in the first quarter. We talked about the seven-day business loan. We talked about our AI that we use for smaller balance loans with respect to using it to read tax returns, which are very important to spreading financials, and actually calculating debt service coverage. Some of our competitors in the marketplace, frankly, that have been scoring some of these loans cannot do it. They have got to change their technology. It is creating friction. We have had several of our competitors in the space reporting problems with their fintech originators that are not able to actually deliver the solution. Not a problem for NewtekOne, Inc. or Newtek Bank. We have been using five C's of credit lending in our entire history. We are doing that on the $350,000 loans to basically get liens, get appraisals, read operating agreements, and lease agreements. Importantly, when you compare our business loans, which are structured to amortize over 10 to 25 years with no balloon payments, these are commercially viable rates. Compare it to merchant cash advance, or the daily debit type loans, we can create monthly payments that are 7% lower than a borrower with experience with alternative financing options that are structured with shorter maturities. Our business model, whether it is 7(a), C&I LA, or loans that go into the bank — I think it is important. We have been long-amortizing lenders since 2003. We have that expertise. Our loans give the borrower a lot of flexibility. There is no covenant. So it allows them to distribute all the income. It allows them to borrow more without asking. It allows them to do an acquisition. What is the trade off? We get a personal guarantee. We get a lien on all business assets. And in many cases, personal assets. We would trade that all day long. We have the knowledge and experience making loans over two decades to have a very good feel for the full frequency and severity. We know these businesses. We know these markets. We do know how to manage making these types of loans, get greater net returns after provisions, after allowance for credit losses, which are almost 5%. Very, very strong risk management within the walls of Newtek Bank. We are very proud of what we have been able to do here. And now when you add technology, there is no need for a business owner to borrow money from an MCA or a daily debit loan and use rages. They might have to wait a couple of more days, but they get a long hand. They get an adult payment. They actually get an adult loan. Those technological advances that we have created for ourselves internally have also been very valuable to our digital account opening and deposit growth on slide number 11. A look at the graphs — they are very attractive. You can see we have grown business deposits. We have grown total deposits. We have grown depository accounts. We are just doing very, very well in this particular area. Importantly, these are insured deposits — 78% insured. These deposits are not going anywhere. They are insured. They are small. You are not going to have a Silicon Valley Bank-type problem because the customers were not paid any interest. They had millions or tens of millions or hundreds of millions of dollars. It just flew at a moment's notice. We are very, very happy about paying market rates of interest. We get good margins on our loans. Net of write-offs, it is a real good, smart business model. Slide number 12. This is our nonbank lender, held over from the days when we did not own a bank. We had to fund our business with warehouse lines and securitization at the holding company. So Newtek Small Business Finance is winding down. I think it is also important to note that this portfolio has really experienced what we consider the great financial crisis for small business where rates went up 3% to 5% in a short period of time. And inflation really made it difficult for businesses. So when you look at net increase in nonaccruals shrinking, the accruing portfolio shrinking, nonaccruals at fair value shrinking. The outstanding securitization notes down to $113 million. That is really important because the loans that are in the securitizations — all the cash flow is being used to pay down the debt in the securitization. So once you hit the cleanup call — and there are three securitizations left; we started off with 13 — and you hit the cleanup call, which we are going to start to hit those in the next six to 24 months, probably on all three, then those loans and the monthly P&I flows through, and we are able to use that cash flow for a lot of nice things up at the holding company. Also, when you look at NSBF, on a total consolidated basis, at 2025 it was 21%. On 03/31/2025, that is 13%. So it continues to shrink. We are happy about that. The remaining portfolio is fairly seasoned. The weighted average life is about 66 months, so we think we are through the worst part of the curve. And we certainly appreciate the opportunity to participate in the program as a nonbank lender, and we have been participating as a bank lender pretty much for three and a quarter — actually, about three years. Slide 13, the C&I LA program, extremely additive. I want to really emphasize how additive it is. The average loan size on C&I LA is about $4 million to $5 million. Let us use $5 million because it is a nice round number. So on 100 units, you have got $500 million. On 200 units, it is $1 billion. To do $1 billion of 7(a) loans, you almost have to do 3 thousand units. So the ability to grow with our pipeline in a quality manner exists. It is there. Without reaching for bad credits. Importantly, the C&I LA program is not a 7(a) type program with a 7(a) borrower. The borrowers are seasoned. We will go through the metric profile. You will see these are very strong credits. So this is going to help us diversify. As a matter of fact, at March, the 7(a) portfolio with the bank, I think, was down to about 41% of the total portfolio. So diversification is an extremely important part of risk management at the bank. We plan on doing more CRE at the bank, more short A/M C&I, as well as the C&I LA program which has great margins, and we have developed a six- to seven-year expertise in it. Once again, the size of the loans are extremely important. They will enable us to grow the balance sheet in a better quality manner without having to reach. In January 2026, we successfully launched our fourth C&I LA securitization. There was $295 million of securitized notes sold by $342 million of loans. It was our 17th securitization in our history. The deal was 10 times oversubscribed with 32 institutions purchasing the notes. Slide number 14, very important. I think you need to absorb this. These businesses on a weighted average basis have been around for about 10 years. That is not an SBA borrower. Weighted average LTV, 47%. Weighted average debt service coverage over three. That is not an SBA borrower. When you look at the coupon, you say, why are they getting a coupon? If you give an entrepreneur the flexibility of not dealing with intrusive covenants, letting them distribute their income, but they are willing to personally guarantee, lien all business assets and some personal assets so that you are covered. This is a good loan program. We have repositioned the value of early amortizing a C&I loan, of putting a three-year or five-year balloon payment on a loan, of requiring certain financials 45 days in arrears after the quarter. I would much rather look into their bank account, see what they are doing, who they are paying, what they are paying, seeing the revenues coming into the bank account, than have those financials all day long. That is, once again, the advantage of being technologically on top of this particular business and this particular industry. Once again, limiting state concentrations, limiting industry concentrations, diversification, diversification, and more diversification. This is a program with stronger credit than 7(a), with really good margins, and we have an expertise in it. Slide number 15 just kind of gives you an idea of how successful we have been in this particular marketplace. I would like to point out a recent deal we did, 2026-1. So the gross spread before we deduct the servicing fee was 6.6%. That is the coupon on the collateral versus the yield on the securities. Net of the servicing fee, 5.66%. Now securitization interest expense is higher than bank deposits. Also, it is match funded, which is extremely important. So you get the duration benefit. Now the other thing about securitization — you set it, and forget it. And I say that — I am not talking about what we are doing on the servicing side because we are fairly active on the servicing side with our borrowers — but think about a 5.66% spread after servicing. So if you went to a bank and said, oh, by the way, I can give you and make loans at a 5.66% spread and there is no cost to run the bank. You do not need FDIC insurance. You do not need people managing depository accounts. You do not need branches. You do not need bankers. You just put the loans in a special purpose vehicle. You clip the coupon. You service the loans. And you pay the bondholders. That is a winning business. And when you look at the valuations on the owner certificates, we are slightly over two to one on the value, but look at that spread. And you are probably five to five and a half times cash flow. Very reasonable. That is after the markup. So we love this business. We have an expertise in this business. We have a track record in this business. We are good at this business. Slide number 16. So when you look at the active securitizations, because the first one is already paid off and wound up, look at the 2024 deal. And look at how the overcollateralization grows because you have got all that excess cash flow that goes to pay down the senior notes. So the OC went from $36.2 million to $50 million. That shows you that the book value will ultimately get to the fair value in about three to three and a half years. Because you have got all that excess cash flow flowing into the securitizations, into the special purpose, it really hyperamortizes the bonds. I would now like to turn the rest of the presentation over to Frank DeMaria. Frank DeMaria: Thanks, Barry. Slide 18 highlights our consolidated profitability metrics, of which there are two primary takeaways. One, our measures of profitability continue to be very strong, with the first quarter return on average assets just below 2% and a return on tangible common equity approaching 15%. And two, profitability is improving with notable step-ups over the 2025 first quarter. I would like to again reiterate that there is an element of seasonality to the business with the first quarter of the year being typically our weakest. Slide 19 focuses on trends specifically at Newtek Bank. Note the pickup in the returns on average assets, equity, and tangible common equity, and the improvement in the efficiency ratio, all of which are influenced by moving the origination and funding of longer amortizing C&I loans to our bank subsidiary. We also show margin trends on this slide. Due to the exceptional deposit growth in the first quarter, the bank experienced a meaningful shift in its quarter-over-quarter earning asset mix, leading to NIM compression. However, the absolute dollar balance of net interest income continues to increase. Also, as Barry noted, significant loan production occurred in the second half of the quarter, which should bode well for net interest income and the bank's NIM in the second quarter. Loan and deposit growth remained very healthy, and we saw a decline in delinquencies and NPLs excluding government guaranteed loans. The next slide shows the geography of our loan production on the NewtekOne, Inc. balance sheet. With the shift of C&I LA loan originations into the bank, the first quarter securitization that moved loans off balance sheet and the ongoing wind down of the NSPF portfolio, loans at Newtek Bank now comprise 83% of total loans, up from 65% for year-end 2025 and 57% for 2025. Slide 21 walks through credit trends at Newtek Bank, which highlight the following. One, delinquencies were down for a third quarter in a row. Two, the ratio of NPLs to loans excluding government guaranteed loans was down for a fourth consecutive quarter. Three, provisioning continues to cover net charge-offs. And four, as expected, net charge-offs have picked up as the loan portfolio has seasoned. That seasoning was anticipated and captured by our CECL calculation that called for building our allowance for credit losses as we grew the loan portfolio almost from scratch after acquiring the bank. Slide 22 covers Newtek Bank's held-for-investment loan portfolio. The held-for-investment portfolio increased roughly 10% in the first quarter with solid contributions from all three components: traditional CRE, traditional C&I, and unguaranteed SBA 7(a) loans. Unguaranteed portions of SBA 7(a) loans comprise roughly 59% of the held-for-investment book, down slightly quarter over quarter from 60%. The allowance for credit losses related to the unguaranteed 7(a) portfolio continues to make up a bulk of the bank's ACL. Slide 23 is a depiction of how our strong asset growth is supported by healthy cap ratios, with leverage being above 13%, CET1 over 15.5%, Tier 1 capital above 18%, and total capital approaching 19.5%. Lastly, on slide 24, we have reaffirmed the EPS and origination guidance for 2026 and, as Barry noted, laid out an EPS range for 2027 to give market participants an early read on how we see future trends. And with that, I will turn it back to Barry. Barry R. Sloane: Thank you, Frank, and before we go to Q&A, I want to point out just a few more quick items for emphasis. Net interest margin for the business, once we do a securitization, particularly in C&I LA, typically declines. So I ask all of you please, the best way to value our organization is on a year-over-year basis. Certainly, look at us quarter to quarter — we are not telling you how to look at it. But to give you an example, we have, I think, about $383.19 billion of cash at the Fed. That is a bit of a drag, particularly on interest income. So someone would say, well, why do you have that much cash at the Fed? Well, we had the opportunity to get deposits. We are very constructive on our loan platform going forward. And we are going to use it. Now that may hurt in the near term, but on a long-term basis, it should work out really well. And if you can develop a little bit of foresight, putting these C&I LA loans down at the bank, all of a sudden you are going to start to get some really nice interest spreads, some really nice margins. Nice diversification of the portfolio, improved credit metrics — it falls in very nicely. Also want to point out the ability to grow the business is a lot stronger with C&I LA at an average loan size of $4 million to $5 million. And the efficiency ratio with the bank is very indicative. As you could see, there is more activity at the bank, and that is our goal. And our goal is to do this methodically. A lot of times I am asked, can you grow faster? And the answer is I do not want to grow any faster. It makes everybody comfortable we are growing fast enough, but we are doing controlled growth. We are managing our risk well. We are basically staying to our knitting in what we know. And from the results you could see from this particular quarter, and, frankly, three years and a quarter of operating, we are hitting our stride in a good spot. So with that, operator, I would like to open this up to Q&A. Thank you. Operator: At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your hand to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Timothy Switzer of KBW. Your line is open. Timothy Switzer: Good afternoon. How are you guys doing? Barry R. Sloane: Good, Tim. How are you? Timothy Switzer: Good. Thanks for taking my questions. My first one — you just kind of touched on it, Barry, but on balance sheet growth. Barry R. Sloane: You know, quite a bit of growth in the loan book this quarter, excluding the securitization here, drove assets a little bit higher. Does that change kind of the trajectory of loan growth going forward, or what should we be expecting? Barry R. Sloane: I think the growth of loans is going to be in the bank. I do not think you are going to see any loan origination at the holding company whatsoever. And I think the holding company is going to continue to house Merchant Solutions. It is conceivable we might put payroll down into the bank. That makes it a lot easier to currently do same-day payroll. What I mean by that is we have the ability and are doing this: if a business wants to make money available on Monday, they could pay their employees on Monday, same-day payroll. It is easier to do that if the payroll business is down into the bank. But I think you are going to see the same type of historic growth — I will use the word low double digit — and I think you are going to see greater diversification. You are going to see improved credit metrics because we are going to be putting on a lot more of these C&I LA loans, which are clearly better credits, down in the bank, but also do so with good margins. Timothy Switzer: Okay. Got it. Very clear. And then similar question, but on the deposit side, tons of growth there. Your LDR now is super low. Is that going to normalize down at all, or are you going to maintain this liquidity? Barry R. Sloane: It is interesting. On one side, I have banks that were holding all that cash at the Fed at a low amount, and on the other side, it is like, okay, I know I have got the liquidity to basically make loans going forward. I think this is a bit excessive. I do not think we need $390 million, but I think we are always going to keep a good amount of liquidity at the bank. We have got waiting lists of people for deposits, frankly. If you go to Trustpilot, I believe we are like a 4.7 or 4.8, which is extremely favorable for customer service. Hats off to Jen Merritt and the Wilmington Group. They do a fantastic job there. It is not just rate. We do a really good job servicing customers. I think that is important. I think it is also important that with real-time payments — and we have a real real-time payments offering. It is not just ACH. We now have the real-time payments with FedNow and the Clearing House RTP. At some point, we might use stablecoin, but not something that we are going to use for deposits. So we are going to stay out of the traffic there, but just give people the ability to move money quicker using probably somebody else's stablecoin. But being able to use the Newtek Advantage and the portal for the analytics to make payroll quicker, to have merchant money in your account on the same day and show up and get credit for it — these are all very beneficial. So we do think that we are going to get more business deposits over time because of this. These things do take time. It takes time to train your staff, use artificial intelligence where you can to deliver those solutions to customers better. We are early adopters of technology, and we will continue to do so. Operator: Thank you for your question. One moment for our next question. This question comes from Christopher Nolan of Ladenburg Thalmann & Company. Your line is open. Christopher Nolan: Hey, guys. Frank, what was the lower loan yields due to again, please? Frank DeMaria: The loan yields are on a blended rate around 7.25%. Christopher Nolan: Yeah. Why was it decreased quarter over quarter, please? Frank DeMaria: Oh, the decrease quarter over quarter is mainly driven by the ALP loans going off balance sheet at the beginning of the quarter. And then with the second half of the quarter being strong, we, on an average basis, did not get as much credit for that given we had to go off the beginning of the quarter into the securitization and then started to see some originations later in the second quarter on the higher yielding ALP loans. So you should see that kind of come back to a normalized basis as we get into the second quarter and start getting the benefit of those loans being on balance sheet for the full quarter. Christopher Nolan: Okay. So it is timing issues for the late loans, right? It is timing, but it is also a little recharacterization because the coupon did not go away. It is just in a securitization with those spreads. So we get the income from the owner certificate. Does that make sense, Chris? It is just that it is a recharacterization of the income. Frank DeMaria: Not really, but I will catch up with you guys later on and ask. Christopher Nolan: Thank you. And then second, my follow-up question is the leverage ratio. You guys are growing, and the capital ratios are going down. And, you know, I think your leverage ratio at the holdco is, like, 9% or so. And I know you have mentioned that you are not going to chase growth for growth's sake, but is it now become more of a balancing act where you know, you have to moderate growth with securitizations just because you are starting to approach, you know, capitalization constraints? Is that correct? And I want to be clear on this. Barry R. Sloane: And I commented it is really hard — and maybe this is our cross to bear — to look at us quarter over quarter. But when I have got $390 million of cash at the Fed, which I am fine with long term, and I take loans and I put them into a special purpose vehicle, I mean, people that are looking at this should not be penalizing us for that. They should be going, okay, you are good managers. Now relative to the concept of the capitalization, as I start to put those into loans, all of a sudden — example, the first quarter is the weakest quarter for income. I think you will see a marked jump in both the capitalization and the income of the bank. So, no, we are not stretching. We are not going to overuse that capital. I think that will gravitate back up, and then it will just keep going back and forth. Frank DeMaria: Okay. Thank you. And, Chris, just to clarify, the leverage ratio at the holding company is 13.1%. Christopher Nolan: Okay. Thank you. Operator: Thank you. Our next question comes from Harold Goetsch at B. Riley Securities. Your line is open. Harold Goetsch: Hey. Thank you, and terrific quarter, guys. Well done. Got a question on the seven-day loan. Is there any data on that — how much of the loans were from that program in the first quarter, if there were any? And if there was not, is this a competitive advantage to have a tech-led stack that allows you to basically convert your funnel at a better rate, giving a better user experience to the borrower? Let me get your thoughts on that. Barry R. Sloane: Hal, I think we do not have it broken out specifically, but I think if you look at the loan volume, which we talked about in the deck in the month of March when we announced it, and the precipitous jump, we also indicated that we are up 10% on total loans April 2026 versus April 2025. We think that that could be a continuing trend. So I think we continue to make more loans at double-digit rates without stretching for credit. Harold Goetsch: Okay. And my next question, could you go over some of the before and after again? That was pretty interesting about, you know, I think, in a securitization where there are three tranches, then there is a 70% advance rate and a 30% equity stake. You are essentially transitioned to a model where you have to weigh out substantially less equity capital for these — is that what you are saying? Could you go over some of those numbers again? Barry R. Sloane: Sure. Let us use a $100 million. Let us take a $100 million portfolio. If you were going to do it at the holding company, you would get a $70 million line of credit from, say, Deutsche Bank or Capital One. So you would need $30 million of equity during the accumulation. When you do a securitization, you get three classes of rated bonds, which we sell, at an 85% advance rate. That means your owner certificate in the securitization is about 15% or $15 million. And that has to be permanently financed at the holding company. In the bank, I finance all the activity with deposits at 3.6% to 3.7%. One hundred cents on the dollar. So I financed $100 million with deposits. Now I have capital against it. But that is okay. We have calculated it. It works out just fine. Harold Goetsch: Alright. Okay. Thank you very much. Barry R. Sloane: So it is a major benefit with less need to pull in capital with the holding company. Harold Goetsch: Okay. Operator: Thank you. Our next question comes from Stephen M. Moss of Raymond James. Your line is now open. Stephen M. Moss: Good afternoon. Barry R. Sloane: Hey, Steve. Stephen M. Moss: Barry, Frank, maybe just start off on your cost of funds here going forward and just go into that — getting rid of the lines that you were parking the C&I LA loans at — seems like a pretty meaningful cost savings. It should be a pretty meaningful cost savings just on the spread. Just thinking about, you know, you are going to be running several hundred million dollars in average balances. You know, NII should be probably taking a pretty decent step up as the year goes on here — just kind of curious as to how you guys are thinking about that. Barry R. Sloane: Got it. When you say step up, I am not sure I know what you mean. What do you mean? Stephen M. Moss: Just that there is — you know, it looks like you are funding them with deposits at, call it, 4%. And before, you were funding those loans at, call it, 7% with SOFR plus 3.25%. Barry R. Sloane: Plus an equity haircut. Yes. Stephen M. Moss: Correct. Barry R. Sloane: Right. Stephen M. Moss: So it is immeasurably beneficial, and the program now is six and a half, seven years old, and we have developed a good track record and four securitizations and have improved a lot of different aspects within our organization to be able to manage the risk, and that is why it is now being funded down at the bank. Stephen M. Moss: Right. So maybe just trying to put it this way — as I think about your funding, your NII growth before your next securitization, could it peak around, you know, $24 million to $25 million? Or are my numbers just maybe a little too large as we think about when you will do the next securitization? Barry R. Sloane: Frank, I will let you handle that one. That is above my pay grade. Frank DeMaria: I think that is a little — so, one, to answer your question, Steve, you are right. We will see a benefit from the spread because we are going to see reduced cost of funds. But I do think the $24 million is a little bit high. We are not getting quite there on our projections. But you are right. We are going to see a noticeable step-up as we go quarter over quarter just given the spreads that we do anticipate with the lower cost of funds and as we do see those yields starting to come back on the asset side with getting past the timing issue we had in the first quarter. Stephen M. Moss: And then in terms of when we think about the next securitization coming — I know you guys generally want them to be larger — but any updated thoughts maybe as this is now on balance sheet as to how large the next securitization could be? Barry R. Sloane: We are hoping it is a fourth quarter event, Steve. And we would like the collateral pool to be $400 million to $500 million. Stephen M. Moss: Okay. And then one last one for me, Barry. Just, you know, you have been good in terms of a barometer of the health or challenges of the SBA market. Just kind of curious as to what you are seeing these days in terms of borrower confidence and activity. It has been an interesting couple of months, to say the least. Barry R. Sloane: Yeah. And I appreciate it, Steve. I just came from the National Association of Government Guaranteed Lenders. I was up in Orlando yesterday and the day before. And there have been a lot of changes to the program. So some of the changes: change number one, 100% of the owners must be U.S. citizens. I think that knocked volume down by 10% to 20% in last calendar year. The ability to use the funds to refinance a merchant cash advance or a daily debit loan when the money is going to purchase a receivable — also a no-go. Now on the flip side of it, the changes that we have made for the seven-day loan, for example, are very valuable because when you think of merchant cash advance and daily debit opportunities, let us say 65% to 70% of those credits are actually credits that will last five or 10 years. Maybe 30% will not and they go bad. But based upon the math, they still make money — the lenders. So we are now extraordinarily competitive with borrowers to be able to give them funding to repay the loan over 10 years at a 70% discount to the monthly pay rate for good borrowers. So we believe that we will get back to the volumes we had previously. But 2025 was a challenging year for 7(a). Now there are certain fintechs that are not spreading financials. They are not doing debt service coverage. And their technology was not positioned for that. And they do not have underwriters to do that. And now the program does not work for them anymore. So I think we have picked up a nice competitive advantage. I think the business has gotten harder, but I think we are well positioned to continue to be a leader in the space. Stephen M. Moss: Okay. Great. Appreciate all that color. I will step back here. Thank you very much, guys. Barry R. Sloane: Thank you, Steve. Operator: Thank you. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. One moment for our next question. This question comes from Ken Billingsley of Compassport Point Research and Trading. Your line is open. Ken Billingsley: Hi. Good afternoon. Barry R. Sloane: Hi, Ken. Good afternoon. Frank DeMaria: Welcome to our call. Good to have you. Ken Billingsley: So one of my questions is partially answered. It sounds like you are looking at a fourth quarter event next for the next securitization. And the trigger would be a pool of $400 million to $500 million. Just would that all be coming out of the bank? Barry R. Sloane: Yes. Ken Billingsley: Okay. Then my second question: is the loan size — I saw that you have grown number of loans. But it seems — are the loan sizes shrinking at least quarter over quarter? And if that is the case, is it just something that you are doing with underwriting, or is it just market conditions in the first quarter? Barry R. Sloane: It is a good question, Ken. I think in the SBA bucket, the loan sizes are getting smaller. We are doing a lot of commercial and industrial short-term loans and commercial real estate loans that are going to be that middle bucket. And then the C&I LA will probably be bigger-sized loans. So I think from our standpoint, the one thing that I have learned managing Newtek over two decades is diversification in different credit aspects, different loan sizes, and it has served us well. So we are not going smaller. We are not going bigger. We are pretty much spreading it out. I think that is going to serve us well. Pete Downs and I work very closely together on these things and loan committee. One of the key aspects of loan committee — the credit you always want to see is the credit a good credit or not a good credit — but one of the big things is what is the makeup of the portfolio. Do I have too much in this state? Do I have too much in this category? How does it balance? And that is, I think, part of where our heads are at here. But we are very pleased with how things are rolling out. Risk-adjusted returns are where they should be. They are expected. That is why we are able to continue to grow the business. Ken Billingsley: I appreciate you taking my question. Thank you. Barry R. Sloane: Thank you, Ken. Operator: Thank you. Our next question comes from Timothy Switzer of KBW. Your line is open. Timothy Switzer: Hey, guys. Got a quick one real quick. I did not see it in the materials anywhere. What was the SBA gain-on-sale premium this quarter? And how have the pricing dynamics changed with — I mean, Barry just mentioned, you know, 10% to 20% of borrowers basically have been eliminated. And, obviously, there are other disruptions to the market, I guess, on the supply side. You know, what is the trajectory of premiums going forward? Barry R. Sloane: So, Tim, I will take the price, and I will let Frank fill in the gain number. We are seeing pricing being maintained. I think we are about $1.10 and a half, plus or minus. And that is being maintained. I think on a supply and demand basis, there was a little bit less supply, and that held prices up quite a bit. I do not really see prices declining. That is always a question people ask about. The big issue on a price decline is prepay driven. Period. End of story. It is not rates higher, rates lower. It is prepay driven, and then you could have a conversation about what is driving the prepay. Is it voluntary defaults, involuntary defaults? You know? The markets know — put it this way: rates were moving 3% to 5% in an 18- to 24-month period of time. That was pretty bold when you had a lot of changes. Right now, they are fairly — I mean, although I will tell you, rates have moved around by 50 basis points. Hopefully, they will kind of stay in that range. So I think prices are in pretty good shape. There is not a lot of supply out there right now selling into the secondary market. Frank, you can comment on the dollars. Frank DeMaria: Yeah. We are seeing the price that you said — right around the $1.10 and a half — and then if you see that in the balance sheet there, Tim, you know, we had a net gain on sale number for the quarter of about $26.7 million driven mainly by those 7(a) sales with some final floor sales sprinkled in there. Timothy Switzer: Got it. And then, I mean, Barry, you mentioned the prepayment rates. Just curious. What percent of your production is floating versus fixed? Is it pretty much all floating? Barry R. Sloane: 100% floating. Timothy Switzer: Okay. And one last one for me. Your new business deposits — you are seeing really good growth here. What is the average account size right now? And, you know, what do spending patterns look like in those accounts? Barry R. Sloane: Frank, what do you see in savings? I am going to leave it to you, Frank. It is pretty healthy in savings on the consumer side, but that money does not move. It just kind of sits there. Frank, you could help on the — if you know the average size of consumer and business. Frank DeMaria: The average deposit account size, Tim? Was that the question? Timothy Switzer: Yep. Frank DeMaria: Yeah. I think we are seeing that on the consumer side, the averages are probably around $10,000 on the account. They are relatively small. The business accounts we are seeing closer to that $200,000 to $250,000 mark. Timothy Switzer: Nice. Okay. Thank you, guys. Operator: Thank you. I am showing no further questions at this time. I would now like to turn it back to Barry R. Sloane for closing remarks. Barry R. Sloane: Alright. Thank you, everyone. Appreciate your attendance. Great questions, and glad to be able to wrap it up in an hour. So I again thank everybody for attending and paying attention to NewtekOne, Inc. We look forward to delivering great results for the second quarter as well. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Good afternoon, everyone, and welcome to AXT, Inc.'s First Quarter 2026 Earnings Conference Call. Leading the call today is Doctor Morris S. Young, Chief Executive Officer, and Gary L. Fischer, Chief Financial Officer. In addition, Tim Bettles, VP of Business, will be participating in the Q&A portion of the call. My name is Tracy, and I will be your coordinator today. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star 1 to raise your hand. I would now like to turn the call over to Leslie Green, Investor Relations for AXT, Inc. Leslie, go ahead. Leslie Green: Thank you, Tracy, and good afternoon, everyone. Before we begin, I would like to remind you that during the course of this conference call, including comments made in response to your questions, we will provide projections or make other forward-looking statements regarding, among other things, the future financial performance of the company, market conditions and trends, emerging applications using chips or devices fabricated on our substrates, our product mix, global economic and political conditions, including trade tariffs and import and export restrictions, ability to obtain China export permits, timing of receipt of export permits, our plan to list our subsidiary, Tongmei, in China, our ability to increase orders in succeeding quarters, to control costs and expenses, to improve manufacturing yields and efficiencies, or to utilize our manufacturing capacity. We wish to caution you that such statements deal with future events, are based on management's current expectations, and are subject to risks and uncertainties that could cause actual events or results to differ materially. In addition to the matters just listed, these uncertainties and risks include, but are not limited to, the financial performance of our partially owned supply chain companies and increased environmental regulations in China. In addition to the factors just mentioned or that may be discussed in this call, we refer you to the company's periodic reports filed with the Securities and Exchange Commission. These are available online by link from our website and contain additional information on risk factors that could cause actual results to differ materially from our current expectations. This conference call will be available on our website at axt.com through 04/30/2027. Also, I want to note that shortly following the close of market today, we issued a press release reporting financial results for 2026. This information is available on our website at axt.com. I would now like to turn the call over to Gary L. Fischer for a review of our first quarter results. Gary? Gary L. Fischer: Thank you, Leslie, and good afternoon to everyone. Revenue for 2026 was $26.9 million, compared with $23 million in 2025 and $19.4 million in 2025 last year. To break down our Q1 2026 revenue by product category, indium phosphide was $13.6 million, primarily from data center applications. Gallium arsenide was $5.4 million, germanium substrates were $0.2 million. Finally, revenue from our consolidated raw material joint venture companies in Q1 was $7.6 million. In 2026, revenue from Asia Pacific was 78%, Europe was 21%, and North America was 1%. The top five customers generated approximately 32% of total revenue, and no customers were over the 10% level. Gross margin showed a substantial improvement in the first quarter. Non-GAAP gross margin was 29.9%, compared with 21.5% in 2025 and a negative 6.1% in 2025 last year. For those who prefer to track results on a GAAP basis, gross margin in the first quarter was 29.6%, compared with 20.9% in Q4 and a negative 6.4% in 2025. Moving to operating expenses, total non-GAAP operating expense in Q1 was $8.6 million, compared with $7.5 million in Q4 and $8.5 million in 2025. On a GAAP basis, total operating expenses in Q1 were $9.6 million, compared with $8.7 million in 2025 and $9 million in 2025. Our non-GAAP operating loss for 2026 was $0.55 million compared to the non-GAAP operating loss in 2025 of $2.6 million and a non-GAAP operating loss of $9.6 million in 2025. For reference, our GAAP operating line for 2026 was a net loss of $1.6 million compared with an operating loss of $3.8 million in 2025 and an operating loss of $10.3 million in 2025. Non-operating other income and expense and other items below the operating line for 2026 was a net loss of $0.035 million. The details can be seen in the P&L included in our press release today. In 2026, we made substantial progress towards profitability. We had a non-GAAP net loss of $0.585 million or $0.01 per share, compared with a non-GAAP net loss of $2.3 million or $0.05 per share in the fourth quarter and a non-GAAP net loss in 2025 of $8.2 million or $0.19 per share. On a GAAP basis, the net loss in Q1 was $1.6 million or $0.03 per share compared to a net loss of $3.6 million or $0.08 per share in the fourth quarter and $8.8 million or $0.20 per share last year in 2025. Weighted average basic shares outstanding in 2026 were 53.3 million. Cash, cash equivalents and investments decreased by $5.1 million to $123 million as of March 31. By comparison, at December 31, cash, cash equivalents and investments were $128.4 million. Accounts receivable increased by $5.2 million, almost exactly the same as the change in cash. Depreciation and amortization in the first quarter was $2.4 million. Total stock comp was $1 million. Net inventory was up approximately $8.5 million for the first quarter to $90.2 million. This concludes the discussion of our quarterly financial results. Turning to our plan to list our subsidiary, Tongmei, in China on the STAR Market in Shanghai, we remain very interested in completing the IPO, particularly in light of the rapidly evolving AI infrastructure build-out in China and China's development of its semiconductor supply chain, which is fueling increased China-based demand for indium phosphide substrates. We have continued to keep our IPO application current, and Tongmei remains in process as a part of a much more selective and smaller group of prospective listings than a few years ago. Though the current geopolitical environment is dynamic, Tongmei is considered a Chinese company and continues to be regarded in China as a good IPO candidate. We will keep you informed of any updates. With that, I will now turn the call over to Doctor Morris S. Young for a review of our business and markets. Morris? Morris S. Young: Thank you, Gary. This is an incredibly exciting time for AXT, Inc. As many of you are aware, last week, we completed a capital raise for $632.5 million in support of Tongmei’s indium phosphide capacity expansion, as well as R&D investment in new products, like 6-inch indium phosphide, and other working capital needs. With our backlog of orders and customer forecasts achieving record levels, we are laser focused on adding capacity to support customer requirements. I am pleased to report that we are running ahead of our plan to double our indium phosphide capacity this year from 2025 levels. Our capability to scale up quickly is unique among our peers. Unlike our competitors, AXT, Inc. designs and builds our own crystal growth furnaces, has our own supply of critical raw materials, and has the manufacturing space in place to achieve our expansion goal this year. As you can imagine, longer-term capacity planning is one of the most important discussions we are having today with customers and major supply chain players in our space. The message we are having for them is this: AXT, Inc. is stepping up. Beyond our 2026 capacity expansion, we are planning to double our indium phosphide capacity again in 2027 with a new facility near our current one that will be dedicated to indium phosphide wafer production. Our 2028 planning is also underway and we expect to expand again meaningfully. This is an industry in which scale matters. The barriers to entry are high, even for most skilled manufacturers. As the market continues to grow, capacity has become a critical enabler. What we are hearing from industry sources and echoed from our customers is the expectation that the market for optical components will increase significantly in the coming years, driving a four to six times increase in the substrate market overall in the next three to five years, driven by both scale-out and scale-up applications. Beyond pluggable transceivers, we are seeing a very large developing market for CPO, co-packaged optics. We are actively engaging in discussions with customers about their technical and timing requirements and believe this could represent another inflection point in our business beginning in late 2027 and beyond. With this massive growth cycle ahead of us, we are actively working with a multitude of players from our direct customers to the end customers with whom we have not historically had direct relationships. We are there to understand their longer-term requirements and to align our growth and innovation plans accordingly. This will be a thoughtful and measured process, but we believe we are in the best position competitively to support and enable our industry in meeting its current and future needs. Over the last few quarters, the expansion of our indium phosphide customer base has been gratifying. We are now supporting nearly all leading customers in the optical space. This includes tier-one laser manufacturers and optical transceiver module makers, both around the globe and in China. In alignment with our customers' technical requirements and roadmaps, we are making important progress on our 6-inch indium phosphide product for both In-doped and S-doped specifications. A significant part of our capacity expansion will be focused on 6-inch crystal growth technology to support the planned roadmap of 6-inch capability by our customers. We are excited to be able to demonstrate the technological advantage of our low EPD wafers as the market moves to optical devices with higher speeds and greater sophistication for both scale-up and scale-out applications. Now turning to Q1. Export permits in our first quarter came in slightly better than our guidance and are off to a solid start in Q2. Gary will take you through our full guidance in a few minutes, but we are expecting to achieve sequential revenue growth in Q2, driven primarily by growth in indium phosphide. In fact, Q2 would be expected to be our largest quarter for indium phosphide in AXT, Inc.'s history. This derives from an indium phosphide backlog that has now reached a new high of over $100 million. As we mentioned last quarter, customers are giving us more visibility into their expected demand and we are working closely with them in this supply-constrained environment to meet their needs as we continue to expand our capacity. From our geographic demand perspective, the massive AI infrastructure build-out and planned CapEx spending by cloud services and AI platform providers in the U.S. is the primary driver for EML and silicon photonics-based optical transceivers, as well as high-speed photodetectors. We believe that today, our material is being used in multiple U.S. hyperscalers. We expect that end-customer use will continue to broaden. We are also seeing significant growth in China as China moves to accelerate its capability throughout the AI supply chain. Our revenue related to the indium phosphide-based laser market in China more than doubled in Q1 from the prior quarter and we expect it to double again in Q2. This highlights China's increasing investment in AI infrastructure supply chain for the global market. This is a great opportunity for AXT, Inc. as there is no permit required to ship our product within China. Turning to gallium arsenide, in Q1, demand for semiconducting wafers for industrial robotics and data center laser applications all held steady from the prior quarter. We continue to see demand for semi-insulating wafers for wireless RF devices and believe that we have a strong opportunity for market share expansion. However, this is gated primarily by our ability to obtain export licenses, which came in light in Q1. Finally, our raw material business continues to be a crown jewel in our growth strategy. We are pleased to report that our subsidiary Jinmei has begun to refine high-purity indium, which gives us direct control of and a guaranteed supply of other critical material for indium phosphide substrates. We are also investing to help Jinmei expand its capability so that as AXT, Inc.'s demand grows, Jinmei will continue to provide a meaningful portion of our raw material requirements. Globally, there continues to be a greater awareness of the importance of earth materials and we are decades ahead of the curve in developing our unique integrated supply chain. We will continue to invest in our portfolio as we believe it is a major competitive differentiator. In summary, we believe AXT, Inc. is entering one of the most consequential chapters in our company's history. The investments we are making today in capacity, in technology, and in our unique integrated supply chain position us to meet extraordinary demand we see building across the optical and AI infrastructure markets. Our customer engagement is deepening, our visibility is improving, and our competitive differentiation is strong. While we remain disciplined and thoughtful in our execution, we are confident that the groundwork we are laying now will enable us for meaningful growth in the years to come. With that, I turn the call back to Gary for our second quarter guidance. Gary L. Fischer: Thank you, Morris. To reiterate a couple of key points from Morris' commentary, we are seeing a strong increase in our indium phosphide wafer demand related to AI and the ongoing data center upgrade cycle. Given the geopolitical complexity surrounding this market trend, our customer base is diversifying and expanding, and customers are placing longer-term orders and providing greater visibility into their needs. With all of these positive market and AXT, Inc.-specific growth drivers, the most significant single factor to our growth in Q2 and beyond is the success and timing of getting export permits. Therefore, guiding for future revenue is somewhat tricky for us right now, as we cannot predict future timing of permits or our success in obtaining them for any customer or individual order. But drawing on what we know and what we have experienced thus far in the export permitting process, we can offer the following insight into our expectations for Q2. As of today, we have approximately $34 million in revenue that can be realized in Q2 across our substrate product lines and raw materials for which we either already have a permit to ship or for which an export permit is not required. We have a high degree of confidence in recognizing this revenue in Q2. We could see upside, even significant upside, to this number in Q2 should we receive permits for additional orders for which we have the inventory to support. But we do want to stress that the timing for permit issuance is not predictable nor in our control and does not align with our quarterly reporting. We continue to focus on gross margin improvement. Further improvement depends on a number of factors including total revenue as it relates to revenue mix by product, absorption of fixed costs, and our ability to continue to drive better manufacturing efficiency. With regards to OpEx, we expect that it will be approximately $9.3 million in Q2 on a non-GAAP basis and approximately $10 million on a GAAP basis. With these factors in mind, we expect to achieve profitability on both a GAAP and non-GAAP basis in Q2. We believe our non-GAAP net income will be in the range of $0.06 to $0.08 and our GAAP net income will be in the range of $0.05 to $0.07. We estimate share count for Q2 will be approximately 63.5 million shares. Okay, this concludes our prepared comments. We will be glad to answer your questions now. Morris S. Young: Tracy? Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 now to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Finally, please limit yourself to one question and one follow-up. Please stand by now while we compile the Q&A roster. Your first question comes from the line of Timothy Paul Savageaux with Northland Securities. Your line is open. Please go ahead. Timothy Paul Savageaux: Hey, good afternoon, and congrats on the step up in backlog and the strong guidance for next quarter in indium phosphide. I guess my first question, you mentioned backlog and customer forecasts at record levels, and we certainly saw that with $100 million in backlog. With regards to long-term capacity planning with customers, are you at the point of coming to any sort of long-term supply agreements with various customers and, if so, what sort of timing might you expect on that? Tim Bettles: Thanks, Tim. Yes, we are talking to a number of customers right now on long-term supply agreements as we build our capacity out and try to understand where their demand is going. Nearly all of the larger customers in this space are talking about long-term supply agreements with us, and we expect to come to resolution with some of those in the very near future. Timothy Paul Savageaux: Great. And just following up on that, you had mentioned last quarter that you are developing some relationships with tier-one customers or tier-one suppliers who had not necessarily been close relationships or customers over time. I wonder if we can get an update on that, and I have one more follow-up after that. Tim Bettles: Yes, thanks. That is going really well, actually. We have qualification wafers in with a lot of customers and we are finding paths and avenues to get wafers into a lot of these tier-one customers. As we see this market grow, there is a lot of opportunity for us, and we have said in the past that we have really been focused on these next-generation technology products that require high-quality material that, frankly, only AXT, Inc. can build and can supply. And with emerging supply chain constraints within indium phosphide, we are in the strongest position to grow capacity. So we are qualifying and we are supplying wafers to a lot of new tier-one customers in this field. So it is exciting times for us. Morris S. Young: I want to add one point. From my perspective, I started to hear three months ago from some of the tier-one customers, but now I am starting to hear even from the end hyperscalers. In other words, the customer’s customer, the end users, are also interested in seeing how we develop the supply chain guarantee for their growth plan. Tim Bettles: Yes, that is correct, Morris. It is a good point. There have been a lot of press releases about long-term supply agreements into our customers from the hyperscalers and from the hardware companies, and there has been a lot of encouragement from those hyperscalers and hardware companies for their suppliers to enter into long-term supply agreements with AXT, Inc. That is actually driving a lot of the discussions that we are having on long-term supply agreements, and of course it has given us a lot more visibility into what the market demands are at the hyperscaler side of things and how that trickles down to demands for AXT, Inc. It also gives us a lot of visibility into technical demands as we move forward into high-end lasers and detectors in these new products. Timothy Paul Savageaux: Great, and that makes sense. Maybe somewhat related to those discussions, I would be interested in an update on what you are seeing in terms of pricing for indium phosphide substrates? Tim Bettles: That is a good question. We are raising some of our prices. We are seeing some recent pricing increases in raw materials and specifically with indium. So we are having conversations with our customers to align our costs and maintain or grow gross margins. We are also globalizing our pricing. Certain geographical regions have been more aggressive in the past on price targets, especially for lower-end markets such as GPON. We are standardizing our pricing across those geographical regions. Morris S. Young: Let me add to that. The pricing opportunity for us is also the fact we are migrating more towards larger size. Some of the smaller sizes are more traditional and more price sensitive, and there are more competitors who can fill those needs. But when you get to 4-inch and 6-inch, as well as higher specification requirements, that is where our product shines. Timothy Paul Savageaux: Thanks very much. Appreciate it. Gary L. Fischer: Thanks, Tim. Operator: Your next question comes from the line of Matthew Bryson with Wedbush Securities. Your line is open. Please go ahead. Matthew Bryson: Hey, thanks for taking my question and great results. I just wanted to hone in on gross margins a bit. Obviously, you saw a pretty big uptick in Q1. I am not quite getting to the peak you had back in the COVID time frame, but I am getting pretty close. Could you talk a little bit about how much of that is higher utilization levels versus how much of it is increased pricing, and whether my math is roughly accurate? Gary L. Fischer: For Q1, there is some impact from increased pricing, but the primary drivers are the traditional two that we highlight. One is volume is up, and the other is the mix is rich towards indium phosphide. As a matter of fact, if you look at it percentage-wise, indium phosphide was just a tad north of 50% of total revenue, which really helped. The pricing effects are being put in place, but you will see the impact from your viewpoint later this year. Matthew Bryson: Got it. For Q2, Gary, if I said that the gross margins are coming in roughly around 40%, is that in the ballpark? And again, can you just talk to how much that is mix versus utilization versus price? Gary L. Fischer: I think that is too aggressive. You know us—we like to be a little bit more conservative. We are definitely going to be crossing the 30% threshold, which we have said for several years: if we can get to $30 million in revenue and have a good mix, then we could be above 30% in gross margin. I would encourage you to maybe knock that down a bit. We can talk about it later. Having said that, we are headed in the right direction. Gross margins should go up and we feel very confident that they will. How fast and to what exact level is to be determined. All the indicators are exactly what I have been saying for many years: the mix is rich for indium phosphide, and the volume is up. Inside the company, we are very pleased. Morris S. Young: I would argue our supply chain strategy will start to shine. AXT, Inc. is like a train with a strong locomotive. When we are accelerating, all the cars behind us—such as our Jinmei, BoYu (which makes our crucibles), high-purity materials, etc.—all move along with us. When we slow down, of course, they compress against us. But right now is a good time—we are moving very strongly. You are going to see their contribution to our ability to make profit grow too. Matthew Bryson: Got it. And then just my one follow-up: I noticed, going back to the last filing, that you had gotten export licenses, I think, for every geography except for the U.S. Any more thoughts on getting licenses for shipping in the U.S., and how important is that in terms of being able to fully utilize that additional capacity you are bringing on? Morris S. Young: We are not giving up on the United States. It is still pending. Tim Bettles: We are still being encouraged to apply for export permits for U.S. customers both in the U.S. and in other global regions. At the moment, we are getting permits pretty readily for U.S. customers based in other global regions. But that does not mean we are stopping any work on trying to obtain permits for the U.S. We have been contacted by the Ministry of Commerce in China on a number of U.S. applications to submit more data. That gives us an encouraging sign that they are still looking at U.S.-based permits, and there is still a possibility to get a permit for the U.S. in the near future. In the meantime, we are supplying wafers globally to other regions as well. This is a very global supply chain and a very global market, and we are taking advantage of all the avenues that we can. Matthew Bryson: Thanks again. Operator: Just a reminder that if you would like to ask a question or a follow-up, please press star 1 to raise your hand now. Your next question comes from the line of Analyst with Needham. Your line is open. Please go ahead. Analyst: Hi, thanks for taking my question. I want to ask you more about the capacity and the capacity build plan here. I think your last COVID high for indium phosphide quarterly record was $17.7 million. That was achieved in the second quarter of 2022. You are basically implying you are going to be at or above that level in this coming Q2. But I recall back in 2022, you probably also built above that $17.7 million because back then you thought you would have indium phosphide demand from the premium electronics company for smartphone applications. What is the max factory output for your existing factory today? How utilized is the existing factory, and what is the expected factory output once you add the next two factories? I think that is something you talked about after the follow-on offering. If you can provide any color on the numbers, that would be great. Morris S. Young: We usually say our highest indium phosphide revenue per quarter was $17 million—you have a very good memory. We said in Q4 that we increased our capacity by about 25% in 2025, and in 2026 we are going to double that. In our capacity planning, we think we are going to get about $35 million per quarter capability by the end of 2026. Do not forget, capacity is increasing every month. In the next quarter, indium phosphide revenue is going to be above the $17 million per quarter—it will be a new record in Q2. We are acquiring land near our existing factory in Beijing. We are in the process of negotiating, buying the land, and doing the design. We are probably going to start building it, but because it is a greenfield, it will probably take about a year, maybe a year and a half to complete. Our capacity expansion is in stages. Sometimes the cleanroom is the most critical—if you do not have cleanroom space, you cannot put in your machines—so that is more digital. Some of the crystal growth capacity is more incremental. Right now, the cleanroom capacity is greater than our crystal growth capacity, so we are increasing our capacity gradually. In the next year or so, once the greenfield is under construction, it will be more digital to expand our cleaning capacity. Tim? Tim Bettles: Morris talked about doubling our capacity to a rate of $35 million per quarter in indium phosphide by the end of this year. Remember, that is in a brownfield site that was once a crystal growth facility used for gallium arsenide. As we relocated gallium arsenide, we have been able to move into that. We are in a position that nobody else in the indium phosphide world is in—that we can double our capacity so quickly. Looking into the next growth, we are acquiring a facility right next door to us—again, extremely fortunate. The building is already there, and that allows us to double yet again. By the time we have completed that expansion, which should be by 2027, maybe early 2028, we should be somewhere in the region of $65 million to $70 million of capacity per quarter. Then, as Morris mentioned earlier, we are looking at where we need to go from there, looking at other opportunities and other ways to expand beyond that, probably in a greenfield site somewhere else. Gary L. Fischer: To be a bit more specific as a detailed guide, $17 million we have already achieved. By the end of this year, we will be at $35 million per quarter. Annualized, once fully ramped, that implies roughly $140 million at the 2026 exit rate, and a year later it could be approximately $280 million at the exit rate, recognizing capacity increases are continuous, not instantaneous. Analyst: Maybe a follow-up on the capacity expansion. Investors ask why you cannot do a “China plus one” strategy like many companies in the global electronics supply chain—continue to build in China to satisfy China demand, but also build outside of China to supply the rest of the world. Is there anything from the business perspective preventing you from doing that, and why? Tim Bettles: There is certainly a lot of opportunity both within China and outside of China for us to consider. As part of our plan for 2028 and beyond—which is going to be meaningful capacity expansion—we are working closely with our customer base to understand the long-term requirements and aligning the plans globally. Our recent capital raise will be fundamental to expanding as we enter this next growth plan, which could include more capacity within China and potentially capacity outside of China. Morris S. Young: I want to add one point. Adding capacity versus being able to deliver wafers are two different things. You are going to hear a lot of people say, “I am going to add capacity.” Indium phosphide is not easy. Investors ask why do you not triple or quadruple? Our need is 10 times. It is not easy. Tim Bettles: That is a really good point, and that is why our focus over the next two years has been on Beijing and increasing the capacity on our existing Beijing Tongmei site. Morris S. Young: It is also for the good of our customers. Their demand is so aggressive. The guaranteed way to satisfy that demand is to do what we can now. Do we have other plans? You bet. We do. We are stepping up. Analyst: Thanks, Morris. Last question: you talked about 6-inch versus 4-inch or below. What is in the backlog right now in terms of mix between 6-inch and 4-inch or below? Also, the mix between In-doped and S-doped—one for lasers and the other for photodetectors—what is the mix within that $100 million-plus backlog? Morris S. Young: In-doped is coming up big time. We used to see about 10-to-1 in favor of S-doped prior to this. Right now, especially at the large diameters, it is almost like In-doped is 40% and S-doped is 60%. Correct, Tim? Tim Bettles: Yes. When we look at backlog and customer demand over the next few quarters into next year and beyond, we see there is still a lot of 3-inch out there, specifically for the laser—so S-doped is still going strong on 3-inch. There is a transition to 4-inch on n-type material for the laser, whereas the high-speed detector has pretty much all transitioned to 4-inch already. We are seeing a lot of 3-inch continuing, a lot transitioning over to 4-inch. Looking into the future, 6-inch is incredibly important, with a lot of interest and opportunity. At this moment, a lot of production and capacity is still focused on 3-inch and 4-inch, with a longer-term plan to transition to 6-inch within the next year or so. Morris S. Young: The signal is very strong. A lot of customers are telling us, can we get more 4-inch? 6-inch is a little more out, but people are warning us it is coming. 4-inch is real. I would say the ratio for 3-inch to 6-inch right now is maybe 4-to-1 in favor of 3-inch. Going out about six months to a year, it could become 2-to-1 in favor of 3-inch in wafer count. 3-inch is still the majority, but because 4-inch is at a lower base right now, it is going to grow very rapidly in the coming quarters. Analyst: Thanks. Great color. Appreciate that. Thank you. Morris S. Young: Thank you. Operator: Your next question comes from the line of Richard Shannon with Craig-Hallum. Your line is open. Please go ahead. Richard Shannon: Hi, thanks for letting me ask a couple of questions here. I would love to understand how to think about the CapEx requirements for these capacity builds. You talked about a brownfield one this year that is doubling, and then a greenfield one that is going to happen in 2027 or maybe going into 2028. Can you give us some numbers or at least some statistics to think about what that will require and over what period of time? Gary L. Fischer: For this year, it is mostly adding high-tech equipment for crystal growth—furnaces—and some back-end tools for polishing. As Tim and Morris have said, we have an existing footprint. Our current indium phosphide crystal growth site has room for more furnaces, and we are repurposing our gallium arsenide crystal growth that was in Beijing for even more. So this year, compared to future years, CapEx is probably going to be about $35 million—maybe $30 million, maybe $40 million—somewhere in that range. To be honest, we will spend as much as we can as fast as we can because we are uniquely positioned to be able to add capacity quickly. Next year, as we go into building out the facility next door, plus capacity through our supply chains, we are looking somewhere in the region of about $100 million or so. Tim Bettles: And then beyond that, if we were to build a greenfield site somewhere else, we are looking at somewhere in the region of $220 million to $250 million, depending on what capacity we put in that greenfield site. If we are putting meaningful capacity there, you are looking at $200 million plus. Richard Shannon: Okay, fair enough. Thanks for that detail. I want to ask on your indium phosphide business by geography. You made a couple of interesting comments: last call you said China was going to grow about 60% in the first quarter, and then you said it actually was up 100%, and then double again in the second quarter. What kind of percentage of your indium phosphide business in the second quarter is China going to be? Tim Bettles: We are seeing a lot of growth in China, and it is not just because we are seeing data center growth in China, but we are seeing China in the global supply chain market for optical transceivers and potentially co-packaged optics as we go forward. A lot of transceiver companies that manufacture within China are driving to a Chinese supply chain of laser diodes and other detectors. In Q2, we estimate that Chinese demand is probably about 30% of the overall indium phosphide global market demand that we are seeing, and we are seeing that increasing through Q3 and Q4 as well. As we get into Q4, it could be as high as something pushing up to 40% share of the total indium phosphide market. Richard Shannon: That is helpful, Tim. I will ask one last question on the topic of gross margins. Gary, you have talked in the past about hoping to get to 35% with kind of an upside goal of 40%. When you are talking about the strong mix shift towards indium phosphide and even about price increases, could that go higher at some point? I am not asking for any time soon, but are you looking for a ceiling of gross margins above that 40% level? Gary L. Fischer: Internally, as a management team, we are definitely targeting something that begins with a four, but it is far out. We do not know yet. I would still stick with my sense that somewhere in the 35% range is very reasonable for the outside world—it is a safe arrival point. That does not mean that we are satisfied with it, and we think we can do better, but we need to get farther down the road and prove that first. Richard Shannon: That is all I wanted to hear. That is all for me, Gary. Thank you. Gary L. Fischer: You are welcome, Richard. Good to hear from you. Operator: There are no further questions at this time. I will now turn the call back to Leslie Green, Investor Relations at AXT, Inc., for closing remarks. Leslie Green: Thank you, Tracy, and thank you all for participating in our conference call. We will be participating in the B. Riley Securities 2026 Annual Investor Conference and the Craig-Hallum Institutional Conference in May, as well as the Northland Virtual Conference in June. We hope to see many of you there. As always, feel free to contact us if you would like to set up a call. We look forward to speaking with you all in the near future. Thanks. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: My name is Julianne, and I will be your conference facilitator today for the Amgen Inc. Q1 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. There will be a question and answer session at the conclusion of the last speaker's prepared remarks. In order to ensure that everyone has a chance to participate, we would like to request that you limit yourself to asking one question during the Q&A session. To ask a question, please press star followed by one on your telephone keypad. To withdraw your question, please press star 1 again. I would now like to introduce Casey Capparelli, Vice President of Investor Relations. Mr. Capparelli, you may now begin. Casey Capparelli: Thank you, Julianne. Good afternoon, everyone, and welcome to our 2026 earnings call. Robert A. Bradway will lead the call today and be followed by a broader review of our performance by Murdo Gordon, James E. Bradner, and Peter H. Griffith. Through the course of our discussion today, we will use non-GAAP financial measures to describe our performance, and have provided appropriate reconciliations within the materials that accompany this call. We will also make some forward-looking statements which are qualified by our Safe Harbor statement, and please note that actual results can vary materially. Over to you, Bob. Robert A. Bradway: Good afternoon, and thank you for joining us. We had a strong first quarter and are well positioned to achieve our objectives for the year. Recall, we previously described 2026 as a springboard year for Amgen Inc., a year in which we expect our rapidly growing products to offset the financial impact of patent expirations and increased competition while our next generation of molecules progress through the R&D pipeline, setting the stage for sustained long-term growth. As you can see from our progress thus far, we are on track to achieve these objectives. With steady execution through the rest of the year, we expect once again to demonstrate that we can grow through a period of patent expiration, and deliver attractive performance for our shareholders with a strong portfolio of innovative medicines and biosimilars that meet the needs of patients with serious diseases. As you listen to Murdo’s presentation in a moment, note the momentum of our six key growth drivers. Together, they generated 70% of our sales in the quarter and grew in aggregate by 24%. That strong performance sets us up well for the year and well beyond. Turning to the pipeline, our focus this year is on disciplined data generation and execution across a number of important Phase 3 programs, again we expect will drive attractive long-term growth for Amgen Inc. Our confidence in Meritide as a differentiated treatment for obesity, type 2 diabetes, and obesity-related conditions continues to build. We are executing effectively across the company, building the capabilities we need to bring this medicine to market. As Jay will discuss in a moment, we are disclosing additional Phase 3 studies of Meritide, one of which will evaluate switching from the weekly injectables to Meritide on an every eight or twelve week schedule. In other words, we will evaluate switching from medicines which are injected 52 times a year to one which can be injected as few as four or six times a year. In addition, we will evaluate weight maintenance for Meritide on a schedule of four or six injections a year as well. Expect there to be a great deal of interest in these data. Beyond Meritide, we see strong potential across a number of other programs in late-stage development, including opazirand, and other innovative programs in Phase 3. We have talked about the excitement we feel about the convergence of technology and biology including the application of artificial intelligence across the company. Here too, we are making great progress. And there is no question we are in a period of tremendous change and we are encouraged by the progress we are making in embedding new capabilities. We are doing this across the company and we took steps early on to have Dave Reese lead these efforts, and we are grateful to him for the success he has achieved with this initiative. And we are encouraged that James E. Bradner will build on Dave’s accomplishments leading our artificial intelligence and data activities across the company. I will have more to say about Dave at the end of the call. But before we turn to Murdo, let me just thank my Amgen Inc. colleagues around the world for their dedication to our mission to serve patients and the quality of their work again this year. Murdo? Murdo Gordon: Thanks, Bob. As mentioned, in 2026, 16 products achieved double-digit or better sales growth and 17 products are now annualizing at sales of $1 billion or more. Overall, we delivered 4% growth in product sales driven by a diversified portfolio of fast-growing products that continues to outpace the impact of losses of exclusivity. The evolution of our business is now well underway, with our six key growth drivers, which include Repatha, Evenity and Testfire, three innovative medicines delivering significant clinical benefit for large populations of undertreated patients. Also included are our rare disease, innovative oncology, and biosimilars portfolios. Collectively, these growth drivers delivered 24% year-over-year sales growth and generated $5.6 billion in sales in the first quarter, representing almost 70% of total product sales. Starting with general medicine, Repatha delivered $876 million in first quarter sales, up 34% year over year. Growth was driven by increased urgency to treat patients in both secondary prevention and high-risk primary prevention, where intensive LDL-C lowering with Repatha significantly reduces major cardiovascular events. The ACC/AHA updated their dyslipidemia guidelines now reinforcing earlier risk identification, lower LDL-C levels and targets, and earlier use of therapy like Repatha. These guidelines do not yet reflect the practice-changing VESALIUS-CV data, leaving a clear opportunity to further evolve clinical guidelines and quality measures. We expect these additional changes will further encourage cardiologists and primary care physicians to manage LDL-C levels below 50 milligrams per deciliter, alongside lifestyle modification to reduce cardiovascular risk in both primary and secondary prevention. Physician response to our landmark VESALIUS-CV study has been strong with sustained increases in new-to-brand prescribing across cardiology and primary care, particularly in support of high-risk primary prevention patients with diabetes. At the recent ACC meeting, the VESALIUS-CV subgroup analyses in patients with diabetes and without known significant atherosclerosis was presented and simultaneously published in JAMA. These data further reinforce the consistent and significant benefit of Repatha, delivering a 31% reduction in cardiovascular events. A trend in lowering mortality rates was also observed. The body of evidence is now very clear. Treating patients earlier with Repatha can lower cardiovascular events. In the U.S., Amgen Inc. now is further strengthening access to Repatha by offering a simplified cash-pay option to patients. We are seeing encouraging patient interest in this direct access model which now also includes Enbrel, Otezla, Aimovig, and Amjevita. Repatha is now the only PCSK9 inhibitor with positive outcomes data in both high-risk primary and secondary prevention patients. These data, along with Repatha’s broad access, create an imperative to close the treatment gap for millions of patients for whom Repatha can help reduce heart attacks and strokes and potentially save lives. Evenity sales increased 27% in the first quarter to $562 million. U.S. sales grew 35% year on year and Evenity maintains leadership of the U.S. bone builder market with a 65% market share. To date, approximately 320,000 U.S. patients have been treated with Evenity, supported by increased investment and an expanded field force. However, the unmet need remains significant with more than 90% of the 2 million women at very high fracture risk remaining untreated, presenting a clear opportunity to expand the market and drive additional Evenity growth and impact. In Japan, Evenity has been prescribed to more than 900,000 patients since launch, and it leads the bone builder category with over 55% market share. We see a positive reaction to the treatment guideline updates by the Japan Osteoporosis Society, which further improves Evenity’s positioning and potential. Moving to inflammation, Test Buyer sales grew 20% year over year, reaching $343 million in the first quarter, driven by robust patient demand and solid execution across both pulmonology and allergy specialties, partially offset by a burn in channel inventory. Test Buyer remains well positioned to reach more patients in the U.S. given its differentiated TSLP mechanism that targets multiple inflammatory pathways driving uncontrolled asthma, including in those patients with coexisting chronic rhinosinusitis with nasal polyps. This new indication is gaining traction and helping expand Test Buyer’s reach across a broader patient population. Prolia and XGEVA combined delivered $1.1 billion in sales in the first quarter, a decrease of 32% year over year. Erosion since loss of exclusivity remains in line with our expectations; we anticipate accelerated sales erosion over the remainder of 2026 driven by increased competition from multiple biosimilars. Our rare disease portfolio grew 25% year over year to $1.2 billion. Eplizna sales increased 188% year over year to $262 million in the first quarter, reflecting growing demand across all three approved indications. We are encouraged by the pace of growth and the potential that Oplizna has to help patients living with rare autoimmune conditions with significant unmet need. The plasma’s uptake in gMG has been strong across both bio-naïve and switch patients, supported by broad access for most covered patients with requiring a step through another approved biologic. Given this momentum, we see a meaningful opportunity for Eplisna to become the first line and first switch choice for appropriate patients living with gMG. Momentum in IgG4-related disease continues, the plasma adoption led by rheumatologists and increased prescribing by GI specialists and nephrologists. In NMOSD, Iplisna continues to maintain its leadership as the most prescribed FDA-approved therapy in the U.S. TEPEZZA sales grew 29% in the first quarter, to $490 million in the U.S. More than 25,000 patients have been treated since launch with growing interest from both new and returning prescribers, increased prescribing from endocrinologists and a broadening specialist base. We see rising awareness of moderate thyroid eye disease in the U.S. This positions TEPEZZA for growth, supported by its best-in-class efficacy, well-established safety profile, industry-leading patient services, and broad payer coverage. We are also encouraged by the positive Phase III data for the on-body injector, which demonstrated comparable efficacy to IV TEPEZZA and supports a clear path to subcutaneous administration without compromising clinical benefit. This convenient dosing option will enable TEPEZZA administration in additional sites of care and expand access for more patients in the future. Following our launch in Japan in 2025, we expect additional global launches of TEPEZZA in 2026 and beyond. TADNIO sales were $119 million in the first quarter, up 32% year over year driven by strong volume growth. Since its launch in 2021, more than 8,000 patients have been treated with Tavneos, and Jay will comment on recent regulatory events in just a few moments. Our innovative oncology portfolio, which consists of Blincyto and Deltra, Vectibix, Kyprolis, Lumicraz and Enflate, grew 25% year over year generating $1.8 billion of sales in the first quarter. INDELTA delivered $258 million in first quarter sales driven by deep clinical conviction and continued adoption across care settings. More than 1,800 U.S. sites now administer Imdeltra with a majority of doses delivered in the community setting. This progress has been supported by the combined efforts of our commercial, medical, and access teams to remove operational barriers that physicians encounter in practice, helping expand patient access to treatment. Imdeltra has become the standard of care in second-line small cell lung cancer, an aggressive disease with poor survival outcomes and few effective options to extend life. Blincyto sales were $415 million in the quarter, increasing 12% year over year, driven by broad prescribing across both academic and community settings. Blincyto is widely recognized as the standard of care in combination with multi-agent chemotherapy for patients with Philadelphia chromosome-negative B-cell ALL. Our biosimilar portfolio delivered 14% year-over-year growth, generating $835 million in sales in the first quarter. PABLUE, our biosimilar to EYLEA, delivered $280 million in first quarter sales. Adoption continues to expand among retina specialists who appreciate PABLUE’s ready-to-use prefilled syringe and Amgen Inc.’s track record of manufacturing biologics and delivering reliable supply. Since our first product approvals in 2018, our biosimilars have generated more than $14 billion in cumulative sales, contributing meaningful growth while expanding patient access to high-quality, lower-cost biologics. Our first quarter results reflect both the strength of our key growth drivers and the commitment of our commercial, medical, and policy colleagues globally to improving the lives of patients facing serious disease. And we remain focused on extending the reach of our medicines to even more patients in 2026. And now I will hand it over to Jay. James E. Bradner: Thank you, Murdo, and good afternoon, everyone. Let me begin with Meritide, a new paradigm in the management of obesity, obesity-related conditions, and type 2 diabetes. The unique antibody-peptide conjugate design of Meritide delivers a potential for strong efficacy with monthly or less frequent dosing and favorable tolerability to improve long-term treatment. With existing obesity medicines, treatment burden and dosing frequency remain barriers to long-term persistence on therapy. For individuals with chronic conditions, sustained treatment is often required to realize the full health benefit of therapy. Meritide’s unique properties, particularly its potential for monthly or less frequent dosing, may help reduce treatment burden and improve persistence on treatment over time. Towards this objective, we are excited to announce two new Phase III studies that focus on longer-term maintenance therapy with Meritide. We have initiated two long-term extensions of our ongoing Phase III chronic weight management studies to evaluate Meritide maintenance for durable weight loss. Participants who completed 72 weeks of treatment in the parent trial will enter a 48-week extension treatment period, where they will receive a monthly, every eight-week, or quarterly dose of Meritide. To date, our clinical trials have studied Meritide in the initial management of obesity and overweight. We recognize that many patients may wish to switch to Meritide from weekly injectables. Today, we announced the initiation of another new Phase III study that will evaluate switching from weekly injectable GLP-1 therapies to Meritide following dose escalation to a convenient every eight-week or quarterly dosing schedule. Combined with our ongoing pivotal chronic weight management Phase III trials, the Meritide program will inform physicians on how to start a new patient on Meritide, and how to switch to a more convenient, less frequent dosing. Previously, we described the importance of dose escalation for improving initial tolerability with Meritide. We observed marked improvements in GI symptoms progressing from one-step to two-step dose escalation. Our accumulating experience with three-step dose escalation is quite positive. For example, we recently completed one of our standard Phase I physiology studies in preparation for potential regulatory filings that utilized three-step dose escalation. As anticipated, three-step dose escalation further decreased the rates of nausea and vomiting as compared to prior experience with two-step dose escalation. We believe that three-step dose escalation and less frequent dosing are effective and well tolerated because of the unique antibody backbone of Meritide. The long-lived stability of an antibody creates a gentle and smooth stepwise increase in sustained drug exposure. Stable drug levels avoid the frequent peaks and troughs of daily orals and weekly injectables that may contribute to intolerability. We remain confident and excited by Meritide, and are focused on delivering high-quality clinical data to support future regulatory filings. The studies are enrolling well, indicating strong physician and patient interest in Meritide. Meritide is emerging as a new paradigm for patients with obesity, diabetes, and related conditions as a well-tolerated first monthly or less frequently administered medicine. Turning from one major public health challenge to another, we continue to build on the landmark findings from Repatha, the prevention of cardiovascular events. In March, a new pre-specified subgroup analysis from the Phase III VESALIUS-CV trial was presented at the American College of Cardiology and simultaneously published in the Journal of the American Medical Association. In this subset of high-risk patients with diabetes, and without known significant atherosclerosis, Repatha demonstrated a significant 31% reduction in major adverse cardiovascular events including heart attack. Repatha also demonstrated a nominal 32% reduction in the risk of cardiovascular death and a nominal 24% reduction in all-cause death. Taken together with the VESALIUS-CV data presented last fall, these findings reinforce the breadth and magnitude of benefit from Repatha in the primary prevention of cardiovascular disease. We look forward to sharing additional insights and analyses from VESALIUS with the scientific community, notably at the upcoming American Diabetes Association Annual Meeting. Olpasiran, our potentially best-in-class small interfering RNA medicine that delivers greater than 95% reduction in Lp(a) with a quarterly dosing schedule, continues to progress in Phase III clinical investigation for secondary prevention of cardiovascular events. We have recently initiated the OCEANA CCTA study that evaluates the effect of olpasiran on the burden of non-calcified plaque in coronary arteries, as measured by coronary CT angiography. Attention to Lp(a) in medical practice is rising, reflected by the recently updated ACC/AHA lipid guidelines that now recommend broader Lp(a) testing. Moving to rare disease, we continue to build strong momentum across our portfolio. For APLISNA, we recently received European Commission approval for generalized myasthenia gravis. Supported by a strong biological rationale, we expect to initiate two pivotal Phase III studies of aplisna in autoimmune hepatitis and chronic inflammatory demyelinating by the second half of this year. We are also advancing TEPEZZA, where we recently reported positive Phase III top-line data for subcutaneous administration via an on-body injector. These data demonstrated robust efficacy in patients with thyroid eye disease consistent with intravenous administration alongside a favorable safety profile. Subcutaneous administration of TEPEZZA represents an important step forward in improving convenience, and expanding treatment options for patients with thyroid eye disease. Dazodalibet, our first-in-class CD40 ligand-targeting fusion protein, continues to progress with two Phase III studies in Sjogren’s disease now fully enrolled. These studies address both systemic and symptomatic disease, and both are expected to complete later this year. As publicly disclosed, the FDA proposed to withdraw the approval of Tabneos. We continue to believe that Tabneos is an important medicine for patients with ANCA-associated vasculitis, a rare life-threatening disease with limited treatment options. We are confident in the benefit-risk profile of this medicine and expect to engage further with the FDA on this topic. Turning to oncology, our bispecific T cell engager, or BiTE, platform continues to deliver meaningful impact for patients with advanced cancer. Imdeltra is emerging as a standard of care in second-line extensive-stage small cell lung cancer, delivering an unprecedented survival benefit in a disease that has seen very little innovation for decades. As we work to advance Imdeltra into earlier lines of therapy, we are encouraged by the apparent improvement in median overall survival in the first-line maintenance setting to 25.3 months, observed in the Phase 1b DELPHI-303 study. Frontline maintenance with Imdeltra is now being studied in the ongoing Phase III DELPHI-305 study. Zeliridomig, our first-in-class STEAP1-targeting bispecific T cell engager, is advancing rapidly with two ongoing Phase III studies in metastatic castration-resistant prostate cancer. Multiple ongoing Phase 1b studies are underway where we have taken a deliberate and differentiated approach toward earlier stages of disease to maximize long-term patient benefit. First, in biochemical recurrence, where patients experience a rising PSA without clinically evident disease, we are evaluating Xaloritomiga as monotherapy without androgen deprivation therapy. Second, we are advancing into metastatic hormone-sensitive prostate cancer, where we are evaluating zalaritamab on top of standard-of-care hormonal therapy with the goal of developing a more effective regimen without chemotherapy. One last but important note about our oncology portfolio: Following a comprehensive review, we have taken the decision to discontinue development of AMG 193, our MTA-cooperative PRMT5 inhibitor. Over the last several years, amidst the rapid advances in artificial intelligence, we have taken a principled approach to reconsidering and augmenting drug discovery and therapeutic development. At the intersection of powerful AI models, developed both externally and internally with Amgen Inc. research, and insight-rich proprietary datasets, we are beginning to see meaningful, tangible advances across Amgen Inc. R&D. Integrated multi-omics data resources at Amgen Inc. deCODE Genetics identify new targets for therapeutic consideration, in particular non-coding regions of the human genome studied at population scale. Antibody lead optimization has accelerated by 50% from contributions both to lead discovery and lead optimization. In clinical development, we have designed and implemented a proprietary site selection model that improves clinical trial enrollment with a significant, and in some cases up to threefold, improvement in enrollment rates. Leveraging large language models and agentic AI for regulatory filing preparation, we are seeing early promising results in data ingestion, integration, and document traffic. These are early innings. We are captivated by the potential for AI and data science to deliver measurable impact and value in R&D and across the enterprise, as Peter will highlight in a few moments. With the retirement of our revered and beloved colleague David Reese, I am excited to lead the AI and data transformation across our business at the enterprise level, working in partnership with our leadership staff and collaborators. Let me close by saying that we are encouraged by the progress we have made in the first quarter. With a continued focus on disciplined data generation across the portfolio, with a robust pipeline and meaningful breadth and depth across four therapeutic areas, we are well positioned to deliver continued innovation for patients with long sustained value. I want to thank my colleagues across Amgen Inc. for their continued focus on patients and their commitment to advancing innovative medicines for serious diseases. I will now turn it over to Peter for the financial update. Peter H. Griffith: Thank you, Jay. We are pleased with our strong first quarter performance, executing through a full quarter of the patent expirations and losses of exclusivity. Our non-GAAP operating margin was 45%. We continue to invest in advancing our pipeline with non-GAAP R&D spending increasing 16% year over year in the first quarter. This reflects increased spending on our late stage by including continued investments in Meritide, IMBELTRA and opasiran. Our non-GAAP cost of sales as a percentage of product sales was 19.5%, driven by higher profit share and royalty expenses and changes in our sales mix. We expect these factors will continue to negatively impact the cost of sales in future quarters. We further expect second quarter operating margin to be in line with the first quarter operating margin. Our non-GAAP OI&E resulted in $480 million of expense for the quarter, including a gain of about $90 million from retiring debt through open market repurchase. Our non-GAAP tax rate decreased one percentage point year over year to 13.6%, primarily due to net favorable items in the current year period, partially offset by the change in earnings mix. We generated $1.5 billion in free cash flow in the first quarter, reflecting continued momentum across the business. We spent $700 million in the first quarter on capital expenditures, driven by investments across our U.S. manufacturing sites, including Ohio, North Carolina, and Puerto Rico. We continue to expect capital expenditures of approximately $2.6 billion in 2026, reflecting significant investment in our business to scale manufacturing capacity for volume growth, including for Meritide’s launch. We see technology and artificial intelligence as increasingly important tools to help Amgen Inc. operate with greater speed, productivity, and scale across the enterprise. Beyond what Jay described, we are also seeing tangible benefits in other parts of the business. In AI-enabled automation, it has reduced production line clearance time at one of our manufacturing sites from approximately 30 minutes to about two minutes per batch run. We are also seeing promising results as our colleagues across Amgen Inc. use AI to enhance productivity. In addition, we returned capital to shareholders through competitive dividend payments of $2.52 per share, representing a 6% increase compared to 2025. Let us turn to the outlook for the business for the remainder of 2026. As we said last quarter, we expect 2026 to be a springboard year for future growth. Our strong first quarter performance reinforces that outlook, and we are raising our 2026 guidance ranges for both revenue and non-GAAP earnings per share. We expect 2026 total revenues in the range of $37.1 billion to $38.5 billion and non-GAAP earnings per share to be between $21.70 and $23.10. These ranges reflect our confidence that the emerging growth drivers will more than offset the outgoing legacy brands. Note, our guidance does not include any potential business development transactions that may occur throughout the remainder of the year. Let me highlight a few updates to our outlook for the remainder of the year. For the full year, we now expect other revenue to be in the range of $1.7 billion to $1.8 billion. We now anticipate non-GAAP OI&E to be in the range of $2.2 billion to $2.3 billion of expense in 2026. We now expect a non-GAAP tax rate in the range of 15% to 16.5%. And let me remind you of prior items that have not changed. We continue to expect the full-year non-GAAP operating margin as a percentage of product sales to be roughly 45% to 46%. This reflects our commitment to investing in the best innovation as we continue to rapidly advance the Meritide Phase III program and additional key late-stage assets. We expect share repurchases not to exceed $3 billion. Finally, in regard to our ongoing tax litigation, the tax court litigation covering tax years 2010 through 2015 remains ongoing, and while we expect a decision no earlier than the 2020, we remain confident in the case we presented at trial. We are currently under audit by the IRS for the 2016 to 2018 tax years. In April 2026, we received a draft Notice of Proposed Adjustment, or NOPA, from the IRS for 2016 to 2018, asserting significant adjustments primarily related to the allocation of profits between the United States and Puerto Rico. The approach taken by the IRS is similar in nature to our 2010–2015 dispute with the IRS currently pending in tax court. If sustained in full, the adjustments set forth in the draft NOPA could have a material impact on our financial statements. We disagree with the draft NOPA and have informed the IRS audit team that its draft calculation methodology is inconsistent with the positions asserted by the IRS and the Tax Court, which positions were more favorable to Amgen Inc. than the draft calculation methodology taken by the IRS audit team. We firmly believe that the IRS positions are without merit and we also believe that our tax reserves are appropriate. We intend to continue to vigorously defend our position, just as we have throughout our entire dispute with the IRS. We remain focused on delivering sustained long-term growth and creating value for patients, staff, and shareholders by doing what we said we would do: executing on our growth drivers, advancing innovation in areas of high unmet medical need, and maintaining rigorous financial discipline. I am grateful to work with all of our colleagues worldwide in our mission to serve patients. This concludes our financial update. I will now hand it over to Bob for Q&A. Robert A. Bradway: Thank you, Peter. Julianne, why do you not open up the lines for questions. I know it has been a long day for many of our callers, so let us jump straight in and try to get to everybody’s, or as many questions as we can. We will limit you to one question each please. But let us get started, Julianne. Operator: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by one again. To ask a question, press star 1. Our first question comes from Yaron Werber from TD Cowen. Please go ahead. Your line is open. Yaron Benjamin Werber: Great, thanks so much. Maybe, Jay, unsurprisingly first question on the Meritide switch studies. Can you give us a little bit of a sense: Are you switching sort of one to one to one to months every two months and every three months? And are you looking at superiority or noninferiority? And sort of what is the noninferiority sort of margin? Thank you. James E. Bradner: Yaron, thank you for the interest. As I just shared, people are naturally very interested to know what it will take to switch from a weekly injectable to a medicine potentially quite a bit more convenient and quite active. And so the SWITCH study is designed to provide that experience. There will be 300 subjects on study with obesity or overweight. There will be a run-in on weekly semaglutide or tirzepatide, and then they will switch to Meritide on an every eight-week or quarterly basis. The primary endpoint of this trial will be change from baseline body weight after 52 weeks of Meritide treatment. We look forward to these results. Thank you, Yaron. Operator: Our next question comes from Salveen Richter from Goldman Sachs. Please go ahead. Your line is open. Salveen Jaswal Richter: Good afternoon. Thanks for taking my question. Could you just comment on the Meritide switching study and why it only evaluates every two months and three months and not every one month? And then as you think about the profile today, how significant do you expect the maintenance opportunity to be for Meritide? Thank you. James E. Bradner: Thanks. Why do I not start with the question around the design of the switch study, and then Murdo, you can talk about the opportunity thereafter. We have a lot of experience with monthly Meritide in this program, which is featured today in all of the enrolling Phase III programs. We have had a really good experience in the maintenance setting in our Phase II part two. In that regard, the long-term extensions that we have just described, where we switch from Meritide to Meritide, give us a chance to explore less frequent dosing after effective dosing and, comparably, in the switch study, we are focusing that trial on the learnings of going from weekly to an every eight-week and every twelve-week treatment regimen, which can make Meritide quite attractive to patients if successful. Murdo Gordon: Thanks, Jay, and thanks, Salveen. Obviously, the goal here for weight loss is to lose weight and then sustain it over multiple years so that you can get the full medical benefit of the treatment. And given that we are coming later into this market, and there will be many, many patients already on other weekly treatments, we thought it would be helpful to prescribers, to clinicians, and patients to understand how to convert, how to switch from those weekly agents to, as Jay mentioned, a more convenient regimen like Meritide. Importantly, it will also be necessary to describe once you reach your weight loss goal on monthly Meritide, how you would want to modify that dose interval either to Q8 week or to Q12 week for even more convenience. And so we have taken the opportunity, given the timing of our launch and order of entry, to fully describe how to start patients on Meritide and then how to switch from other treatments that patients may be on and they may be dissatisfied. Robert A. Bradway: Okay, let us go to the next question. Operator: Our next question comes from Luca Issi from RBC Capital Markets. Please go ahead. Your line is open. Luca Issi: Hi, Jay. Thanks so much for taking our question. This is Cassie on for Luca. We have a question for INVELTRA. The drug has clearly done very well so far in second-line setting. Can you tell us more about what is next for INVELTRA? Not only in terms of the opportunity you get once you move to the front lines, but also now with Indaltro selected as part of the real-time clinical trial pilot program, could you help us understand the process? Is the idea basically FDA will look at your data and scientists together as a study is going, and for indications with no healthy volunteers, you essentially can go straight from first-in-human to approval without pausing for safety or end-of-phase reviews? And curious what made FDA pick INVELTRA as the pilot program? Thanks so much. James E. Bradner: Well, let me please start. Thank you for the question. Imdeltra has really emerged as the standard of care for patients with second-line small cell lung cancer because, as I mentioned moments ago, the unprecedented efficacy afforded by Imdeltra on just the most important endpoint, overall survival. As for so many medicines in advanced cancer, medicines that work in later stages of the disease tend to confer even more clinical benefit when they are moved to earlier lines of therapy and earlier stages of lower disease burden, especially when they are used in combination. And so we are advancing Imdeltra quite actively and aggressively into frontline induction as well as frontline induction and maintenance. The maintenance experience with Imdeltra and the frontline experience will be in extensive-stage small cell lung cancer, and these studies are rapidly progressing. Further, we have the DELPHI-306 study which studies triladumab versus placebo after chemotherapy and radiation, in frontline limited-stage small cell lung cancer. We are hopeful for these trials and just cannot wait to read them out. As you have described, we have had a chance to collaborate with Commissioner McKary and members of the FDA on imagining what a clinical study might look like in the real-world prospective practice. And we have a very fine design coming together with the FDA that will give us a chance to characterize Imdeltra in a clinical trial setting but in the real world, leveraging things like electronic health records and real-time data capture as opposed to the way the clinical trials are conducted today. It could be a very important experiment for us and for others, because so many clinical trials initiated do not complete. Enrollment is very challenging. Managing data and packaging it and submitting it to regulators is quite a big book of work. And if there is a way to do this in more real time, we would all benefit from having this learning. We are looking forward to working with them on that. Murdo Gordon: Thanks, Jay. The other thing that I would add here is we have seen very good progress in where patients are treated for their small cell lung cancer with Imdeltra. We have seen really good uptake in the U.S. in community oncology. We have seen a very good launch in Japan. We expect to be launching in the second-line indication across multiple markets this year. And then, as Jay said, we have a nice randomized clinical program reading out through the balance of this year into next to further expand the use of this product. Imdeltra seems to have very durable survival as we have seen in our Phase I data. And importantly, in these innovative trial designs that the FDA is in discussion on, this will further help the physicians, primarily those in community settings in regional hospitals or in community oncology practices, better care for their patients closer to their homes, which is a really exciting opportunity. Thank you. Robert A. Bradway: All right. Let us move on. Operator: Our next question comes from Michael Yee from UBS. Please go ahead. Your line is open. Michael Yee: Thank you. Great. Maybe a question on Olpasiran. And obviously, you guys have a well-designed study and potentially superior drug. I am wondering if you think that background therapies such as GLP-1 or PCSK9 either would impact your trial design or your competitor trial design, how you think about that impacting the overall results of what we might see from a competitor soon. Thank you. Robert A. Bradway: Jay, why do you not answer that? James E. Bradner: Yes. Thank you for the question. We see it the same way. The OCEANA-ACE study is a very well-designed study, a randomized controlled trial of almost 7,300 patients with Lp(a) over 200 and a medicine, olpasiran, with best-in-class performance characteristics, as you cite, 95% reduction in Lp(a) with every 12-week dosing. So we are really looking forward to reading out this event-driven trial. We have built this study around a very high-risk group of patients. Elevations in Lp(a) are genetically defined, and as such, one in five individuals will have elevated Lp(a). Unfortunately, to your question, you cannot take a GLP-1 medicine or a statin, even Repatha, and meaningfully reduce levels of Lp(a). This independent risk factor maps to a very atherogenic and inflammatory characteristic of the Lp(a)-containing particle, which is actually six times more inflammatory and atherogenic than the LDL-C containing particle, which, of course, we and others have shown to be a dramatically and importantly modifiable risk factor. And though we observed improvements in the standard of care for patients with cardiovascular disease, and we contribute to that with Repatha, we are very confident in the study as defined, which focuses on a high-risk, high-leverage elevated Lp(a) population treated with direct and targeted therapy to Lp(a) itself. Robert A. Bradway: Okay, thank you. Let us move on. Operator: Our next question comes from Terence Flynn from Morgan Stanley. Please go ahead. Your line is open. Terence C. Flynn: Great, thanks for taking the question. Bob, I was just wondering, we have seen a pretty active M&A year thus far in the sector. Just as we think about Amgen Inc.’s needs, potential size of opportunity, how are you thinking about BD and M&A right now given your current needs, but also your strength and your balance sheet? Thank you. Robert A. Bradway: Terence, I am not sure I would use the word needs the way you have in your question, but we are very active in business development as we always have been, looking for innovation that we think we can add value to. So that remains the case. I think the areas where we are interested are very clear to you and to our investors, and we will continue to see if there are things that line up in a way that we can take over programs and still add value to our shareholders. Thank you, Julianne. Next question. Operator: Our next question comes from Geoff Meacham from Citi. Please go ahead. Your line is open. Geoffrey Christopher Meacham: Great, thanks for the question, guys. Murdo, Repatha has been consistently strong, but I want to get some perspectives from you on penetration into primary prevention and where it could go. And as you look to the olpasiran data, how do you think primary prevention looks as a key market within the Lp(a) segment? Thank you. Murdo Gordon: Thanks for the question, Geoff. We are really excited about what is happening in primary care. As you recall, we expanded promotion and coverage of our primary care sales team at the beginning of last year. We expanded our medical teams in anticipation, of course, of some of the news flow that we have seen: new data from the VESALIUS-CV trial that we presented last November at the AHA meeting, and then, as Jay mentioned, subsequent sub-study in diabetes patients without atherosclerosis also showing significant benefit with a 31% reduction in three-point MACE and a 31% reduction in four-point MACE. So we have a clear opportunity to help these patients who are in the care of the primary care physician. The average diabetes patient without documented atherosclerosis is someone who is not being referred to a cardiologist, and so since the change in our label occurred actually just prior to the VESALIUS trial being presented, we have been out there talking to primary care physicians. We have seen really, really good uptake. In the quarter, we had strong overall growth in Repatha globally. If you look at new-to-brand prescription evolution in the U.S., we were up 44% in the quarter, and that is being driven by increased depth of prescribing by cardiologists and increased breadth of prescribing by primary care physicians. So very strong foundation, very pleased with the momentum. But we still have a huge opportunity ahead of us in primary prevention promotion of Repatha, the only PCSK9 with that data generation now. So real opportunity for us. Now when we look at Lp(a), the one thing I will say that helps us is the new treatment guidelines that came out from the ACC/AHA. They have recommended that everyone who is at risk of cardiovascular disease be tested. As you know, this is a genetically determined level, so you really only need to do the test once. It is affordable. It is accessible. And so that bodes well for having some population of patients who will know their Lp(a) level. And I do think that primary care physicians will play a significant role in treating those patients, in lowering their Lp(a) levels with, hopefully, a product like olpasiran should the data bear out. Robert A. Bradway: Okay. Good. Let us move on to the next question. Operator: Our next question comes from David Risinger from Leerink Partners. Please go ahead. Your line is open. David Reed Risinger: Thanks very much. So my question is for Murdo, please. Congrats on the launch of Amgen Now. I think that occurred last fall. Could you provide some quantification on the uptake of Repatha by cash-pay patients and, I do not know if it is meaningful enough yet, but possibly the current mix of sales between cash pay and covered given the strong ramp of Amgen Now? And then, is Amgen Inc. considering leaning into offering Repatha as a cash-pay product ex-U.S.? Thanks so much. Murdo Gordon: Thanks for the question, David. We have been pleased with overall response to the Amgen Now offering. As you will recall, Repatha is offered at a $239-a-month price point, and we are seeing cash-paying patients interested in pursuing Repatha. Now at the same time, however, it is important to note, we have opened up access substantially for Repatha, and so many patients now can access Repatha without much friction and their physician can simply attest that the patient meets the criteria for the indication of the product. So I would not expect the cash-paying component of patients going through Amgen Now to be substantial. We are in the kind of the 8,000 to 9,000 patient range of patients moving through the Amgen Now program, and we continue to see more and more interest there. So it has been a success, but as a percentage of total Repatha, as you will note, it is relatively small. Robert A. Bradway: Julianne, next question, please. Operator: Next question comes from Matt Phipps from William Blair. Please go ahead. Your line is open. Matthew Christopher Phipps: Hi, thanks for taking my questions. I was wondering on some of the blinatumomab updates. First off, you noted in the press release that enrollment has stopped in the SLE trial. Can you give us any updates on that status? And it also looks like you are pausing enrollment of the subcu administration in ALL. Any additional reasoning for that pause? Thank you. Robert A. Bradway: Sure. Thanks, Matt. I am happy to take the question. James E. Bradner: Blinatumomab is proving to be an important component of standard of care for adults and children with relapsed and refractory B-cell leukemia, and its current instantiation is delivered by intravenous continuous infusion. We have studied and characterized subcutaneously administered blinatumomab in the past, and there is a chance with this medicine for even higher remission rates, as we have previously shown at presentation. We observed 89–92% remission rates with manageable safety in adults with relapsed and refractory B-ALL. And so we are very encouraged by the efficacy seen with subcutaneous blin and are moving subcutaneous blin to earlier lines. As you shared, we have a potential registration-enabling Phase II initiated in adults and adolescents. We have a Phase Ib/II study of subcu blin as well initiated in pediatric patients there with relapsed and refractory and MRD-positive B-cell ALL. As you noted, we have paused some of these studies for enrollment. BiTEs are known to have inflammatory side effects. We prioritize patient safety, especially in the conduct of clinical investigation. And observing a handful of inflammatory reactions, we are at this moment collecting some patient data and having a dialogue with the FDA. We expect to be able to open these studies back for enrollment shortly. Robert A. Bradway: Next question, Julianne. Operator: Next question comes from Chris Schott from JPMorgan. Please go ahead. Your line is open. Christopher Thomas Schott: Great, thanks so much for the question. I just want to come back to Meritide. Sounds like some encouraging earlier-stage data on the titration. Are you able to provide any more color on what levels of vomiting and duration of vomiting you are seeing with the three-step titration from some of these earlier studies? Or if you cannot provide specific numbers, just maybe directionally, where that is shaking out versus a Wegovy or is that bound? Thanks so much. James E. Bradner: Yeah, Chris, thanks. The level of nausea and vomiting observed with three-step dose escalation is lower than we have seen before. Dose escalation works for GLP-1 agonist-based therapy. That is known. In our experience, one step improved GI tolerability significantly. Two-step improved it further. And today we share the unsurprising but accumulating data that provide clinical confirmation that three-step dose escalation further improves GI tolerability. Now we await efficacy and tolerability data from the ongoing Phase III studies, but we are quite encouraged by what we have seen. Robert A. Bradway: Jay, on the question of duration, you may help him understand what we see, help Chris understand what we see and how it is different from what we are observing from the weekly and dailies in terms of the side effect duration, side effect profile. James E. Bradner: Before we started this research, we did not know whether a long-acting medicine like Meritide that can be delivered monthly or every eight weeks or every twelve weeks would enjoy durable efficacy owing to high time on target. This antibody backbone leads to very smooth and stable exposure over a long period of time, engaging GLP-1 receptors and GIP receptors in the brain and peripheral tissues. Would that durable efficacy be associated, when there was a side effect, with a long-term side effect? And that we do not see. When we do observe nausea and vomiting, it tends to be quite short in its duration, over the course of one or several days. No different than the weekly GLP-1s. But different than the weekly GLP-1s and different than oral GLP-1s that are short half-life medicines. This trough-to-peak spike that is experienced every time these medicines are taken we believe can be associated with intolerable side effects in the GI and otherwise. And this can be avoided with a steady, stable, long-acting medicine like Meritide. We see this at target dosing of Meritide, by Manhattan plots versus what is reported in the field with more frequent dosing. So, in the fullness of time, this could prove to be a very important attribute, keeping patients on the medicine for the length of time that they have these diseases, which is for many of them a lifetime. Julianne, we probably have time for two more questions. Operator: Thank you. Our next question comes from Akash Tewari from Jefferies. Please go ahead. Your line is open. Analyst: Hey, thanks so much. For DAZZO’s Phase III Sjogren’s programs, you are making an interesting bet, splitting it up into systemic and symptomatic patients. What kind of drove that decision? And which one of those trials are you more confident will work? And can you go over any of the biological differences between DASO and then the Novartis CD40, but also Sanofi CD40L, which both ended up discontinuing their programs? Thank you. James E. Bradner: Yeah, Akash, I love your questions because they invite a mechanistic characterization of these molecules, but I will try to keep this brief, though it will be hard for me. We observed in Phase II very strong activity of dazodalibep, as you comment, which is a CD40 ligand Fc fusion protein targeting fusion protein. And the performance against the ESSDAI score in Sjogren’s syndrome is quite a unique situation. It has proven very hard to develop effective medicines in Sjogren’s disease. But seeing movement in the ESSDAI score made us very motivated to follow this up in Phase III clinical investigation. The presentation of this heterogeneous disease can be quite different clinically. And so we thought to segregate, in order to have clear clinical outcomes in these clinical trials, into two Phase III studies: patients with what we will call systemic disease, but then also a separate study of moderate to high symptomatic disease, but there with low systemic disease activity. In the case that these two populations might be considered differently, we aim to observe meaningful differences attributable to those biological and clinical presentations. These studies have completed enrollment and completion of both studies is expected in the second half of this year. Dazodalibep is a product of a long-sought-after drug discovery campaign, honestly, in the field of immunology. CD40/CD40 ligand signaling is fundamental T cell/B cell co-stimulation. CD40 ligand is on T cells; CD40 is on many, many different kinds of cells. And that makes this molecule very different than CFZ533 from Novartis. What is true of Sjogren’s disease, whether or not it is systemic or symptomatic, is that T- and B-cell activation is the primary driver. This is not a dry gland disease; it is enriched with inflammatory cells. And so we believe that CD40 ligand is the right lever to press on, as it will impact all downstream signaling by targeting the upstream CD40 ligand on T cells. So we look forward to reading out these studies, one with the ESSDAI score, another with the ESSPRI score, appropriate for a symptomatic study, in the second half of this year. But Julianne, let us take one last question and then I will have a couple of remarks and we will be finished. Operator: Thank you. Our last question today will come from Louise Chen from Scotiabank. Please go ahead. Your line is open. Louise Chen: Hi. Thanks for taking my question. I just wanted to ask you, if you get Meritide approved, what are you playing for here? Do you want to be the number three player behind Novo and Lilly, or are you assuming a higher position than that with your product? Thank you. Robert A. Bradway: Louise, that is a tempting question to consider a softball pitch over the middle of the plate here at the end of the day. But Murdo, do you want to offer any quick thoughts for Louise and then we will wrap up? Murdo Gordon: Well, I think we are going to be the best monthly or less frequently dosed agent. But no, in all sincerity, this is a highly differentiated product. I think the opportunity is substantial to come into a market with something that really is a new paradigm-changing opportunity for a massive category. And our focus is going to be on helping as many patients as possible in that category, whether they are de novo patients who have yet to attempt a weight loss treatment and they will be new to Meritide, or whether they are on another therapy and they are not achieving the results they like, or they are not enjoying the frequency of injections, or they are having side effects and they want to try another treatment. And we will, across the business, across the company, be ready to go into that market and compete with all of the other companies that are already there. Robert A. Bradway: I know some of our competitors have risen to the bait of that question, Louise, but we will resist and wait instead until we have the data in hand. As you know, we are working diligently to try to generate the necessary data to register this molecule and, as Murdo said, help as many patients as possible. There are very many who need a differentiated therapy like this and we are looking forward to having the data so that we can appropriately talk to it. But before we wrap up, as I mentioned earlier in my remarks, I just wanted to take a moment and acknowledge that Dave Reese will be retiring from Amgen Inc. at the end of the second quarter. And I wanted to thank him publicly for his contributions to Amgen Inc. over the past 20 years. As a longstanding leader and former head of R&D, Dave’s legacy here, as you all know, includes a generation of innovative medicines. What you may not be as familiar with is that Dave has been a persuasive champion for change and new technologies at Amgen Inc. and recognized, long ahead of many others, the growing importance of AI and what he called the hinge moment. Dave both raised his hand to be Amgen Inc.’s first Chief Technology Officer and helped attract Jay Bradner to be his successor as Head of R&D. So we are thrilled and excited about the progress that we made in artificial intelligence and data under Dave’s leadership, as well as the other businesses that Dave has had responsibility for. And again, we are grateful that Jay will build on what is a very solid foundation following Dave’s retirement at the end of the second quarter. Dave is both a close colleague and friend to many of us and we will all miss him and wish him well in what we are sure will be a very active retirement. So Dave, on behalf of all of Amgen Inc., thank you, and let me thank all of you for joining our call as well. Thank you. Operator: This concludes our Amgen Inc. Q1 2026 earnings conference call. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Q1 2026 Westwood Holdings Group, Inc. earnings call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during this session, you need to press 11 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jill Meyer, director of fiduciary services. Please go ahead. Jill Meyer: Thank you, and welcome to our first quarter 2026 earnings conference call. The following discussion will include forward-looking statements that are subject to known and unknown risks, uncertainties, and other factors which may cause actual results to be materially different from those contemplated by the forward-looking statements. Additional information concerning the factors that could cause such a difference is included in our press release issued earlier today as well as in our Form 10-Q for the quarter ended 03/31/2026 that will be filed with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. You are cautioned not to place undue reliance on forward-looking statements. In addition, in accordance with SEC rules concerning non-GAAP financial measures, a reconciliation of our economic earnings and economic earnings per share to the most comparable GAAP measures is included at the end of our press release issued earlier today. On the call today, we have Brian Casey, our Chief Executive Officer, and Terry Forbes, our Chief Financial Officer. I will now turn the call over to Brian Casey. Brian Casey: Good afternoon, and thank you for joining us for Westwood Holdings Group, Inc.'s first quarter 2026 earnings call. I am pleased to share our results and key developments from the quarter as well as our outlook for the remainder of the year. Before going into the details, I would like to highlight a few points from the first quarter. Our AUM grew to $18.3 billion, up from $17.4 billion at year-end 2025. Our ETF suite of products surpassed $315 million in combined AUM. West 2 closed at over $300 million, and West 3 fundraising is now underway. Combined institutional and intermediary gross sales were approximately $529 million. And finally, we completed the sale of Vista Bank, generating a net gain of approximately $2 million. I will start with a brief overview of our assets under management. Firmwide AUM increased from $17.4 billion at 12/31/2025 to $18.3 billion at 03/31/2026. This growth was driven primarily by our energy and real asset strategies, particularly private energy funds and energy-focused ETFs, which more than offset modest declines in U.S. value equity. Private fund AUM was the largest contributor, reflecting new commitments and capital deployment in our energy secondaries and co-investment vehicles. This growth was structural in nature rather than market dependent, which we see as a healthy and durable source of AUM diversification. The first quarter reflected the continuing evolution of our AUM mix. Client allocations are shifting toward income-oriented, real asset, and private market solutions driven by macroeconomic forces like energy security concerns, record global infrastructure investments, and persistent power demand growth from data centers and AI-linked infrastructure. Traditional U.S. value equity strategies remain under pressure, although the pace of decline moderated during the quarter. Turning to the market environment, after reaching new all-time highs in late January, U.S. equities quickly faced a reversal. Military actions by the United States and Israel against Iran drove oil prices significantly higher in March, amplifying persistent market uncertainties. The S&P 500 fell 4.3% for the quarter, while small-cap and mid-cap stocks posted modestly positive returns. The standout story was energy; S&P 500 energy stocks gained more than 38% over the three-month period. Market leadership continued to broaden out from mega-cap technology toward sectors like materials, utilities, consumer staples, and industrials. The Fed held the funds rate steady in the 3.5% to 3.75% range, as fourth quarter annualized GDP growth of 0.7% and lingering inflation kept policymakers on hold. Meanwhile, bond yields edged slightly higher, producing modestly negative returns for the quarter. With that market backdrop, let me turn to our long-term investment performance. Our results across strategy groups reflect the challenging near-term environment for value-oriented equities, along with several areas of genuine long-term strength that we find very encouraging. Within our U.S. value equity strategies, our SMID Cap strategy continues to be a standout, ranking in the top quartile of both its eVestment and Morningstar peer groups over the trailing three years—a consistent and well-earned result. On a ten-year basis, our Large Cap Value strategy has delivered competitive results relative to peers. We recognize that parts of U.S. value strategies remain under pressure, but we are actively focused on delivering improved results and have seen some moderation in outflows. Turning to our multi-asset strategies, our results here are really encouraging. Our Multi-Asset Income Fund ranks in the top decile of its Morningstar peer category over both the trailing three- and five-year periods—a strong and consistent performance. Our Income Opportunity strategy ranks in the top third of Morningstar peers over the trailing three-year period. Taken together, half or more of our multi-asset strategies are delivering top-tier results over meaningful time horizons. Our Salient energy and real asset strategies delivered solid performance amid a favorable environment for the sector. Our MLP SMA strategy is in the top third of its eVestment master limited partnership peer group over the trailing three years and is performing well relative to the Alerian MLP Index on a net-of-fee basis. MDST and WEEI—the Westwood Salient Enhanced Midstream Income ETF and the Westwood Salient Enhanced Energy Income ETF—continue to provide attractive yields to income-focused investors consistent with their stated objectives. Our Tactical Growth mutual fund also delivered positive results while providing capital preservation during the March correction. Looking ahead, we believe market conditions are evolving in a way that increasingly favors our investment philosophy. The broadening of sector leadership out from mega-cap technology stocks toward energy, industrials, utilities, and other value-oriented segments is precisely the environment in which our active, quality-focused approach has historically excelled. Geopolitical uncertainty, inflationary pressures from elevated oil prices, and potentially slower economic growth all create volatility, but they also create opportunity for disciplined investors like us who prioritize companies with strong cash flow, sound balance sheets, and reasonable valuations. Over the long term and across market cycles, we have consistently demonstrated that quality and value are durable sources of outperformance, and we are well positioned to capitalize on that dynamic as the environment continues to evolve. Turning to distribution, our institutional channel reported gross sales of $322 million for the first quarter, with net inflows of $32 million. One major highlight was successfully onboarding our first institutional managed investment solutions client, accounting for over $200 million in gross sales—an important validation of the MIS capability we have been building. Our pipeline remains robust across both value and energy strategy, with many new opportunities added during the quarter. We are also initiating SMID Cap due diligence with two of the largest national consultants, which reflects the attraction of SMID Cap’s quality and competitiveness. We expect to see continued momentum in SMID Cap Value for defined contribution plans, and we anticipate that our private capital platform will attract increasing institutional interest following significant enhancements we have made to our personnel and organizational structure. In our intermediary channel, gross sales reached $207 million, led by energy and real assets, with net outflows of $34 million. MDST gained approval from its first major warehouse, a very important distribution milestone, and it continues to receive approvals for major national platforms. YLDW, our Enhanced Income Opportunity ETF, is approaching the $25 million threshold typically required for platform onboarding. Our Broadmark strategies are gaining traction as investor demand for risk mitigation has increased in the current elevated market volatility environment. Finally, momentum from our West 2 capital raise is underpinning West 3 as it attracts early interest from RIAs, family offices, and independent advisers. Moving to our wealth management business, we entered 2026 with solid momentum as we continue to strengthen our multifamily office platform. Client engagement remained elevated throughout the quarter, reflecting ongoing market uncertainty and continued demand for proactive planning and thoughtful portfolio oversight. Our advisers maintained a disciplined long-term approach to asset allocation, which helped reinforce client confidence during periods of volatility. Client conversations are increasingly focused on holistic planning, particularly around tax positioning, liquidity management, and coordination with trust structures—areas where our integrated model is optimal. From an operational standpoint, we continue to make progress on process standardization and cross-functional alignment across our advisory, client service, and trustee teams. Our efforts are improving scalability while enhancing the overall client experience. Business activity remained steady during the quarter, including several notable large inflows from our multifamily office approach. We continue to prioritize high-quality client relationships with significant long-term potential. Looking ahead, our focus remains on refining internal processes, enhancing reporting and communication, and strengthening collaboration across the platform to support sustainable growth. Beyond core business results, I would like to highlight significant events and milestones achieved during the quarter. Our Enhanced Income Series ETFs achieved an important milestone as MDST, our Enhanced Midstream Income ETF, crossed the $200 million AUM threshold in February—a landmark for a fund that has been in the market for less than two years. Together with WEEI and YLDW, our three Enhanced Income Series ETFs have now surpassed $320 million in combined assets. YLDW, the Westwood Enhanced Income ETF we launched last December, represents an important extension of our income ETF platform, being the first of our multi-asset strategies to be marketed as an ETF. YLDW combines a disciplined multi-asset allocation approach with a strategic covered call overlay, providing investors with a consistent and diversified source of current income plus potential capital appreciation, and is approaching $25 million in assets. MDST continues to maintain an annualized distribution rate of approximately 10%, consistent with its income generation objective, and its recent warehouse approval is a truly meaningful step, expanding our distribution reach. We will continue to look for opportunities to expand our ETF lineup with innovative strategies that address investor demands. Our energy secondaries business reached an important milestone as Westwood Energy Secondaries Fund 2 closed with over $300 million in capital commitments—more than double our initial $150 million target. Since launching our first energy secondaries fund in 2023, we have raised nearly $350 million and deployed over $250 million across two flagship funds and three co-investment vehicles. During the first quarter, we also received commitments for a new co-investment fund focused on an operated upstream platform. We have commenced fundraising for Westwood Energy Secondaries Fund 3 and its related co-investment fund, which we expect to market through early 2027, and it is generating substantial early interest. To support this growing platform, we have added team members to our private capital operations team and implemented a new AI-driven technology tool to streamline key operational processes. We completed the sale of our interest in Vista Bank during the quarter, receiving both cash and stock consideration that enabled us to recognize a gain of approximately $2 million. In March, we celebrated the 25th anniversary of the Westwood Real Estate Income Fund, marking a quarter-century of disciplined investing, durable income generation, and successful active management of publicly traded real estate securities. Since inception in 2001, the fund has navigated real estate and economic cycles while maintaining a philosophy grounded in fundamental analysis, valuation discipline, and rigorous risk management. We are proud of the team that has delivered consistent results for our clients over such a long investment horizon. Finally, on 04/01/2026, Westwood Holdings Group, Inc. celebrated its 43rd year in business—a testament to our commitment to clients, our culture of continuous innovation, and the dedication of our entire team. We are proud to be one of the very few asset management firms with this depth of history, and we remain committed, as always, to the principles that have guided us since our founding. Looking back on 2026, we are encouraged by the strategic progress we have made across our business. Our ETF platform has scaled meaningfully, our private capital strategy is gaining significant institutional and intermediary traction, and our distribution channels continue to build a healthy pipeline. The evolving market environment—characterized by broader sector leadership, elevated energy prices, and a renewed interest in quality and value—is one in which we believe Westwood Holdings Group, Inc. is well positioned to deliver for our clients and shareholders. With 43 years of experience, a diversified and growing product platform, and demonstrated long-term performance in our core strategies, we are confident in our ability to capitalize on the opportunities ahead. Thank you for your continued support and confidence in Westwood Holdings Group, Inc. I will now turn the call over to our CFO, Terry Forbes, for the financial results. Terry Forbes: Thanks, Brian, and good afternoon, everyone. Today, we reported total revenues of $25 million for the first quarter of 2026, compared to $27.1 million in the fourth quarter and $23.3 million in the prior year's first quarter. First quarter revenues were lower than the fourth quarter due to lower average AUM as well as fourth quarter recognition of performance fees for the prior year. First quarter revenues were higher than last year's first quarter due to the solid growth in our business, reflected in higher average AUM and growth from our ETFs and private energy secondaries funds. Our first quarter income was $800,000, or $0.09 per share, compared with $1.9 million, or $0.21 per share, in the fourth quarter on lower revenues and higher compensation expenses, offset by a gain from the sale of our investment in a private bank and lower income taxes. Non-GAAP economic earnings were $2.8 million, or $0.31 per share, in the current quarter, versus $3.3 million, or $0.36 per share, in the fourth quarter. Our first quarter income of $800,000, or $0.09 per share, compared favorably to last year's first quarter income of $500,000 due to 2026's higher revenues and gains from our investment in a private bank, offset by higher compensation expenses. Economic earnings for the quarter were $2.8 million, or $0.31 per share, compared with $2.5 million, or $0.29 per share, in the first quarter of 2025. Firmwide assets under management and advisement totaled $18.3 billion at quarter end, consisting of assets under management of $17.3 billion and assets under advisement of $900 million. Assets under management consisted of institutional assets of $9 billion, or 52% of the total, wealth management assets of $4.2 billion, or 24% of the total, and mutual fund and ETF assets of $4.1 billion, or 24% of the total. Over the quarter, our assets under management experienced net outflows of $50 million and market appreciation of $800 million, and our assets under advisement experienced market appreciation of $48 million and net outflows of $50 million. Our financial position continues to be solid, with cash and liquid investments at quarter end totaling $34.2 million and a debt-free balance sheet. I am happy to announce that our board of directors approved a regular cash dividend of $0.15 per common share, payable on 07/01/2026, to stockholders of record on 06/01/2026. That brings our prepared comments to a close. We encourage you to review our investor presentation we have posted on our website, reflecting quarterly highlights as well as discussion of our business, product development, and longer-term trends in revenues and earnings. We thank you for your interest in our company, and we will open the line to questions. Operator: We will now open the call for questions. Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while I compile the Q&A roster. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. I am showing no questions at this time. I will now turn it over to Brian Casey for closing remarks. Brian Casey: Great. Well, thank you, and I first want to thank our long-term and our new shareholders for approving our entire slate of directors today and all the other items we had on the agenda. Just in closing, our SMID Cap performance has remained strong, and our pipeline of opportunities has grown over a billion dollars. Our managed investment solutions pipeline is improving every week, and we are optimistic that we will land our next institutional client in the coming months. We continue to build out our private capital, and we are anxious to kick off fundraising for our next fund. Finally, our ETF platform is seeing strong demand with higher trading volumes and growing AUM, and we are excited to see MDIF and MDST go fully live tomorrow across one of the major wires. That should be exciting. Thanks so much for your time. We appreciate it. Visit westwoodgroup.com or call Terry or me if you have questions. Thanks so much. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the DexCom, Inc. First Quarter 2026 Earnings Release Conference Call. My name is Abby, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press star one on your touch-tone phone. As a reminder, the conference is being recorded. I will now turn the call over to Sean Christensen, senior vice president of finance and investor relations. Mr. Christensen, you may begin. Sean Christensen: Thank you, operator, and welcome to DexCom, Inc.'s first quarter 2026 earnings call. Our agenda begins with Jacob Steven Leach, DexCom, Inc.'s President and CEO, who will summarize our recent highlights and ongoing strategic initiatives, followed by a financial review and outlook from Jereme M. Sylvain, our chief financial officer. Following our prepared remarks, we will open the call up for your questions. At that time, we ask analysts to limit themselves to one question each so we can provide an opportunity to everyone participating today. Please note that there are also slides available related to our first quarter 2026 performance on the DexCom, Inc. Investor Relations website on the Events and Presentations page. With that, let us review our safe harbor statement. Some of the statements we will make on today's call may constitute forward-looking statements. These statements reflect management's intentions, beliefs, and expectations about future events, strategies, competition, products, operating plans, and performance. All forward-looking statements included on this call are made as of the date hereof, based on information currently available to DexCom, Inc., are subject to various risks and uncertainties, and actual results could differ materially from those anticipated in the forward-looking statements. The factors that could cause actual results to differ materially from those expressed or implied by any of these forward-looking statements are detailed in DexCom, Inc.'s annual report on Form 10-K, most recent quarterly report on Form 10-Q, and other filings with the Securities and Exchange Commission. Except as required by law, we assume no obligation to update any such forward-looking statements after the date of this call or to conform these forward-looking statements to actual results. Additionally, during the call, we will discuss certain financial measures that have not been prepared in accordance with GAAP. Unless otherwise noted, all references to financial measures on this call are presented on a non-GAAP basis. This non-GAAP information should not be considered in isolation, or as a substitute for results or superior to results prepared in accordance with GAAP. Please refer to the tables in our earnings release and the slides accompanying our first quarter 2026 earnings call for a reconciliation of these measures to their most directly comparable GAAP financial measure. Now I will turn it over to Jake. Jacob Steven Leach: Thank you, Sean, and thank you everyone for joining us. Today, we reported first quarter revenue growth of 15% compared to 2025 and organic revenue growth of 12%. This reflected strong demand for DexCom, Inc. CGM globally, as we benefited from broader access, new product launches, and continued active base growth. We also continued to drive operational improvement over the course of the quarter, which included an outstanding launch of G7 15-day, improvements in field performance across all of our products, a good response to our MyDexcom account and enhanced web-based service and support, and continued progress on new product initiatives. This helped us deliver solid margin performance, cash flow generation, and earnings for Q1. In the U.S., we are generating good momentum across the spectrum of diabetes care. This was especially pronounced across the categories of type 2 diabetes where our expanded reach and product momentum led to strong first-quarter share gains, with the biggest increase coming from people with type 2 diabetes who are not on insulin. This performance reflects growing clinical awareness of the greater than 6 million non-insulin lives currently covered for DexCom, Inc. CGM across the three largest PBMs. Our team has done a great job driving this awareness in the field, and this message will become even stronger as type 2 coverage continues to build. Along those lines, I am excited to announce another recent reimbursement win for the commercial type 2 non-insulin population. As of this summer, Prime Therapeutics will begin covering DexCom, Inc. CGM for all people with diabetes. This puts us on track to have commercial coverage for more than 7 million type 2 non-insulin lives by the end of this year. It is also another clear demonstration that payers are recognizing the value of DexCom, Inc. CGM in driving health and economic outcomes for this population. While this is a great start, we will not be happy until we have coverage for all people with diabetes. And the largest single driver towards that goal would be CMS coverage for the type 2 non-insulin population, as around half of those with type 2 diabetes not using insulin sit within the Medicare population. As we have said before, we continue to view this decision as only a matter of time. In recent months, we have seen upgraded recommendations in the ADA Standards of Care recommending CGM use for all people with diabetes, and the level of real-world evidence for CGM-driven health outcomes continues to grow. As one example, at ATTD, we recently provided a full readout of our 12-month type 2 non-insulin registry data. In this real-world study, DexCom, Inc. CGM delivered a statistically significant A1c reduction over a one-year period across a broad population of people with type 2 diabetes with strong utilization. These are the types of outcomes that we are consistently demonstrating across this group, which gives us high confidence that the coverage will continue to grow. And to further strengthen our case, we are currently completing our randomized control trial for people with type 2 diabetes who are not on insulin. Similar to how our DIaMonD and MOBILE RCTs reshaped clinical perspectives for those using insulin, we expect this trial can become the defining study for the non-insulin population. This readout will also form the cornerstone of our evidence base for any global payer that is waiting to see RCT-level data. We look forward to sharing a full readout of this study with you at the ADA's 2026 Scientific Sessions in a few weeks. As I mentioned earlier, during the first quarter, we also expanded the launch of our DexCom, Inc. G7 15-day system across all channels in the U.S. This broad rollout has been very well received, and most importantly, the feedback from customers and physicians has been excellent. The positive response goes well beyond the longer wear time. One of the most consistent points of feedback is around the new sensor algorithm which delivers our highest level of accuracy to date. Combined, we believe these updates can attract new customers into our ecosystem. And we are now working to build broader awareness of DexCom, Inc. G7 15-day in the market. We are also excited for more of our existing base to shift to this product so they can experience this longer wear time and improved performance firsthand. Of course, we are not stopping there. We are always working to improve the performance across our product portfolio. As one example, we recently began May manufacturing with our new patch technology that received FDA clearance earlier this year. We expect this upgraded adhesive to strengthen sensor survivability across our product portfolio and improve wear experience for our customers. We expect this new technology to reach the market in the coming weeks. We also have several software updates planned, including a complete redesign of Stello. In the coming weeks, we will introduce this new experience to all customers, which will offer a more consumer-friendly feel, more AI-driven personalized insights, and additional food logging capabilities including detailed macronutrient information. For our G Series products, we are currently expanding access within our pilot KOLs for our DexCom, Inc. Smart Basal feature. This personalized dosing module has the potential to reinvent basal insulin management by driving more accurate insulin titration, accelerating the time needed to reach optimal dose, and delivering improved outcomes for customers and physicians. Each of these updates were built specifically around customer feedback. We will always keep the customer at the center of future product innovation, which we believe can help us build an ecosystem that is more personalized and engaging for all customers. Our international markets provide a great example of what product personalization can do for our business. By offering a portfolio of products that can be tailored to each market and reimbursement system, we have been able to consistently secure broader access and drive growth within these regions. Our first quarter results were another great demonstration of this story. Once again, we delivered some of our strongest growth in markets where we have established broader access in recent quarters. Even in some of our largest markets, recent reimbursement wins have helped us reach a new cohort of customers and drive greater share. We will continue to build on this international growth strategy, including through the launch of new products. In 2026, this will include the international launch of Stello, as well as a new CGM system that is designed to further extend our market reach. We look forward to going into greater detail on these product launches, software updates, and more at our upcoming May Investor Day. You may recall that earlier this year, I laid out my three priorities for DexCom, Inc.'s next phase of growth: number one, be the premier glucose sensing solution for all; number two, set the standard for customer experience; and three, expand international market share. At our Investor Day, I am looking forward to exploring each of these topics in further detail as we share our vision for DexCom, Inc.'s next chapter. For those joining in person, we are also planning to visit our Mesa manufacturing facility to provide a glimpse into our original high-scale CGM manufacturing location and the level of precision that this work requires. We look forward to showcasing the quality and automation that we have built, and that we feel positions us well to lead the CGM category into the future. We hope to see you there. With that, I will turn it over to Jereme. Jereme M. Sylvain: Thank you, Jake. As a reminder, unless otherwise noted, the financial measures presented today will be discussed on a non-GAAP basis. Reconciliations to GAAP can be found in today's earnings release as well as the slide deck on our IR website. For the first quarter of 2026, we reported worldwide revenue of $1.19 billion compared to $1.04 billion for 2025, representing growth of 15% on a reported basis and 12% on an organic basis. As a reminder, our definition of organic revenue excludes the impact of foreign exchange, in addition to non-CGM revenue acquired or divested in the trailing 12 months. U.S. revenue totaled $832 million for the first quarter, compared to $751 million in 2025, representing an increase of 11%. As Jake mentioned, in the U.S., we saw momentum build across the spectrum of diabetes care in the first quarter. This reflected both growing awareness of the broader type 2 coverage and the launch of our G7 15-day product, which has generated a lot of excitement in the market. We have been very encouraged by the initial 15-day uptake and the market feedback, and look forward to seeing the active base continue to transition as we progress over the course of the year. International revenue grew 26%, totaling $360 million in the first quarter. International organic revenue growth was 17% for the first quarter. Our international growth was widespread across our core markets this quarter, with some of the largest increases coming from geographies where we recently expanded access, such as France and Canada. Our first quarter gross profit was $757.4 million, or 63.5% of revenue, compared to 57.5% of revenue in 2025. We are excited by our progress on gross margin performance, which was up significantly on a year-over-year basis and flat compared to the fourth quarter despite our typical Q1 seasonality. This performance reflected strong execution across our operations and supply chain as we delivered continued manufacturing efficiencies, more normalized freight costs as we have improved our global inventory levels, and initial benefit from the switchover to G7 15-day. Operating expenses were $493 million for Q1 2026 compared to $453.1 million in 2025. Operating income was $264.4 million, or 22.2% of revenue in 2026, compared to $143.1 million, or 13.8% of revenue in the same quarter of 2025. We are really proud of the team and the discipline demonstrated over the course of the quarter, both on operations but also all of the support teams that worked tirelessly for our customers. This is a demonstration of the ability to deliver for our customers, our employees, and our shareholders. Adjusted EBITDA was $364.5 million, or 36% of revenue for the first quarter, compared to $230.4 million, or 22.2% of revenue for 2025. Net income for the first quarter was $216.3 million, or $0.56 per share, representing 75% growth over 2025. We remain in a great financial position, closing the quarter with approximately $2.4 billion of cash and cash equivalents. This was up over $400 million compared to year-end 2025, which reflected our significant free cash flow performance in the first quarter. This cash balance, along with our growing free cash flow profile, continues to provide us with a lot of flexibility as we assess ongoing capital allocation opportunities. Turning to guidance, we are reaffirming our prior revenue guidance of $5.16 billion to $5.20 billion, representing growth of 11% to 13% for the year. For margins, we are reiterating our previous full-year non-GAAP gross profit margin guidance of 63% to 64%, and increasing our non-GAAP operating profit margin guidance and adjusted EBITDA margin guidance to 23% to 23.5% and 31% to 31.5%, respectively. While our Q1 gross margin performance leaves us tracking well relative to our current guidance, we left gross margin guidance unchanged to account for the current geopolitical environment, including uncertainties with fuel prices and shipping routes. Regardless, our strong cost control over the quarter positioned us to raise our full-year non-GAAP operating profit and adjusted EBITDA margin guidance. With that, we will now open the call for questions. Sean Christensen: Thank you, Jereme. We will now open the call for questions. As a reminder, we ask our audience to limit themselves to only one question at a time and then reenter the queue if necessary. Operator, please provide the Q&A instructions. Operator: Thank you. We will now begin the question-and-answer session. If you have a question, please press 1 on your touch-tone phone. If you wish to be removed from the queue, press 1 a second time. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press 1. Our first question comes from the line of David Roman with Goldman Sachs. Your line is open. David Harrison Roman: Thank you. Good afternoon. I appreciate your taking the question here. I guess when we look at the totality of the U.S. market now with two major players having reported, it does look like the market is in a period of slower growth. And as your competitor noted, that may be due to no major coverage expansion or new indications. So could you maybe just give us your perspective on how you are seeing the U.S. market unfold here? What is assumed in your guidance? And any details you can provide, whether it is new patient starts or other metrics, to corroborate the health of both the U.S. market and your business would be helpful as we think about the balance of the year? Jacob Steven Leach: Yes, thanks, David, for the question. If you take a step back and look at the U.S. market, there is still pretty significant opportunity. If we think about it, about 30% penetration into the covered lives is where we are as a category. That means that only one in three people that have coverage for CGM are using it, so the other two thirds is out there today, and that is before we talk about any expanded coverage. So I think as we look at new patients, we are always striving for a record number of new patients every quarter, and this quarter came in in the U.S. very close to a record, and we set a global record number of patients across the entire globe. We feel like there is a lot of strength in the category, and if we just focus on the U.S., there is still a long runway to go. We mentioned a new PBM now covering CGM by the end of the year that is going to add another million lives to that non-insulin using population, and when you think about that, that provides a lot of opportunity. Frankly, our team is getting much better at targeting this new coverage, as we saw some of the share gains that we had in this group, and so I think we still see a solid rate of growth going forward for the U.S. Operator: Our next question comes from the line of Travis Steed with Bank of America. Your line is open. Travis Lee Steed: I will start maybe asking on 15-day, kind of a two-part on 15-day. When you think about the better algorithm and the better customer experiences, is that something where maybe that product helps new starts as it launches? And then also maybe talk about the margin impact. I know you left gross margin guide unchanged, so how much inflation are you baking in? I am curious how to think about the margin impact of 15-day rollout versus the inflationary impact on margins. Jacob Steven Leach: Sure. I will take the part around the product and the starts, and then Jereme will fill in with the margin perspective. I absolutely believe that the 15-day product is helping drive the momentum that we are seeing. We did see performance improvements across our entire portfolio when it comes to the reliability of our product, but when you think about the 15-day in particular, it has that new algorithm and the extended wear, and that is something that patients very much value. The convenience of the longer wear, and then the algorithm, the performance and reliability of that product, is really driving new starts as well as conversions over to it. We are making good progress towards converting the base over to that product. We estimate nearly 50% will be converted by the end of the year over to this new 15-day product. Jereme, you want to fill in on margin? Jereme M. Sylvain: Yes. You are exactly right, Travis. We kept gross margin guidance on hold because of the impact of oil on both fuels and resins, and obviously resins play a large part in our product as well. There is probably about 50 to 100 basis points of potential risk associated with fuels and resins over the course of the year. Absent that, we would be raising the gross margin guidance. You can see in the first quarter we had really solid performance. Typically, we step back from Q4 into Q1, and with some of the work that we have done over the course of the year, that was flat coming into Q1, which should give you a lot of confidence that the work we have been putting in place to help improve throughput, quality, and yields is really starting to play out. So think about it that way: about 50 to 100 basis points. If oil prices come back down to normal, we will certainly revisit it and revise at that point, but right now, we have a placeholder for that. The underlying performance of the business is outperforming expectations as we got into the year. Operator: Our next question comes from the line of Larry Biegelsen with Wells Fargo. Your line is open. Gursimran Kaur: Hi, good afternoon. Thanks for taking the questions. This is Simran on for Larry. I just wanted to ask on type 2 non-insulin. We heard the RCT presentation is slated for ADA. Could we see a publication before ADA, and do you plan to share any color on the trial results at the Investor Day? And maybe just a broader question on type 2 non-insulin: any color on how we should think about this unlocking or re-catalyzing the next leg of growth in the U.S. CGM market, maybe even stepping back to that strong double-digit growth that you have talked about in the past? Jacob Steven Leach: Thanks for the question. Speaking of the randomized control trial for the non-insulin using population, we are planning to do the full readout at ADA, and we are anticipating results there are going to be similar to what we have seen when we look at our registry data and all of the other data that we generated in this population—really significant improvements in the glucose outcomes for these folks that, frankly, are not usually measuring glucose in any way. Many of them are not taking fingersticks. When you provide them with real-time feedback from our CGM, they are making the changes, the behavior modifications, and learning about how to better manage their diabetes, and therefore getting the A1c reduction, which is what that study is powered for. We do not plan on publishing before the readout. It will be in a major publication, but the readout at ADA will be the first time we do the readout. As we think about the unlocking of coverage, we have both continued unlocking of commercial coverage and then, obviously, this large population of non-insulin treated folks that sit in Medicare. It has the potential to really provide durable growth for a long time in the U.S. when you think about that opportunity. We are going to continue to advance access for these folks. As we think about the field and how we are building out our products and serving this population, we are going to continue to build products that help us grow the active user base. We think about new patients, but it is also retention and utilization in these populations. The more we do with the product and the service and the experience, the more that active base is going to grow. Operator: Our next question comes from the line of Robbie Marcus with JPMorgan. Your line is open. Robert Justin Marcus: Great. Thanks for taking the questions. You said it was close to a record new patient start, and I think that has been the language the past four quarters. So we are now a full year without a record new patient start. If I remember on the fourth-quarter call, you said the top end of the sales guide assumed a record and the bottom end assumed no new record patient starts. So a two-part question. One, do you feel like the lower end is maybe more appropriate if we do not see a record? And two, do you think you can maintain the current sales growth if you do not put up a new record in the future? Jereme M. Sylvain: Sure. Thanks, Robbie. Let me be clear. Globally, we did have a record new patient quarter this quarter. So globally, it was a record. In the U.S., it was close to a record. We are seeing momentum building behind 15-day, and sequentially it was an improvement from Q4. We also took share both in the U.S. and OUS. As you talk about the full year, the low end would be not records globally, the high end would be records globally. We are tracking well, given the first quarter is a record, and that gives you some context. For the year, our goal is to continue to unlock coverage. We talked about Prime Therapeutics in the U.S. commercial space. Outside the U.S., we also have plans to unlock coverage over the course of the year. Our expectation is to continue to unlock that coverage and help drive the growth algorithm. We have a lot of catalysts over the course of the year: momentum building with G7 15-day, Stello launching with a new app experience, bringing Stello outside the U.S., and looking at 15-day opportunities outside the U.S. Given what we have seen in the U.S. with the performance of 15-day, we are excited to bring that outside the U.S. We also expect progress on CMS coverage unlock timing. It starts with a record globally in the quarter, and we delivered that. Operator: Our next question comes from the line of Matt Taylor with Jefferies. Your line is open. Matthew Charles Taylor: Hi, thanks for taking the question. I wanted to double click on the CMS coverage. Your competitor said they are not going to call the month, basically implying it could happen soon. I know you do not know exactly when it is going to happen, but what are your thoughts on whether that could come before the usual process of going through the RCT and submitting your application? What is the range of outcomes for when that could happen, you think? Jacob Steven Leach: Thanks for the question, Matt. At this point in time, the RCT may not be required for that CMS coverage. In my conversations with the folks at CMS, it is very clear that they understand the benefit of CGM for this category. It is hard to estimate exactly when this coverage is going to come, but as we have said before, it is really just a matter of time. When that coverage does come, it provides a great opportunity for durable growth and continued patient impact. This product provides significant benefits for all people with diabetes, and as I said in my prepared remarks, we are not going to be happy until everybody with diabetes has coverage for this product. We are looking for that globally. Again, it is hard to call exactly, but we do know that the benefits are clear, and we look forward to the decision. Operator: Our next question comes from the line of Jeff Johnson with Baird. Your line is open. Jeffrey Johnson: Thank you. Good afternoon, guys. Jereme, you talked about some of the coverage unlocks outside the U.S. Are you inching closer? Is there progress or any even body language or gut feel on moving towards some basal coverage in some of the other bigger markets where we do not have it outside the U.S. at this point? Any update there? And was there anything one-time—timing, tender—anything that helped that 17% OUS constant currency organic growth rate, anything we should think about as a tough comp for next year in 1Q or anything like that? Thanks. Jereme M. Sylvain: Thanks, Jeff. Outside the U.S., there is a mounting body of evidence that continues to grow. We have had MOBILE and other studies come out, and the dialogue with a lot of the international bodies has continued to progress in a good way. We are continuing to look to unlock basal coverage. We are in lots of different conversations about how to do so, whether it is payers or tenders. There is a lot moving by country, and I would expect to have wins in pockets over the course of the year. We will give updates as they come. In markets where basal already exists, our type 2 evidence will help keep moving there. As Jake mentioned, around the world, we are not going to stop until everybody has access. In terms of any one-timers, no, there really was not. The way tenders work, folks use this product repeatedly. You do not use it once and then move away. Tenders typically allocate product for some time because people use the product year-round. We have been competing in tenders for some time and winning quite a few. Our product portfolio approach has gotten into tenders that may have been exclusive with a competitor and are now dual formulary, and that has happened in many cases we have seen. It is our opportunity to get into these markets with a product portfolio that makes sense and take share, and you are seeing that taking place. Operator: Our next question comes from the line of Marie Thibault with BTIG. Your line is open. Marie Yoko Thibault: Thanks for taking the questions this evening. I wanted to drill down a little bit more on your comments about the share gains in the type 2 population this quarter. I wanted to understand how sustainable some of that momentum feels to you out in the field, what you have seen since the quarter ended, and how much of it you think is linked to the 15-day launch versus sustainable momentum from your salesforce and execution? Jereme M. Sylvain: Yes. There are a few things we have seen playing out, which I think are all good things around share taking and the outlook longer term. First and foremost, we pay a lot of attention to customer satisfaction, and our NPS scores have jumped up with 15-day. We saw that playing out in the first quarter. That is sustainable. The customer experience is moving in the right direction, and that is an exciting moment for us. Certainly, the launch of 15-day helped. We had opportunities to extend wear length, and we have taken advantage of those, and the new algorithm has wowed customers. When you have a product like that in the market, plus coverage wins over time with low copays, it is providing an opportunity to get in front of physicians, demonstrate the value of the product, and make sure physicians know we have the lowest copays and the most coverage across the board. We are not going to stop until we win in these categories. Given we have the best coverage, I do not think there is any reason we would not look to do so. Our opportunity is to continue to take share and continue to take share until we are market leaders in every category. We are already market leaders in some categories, and we have some room to go in categories that historically did not have coverage. Having the 15-day product, having the customer satisfaction scores moving, and having the best coverage all bode well to taking share for some time to come. Jacob Steven Leach: What I would add is, when you think about the long run and as we are developing this product portfolio for different categories of patients, a feature like our Smart Basal is really designed to change the experience around going onto basal insulin. We are still seeing the largest category of new patients in the type 2 insulin-using population, both the IIT and the basal. With basal penetration still around 20% to 25% as a category, there is still a lot of opportunity for us to grow and take share there. That system is really designed to make the experience that both users and physicians are looking for, driving outcomes and ease of use. Operator: Our next question comes from the line of Matthew O'Brien with Piper Sandler. Your line is open. Matthew Oliver O'Brien: Good afternoon. This is Anna on for Matt. Thanks for taking the questions. There is always a focus on new patient starts, but I also wanted to ask on the retention side what trends you are seeing today in the domestic market and how that contributed to the results in the quarter. How do you expect this metric to evolve from here? Jacob Steven Leach: Hey, Anna. When we think about retention, it has been fairly consistent within a band. We look at both retention and utilization because both really help drive the active base. We have targeted improving our experience and really setting the standard both with the product and the service behind it. As Jereme mentioned, our NPS scores have been going up quite a bit, and I do think that bodes well for the future when we think about retention and utilization. It has been fairly consistent for a period of time now, but one of our goals is to improve it so that we can continue to improve active base growth. Operator: Our next question comes from the line of Joanne Wuensch with Citi. Your line is open. Joanne Karen Wuensch: Good evening, and thank you for taking the question. I am curious how we should think about the next couple of quarters, and if you can comment on thoughts for revenue growth rate throughout the remainder of the year and, in particular for the second quarter, if there is anything else we should be aware of as we think of our models. Thank you. Jereme M. Sylvain: While we do not necessarily guide to quarterly cadence, I can give you some things to think about over the course of the year. When we guided the year at 11% to 13% organic growth, we said it would be relatively split across U.S. and OUS, and that really has not changed. U.S. comps are a little more difficult in the first part of the year and a little easier in the back half, and vice versa internationally, where comps are a little easier in the first half and more difficult in the back half. We are still anchoring around the same commentary around the split across the two. Most folks are thinking about the cadence relatively well. Operator: Our next question comes from the line of Jayson Bedford with Raymond James. Your line is open. Jayson Tyler Bedford: Good afternoon. Thanks for taking the question. I apologize if I missed it. The Smart Basal launch, I think it was early access in 1Q. When do you expand this launch? Thanks. Jacob Steven Leach: Thanks, Jayson. We are still in a pilot launch. The idea is making sure the system as designed fits into workflow because it is designed to be a very broad-use product across many clinical environments—large diabetes clinics and small primary care offices. The work we are doing now in a number of pilot sites is ensuring that flows well. We actually learned a couple of things and made some updates to the system. We are not revalidating the algorithm; we know the patient experience is excellent. It is more about how it fits into clinical workflow. When we broaden the launch, we want it to be extremely easy and successful for users and physicians. We do plan to expand throughout the year, and once we finalize the workflow, we will launch it in a very big way. Operator: Our next question comes from the line of Jonathan Block with Stifel. Your line is open. Jonathan Block: Great. Thanks, guys, and good afternoon. Maybe I could go back to the prior question and push a little bit on the 11% to 13% organic revenue growth being essentially evenly split between U.S. and international. If you look at 1Q—17% international—and you said there was nothing abnormal in terms of tenders. T2 NIT seems more of a 2027 event than 2026. There seems to be sensitivity from investors around that U.S. number. Why do you have the conviction it is split and not, say, 10% plus U.S. this year poised to maybe accelerate next year with T2 NIT, instead of equally weighted specific to 2026? Jereme M. Sylvain: The question is fair. We exited last year with a relatively split U.S. and OUS business. Looking at comps year over year, you can see where there were wins and opportunities. We saw a ramp in the international business into the back half of last year and, as we comp some easier first half, looking at Q1 in isolation can be challenging. As you zoom out to our performance over last year and into this year, we still feel very excited about the opportunities in both the U.S. and international businesses. If we come back at the end of the year and it is slightly different, we will keep you posted. We still see a lot of opportunity in the U.S., especially with coverage wins like Prime Therapeutics, and outside the U.S. with tenders we expect to win. We still think it is balanced. If the numbers are slightly off by half a percent or so by the end of the year, we will discuss it. Nothing has changed versus what we saw at the start of the year—we continue to believe both businesses can operate quite strongly over the course of the year. Operator: Our next question comes from the line of Issey Kirby with Redburn. Your line is open. Issie Kirby: Hi, guys. Thanks so much for taking my question. I wanted to ask about Stello and how that is tracking. What prompted the redesign? With the international launch, how broad do you expect to go? Is this a product that you could push into markets where you are not currently present? Thank you. Jacob Steven Leach: Thanks, Issie. We see Stello as a fantastic opportunity to reach more patients, and it is tracking well to our estimates. As we have been out there for over a year, we have learned quite a bit. One of the main things we are hearing from users is they want more context around real-time glucose data. Over time, we started adding features to the current version of Stello, particularly focused around capture of nutrition—meal logging—using AI to analyze those meals. Taking a step back, we looked at the current version and saw an opportunity to redesign the experience to better match what customers are looking for, both aesthetically and functionally. The new Stello app we are launching very shortly is a complete redesign of the user interface. It has a more technology-forward aesthetic and provides insights that add context to glucose excursions, glucose variability, and nutrition. We are finding that nutrition is really important in helping users connect the dots to make sense of their glucose data and make healthy lifestyle changes. This new version puts those insights front and center and has an overhauled insight engine. We wanted to make insights much more personalized and take advantage of integrated data from activity trackers—Oura Ring, sleep scores, and more—bringing more personalized context and analysis. We are excited for people who maybe tried Stello but wanted more, and for enhancing the experience for current and future customers. For international launches, we are looking at countries in both EMEA and APAC. We will start with a smaller number and then expand, and we believe it is an opportunity for many markets to have an entry point with a product that meets user needs. Operator: Our next question comes from the line of Mike Kratky with Leerink Partners. Your line is open. Analyst: Hey, guys. Good afternoon. This is Brett on for Mike. Thanks for taking the question. Back to type 2 NIT—going into the Analyst Day, we will see the data at ADA. You say it is a matter of time for CMS. For your long-range plan and thinking long term, would you expect to have the assumption that CMS coverage is coming within that number, or would you need to actually have that coverage in hand before that is included within your long-range plan? Jereme M. Sylvain: For long-range plans, I would expect us to include our assumptions around that. I do not want to preempt Investor Day, but it is an opportunity for us to talk about it—our thoughts on timing and how we think about it. It does not change that we will push hard to get the coverage as soon as possible because there are a lot of folks who need this product. You can expect us to talk about our assumptions and viewpoint into the future at Investor Day, and if timing differs from assumptions, we will address that then. Operator: Our next question comes from the line of Richard Newitter with Truist Securities. Your line is open. Richard Newitter: Hi. Thanks for taking the questions. One clarification and then a follow-up. Did you say you have an incremental 50 to 100 basis point headwind that you are now contemplating in 2Q to 4Q that is getting absorbed in your reiterated gross margin guidance? Did I hear that correctly? Jereme M. Sylvain: It is 50 to 100 basis points. Richard Newitter: Got it—50 to 100 basis points incremental to what you had heading into the year? Okay. And then on the Prime Therapeutics win—congratulations. How long does it take for these things to work into having an impact? Does that mean you are banking on contribution from that incremental coverage to get to 11% to 13% in the U.S., or was that largely left as upside? Jereme M. Sylvain: On coverage timing, on national formularies like Prime, the second it is turned on, if you have a script and go to the pharmacy, you are covered. It is generally immediate on those national formularies. You should see it this summer when it is turned on for everyone covered there. That will help. New patients are helpful for the long-range engine, but they are not the only driver—retention, utilization, price, and mix also play into the guide. This is helpful and gives us bullishness around penetration and adoption, but it was not a major contributor to the original guide. We assumed nominal wins over the year and coverage largely as is. As we get more unlocks, that helps over the course of the year. One dynamic our salesforce consistently sees is that as coverage expands, physicians become more comfortable writing scripts broadly. As coverage for the type 2 population rises, it really unlocks the ability for physicians to go deeper. We would expect a similar phenomenon with CMS coverage—a rising tide. Operator: Our next question comes from the line of Chris Pasquale with Nephron. Your line is open. Chris Pasquale: Thanks. Jereme, on the gross margin strength, leverage in the middle of the income statement was excellent this quarter as well. You tweaked up the high end of your operating margin and EBITDA ranges a little bit, but those seem conservative given where you are starting and the normal cadence we see throughout the year. Did some spending get pushed out of 1Q that is going to come back later? Might this year look a little bit different? I am looking in particular at R&D being flat in dollar terms as an outlier. Any color there would be great. Jereme M. Sylvain: I appreciate you bringing it up; there has been a lot of work by the team to get here. We did much of that work in the back half of last year. One reason we felt good about raising guidance—though we typically do not raise after one quarter—is you saw operating expense performance in Q4 and now in Q1. We raised the midpoint of operating margin guidance by 75 basis points, which is a pretty big raise with just one quarter behind us. We do expect R&D spend to continue to increase. We did good work managing expenses and leaning into things like AI to be more efficient, but we are not pulling back on R&D. Being flat year over year is not expected to continue. We will continue to invest in Ireland as that manufacturing facility ramps through the year. You really start to ramp a facility right before you turn it on; we turn it on in the fourth quarter, so you can imagine Q2 and Q3 ramping a bit going into that. It was not pushed back—this has always been part of the plan. We had 300 basis points of leverage in operating expense spend last year; that is playing through a bit this year. Our underlying business is continuing to get leverage despite the investments in Ireland, and that is one of the reasons we raised guidance. Operator: Our next question comes from the line of Joshua Jennings with TD Cowen. Your line is open. Colin Clark: Hi, guys. Good afternoon. This is Colin on for Josh. Thank you for taking my question. People seem to be treating CMS as a binary event. Is it possible there is language around stipulating that patients are on orals or other diabetes medications, and would that change your expectations for the adoption trajectory over the next couple of years? Thank you. Jereme M. Sylvain: It is a good question. CMS has always had requirements to ensure qualification for coverage. When it was intensive insulin, you had to prove multiple shots per day and submit glucose logs. When it moved to basal, you had to demonstrate one shot a day. I would not be surprised if CMS includes something—script evidence, orals like metformin, etc.—to document diagnosis and therapy. Most folks diagnosed with diabetes are prescribed medication. Whether it is all folks or all folks with some form of medication, this is a massive expansion and opportunity to serve this population. I would not expect any such requirement to materially limit our ability to impact the population or change our growth opportunity. Operator: Our next question comes from the line of Daniel Markowitz with Evercore ISI. Your line is open. Analyst: Hey, good afternoon, and thanks for taking my question. It is great to hear the callout on share gains in type 2 non-insulin. It sounds like the 15-day is helping a bit. Is there anything you are doing to the organization or the salesforce in order to prepare for this market unlock—maybe more focus on PCPs versus endos? Also, how should we think about the operating impact related to increasing contribution from the type 2 non-insulin market going forward? Thank you. Jacob Steven Leach: We are continually evolving the product portfolio and service, and the way our field team is calling, to make sure we are serving all the people that have coverage for this product. For those that do not have coverage, we have our Stello over-the-counter product available. We have advanced our service—updates to technical support, web forms, and digital tools—and that is one of the reasons we believe our user satisfaction scores are improving. It is a big deal for the type 2 non-insulin population. The 15-day product is helping drive share gain, but it is also the experience they are having with DexCom, Inc., making sure we meet their needs. On the salesforce, we are using advanced tools to analyze data and target—find these patients, find their prescribers. The number one thing we need to do is continue to educate around the coverage that exists because, as Jereme mentioned, when only about 25% of this population is covered today, it can be complicated, particularly for primary care physicians who are not prescribing CGM every day. We are finding the physicians seeing these patients, making sure they are aware of coverage, and helping them know how to write the prescription for CGM. As we expand, we will continue to look for efficiencies and productivity across the salesforce. Primary care is the main location where these folks are seen, and that is why we expanded our salesforce in 2024 to call on this broader group of physicians. Operator: Our next question comes from the line of Bill Plovanic with Canaccord Genuity. Your line is open. William John Plovanic: Great. Thanks for taking my question. Really impressive free cash flow in the first quarter, especially considering the first quarter is typically not so good for free cash flow. With that cash balance and commentary in the press release on prioritizing exploring new opportunities, help us understand what that means. You have more than enough to pay back the convert if you so choose. Another building? $1.2 billion? Are you looking to buy something? What is the use of cash? Thanks. Jereme M. Sylvain: Thanks for the question. We worked hard on free cash flow. In terms of uses of cash, you are right: we paid down our convert last quarter, and that was one reason to isolate cash. We did $500 million of share buybacks in the back half of last year. Having extra on the balance sheet provides multiple opportunities: tuck-in M&A that makes sense—geographic expansion or capabilities we do not have—and having capital for potential capital markets activity. We have not been shy about share buybacks. We will talk more in a couple of weeks at Investor Day; we will have a section on capital allocation and dig into it more there. It is important folks understand we are able to generate quite a bit of cash in this business, and it is something we will be focused on for the foreseeable future. Operator: Our next question comes from the line of Shagun Singh with RBC Capital Markets. Your line is open. Shagun Singh Chadha: Thank you so much for taking the question. Could you talk about the right growth rate in your view for your U.S. and OUS business excluding Stello? How should we think about those underlying growth rates? Also, as we think about the NCD and the type 2 non–insulin-treated market opening up, any comments you can make on lifetime patient value and how that impacts financials going forward? Jereme M. Sylvain: Let me anchor on what we said this year, and for beyond this year I will defer to Investor Day. This year, we talked about 11% to 13% growth, split across U.S. and OUS, and about one point of contribution from Stello. That gets you down to the core clinical markets. Stello will not be a meaningful contributor outside the U.S. this year in total dollar value, so assume de minimis OUS contribution from Stello in 2026. It is most important to get Stello outside the U.S. so it can roll up over time. On lifetime value of a customer, retention and utilization are why we pay so much attention to those metrics. Value varies based on utilization by use case—type 1, type 2 intensive, basal—and we have those bands on our website. As we move into use cases with 70% to 80% utilization, the value is a little less than higher-utilization categories, but still a massive unmet need. The economics per purchase are generally around the same. Our goal is to keep a close eye on cost to acquire—there is a team dedicated to that—meet the unmet need, and keep patients on our product. We balance operating expenditures with that value over time. We will get into longer out-years at Investor Day. Operator: Our final question comes from the line of Anthony Petrone with Mizuho. Your line is open. Anthony Petrone: Thanks. Just one on the RCT. Looking at historical data—the MOBILE study, Libre studies, registry data, meta-analyses—you can see A1c reductions from as low as 50 basis points up to 2.5%. This is a less intense population, so I am assuming starting A1c levels are a little bit lower. How do you level set expectations on what we should be looking for for a statistically meaningful A1c reduction out of the RCT? Thanks. Jacob Steven Leach: I appreciate the question. It is important for care and reimbursement. Our registry data is a good example. This population comes in with a spectrum of A1c—some are quite high because they have not progressed to insulin and are on other glucose-lowering medications. A big part of managing diabetes is behavior and also medication adherence. Those are two things CGM targets, and that is why we see improvements. Looking at our registry data is a reasonable estimate for what we expect. The main thing we are expecting is a statistically significant improvement that meets the threshold for reimbursement. We are confident that CGM will drive that type of outcome in these patients, and we look forward to sharing the full readout at ADA next month. Operator: That concludes our question-and-answer session. I will now turn the call back over to Mr. Jake Leach for closing remarks. Jacob Steven Leach: Thank you, operator. As we close out the call, I want to take a moment to say thank you. First, to our employees: the results that we shared today are a direct reflection of your execution, your resilience, and your commitment to doing the hard work the right way. I am incredibly proud of what you have delivered and how you show up for our customers every day. I also want to thank the customer advisory council. We met multiple times this past quarter, and your candid input and your partnership are playing a critical role in shaping our strategy and improving the experiences that we deliver. The progress we are making is stronger because of your voice. We look forward to seeing many of you at our Investor Day in a few weeks. Thanks, everybody. Operator: Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to Riot Platforms, Inc. First Quarter 2026 Earnings Conference Call. Please note that all participants have been placed in a listen-only mode until the question-and-answer session begins following the company's presentation of its prepared remarks. Please also be advised that today's call is being recorded. I would now like to hand the conference over to Joshua Kane, Head of Investor Relations at Riot Platforms, Inc. Please go ahead. Thank you, operator. Joshua Kane: Good afternoon, and welcome to Riot Platforms, Inc. First Quarter 2026 Earnings Conference Call. My name is Josh Kane, Head of Investor Relations. Joining me on today's call from Riot Platforms, Inc. are Jason Les, Chief Executive Officer, and Jason Chung, Chief Financial Officer. On the Riot Platforms, Inc. Investor Relations website, you can find our first quarter 2026 earnings press release and accompanying earnings presentation, which are intended to supplement today's prepared remarks and include a discussion of certain non-GAAP items. Non-GAAP financial measures should not be considered as a substitute for or superior to measures prepared in accordance with GAAP and are included as additional clarifying items to aid investors in further understanding the company's first quarter 2026 performance. During today's call, we will be making forward-looking statements regarding potential future events. These statements are based on management's current expectations and assumptions and are subject to risks and uncertainties. Actual results could materially differ due to factors discussed in today's earnings press release, comments and responses made during today's call, and in the Risk Factors section of our Forms 10-K and 10-Q, including for the three months ended 03/31/2026, which will be filed later today, as well as other filings with the Securities and Exchange Commission. With that, I will turn the call over to Jason Les. Jason Les: Thank you, Josh, and good afternoon, everyone. 2026 was a definitive inflection point in Riot Platforms, Inc. transition into one of the most significant and capable data center operators in the industry. Looking at our key milestones for the quarter: First, AMD officially exercised a 25 megawatt expansion option, bringing their total contracted footprint at our Rockdale facility to 50 megawatts, validating our ability to execute at institutional scale. Initial data center capacity for this expansion will be delivered beginning in November. Second, on the initial 25 megawatt AMD lease, we delivered the first 5 megawatts of critical IT capacity right on schedule in January, with the remaining 20 megawatts on track for delivery this May. Third, we continue to make significant progress at our Corsicana facility. We have initiated development of our first core-and-shell building using our enhanced 168 megawatt standard design, which efficiently consolidates our previous two-building design and will be connected by expanded administrative capacity. Concurrently, we are securing long-lead items to ensure timely delivery of full built-to-suit capacity after the core-and-shell is complete. Finally, we achieved this infrastructure growth while maintaining strong capital discipline, proactively funding our data center initiatives entirely through operating cash flow and disciplined Bitcoin sales, allowing us to execute on these key growth initiatives without issuing a single share of equity. Let us dive into the AMD expansion. When we announced the initial AMD lease in January, we signed a 10-year agreement to deliver 25 megawatts of critical IT capacity at our Rockdale facility with extension options that created a partnership pathway of up to 25 years. That original lease included a 75 megawatt expansion option and a right of first refusal on an additional 100 megawatts. More recently, our partnership with AMD has expanded as they worked with our team to exercise an additional 25 megawatts of their expansion option capacity. AMD now has 50 megawatts of critical IT capacity under contract with Riot Platforms, Inc. at the Rockdale facility. This expansion reflects AMD's ongoing confidence in our ability to deliver and is a clear indicator that we are delivering exactly as promised—on time and on budget. To summarize the economics of our expanded AMD lease today, we are delivering an additional 25 megawatts of critical IT capacity, bringing the total lease to 50 megawatts. Total revenue of $636 million during the primary 10-year period, $51 million in average annual NOI over the course of the contract, which, when combined with the reduced CapEx spend, will drive an even more attractive development yield relative to the initial AMD lease. The total CapEx required for the expansion is approximately $3.3 million per megawatt, totaling $83.2 million, a significant reduction from the initial 25 megawatt CapEx of $3.6 million per megawatt, driven by a leaner build-out scope following building preparation in the initial phase. Slide 8 presents a clear visual of how this expansion is taking shape at our Rockdale facility. On the top half of the slide, you can see the physical layout of Buildings F and G. We are finalizing the initial 25 megawatts of capacity for AMD, highlighted in yellow. We are already delivering 5 megawatts for AMD, with the remaining 20 megawatts firmly on schedule for full delivery next month in May 2026. AMD's 25 megawatt expansion will be developed directly adjacent to the initial footprint in Building G and will be constructed in two phases. Phase three, highlighted in blue, will deliver 10 megawatts in November 2026, while phase four, highlighted in orange, represents the remaining 15 megawatts for delivery in May 2027. As a result of this phased delivery, we anticipate exiting 2026 with an annualized operating lease revenue run rate of $37.8 million, scaling to a run rate of $55.6 million as we exit 2027 and AMD's full 50 megawatt footprint comes online. Importantly, this provides a highly visible, high-margin baseline that has the potential to scale up even further if AMD exercises its remaining expansion options. You can see the physical footprint of those additional options mapped out in green on the site plan. AMD retains an additional 50 megawatt expansion option and now holds an additional 100 megawatt option, which replaces their prior right of first refusal. Together, this provides a highly visible, de-risked pathway to potentially scale our partnership with AMD to up to 200 megawatts of critical IT capacity at Rockdale. Now I want to provide an update on the development activity underway at our Corsicana campus. As a reminder, at the end of last year, we announced our plan to initiate core-and-shell development at Corsicana. I am pleased to report development is actively underway and tracking on schedule. This marks the transition of Corsicana from a site with approved power into an active data center development site. Since that announcement, our team has refined our standard basis of design based on market engagement and feedback. The result is a meaningful enhancement to both the density and the flexibility of what we can deliver. Our updated standard is a 168 megawatt critical IT building engineered to support densities beyond 1,000 watts per square foot. The design is configurable as a two-story standard or a single-story high-density format with oversized galleries to accept 100% liquid cooling and the densest next-generation equipment without retrofit. We are using prefabricated skids and vendor-agnostic equipment specifications to further compress our schedule and de-risk procurement. This is a design built for repeatability, speed to market, and the requirements of the most sophisticated AI and HPC tenants in the market today. Reflecting this enhancement, we have consolidated the two buildings we previously announced into a single larger building with 168 megawatts of critical IT capacity, up from the 112 megawatts we originally planned across two buildings. The core-and-shell CapEx is unchanged from our prior guidance, which means we are now delivering 50% more critical IT capacity for the same capital spend. This meaningfully improves our capital efficiency at the core-and-shell level. Development is underway today, and we have a clear line of sight to 168 megawatts of completed core-and-shell in 2027. Applying the updated design across the full Corsicana site, our total planned campus capacity now stands at 756 megawatts of critical IT capacity—an increase over our prior plan on the same approved power, the same land, and the same development timeline. Put simply, we are extracting more capacity and more value from the infrastructure we have already secured, and we are doing so on a timeline that matches the urgency of today's market. Now I would like to turn it over to Jason Chung to outline our financing strategy and review the quarterly financial results. Jason Chung: Thank you, Jason. Turning to how we are funding this growth on Slide 11, there are four primary principles that guide our approach to finance. First, we carefully manage our current liquidity. This involves the strategic management of cash and Bitcoin holdings to finance initial equity requirements for data center development. Second, we seek to broaden capital availability. By leveraging the credit profiles of our tenants and our highly visible long-term contracted cash flows, we are establishing new institutional financing and capital sources for Riot Platforms, Inc. Third, we look to systematically lower our cost of capital. As our asset base matures, we are able to translate these strong credit characteristics and funding profiles into accretive, low-cost capital. Fourth, we maintain prudent ongoing balance sheet management. This requires active debt management throughout market cycles in order to cleanly recycle capital, preserve our liquidity profile, and support long-term growth. Slide 12 illustrates how these principles work in practice. Our funding strategy utilizes a sequential capital cycle to fund our data center development. In phase one, initial development funding, we use our balance sheet to advance development, as seen with the initial 25 megawatt AMD deployment, the just-announced additional 25 megawatt AMD option, and the core-and-shell development at Corsicana. During the quarter, we funded this CapEx through a disciplined sale of a portion of our Bitcoin holdings, the most capital-efficient source of funding currently available to us. Importantly, we did not issue any common equity during the quarter. Instead, we leveraged our Bitcoin treasury and our operating cash flows to fund this development. In phase two, tenant-backed project financing, we are actively engaging with multiple institutional lenders on project-level nonrecourse financing structures for the AMD lease. The quality of the AMD lease as a long-term, high-margin lease with an investment-grade leader in the AI ecosystem makes this the type of asset that project finance markets are designed to finance efficiently. We continue to target attractive loan-to-cost ratios in the range of 80% in these structures. Once we close funding, we will be in a position to recover a substantial portion of the equity we deployed into this first set of projects. Phase three is the capital recycling phase, where equity recovered from either a true-up during the construction period, as in our AMD discussions, or from refinancing proceeds on completed, stabilized assets flows directly back into the next wave of data center development. The cycle is to lease, finance, build, and recycle. As we compound through this cycle, we retain ownership of high-quality, cash-flowing assets while continuously redeploying capital to finance additional growth. Let us move on to the first quarter financial update on Slide 14. For the first quarter of 2026, Riot Platforms, Inc. reported total revenue of $167 million. Notably, with the delivery of our first 5 megawatts to AMD this quarter, Riot Platforms, Inc. is now an active data center operator, and for the first time, our top line includes contracted lease revenue from an investment-grade tenant. We recorded a GAAP net loss of $500 million, or $1.44 per diluted share, and an adjusted EBITDA loss of $311 million. This loss was driven by non-cash mark-to-market accounting adjustments on our Bitcoin holdings of $326.7 million and non-cash depreciation and amortization expense of $97.7 million, which do not reflect the underlying strong fundamental economics of our operations. Diving into these operations, our Bitcoin mining segment performance remained robust. Riot Platforms, Inc. produced 1,473 Bitcoin in the first quarter and ended the quarter with a deployed hash rate of 42.5 exahash. We generated $21 million in power curtailment credits, driving our net cost of power down to $0.03 per kilowatt-hour, thereby lowering our direct cost to mine Bitcoin to $44,629 per Bitcoin, a 26% reduction compared to 2025. In our newly added data center segment, we successfully exited the quarter with 5 megawatts of critical IT capacity fully online and generated $33.2 million in total revenue, consisting of $900,000 in operating lease revenue and $32.2 million in tenant fit-out services revenue. Finally, we ended the quarter holding 15,679 Bitcoin on our balance sheet, valued at approximately $1.1 billion, which we will continue to leverage in order to finance the ongoing development of our data center business. Turning to Slide 15, I am proud to present the inaugural financial results of our data center segment. In the first quarter, this segment generated $33.2 million in total revenue. As we introduce this new reporting line, it is important to understand the composition of this revenue and how it will evolve as our footprint scales. The majority of our first quarter revenue—$32.2 million—was driven by tenant fit-out services. This represents the procurement and installation of customer-specific equipment, which is reimbursed by tenants on a cost-plus basis. While this revenue naturally carries a lower margin, it requires no capital risk from Riot Platforms, Inc. and accelerates our tenants' ultimate speed to market. The fundamental value of this segment, however, is reflected in the operating lease income. We recognized roughly $900,000 in recurring lease revenue, driven by the initial 5 megawatt delivery to AMD in January, which generated a 91% gross margin this quarter. As AMD scales its operations, we expect associated operations and maintenance costs to increase, which will normalize this margin towards our previously stated run-rate target of 80% plus. As we look ahead, you will see a natural evolution in this revenue mix. While tenant fit-out revenue is elevated today during the development phase, as the remaining megawatts for AMD come fully online, our high-margin operating lease revenue will scale dramatically. This will layer highly predictable, infrastructure-grade cash flows into our consolidated P&L, driving significant margin expansion over time. Turning to Slide 16, our Engineering segment—comprised of ESS Metron and E4A Solutions—serves as a key pillar of our execution strategy. The financial metrics for Engineering remain exceptionally strong. Engineering backlog stood at $193.4 million during the quarter, with approximately 90% of backlog continuing to be driven by data center sector demand. Most importantly, the apparent decline in backlog for this quarter was entirely driven by our decision to strategically hold back manufacturing capacity for deployment towards our own data center business. Since acquiring ESS Metron in December 2021, Riot Platforms, Inc. has realized approximately $24 million in cumulative CapEx savings across our development footprint, and these savings will continue to compound as we further scale up. While this compounding cost advantage is accretive, the true strategic value of our Engineering business is control over procurement. Low- and medium-voltage switchgear, transformers, and power distribution centers are among the most severely constrained components in the data center supply chain. For developers relying on third-party manufacturers, lead times are lengthening, and these lead times have become a binding constraint on delivery schedules across the industry. Because Riot Platforms, Inc. owns a dedicated switchgear and power distribution manufacturer, we can sequence, prioritize, and de-risk the schedule-critical equipment required to bring a data center online. This vertical integration was a key factor supporting our ability to deliver phase one of the AMD lease on an accelerated timeline. Looking ahead, we will continue to invest in this strategically important business. In 2026, we expect to increase ESS Metron's total engineering capacity by approximately 25%, and we will be strategically allocating that incremental capacity to support Riot Platforms, Inc. data center growth. Further, because we manufacture these components in-house, we design them in parallel with our data center engineering team, allowing us to move faster and reducing redesign risk. Just as importantly, the same teams that manufacture this equipment also provide maintenance in the field, which will drive long-term operational efficiencies as our data centers are energized and stabilized. Taken together, our Engineering business is a core engine of our competitive moat in a market where time to power is the single most valuable commodity. Now I would like to turn it back over to Jason Les. Jason Les: Thank you, Jason. I want to frame one of our key competitive advantages in the broader data center development market: secured power. Today, access to power is a key bottleneck in data center development globally. This makes our large portfolio of 2 gigawatts of fully approved power a strong competitive advantage, giving us one of the most significant development pipelines in our industry. However, we are not stopping here. We recognize that market demand for power is strong, and we are aggressively pursuing growth in our power portfolio across four distinct avenues. First, through greenfield and brownfield development—securing and developing new land assets that offer immediate or near-term approved power capacity. Second, through behind-the-meter self-generation, allowing us to strategically colocate our own power production directly with our critical load. Third, through inorganic M&A—actively targeting and acquiring portfolios or organizations that already possess established access to power. And fourth, through strategic partnerships—forming joint ventures to expand our geographic footprint, rapidly grow our pipeline, and explore next-generation technologies. To put the scale and rigor of this effort into perspective, our corporate development team has already evaluated over 100 distinct opportunities across these four avenues. We have the team, the capital, and the strategy to continuously source the highest-quality power assets required to fuel our development pipeline. However, let me be clear. While we are aggressively pursuing these opportunities, we maintain rigorous capital discipline. We will only execute on transactions that are highly accretive, financially responsible, and strictly aligned with our target return thresholds. Now I want to walk through the path we have taken to get to where we are today and provide investors with a clear picture of some of the obstacles Riot Platforms, Inc. has navigated in order to best position our power portfolio for maximum value creation. At the start of 2025, we engaged Altman Solon to conduct a formal feasibility study on both Corsicana and Rockdale. The conclusion was unambiguous: we had two of the most attractive data center sites in the country. But the same study also identified two specific constraints that, left unresolved, would have prevented us from leasing that power to high-quality tenants at meaningful scale. The first was land at Corsicana, where our original footprint was insufficient to accommodate the full 1 gigawatt campus development we wanted to deliver. The second was our ground lease at Rockdale. Until we solved both of these constraints, we were not in a position to meaningfully advance design, development, or leasing at either site. Solving these constraints required patient, disciplined execution, and that is what we did. Over the course of 2025, we successfully navigated a series of obstacles to acquire land adjacent to our original Corsicana site, unlocking the ability to develop the full 1 gigawatt of approved power on Riot Platforms, Inc.-owned land in a connected campus layout. At Rockdale, we converted our interest from a long-term ground lease into a fee simple acquisition of the 200 acres underlying the site. With those two transactions closed, we owned the land, took control over our own destiny at both sites, and removed the most significant barriers between our power portfolio and high-quality contracted leases. Critically, we did not wait for one workstream to finish before beginning the next. In parallel with the land work, we systematically built out the organization starting in 2025 with veteran product design and engineering talent. With the Corsicana land situation on track, we completed the initial basis of design for our standard data center product and initial campus design for the full Corsicana buildout. Through 2025, we took those designs to market for direct technical and commercial feedback from prospective tenants, initiated core-and-shell development at Corsicana, and brought on senior commercial leadership to drive leasing execution. That disciplined, sequenced groundwork is exactly what allowed us to move decisively when the opportunity arrived. In January, we signed our first data center lease with AMD and delivered the initial phase of capacity within the same month. Since that initial lease, we have expanded the AMD relationship to 50 megawatts, enhanced our standard design to increase density and flexibility, and are now actively engaged in commercial discussions at both of our sites. Every step on this timeline was necessary in order to maximize our value creation opportunity. Every one of them has been completed on an accelerated schedule. The result is that we now have an active commercial pipeline underpinned by secured land, a proven design, committed capital, and a tenant relationship that is already generating revenue today. This is an excellent position to be in, and we are confident in our ability to continue to execute from here. Now I want to zoom in on part of that timeline and elaborate on the team we have built to execute on this opportunity. Over the past year, building out a world-class data center organization has been one of our highest priorities, because we knew from the start that the quality of our team would be every bit as important as the quality of our assets. What you see on this slide is the depth and breadth of the capabilities we have assembled across four pillars: commercial sales, critical operations, project execution, and design and construction. Each of these functions is led by experienced, credentialed leadership with direct track records of delivering mission-critical infrastructure at hyperscale-grade platforms. On the commercial side, our sales organization is led by Ria Williams, our Senior Vice President of AI and Hyperscale Sales. Ria joined us following previous sales roles at Oracle, Compass Datacenters, and Digital Realty, and she brings both the relationships and the credibility necessary to engage hyperscalers and other top-tier tenants at the highest level. Ria reports directly to me. That reporting structure is deliberate. Our leasing strategy is the single most important driver of long-term shareholder value at Riot Platforms, Inc., and having sales report directly to the CEO ensures that I am directly engaged in every major commercial discussion. I am also very pleased to announce today a significant addition to our leadership team. Adam is a proven infrastructure executive with more than 15 years of experience leading hyperscale and AI data center development at multi-gigawatt scale. He comes to us most recently from TA Digital Group, where he served as Senior Vice President of Design and Construction, and prior to that, he held leadership positions at both Google and Meta. Adam is exactly the caliber of leader we need at this stage of our development, and we are thrilled to have him at the helm of our design, construction, and procurement teams as we scale Corsicana, Rockdale, and our broader data center platform. Rounding out the organization, our critical operations leadership brings deep experience running mission-critical environments to hyperscale SLA standards. Our project execution team combines in-house high-voltage and procurement expertise with integrated program management across our development pipeline. Every one of these functions is supported by Riot Platforms, Inc. broader enterprise platform, including our vertically integrated engineering capabilities at ESS Metron and E4A Solutions. The result is a data center organization that is experienced, credentialed, and deep. This is the team that is already delivering for AMD at Rockdale, building Corsicana, and advancing the leasing discussions underway today. We have the right people in the right seats to execute on the opportunity in front of us, and our confidence in this team is reflected in the pace of progress you are seeing across our business. I want to close by putting this quarter into perspective. Riot Platforms, Inc. has four things that, in combination, are extraordinarily difficult to replicate. We have the assets—2 gigawatts of utility power, including 1.7 gigawatts of fully approved, energized capacity at two of the most attractive data center development sites in the United States. We have the balance sheet—a 15,679 Bitcoin treasury worth roughly $1.1 billion at quarter end, significant cash on hand, operating cash flow from efficient, low-cost mining operations, and strong capital markets relationships that give us the ability to fund our growth on value-accretive terms. We have the team—our in-house data center organization includes veteran leadership across product design, construction, engineering, sales, and operations, and they are delivering on the AMD lease, developing our data center product, building Corsicana, and advancing our next wave of leasing discussions. And we have a repeatable approach—our power-first strategy: lease to creditworthy tenants, finance efficiently, build with discipline, recycle capital. Our priorities for the balance of 2026 are clear. First, deliver contracted megawatts to AMD on schedule and on budget. Second, execute on additional leases at both Rockdale and Corsicana, with active discussions underway across hyperscale and other high-quality tenants. Third, advance core-and-shell development to support delivery of Tier III built-to-suit data center capacity. Fourth, secure attractive, low-cost financing that reflects the quality of our tenants and sites. Fifth, continue to selectively grow our power pipeline through greenfield and brownfield development, self-generation, partnerships, and targeted acquisitions. The opportunity in front of us is significant. Data center demand continues to grow rapidly, driven by the commercialization of AI and the accelerating need for high-density compute. Power, execution talent, supply chain access, and capital discipline remain the binding constraints, and timelines for new capacity continue to extend. Riot Platforms, Inc. sits on the right side of these trends, with energized, fully approved power in exactly the right markets and with a built-out operating model that is delivering. The AMD expansion is a direct reflection of that position, and it is, we believe, just the beginning. As we continue to convert megawatts into contracted data center leases with creditworthy tenants, we expect the market to increasingly recognize the quality, scale, and cash flow visibility of our platform and to re-rate Riot Platforms, Inc. valuation accordingly. On behalf of our entire management team, I want to thank our shareholders, partners, and employees for their continued support as we execute on this opportunity. We will now open the call for questions. Operator? Operator: Thank you. As a reminder, to ask a question, please press [inaudible]. To withdraw your question, please press 1-1 again. Due to time constraints, we ask that you please limit yourself to one question and one follow-up question. Please stand by while we compile the Q&A roster. Our first question will come from the line of Paul Golding with Macquarie. Paul Golding: Thanks so much, and congrats on all the progress this quarter. I just wanted to ask a couple of questions. First, on the 25 megawatt expansion with AMD, I was hoping you could talk through some of the puts and takes. It looks like the total contract value across the 25 megawatts is up versus the initial lease, while, as you noted, the CapEx per megawatt is down due to a leaner build-out. Could you give some color on those puts and takes on how you were able to realize a better TCV versus a leaner build-out and better CapEx profile? And then I have a follow-up. Thank you so much. Jason Les: Sure. Thanks, Paul. This expansion falls under the original lease that we executed with AMD earlier this year, so it is the same rental rate and terms. I think the only reason you may be seeing the difference is that there is an escalator clause in our agreement, and this new tranche runs over the course of those escalators occurring. Otherwise, it is substantially similar terms and rate. The only economic difference is the lower build-out cost that you mentioned. We are able to achieve that lower build-out cost because we are leveraging the full building preparation that was already done in the original phase. When we did the first 25 megawatts, we prepared that full building, which had some additional expense. Now, as we execute the next 25 megawatt expansion completing that building out, we do not have to do that work again, so we have lower cost by leveraging the initial work and substantially the same lease terms. As you see on our slide, you combine all of these factors together, and you are getting a lower build cost, a slightly higher contract value, and altogether, an even improved yield from our original deal. Paul Golding: Great. Thanks, Jason. Maybe a two-part follow-up. It does look like there may be a bit of a longer build-out period for that 25 megawatt expansion. Can you talk to that, and also the ROFR piece that was converted to an option as a follow-up to that? I know there is another 50 megawatts in that original option, as well as the 100 megawatt ROFR, but just to understand how that converted, as well as some of the timing considerations with the expansion? Thanks so much. Jason Les: Yes. This is a pretty fast timeline to deliver capacity. We are announcing this deal here in April, and then we are delivering in October/November, so it is a quick timeline. To give you some color, with the first 25 megawatts for AMD, we were making progress on that schedule before the lease was signed. We were taking some calculated, manageable risks to be prepared and to get that first lease off the ground. With this expansion, you are seeing the whole process from the beginning, and this schedule is broadly in line with the build schedule in the first phase—the difference being we were not able to announce that until farther along in the process. As far as the expansion option and the ROFR go, from the beginning we viewed our initial deal with AMD as the beginning of a larger partnership. The best way we at Riot Platforms, Inc. can achieve that is by being a consistent and reliable partner for AMD, positioning ourselves as their supplier of choice. By continuing to do what we are doing, we believe we are positioned to continue to grow that relationship, and the fact that AMD exercised part of its options a few months after the initial deal demonstrates that. More specifically on the ROFR, we converted the ROFR to an option to simplify the pathway of expansion with AMD. We want to advance this relationship, and having an option instead of a ROFR gives them what they wanted and works better for us. With the pace of interest at Rockdale and in addition to Corsicana, it was better for us to have a defined mechanism for what AMD is looking for, instead of having to call that ROFR on terms or on a design different than AMD’s needs. We simplify our discussions with other potential tenants while also simplifying the pathway for expanding the relationship with AMD. That is how we thought about changing this ROFR to an option. Paul Golding: Got it. All very clear. Thank you so much. Congrats again. Operator: One moment for our next question. And that will come from the line of John Todaro with Needham. Your line is open. John Todaro: Hey, thanks for taking my question, and congrats on the capacity with AMD. Could we get an update on current lease discussions beyond AMD at Rockdale and Corsicana—how you would characterize progression since last quarter, and if there have been any sticking points or gating factors? And then I have a follow-up. Jason Les: Thank you for the question. Over the past few quarters, we have laid out the roadmap we have been on to execute a commercial process. We completed the foundational work to fill gaps, as we discussed on the timeline, and to bring a strong offering to the counterparties we want to lease to. As a result, we have been able to act on the substantial interest I mentioned on our last earnings call, and those discussions have advanced considerably since then. We are in a great spot; there are no gating items or issues. We are moving forward, we have interest for capacity across both Corsicana and Rockdale, and we are pursuing those opportunities in parallel. On leasing, our philosophy has always been to focus on high-quality tenants that can drive the financing terms that maximize value. The type and depth of engagement we are getting validates the methodical approach we have taken. Our ability to succeed in this commercial process is enhanced when we go through onboarding with a hyperscaler and can check the box affirmatively on the vast majority of the hundreds of requirements they have. That is the result of preparation. Leasing this type of capacity to top-tier tenants is an enormous lift and can have an unpredictable timeline. We have seen peers have multiple deals start and stop before one got to the finish line. While it is unpredictable, I am more confident than ever in our ability to succeed based on the progress we have made and the engagement we are getting. I cannot tell you when our next lease will be signed, but I believe you will continue to see us make progress over the roadmap we have laid out, ultimately culminating in a full lease-up of our capacity. John Todaro: That is great, thanks. As a follow-up on demand signals: do you think we have seen fewer leases in the public markets so far than some investors expected in 2026? Is there anything beyond your conversations where there are changes in demand signals over the last several weeks or months? Jason Les: We see the broader theme of data center demand outpacing supply continuing for the foreseeable future. The commercialization of AI is rapidly advancing, and everyone is going to continue to be short on compute. All of the hyperscalers’ earnings calls yesterday showed growing CapEx, and they are short on compute and capacity—identified as a key thing keeping some CEOs up at night. That theme remains intact. Each buyer is in a different phase of their own buying cycle, and at different times different companies are in a more urgent state than others. In this rapidly changing environment driven by AI, this cycle is running quicker than it has historically. You are not always going to see the same level of urgency across the field, and that field can change from one quarter to the next. The important thing is that we at Riot Platforms, Inc. have built a structure where we can come fully prepared and rapidly respond and engage as customer interest comes forward. Whether it is reliance on our standard design or specific requirements that our design can easily accommodate, our preparation is paying off, and we are in the right market at the right time. John Todaro: That is very helpful. Thanks for taking my questions, and congrats again. Operator: Thank you. One moment for our next question. And that will come from the line of Mike Grondahl with Northland. Your line is open. Mike Grondahl: Hey, thanks. Can you talk about some of the initial data center revenue this quarter—how that related to the initial 25 megawatts you are delivering, and how to think about margins this quarter and going forward? Jason Chung: Mike, thanks for the question. To get a clear picture of our initial data center financials, it is important to break down the total segment revenues of $33.2 million for the quarter because there are two distinct revenue streams at play. First, the vast majority of that top line—$32.2 million—relates directly to tenant fit-out services, which we execute on a cost-plus basis. This generated $1.4 million in gross profit, at about a 5% margin. The remaining and more interesting data point is the core operating lease revenue, which was $900,000 for the quarter. This reflects a little over two months of revenue from the initial 5 megawatt delivery to AMD, which occurred in late January. Regarding margins, the margin on that core operating lease component for this quarter was 91%. However, that 91% is a function of being in the early stages of AMD's ramp at Rockdale, meaning relatively lighter operating costs during those initial two-plus months. As AMD scales into their full capacity and site operations mature, we expect O&M costs to scale in line with that ramp-up and drive NOI margins towards the targeted 80% plus range we have put out publicly before. Mike Grondahl: Got it. And then maybe one more as we close out Q3 and head into Q4: can you talk a little bit about the financing structure you envision for AMD and initial conversations you have had with lenders? Jason Chung: Absolutely. Initial feedback has been very positive on the AMD financing, based on the strong cash flow profile of the lease, the attractive development yield, and the overall strength of having AMD as an investment-grade tenant. I cannot comment on specific spreads at this point, but we believe the overall structure of the deal—and the relative lack of supply of AMD debt in the market today—supports spreads that will be highly competitive with what we are seeing across the broader financing markets. Mike Grondahl: Got it. Thank you, guys. Operator: Thank you. One moment for our next question. And that will come from the line of Stephen Glagola with KBW. Your line is open. Stephen Glagola: Hey, thanks for the questions. Two parts for me. With the recent changes in leadership on the data center side, has that had any impact on lease discussions you are having with hyperscalers or potential tenants in general? And second, sitting here today, do you feel you have the team in place to simultaneously advance leasing efforts at both Rockdale and Corsicana? Thank you. Jason Les: Thanks for the question, Stephen. One of my ongoing responsibilities as CEO is to ensure that we have the right leadership structure and the right team in place to execute on our strategy. To do that, we are constantly looking at how we are organized and where additional talent can enhance our ability to succeed. Bringing in leaders like Adam Black to lead design and construction is a perfect example of that philosophy in action. You can imagine this is not something that happened overnight; it was some time in the making and was the right move to enhance our leadership structure. These changes have had absolutely no impact on development or commercial discussions. Our continued rapid delivery for AMD—and their decision to exercise part of their option—is a perfect example of that. As we continue to make progress, that will become even more clear. For the second part of your question, do we feel that we have the right team in place right now? I believe we have an extremely strong team to execute at both Rockdale and Corsicana concurrently—and the reason I say that is because we are doing that right now. From design, construction, commercial sales, critical operations, and project execution perspectives, we have an incredibly strong leadership team assembled, working hand-in-hand to advance our strategy. You can expect some incremental hiring for support roles across departments in the future as our business scales, but the core leadership structure has been built, and that is the team executing today. Stephen Glagola: Thank you. Operator: One moment for our next question. And that will come from the line of Brett Knoblauch with Cantor Fitzgerald. Your line is open. Brett Knoblauch: Hi, thanks for taking my question. Maybe a quick double on Corsicana. It seems like there is a lot of momentum there, and last quarter you talked about customer conversations for taking down the entire site. Is that still the case? Do you have a preference for single-tenant or multi-tenant? And as a follow-up, on the procurement process for the core-and-shell—where are you on that, as well as the procurement process for what would come after the core-and-shell? Jason Les: Thanks, Brett. On whether the majority of the conversations are still around the entire site—yes, that remains the case, and that is probably our preference. I want to emphasize that we still have the ability to accommodate multi-tenant if that is the way things go. At a potential 756 megawatts of leasable capacity, Corsicana is a huge deal. We have not seen any deals signed by peers at that scale. That is a fantastic asset for us, but it also means it is a big bite to chew for tenants committing to a multiyear deployment schedule at a huge scale. So while the majority of interest is for the full site—as I said on our prior call—there are multiple potential outcomes this can take. There is still a substantial amount of interest, and we are very excited about that. On procurement, we previously secured and have already begun receiving the necessary substation equipment, so we are in a terrific position on the long-lead equipment for core-and-shell. At this point on core-and-shell development, it is largely an exercise in mobilizing labor. I am happy to share that we have secured a general contractor for this phase of development, and they are executing. In fact, this is the same general contractor executing for us with AMD on a very accelerated timeline, and we feel great about this partnership. Beyond core-and-shell—talking about the Tier III eventual buildout of the site—we have been securing long-lead equipment for that, such as backup generators and chillers. As Jason mentioned in the prepared remarks, ESS Metron is scaling up and holding/allocating capacity for Riot Platforms, Inc. use. All of this procurement reflects our confidence in how our strategy is progressing. We are ensuring that we have an attractive offering and an attractive timeline. You can read into why we are making these moves—we feel good about the progress we are making with procurement, and development remains on schedule. Brett Knoblauch: Awesome. Thanks so much, and congrats on the quarter. Operator: Thank you. One moment for our next question. And that will come from the line of Brian Dobson with Clear Street. Brian Dobson: Hey, thanks so much. One more follow-up on financing in general. Bitcoin sales have been a big part of your upfront financing. Do you expect that to continue? And would you elaborate on your view of long-term debt financing and how that fits into your broader strategy moving forward? Jason Les: Let me turn that question to Jason Chung. Jason Chung: Sure. Hey, Brian. That is correct—right now, our Bitcoin treasury and operating cash flows remain the most capital-efficient, non-dilutive sources of funding available to us. As a reminder, we executed our Q1 development entirely without issuing any common equity. Looking ahead to our broader financing philosophy, as our leasing pipeline scales, we recognize that establishing deep, diversified access to capital is critical. We are in active discussions with capital markets participants and evaluating a wide spectrum of debt options, ranging from asset-specific project financing to broader corporate debt markets. To be clear, we are not looking to push all of our future growth through a single financing channel. We fully expect our long-term capital structure to utilize a mix of different instruments, and the specific path we take for any given project will depend on the dynamics of that particular underlying lease, the credit profile of the tenant, prevailing market conditions at the time, and Riot Platforms, Inc. own needs. Regardless of whether a specific project is funded through project finance, capital markets, or otherwise, the mechanics will remain the same in that the debt will be supported by long-duration, highly visible cash flows from investment-grade tenants, in line with our leasing strategy. By maintaining a strong balance sheet today, we are preserving the optionality to tap into the right market with the right instrument at the right cost of capital for every future lease. Brian Dobson: Yeah, thanks very much for the color. Operator: Thank you. One moment for our next question. And that will come from the line of Nick Giles with B. Riley Securities. Your line is open. Nick Giles: Thank you, operator, and good afternoon, everyone. I wanted to ask about the potential cadence of AMD's remaining 150 megawatt expansion option. Is there a date where the options expire? I see the illustrative chart on Slide 22 shows the second 100 megawatt tranche is contingent on power availability—what exactly does that mean? Thanks. Jason Les: The cadence of expansion with the AMD lease will be driven by them. As I said earlier, we will continue to be good partners, deliver capacity, and ensure we are the first call they make when they are looking to expand capacity. As far as the mechanics of the options, the new 100 megawatt option is conditional on first utilizing all of the first option, which now has 50 megawatts remaining. There is some confidentiality to the agreement, so I do not want to elaborate further. One comment: the original lease and expansion clearly go into the two buildings already there—Buildings F and G. For the next 100 megawatts, that would require a new building or capacity being developed. I would say stay tuned as we work on those plans and that development pipeline comes together. Nick Giles: Got it. For my follow-up, regarding your pipeline and the four different growth options, which do you favor most? And out of the 100-plus opportunities referenced in your prepared remarks, were those mostly greenfield and brownfield, behind-the-meter, M&A, or JVs? Jason Les: In this environment where power is so constrained, I do not think you can have a single preference. We laid out that slide because we are pulling on every lever possible to build our pipeline. As we advance commercial discussions at Rockdale and Corsicana, this pipeline becomes even more important—we have built the base of our business with these large core assets, and now we are thinking about how we continue the strategy from there. Our philosophy is that it will require creativity and being open-minded to all of those options. They all have merit, with pros and cons, and you can expect to see a bit of everything as we progress in building our pipeline. Nick Giles: Got it. Thanks for the color, and best of luck. Operator: That is all the time we have today for our question-and-answer session. I would now like to turn the call back over to Mr. Jason Les for any closing remarks. Jason Les: I want to thank everyone for tuning in to our call today—our investors, shareholders, analysts, and partners. We are incredibly excited about the progress we have made and the position we are in today. We have more confidence than ever right now, and we are very excited to continue sharing progress as we make it. We will see you on our next earnings call, if not before. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to Q1 2026 Grand Canyon Education, Inc. earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Sarah Collins, General Counsel. Please go ahead. Sarah Collins: Joining me on today's call is our chairman and CEO, Brian E. Mueller, and our CFO, Daniel E. Bachus. Please note that many of our comments today will contain forward-looking statements that involve risks and uncertainties. Various factors could cause our actual results to be materially different from any future results, expressed or implied by such statements. These factors are discussed in our SEC filings, including our Annual Report on Form 10-Ks, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K. We undertake no obligation to provide updates with regard to the forward-looking statements made during this call, and we recommend that all investors review these reports thoroughly before taking a financial position in Grand Canyon Education, Inc. With that, I will turn the call over to Brian. Brian E. Mueller: Good afternoon, and thank you for joining Grand Canyon Education, Inc.’s first quarter 2026 conference call. Grand Canyon Education, Inc. had another strong quarter, producing online enrollment growth of 8.8% and hybrid growth, excluding the closed sites and those that are in teach-out, of 20.3%. Grand Canyon Education, Grand Canyon University, and now 19 additional partners have produced remarkably consistent positive results over the last 17-plus years in spite of significant change in the macro environments of education and the workplace. Most significantly, GCU has gone from the brink of [inaudible] to now being the largest private university in America. In addition to over 110 thousand students studying online, GCU now has 25 thousand students in an on-campus environment and has more students living in university-owned housing on its campus than any university in the country. Recently, Grand Canyon Education, Inc. and its partners have built 47 hybrid campuses throughout the country to address severe shortages in the health care fields. More recently, Grand Canyon Education, Inc. has assisted GCU in building a workforce development center to produce professionals in the rapidly growing construction and manufacturing fields where there are also severe shortages. The growth and success that has taken place is because Grand Canyon Education, Inc. and its partners have built a model that is extremely flexible, is able to respond with great speed, and has used advanced technologies to produce tremendous scale. The current dissatisfaction with higher education is because faculty governance models are very inflexible, move very slowly, and cannot scale to meet demands. Excellence in higher education is going to be defined in very different terms going forward. There is a lot of talk about how AI will produce winners and losers by industry type. The real discussion should be about winners and losers within industries. Higher education as an industry will continue to exist. Institutions that are flexible, fast, and that can scale will be able to use AI to flourish to even greater levels in the next ten years. Higher education will be more important than ever if we can educate the generation of workers to use AI in three important ways. One, to use AI to produce products to increase levels of human productivity. Two, to quickly allow workers whose jobs have been eliminated to re-career. And three, to educate a generation of workers for jobs that do not exist today but will exist in the future. It is important that universities do not just teach AI, but are able to model it in the way they run their business. Grand Canyon Education, Inc. and GCU have dozens of AI products and products in development across 10 colleges, over 375 academic programs, emphases, and certificates, and across every operational area. Students are learning with increasing levels of excellence and efficiency. Scores currently produced by GCU students in exit and licensure exams in the areas of health care, education, accounting, etc., are reaching all-time highs while scaling to huge numbers. This is especially important for GCU since it has rapidly expanded into academic areas requiring licensure. Programmatic areas like nursing, education, social work, counseling, etc., will benefit from AI implementation, but employment in those areas will always require formal higher education, the completion of degrees, and licensure. Project work produced by business, engineering, and technology students is at increasing levels of sophistication. GCU's innovation center is producing new student businesses that are thriving. To succeed in the future, universities must produce these real-world opportunities for students, and they must graduate in less time, for less money, and for lower debt levels. Our AI products are making curriculum more targeted, faculty more effective and efficient, and allowing operators to produce greater levels of student support. I believe AI will make our current advantages even greater, which makes me even more confident we will continue to meet or exceed our long-term objectives. With that, I would like to review the first quarter results. First, the online campus at Grand Canyon University. New starts were up in the high single digits in 2026, which was slightly above our expectations, and total enrollment growth was 8.8%, which significantly exceeds GCU's long-term objectives. In the past, I have highlighted four reasons for the growth. They include continuing to roll out 20-plus new programs on an annual basis, working with over 5.5 thousand employers directly to address workforce shortages, strong retention levels, and holding the line on tuition to maintain GCU's competitive pricing position. Working with over 5.5 thousand employers directly to address workforce shortages puts us in a very strong position with regard to online enrollment growth. We are now getting approximately 30% of our new starts by directly working with employers. The lead generation environment is definitely being impacted by the increasing numbers of people using artificial intelligence rather than an organization's website to gather information that they will use to make important purchases and life decisions. Our ability to respond to those changes is greater than before because of our unique ability to generate a high percentage of our students without using the typical lead generation strategies. The students we are generating by working directly with employers tend to be very purpose-driven and have high retention and graduation rates. Our marketing team continues to roll out AI strategies to showcase the strong brands and outcomes of our partners. We believe in the long term, this will be very positive for us. Second, the GCU ground campus for traditional students. Total traditional campus enrollments were down slightly year over year in 2026 as expected. Spring total enrollments have historically been less than fall enrollments, as spring new enrollments are a small percentage of overall traditional campus new enrollments, as they are mostly made up of transfer students that defer a semester, and total enrollment is impacted by the growing number of students that are graduating in less than four years. We believe GCU will continue to experience annual new student growth on the ground campus each fall despite its increasing number of graduates because of its significant advantages, including the very low price point, very low average debt levels, the percent of students completing in less than four years, the relevancy of GCU's academic programs to a fast-changing and modern economy, and having the twentieth-ranked campus in the country. As we discussed on last quarter's earnings call, we have made some changes to our marketing and recruitment strategy for GCU's traditional campus which accelerated some spend into 2025 and 2026. Those changes to date are producing positive results, as registrations for fall 2026 remain ahead of last year. Even with the macro trends I discussed earlier, and the tougher year-over-year comps, we believe we can grow new enrollments significantly year over year, which should get residential students back to growth. Two weeks ago, GCU made a major announcement. As part of its 25 thousand-student traditional campus, GCU has one of the fastest-growing honors colleges in the country. Mike Ingram, one of Arizona's most prolific land developers, has made a long-term commitment to the future of the college, and it has been named the Sheila and Mike Ingram Honors College. GCU expects to have over 3 thousand students in the fall with average weighted incoming GPAs of over 4.1. This is one of the highest in the country. The students are coming from all 50 states and are studying across all 10 of GCU's colleges. Students are getting internships and eventually jobs at many of America's top companies, health care organizations, school districts, counseling centers, engineering firms, etc. GCU plans to more than double the student population, making it one of the largest and most impactful honors colleges in the country. Mr. Ingram is leading an effort to build a very prestigious Honors College Council which will be comprised of highly successful professionals from the worlds of business, entertainment, politics, education, health care, and sports. A 55 thousand-square-foot building is under construction to open in the fall that will be a state-of-the-art facility containing lecture halls, collaboration spaces, maker spaces, and gathering areas for many of America's best students. We believe the university's academic brand will continue to accelerate upwards as the Honors College grows, which is another reason we remain optimistic about the future growth of GCU's traditional campus. Third, Grand Canyon Education, Inc.'s hybrid campus had an increase in enrollment year over year of 18.3% in the first quarter. Excluding the closed sites and those that are in teach-out, enrollment increased 20.3% year over year. Hybrid campus new starts in the first quarter, excluding those in teach-outs, were up 20% over the prior year, which exceeded our expectations. There are two main reasons for this continued growth. One, almost all of our active ABSN partners have responded to the younger students interested in ABSN programs by admitting advanced standing students or are in the process of making that change. Students with partially completed degrees have not accumulated a great deal of debt. They are very interested in nursing careers but did not have an efficient way to earn the prerequisite science coursework. GCU created the science courses and some other gen ed courses so that they could be delivered online in eight weeks. Students can access these courses from anywhere in the world. There are start opportunities almost every week. These courses have been made very affordable, are taught by experienced faculty, class sizes are low, and there is a tremendous amount of academic support, including the artificial intelligence project, which provides students 24/7 access to tutoring. Since implementing these courses, we have already enrolled 23.104 thousand students. We have a waterfall report which allows us to know how students are progressing through prereq courses and when they will be eligible to start at one of our ABSN sites. Graduation rates of students who successfully enter the ABSN programs are in the mid-80s, and the first-time pass rate on the NCLEX exam is approximately 90%. Nearly all our partners have responded positively to the change needed to serve the advanced standing students. Our goal is to still have 80 locations with our partners, with 40 of the locations being GCU locations. We opened five new sites in the year ended 12/31/2025, closed two sites in which we stopped recruiting new students in 2024, and merged two sites that were located in the same market, bringing the total number of these sites to 47 as of 12/31/2025. Three of the five new sites were GCU's, bringing their ABSN location total to 11. We plan to open one to two additional sites in 2026, while we mutually agreed with one partner to stop the recruiting of new students and begin teach-out at three of its sites during 2026. A couple of sites that were planned to open in 2026 are more likely to open in early 2027, as we have previously discussed. We are being more selective on new site openings with a focus on the scalability of the market. We are also expanding our programmatic offerings with our hybrid partners by adding a graduate nursing program with seven specializations with Northeastern University, which started this past fall; a hybrid occupational therapy bridge-to-master's program to the already successful St. Kate's occupational therapy assistant hybrid program, which will begin in 2026; and an online health science degree with Utica University, and GCU launched a BS in occupational therapy assistant program and a speech-language pathology program in 2025 at its Phoenix West Valley location. GCU also plans to add a Bachelor of Science in Medical Lab Sciences program in 2026. Adding additional programs at our hybrid locations is an important component to our business plan. We anticipate this momentum will continue, although with the lower number of new site openings and more of our locations getting to capacity, hybrid enrollment growth will slow a bit; the profitability of this pillar will continue to improve. Fourth, the Center for Workforce Development at Grand Canyon University. GCU now has four programs in the Center for Workforce Development, including the electricians pre-apprenticeship program, the CNC machinist pathway program, the manufacturing specialist intensive pathway, and a construction general pathway, and we will be rolling out a fifth program, the manufacturing general pathway, in 2026. Programs were all built in partnership with companies that are experiencing labor shortages in that area and are excited about hiring GCU's graduates. These programs are either one-semester or two-semester programs. A total of 116 students successfully completed the electrician pre-apprenticeship program in fall 2025, with five in the Austin, Texas hybrid location. Fifteen students completed the manufacturing CNC machinist pathway program in the 2025 cohort, and 29 students completed the manufacturing specialist intensive program. These students attend school for 20 hours a week and then work in the facility as a paid employee for 20 hours. At the end of the semester, they receive a manufacturing certificate and become eligible for employment in Arizona's fast-growing manufacturing industry. Students in GCU's growing engineering college are getting experience in this manufacturing facility, which is adding to their engineering education. I started out talking about the relevant programs and creative delivery models that Grand Canyon Education, Inc. has implemented with 20 partner institutions. In the seven-plus years since Grand Canyon Education, Inc. became a service provider, it has helped its partners accomplish the following. In that time, Grand Canyon Education, Inc. has helped Grand Canyon University graduate 221.436 thousand students: 59.659 thousand in education, including 27.601 thousand first-time teachers, at a time when teacher shortages have created a national crisis; 57.412 thousand in nursing and health care professions, including 3.723 thousand prelicensure nurses, at a time when there is a huge shortage of nurses; 46.520 thousand in the College of Humanities and Social Sciences, including thousands in counseling and social work, where there are also huge shortages. The College of Business has become one of the largest business schools in America and has produced 38.823 thousand graduates. The College of Science, Engineering, and Technology has grown by 225% and provided 9.739 thousand graduates. The doctoral college, Honors College, and College of Theology also continue to grow. In addition, Grand Canyon Education, Inc. has helped its other partners graduate over 15 thousand prelicensure nurses and occupational therapist assistants. The numbers that I have cited have all happened in the past seven years, since the GCU–Grand Canyon Education, Inc. transaction and since Grand Canyon Education, Inc. has become an education services provider. This is a great example of a futuristic educational model that is flexible, moves fast, and is capable of great scale. All of this has occurred while Grand Canyon Education, Inc. paid 627 million in federal and state taxes, while state universities and community colleges pull money out of the tax system. Grand Canyon Education, Inc. has helped produce over 235 thousand graduates while pouring millions of dollars into the system. Service revenues were 308.8 million for 2026, an increase of 19.5 million, or 6.7%, as compared to 289.3 million for 2025. The increase year over year in service revenue is primarily due to an increase in university partner enrollment [inaudible], including an increase in GCU online enrollments of 8.8%, university partner enrollments at the off-campus classroom and laboratory sites of 18.3%, and one additional day of ground traditional revenue at GCU of 1 million in the quarter as a result of the shift of one day of revenue from the second quarter to the first quarter as compared to last year's spring start date.
Operator: Good day, ladies and gentlemen. Welcome to the First Quarter 2026 Illumina, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, we will conduct a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the call over to Head of Investor Relations, Conor McNamara. Conor McNamara: Hello, everyone, and welcome to Illumina, Inc.'s first quarter 2026 Earnings Call. Today, we will review our financial results released after market close and provide prepared remarks before opening the line for Q&A. Our earnings release is available in the Investor Relations section of illumina.com. Joining me today are Jacob Thaysen, Chief Executive Officer, and Ankur Dhingra, Chief Financial Officer. Jacob will begin with an update on Illumina, Inc.'s business followed by Ankur's review of our financials. We will be discussing certain non-GAAP financial measures, and a reconciliation to GAAP can be found in today's release and in the supplementary data on our website. Unless stated otherwise, all growth rates are presented on a year-over-year reported basis. Organic growth adjusts for the impact of currency and acquisitions, and Rest of World organic growth also adjusts for the impact from our Greater China region. A reminder: starting in January 2026, we changed the geographical reporting segments to better align with the respective commercial organizational structure, and the supplementary file on our website shows historical results with the new geographic reporting. This call is being recorded, and the replay will be available on our website. It is our intent that all forward-looking statements made during today's call will be protected under the Private Securities Litigation Reform Act of 1995. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to documents that Illumina, Inc. files with the SEC, including our most recent Forms 10-Q and 10-K. With that, I will now turn the call over to Jacob. Jacob Thaysen: Thank you, Conor. Good afternoon, everyone. We are off to a great start in 2026, with Q1 revenue, margin, and EPS all coming in above our guidance range. Our solid performance reflects disciplined execution across the organization along with strength in our clinical markets and growth across all regions excluding China. Our focus on delivering for our customers and shareholders is fueling the sustained success that positions us for continued growth well into the future. We are raising our 2026 guidance to reflect the Q1 outperformance, which we will discuss in more detail later in our prepared remarks. I want to recognize and thank the entire Illumina, Inc. team for how they have managed through a higher-cost environment while maintaining strong operational performance and delivering the quality and reliability our customers expect. As it relates to Q1, I am going to focus on three areas: our disciplined commercial execution with continued momentum in clinical end markets; product innovation and roadmap updates from our R&D team in the quarter; and progress we are making against our long-term strategy and targets. Overall, I am very pleased with how the company delivered in Q1, giving us more confidence that our strategy is working. Building on momentum from 2025, our team delivered another quarter of solid performance. Highlights from the quarter include: Rest of World organic growth of 3.5%, above the high end of our guidance, driven by strength in sequencing consumables and instruments; approximately 7% growth in Rest of World sequencing consumables, including approximately 20% growth in clinical, reflecting continued adoption of sequencing-based diagnostics and more sequencing-intensive applications; over 80 NovaSeq X placements in the quarter, approximately 20 more than Q1 2025, with year-over-year placements growth in both clinical and non-clinical markets. New high-volume clinical applications are being built on the NovaSeq X, as the platform becomes more embedded in clinical workflows and supports continued consumables growth over time. We successfully closed the SomaLogic acquisition, with the business performing in line with our expectations in both revenue and profitability. Margins were approximately 150 basis points above guidance, driven by solid revenue performance and disciplined expense management in a higher-cost environment. Overall, these results reflect our consistent execution and how we dedicated resources to best capitalize on a growing and evolving market. The investments Illumina, Inc. has made over the last two decades to make sequencing technology more accessible are driving meaningful impact with continued clinical demand. Clinical made up more than 65% of our sequencing consumables revenue in the quarter, driven by both the expansion of sequencing-based diagnostics and the increased use of more data-intensive applications. Customers are launching new assays with ongoing progress in reimbursement supporting broader adoption of sequencing in clinical decision making. At the same time, demand for approaches such as comprehensive genomic profiling and whole-genome sequencing is growing. This is driving higher sequencing intensity, an area where the NovaSeq X is playing an increasingly central role as customers scale these applications. We see a long runway of continued growth in our clinical business. In research and academic markets, demand remains cautious as customers navigate funding uncertainty, but we are confident in the long-term opportunity in these end markets, and we continue to invest in leading technologies including proteomics and single cell, with additional offerings in spatial underway. These markets serve as an important entry point for new technologies, helping to drive long-term clinical adoption over time. Customer interest in our new product offerings remains robust, and as funding uncertainties start to ease, we expect to see a return to growth in research and academic markets. This quarter, we also saw our innovation strategy come through clearly in how we are expanding the value of our platform for our customers. At AGBT, we focused on how our end-to-end workflow approach is helping customers unlock new discoveries and generate deeper insights with the quality and reliability that only Illumina, Inc. can offer. Our approach is becoming an important shift in how customers evaluate solutions, not just at the instrument level, but across the full workflow. We highlighted several examples of this at AGBT. We launched TruePath, enabling whole-genome sequencing with deeper insight while eliminating traditional library prep, reducing hands-on time to about ten minutes. Customers are showing significant interest, particularly in areas like rare disease, where some are using it to simplify the standard of care by consolidating multiple types of tests into a single TruePath workflow. This is helping them get to answers faster and with greater confidence compared to the traditional approach. Several customers are already in various stages of clinical studies using TruePath, and we expect customer demand to continue increasing in the coming quarters. We also saw very high engagement around our spatial transcriptomics offering, which is a good example of how we innovate with our customers to address their needs. Early access users have shown that the offering can generate data in highly challenging sample types, such as lymphatic tissue, that has previously been difficult to study. We remain on track to launch later this year and look forward to bringing this capability to the market. At the same time, we are continuing to expand what customers can do on the NovaSeq X. We introduced our 18-month roadmap, including new 14B and 35B flow cells, staggered flow cell runs, and our ability to improve data quality with the Q70 performance. These innovations on the X will offer more flexibility, increased throughput, and improved overall workflow efficiency for our customers. These introductions and platform improvements are driving higher NovaSeq X placements and increased demand. Even three years after we shipped our first X instrument, we exited the quarter with a solid backlog, giving us confidence to raise our full-year instrument outlook. As we step back and look at the quarter, the most important takeaway is that our strategy is working. We are increasing the value of the NovaSeq X through continuous innovation, which is showing up in our financial results as customers scale and expand what they run on the platform. As sequencing moves further into clinical and research settings, customers are running more samples, generating more data, and relying on more sequencing-intensive applications. This is where the NovaSeq X continues to play a central role. As we expand what customers can do on the platform, we are enabling them to do more with the systems that they already have and support more complex applications over time. It gives them confidence that they can use their Xs well into the future to drive their own success. As our customers succeed, the success shows up in our results. We are also extending this into data and AI with BioInsight, which we introduced late last year to help customers accelerate discovery. A key program within BioInsight is the billion cell atlas, which we introduced earlier this year to better understand how genes drive disease through perturbed [inaudible]. We are seeing growing interest from partners, with different companies looking to participate. With hundreds of millions of cells already generated, customers are starting to see insights that can support AI-driven models and drug discovery. Turning to our outlook. Building on the strong start of this year, we are updating our outlook relative to the guidance we provided in Q4. Importantly, the current end-market dynamics we are seeing are consistent with what we expected going into 2026. Clinical continues to lead while research and applied remain more cautious. Our first quarter performance came in ahead of expectations, and we are raising our full-year revenue outlook. This is driven by the strength in our business and how it carries into the rest of the year. We are also raising our operating margin expectations and EPS outlook, reflecting the Q1 outperformance and higher revenue. We also remain on track toward our 2027 targets, and the investments we are making in R&D and product innovation position us to deliver high single-digit revenue growth, continued margin expansion, and double-digit to teens EPS growth for years to come. I want to thank the entire Illumina, Inc. team, our customers, and all our stakeholders for another excellent quarter. I also want to thank our three outgoing board members for their years of service and contribution to Illumina, Inc. I am very proud of how Illumina, Inc. has progressed since I joined the company in 2023, especially given the dynamic macro environment we have been operating in. With that, I will hand it over to Ankur to walk through the financial details before we move to Q&A. Ankur Dhingra: Thank you, Jacob. And good afternoon, everyone. I will walk through our first quarter financial results, provide additional color on revenue, expenses, earnings, and our balance sheet and capital deployment, and then discuss our updated outlook. Before I get into the details of the financial performance, let me provide a high-level view of how the first quarter played out. During the first quarter, Illumina, Inc.'s revenue of $1.09 billion came in $20 million above the midpoint of our guidance, driven primarily by better-than-expected instrument sales as we placed more than 80 NovaSeq X instruments in the quarter, above our targeted range of 50 to 60 per quarter. Clinical consumable sales also came in at the high end of our expectations for the quarter. The higher revenue flowed through to margins and EPS, with non-GAAP diluted EPS approximately $0.10 above the midpoint of our guidance. Now turning to the details. During the first quarter, Illumina, Inc.'s revenue of $1.09 billion was up 4.8% year over year and 1.2% on an organic basis, with currency and acquired revenue each contributing just under two percentage points to our reported growth rate. Rest of World organic growth was 3.5%. Sequencing consumables revenue of $726 million was up 4% year over year, with Rest of World organic growth of 5%, roughly in line with our expectations. High-throughput volume drove most of the revenue growth as the NovaSeq X installed base continues to expand and utilization increased year over year. Clinical sequencing consumable demand continues to expand, growing 20% ex-China for the second consecutive quarter. Continued expansion of clinical volumes for our customers, as well as adoption of information-rich, sequencing-intensive tests in new trials, is driving robust demand in clinical market applications. We see significant growth opportunities in clinical markets as we enable customers to expand their applications across the Illumina, Inc. ecosystem. This includes simplified access to expanded information sets through offerings like FiveBase and TruePath. Sequencing consumables in research and applied declined 12% ex-China, reflecting continued uncertainty in the funding environment during the quarter. While macro commentary about the funding environment appears to be stable to improving, year-to-date trends have remained consistent with our expectations for 2026. As of Q1, approximately 82% of volumes and 55% of revenue have transitioned to NovaSeq X. Ninety percent of research and applied volume is now on the X, and we are well positioned for a return to revenue growth when that market returns to a more normalized activity level. Seventy-six percent of clinical volume is now on the X, and we expect 80% to 85% will be on X by the end of 2026. On sequencing activity, total sequencing GB output on our connected high- and mid-throughput instruments once again grew greater than 30% year over year, with clinical growth well above that. Sequencing instruments revenue of $118 million was up 9% year over year in Q1 and up 10% on a Rest of World organic basis, driven by increased sales of 80 NovaSeq X instruments in Q1, with demand remaining strong for the platform, especially within clinical where we saw several multiunit orders in the quarter. In fact, during Q1, we were supply constrained on the number of NovaSeq X units that were placed, as the demand continues to remain very robust. High-throughput instrument placements in research also grew year over year. Sequencing service and other revenue of $151 million was up 7% year over year and up 5% on a Rest of World organic basis. As we scale up BioInsight, the timing of strategic partnerships and data deals can be lumpy in this segment. Microarrays business was down 20% on a Rest of World organic basis, largely due to specific large customers in the direct-to-consumer segment. Moving to the rest of the P&L. Non-GAAP gross margin of 68.2% for the first quarter was up 80 basis points year over year, driven by cost efficiencies and higher revenue, partly offset by tariffs. Non-GAAP operating expenses were $506 million, up 3% year over year, and largely reflect the addition of the SomaLogic team. Non-GAAP operating margin was 21.9% in Q1, expanding approximately 150 basis points year over year, reflecting increased operating leverage from our improved cost structure. Looking below the line, non-GAAP other expense, which is largely comprised of net interest expense, was $15 million, and the non-GAAP tax rate was 20.5%. Our average diluted shares were approximately 154 million, down 5 million year over year, reflecting share repurchases throughout the year. Altogether, non-GAAP EPS of $1.15 per diluted share grew approximately 19% year over year and came in about $0.10 above the midpoint of the guidance range we provided in February. Moving to cash flow, balance sheet, and capital allocation items for the quarter. Cash flow provided by operations was $289 million for the quarter. Capital expenditures were $38 million, and free cash flow was $251 million for Q1. In Q1, we repurchased 2 million shares of Illumina, Inc. stock for approximately $242 million at an average price of $120.08 per share. At quarter-end, we had approximately $400 million remaining on our current share repurchase authorization, and we intend to continue to repurchase shares opportunistically. We also announced today that Illumina, Inc.'s Board of Directors has authorized an additional $1.5 billion in share repurchases. During the quarter, we closed the acquisition of SomaLogic on January 30 for a net cash payment of $363 million, plus potential royalties and milestone payments. Subsequent to quarter-end, we paid the first milestone of $25 million for the achievement of certain 2025 targets. We ended the quarter with approximately $1.16 billion in cash, cash equivalents, and short-term investments, and gross leverage of approximately 1.5 times gross debt to last-twelve-months EBITDA. Overall, we had a great start to 2026, allowing us to raise our full-year guidance and reinforce our confidence in the progress we are making towards our long-range targets. Now moving to guidance for the year 2026. Starting with revenue. We are raising our reported revenue guidance by $20 million to reflect our Q1 outperformance and now expect revenue of $4.52 billion to $4.62 billion. Acquired revenue is still expected to contribute 1.5 to 2 points of growth, and currency is expected to add approximately 1% of growth. This places our guidance towards the upper end of previously stated growth rate targets, including 2% to 4% Rest of World organic growth. The overall end-market demand remains consistent with what we expected exiting 2025: continued strong demand growth in clinical markets and funding uncertainty in research and applied markets. For Rest of World organic sequencing revenue growth, we continue to expect low- to mid-single-digit growth in consumables, with clinical growing double-digit to mid-teens and research and applied declining mid- to high-single digits. We are raising our instrument guide to flat to low single-digit growth year over year, driven by very strong NovaSeq X demand. As I mentioned, we were supply constrained in Q1 and have a very strong pipeline for NovaSeq X instrument placements, especially in the clinical end markets. We are also increasing our profitability expectations for the year, reflecting the overperformance in Q1. Accordingly, we now expect operating margins between 23.4% and 23.6%, up 10 basis points from our prior guidance at the midpoint. This represents approximately 140 basis points of year-over-year margin expansion versus 2025 excluding the impact of acquisitions. Similarly, we are raising the top and bottom of our 2026 EPS range by $0.10 and now expect non-GAAP diluted EPS of $5.15 to $5.30. Excluding the impact of the SomaLogic acquisition, this represents EPS growth of 12% at the midpoint. Moving to Q2 2026 guidance. We expect Rest of the World organic revenue growth of 4% to 6% and reported revenue of $1.12 billion to $1.14 billion, with non-GAAP EPS of $1.20 to $1.25. Given the strong demand and pipeline for NovaSeq X, we are investing to scale the supply of NovaSeq X units and expect the team will continue to make progress through Q2 and into Q3 as well. Our guide assumes operating margins of approximately 22%, reflecting a higher mix of instruments revenue and related investments, near-term inflationary pressures related to freight costs and higher cost of electronic components, and a full quarter of SomaLogic as well. Regarding the inflationary pressures, we are taking several mitigating actions to fully offset the impact during the year, and this is reflected in implied margin improvement for the rest of the year. Our solid Q1 performance and rapidly growing clinical installed base provide a good setup going into the second half of the year, and as these Xs come online, they will add to the consumables revenue stream. This improved outlook also gives us confidence in the progress we are making towards achieving our long-range targets for revenue, margin, and EPS growth by 2027. Excluding the impact of acquisitions, our guidance implies approximately 350 basis points of margin expansion by the end of 2026, representing meaningful progress towards the 500 basis point target by 2027. This reflects the underlying improvement in our operating model while navigating a dynamic, inflationary macro environment. In closing, I want to thank the Illumina, Inc. team for their continued focus and disciplined execution throughout the quarter. We are off to a great start in 2026, and I am extremely encouraged by the progress we have made in returning Illumina, Inc. to long-term sustainable revenue and earnings growth. Thank you for joining our call today. We will now open the call for questions. Operator: A bar at the bottom of your screen. To give as many analysts as possible the opportunity to ask a question, please limit yourself to one question. If you have additional questions, please raise your hand again to be put back into the queue. We will now pause a moment to assemble the queue. Thank you. First question will come from the line of Vijay Kumar with Evercore ISI. Vijay Kumar: Hi, Ankur and Jacob. Thank you for taking my question, and congrats on a clean print here. Maybe high level, my one question, sticking to the guidance here. Simplistically, you beat Q1, came in above the high end of your organic assumption, instruments coming in better, clinical coming in better. You have raised instrument guidance for the year. I am curious why the organic for the year was not raised. Is there some cautiousness that you are baking in, and what would those cautiousness be? Why cannot clinical sustain 20%? I am just curious on the guided assumptions. Jacob Thaysen: Hey, Vijay. This is Jacob, and thank you very much. We agree we are off to a great start here in 2026 with a strong performance in Q1. As you mentioned, we continue to see very strong momentum in the clinical business, and, in fact, we do believe that will continue, not only in the rest of the year but also into the coming year. So we are very excited about that continued momentum. As mentioned also, we had a strong Q4 in instrument placements, and we continued that strength here into Q1 and have a strong pipeline for the coming quarters. We feel really good about where we are sitting. We know when we are placing instruments, they will start to generate consumables revenue approximately six months after they install, so there is definitely a lot of optimism on how we can see the second half of the year also. Overall, we are pleased about that. Now, we are only one quarter into the year, so I think it is that we are leaning in by raising both the top line and the bottom line very early in the year. I think we are signaling all the right things here. Ankur? Ankur Dhingra: Thanks, Jacob. Vijay, what I would add is we are raising the revenue guidance. It is going up by $20 million, which is roughly about half a point. My comment that we are now really looking towards the higher end of the range rather than the midpoint reflects that. Still within the range that we talked about, so decimal points move; hence, the percentage is what it is. There is nothing else more than that. Operator: Your next question will come from Puneet Souda with Leerink. Puneet Souda: Hi, Jacob and Ankur. Thanks for taking my question, and congrats on the momentum here in instrumentation. That was pretty impressive. Just trying to understand within that mix how much of it is coming from clinical versus research, what you are seeing in the momentum in research among these customers, and what does it mean as they incorporate these instruments. There will be a transition. There will be an initial impact from 6K pricing to X pricing for consumables within those labs. How are you thinking about that impact, and is that incorporated into the guide? Maybe just give us more on this instrumentation strength you are seeing and how to think about the instrumentation for Q2 and the full year. Thank you. Jacob Thaysen: Thanks, Puneet. That was one question with many sub-questions here, so let me try to address a few of them. Overall, as you mentioned, we are very pleased with the placements we did here in Q1 and also in Q4. We continue to see that momentum. It speaks to our customers seeing that when they buy an X, we will continue to drive innovation, so they know that Illumina, Inc. will be behind them and ensuring that they continue to drive new insights from those instruments, both in the clinical space and in the research space, and we will continue to do that. We showed up very well at AGBT to prove what we are doing with innovations on the platform, so our customers clearly are purchasing the X platforms to drive more business on it. We are growing both research and clinical placements, but if you look into clinical, which is more than 60% of the placements, it is much more additional incremental placement than necessarily conversion of the 6K. I think you will start to see that drive immediately in growth on the top line. From a research position, we continue to see large projects and a lot of single-cell projects run on the X, but we are not seeing any substantial change in mix of where research is going right now. We are excited by some of the new innovations we are coming out with over the next period of time. Spatial is one that will drive additional upside at the end of this year and into 2027. As we also reminded, we have now converted most of our access in the research business. So when this market comes back, we are not seeing the price headwind as we did before, and thereby we will see growth coming that way. Ankur Dhingra: The only thing I would add from a pricing transition perspective: no change in assumptions as we have talked. We expect clinical transition to continue, and all of those price assumptions are already built into the guide. Operator: Your next question will come from Tycho Peterson with Jefferies. Tycho Peterson: Sticking within instruments, can you quantify the backlog? You said you are supply constrained. I know we will get it in the 10-Q, but are you able to say how much you could not ship? And then, as we think about the roadmap, Jacob, the question of freezing the market comes up. Can you talk about how we get comfortable that, over the next 18 months, that is not an issue with the roadmap you have laid out? Jacob Thaysen: I would start by saying that our placements of instruments show that there is no freezing of any market that we are participating in at this point. We feel really good about that. We also feel good about our funnel of instruments over the next period of time. Our roadmap, as we presented at AGBT, shows we are both innovating on the X—coming out with new flow cells—and also, as I mentioned, spatial, TruePath, and our FiveBase is starting to take momentum. We feel really good about both the clinical opportunity and what we can offer into the research space when that is coming back. We do not see any substantial change in the competitive environment as we sit here right now. We know there is a lot of noise out there. We are looking forward to compete when they finally get to the market. Ankur Dhingra: And, Tycho, on the instrumentation specifics, very strong demand. The pipeline is very robust. You will see on the 10-Q our performance obligations are up more than 20% year over year, and a lot of that is both in instruments and in consumables. I am expecting our Q2 placements could be close to the levels that we have seen in Q1, and the pipeline for the remainder of the year looks robust as well. As we mentioned, we are scaling up. The demand looks quite robust, and, as Jacob said, quite a bit of this demand is coming from new trials and new tests. Operator: Our next question will come from Doug Schenkel with Wolfe Research. Madeline: Hi. Thanks for taking my question. This is Madeline on for Doug. Just a quick one on the operating margin. I think Q2 operating margin came in a little bit lower than the Street. You called out some specific headwinds, including investment to scale the supply, which should continue into Q3. How should we think about the margin progression throughout the year, and what does the ramp between that Q2 margin and the year-end exit rate look like? Jacob Thaysen: Thank you. Let me start here. It is Jacob. Taking a step back to what Illumina, Inc. has been able to achieve over the last few years, we have had a tremendous improvement in our margins. As you probably recall, in 2024 we laid out our strategy of building back to high single-digit growth in 2027. You can see we are stepping into that with the latest growth last year, and now we are starting to have mid-single-digit growth, and we will now enter into high single-digit growth for next year. So we are on a great trajectory in the top line to get to that. On the operating margin, we are also showing great progress. There are some puts and takes in each quarter. As Ankur mentioned, there are some inflationary pressures in the rest of the year here, which we are going to offset. That is what you see reflected in our short-term and longer-term guide. Ankur? Ankur Dhingra: Q2 specifically has a few items. Relative to year over year, we have a much higher instrument mix. We do have inflationary pressure from things like component cost and freight, etc., as well as we will have the full quarter of SomaLogic in our financials. Having said that, we have a series of mitigating actions that have started taking place here in Q2, but we anticipate that the effects will become visible from Q3 and into Q4. Hence, we feel good about the ramp in the operating margin in the second half versus the first half. Operator: Your next question will come from Dan Brennan with TD Cowen. Daniel Brennan: Great. Thank you. In the past, you have shared some color regarding the X customers that had early converted versus those that were in the middle of converting in the slide deck. Given where we stand today in the conversion, can you maybe unpack a little bit the guide this year, particularly on the clinical side, and how we should think about those two cohorts? Might there be some acceleration as you see that conversion get later in the cycle? Thank you. Jacob Thaysen: Dan, I think there is still a distribution of different types of customers. As we have mentioned previously, there are customers that have decided to stay on the 6K platform for a longer period of time. These are the clinical customers that have regulated assays sitting on those and FDA-approved assays that either feel they are well served by the 6K platform or that it takes much longer time to transition. So that is some of the laggards on the transition. For many others, they are in the process or already have transitioned. There will always be a number of customers and assays that will be sitting on the former platform at least for a while. Therefore, as Ankur mentioned in the prepared remarks, by the end of this year we feel like we have fundamentally transitioned the business that will transition. Then there will be a long tail of transition going forward. Overall, we see the clinical business as an opportunity for growth. We do not see any acceleration in that business for the time being. Operator: Our next question will come from Patrick Donnelly with Citi. Patrick Donnelly: Thank you for taking the questions. Maybe one on the research and applied markets. I think you are still talking about that down mid- to high-single digits for the year. The consumables look like they were down 12% in the quarter against a pretty easy comp. Can you talk about what you are hearing from customers there? Is there an expectation for some improvement in that market as you go through the year as budgets get set? How are you feeling about that market? And then just a quick housekeeping for Ankur: where is the SomaLogic revenue showing up? Is it instruments, consumables? Just want to make sure I am tracking that. Thank you. Jacob Thaysen: Thank you, Patrick. Let me start on the research space. We are pleased to see alignment from D.C. around the commitment to NIH funding, and we do believe that while funding has slowed in the beginning of the year, it will pick up during the year. That is a great headline. Now, as we also talked about last quarter and why we are more conservative on the research business in 2026, one thing is to have released grants, but the other is to have it all translate into spending the money on tools and consumables. There is definitely some cautiousness with our customers before they truly understand how those grants are getting allocated and how many grants they are getting, so there will be some cautiousness in that space for a little while. We do believe that we should see some improvement during the year. That said, we have not built much of that into our guide right now, so I consider that more of an upside. Ankur Dhingra: Patrick, one thing I would add on that market is remember, we transitioned more than 90% of the volume for that end market, and our pricing compare should keep getting better for that market throughout the year as well. On SomaLogic, from our reporting perspective, it is mostly in the microarrays. Operator: Your next question will come from Subbu Nambi with Guggenheim. Subhalaxmi Nambi: Thank you for taking this question. Given you have seen 20% clinical growth for two consecutive quarters now, would it be fair to assume continued momentum throughout the year? Any reason for us to believe that the guide you are assuming on the lower end—academia down mid-single digits but clinical in the low double digits—and on the higher end—academia down low single digits but clinical in the teens—could change beyond the higher end of your guide? Jacob Thaysen: As you mentioned, we are very pleased with the momentum we have seen in clinical clearly over the last two quarters, and actually also through 2025. Since we are transitioning more and more of the consumables revenue over to the X platform, the price headwind is getting behind us, and we continue to see strong growth. At this point, we still feel like mid-teens growth is a strong performance for the clinical market. Could it be even higher than that? That could be upside to our guide. Ankur Dhingra: Based on the business and the momentum at this point, we are not seeing any signs of potential deceleration in that market. There is good momentum there. Operator: Your next question will come from Kyle Mikson with Canaccord Genuity. Kyle Mikson: Hey, guys. Thanks for the questions. Nice quarter. As a follow-up to the seemingly modest 2026 revenue guidance increase here, did you update the guidance range to reflect competition launching this summer? Now that we have pricing from them—the $150 per genome and the attractive pricing for accounting applications—are you expecting more of a headwind and gave yourself some cushion, perhaps, on this new range? Jacob Thaysen: I am actually quite pleased with the guide increase we did. After one quarter, we went out and raised our guide. I think that is something to be proud of and shows, again, our commitment to the year and where we believe the business is going. As we also said last quarter, we are very confident in our position from a competitive perspective. What we are seeing in the first half competitively—I do not think that dynamic is changing a lot in the second half. We feel good about where we are. We have built in how we think the business is going to develop, and that is what you see reflected in our guide. Operator: Your next question will come from Dan Arias with Stifel. Dan Arias: Hi, guys. Thanks for the questions here. Jacob, maybe just a follow-up to that point you were making. The 35B flow cell that is coming—obviously, that is relevant to this competitive conversation. I imagine you have customers asking what an apples-to-apples cost comparison would be to that $150 price point. What is the cost per G or the cost per genome that you are going to quote to folks who are assessing run economics and trying to understand how things are going to shake out going forward? Jacob Thaysen: I think there is still a lot of opportunity in the space we are in. If you look into the clinical space—think about the rare disease business going from exome into genome—that will require 15 times more sequencing intensity. When we have conversations with customers who run a lot of exome and want to translate into genome, we have no problem having a great conversation about elasticity and how we can drive profitable growth for us and continue to lower their cost per gigabase for them, so both of us have a strong win-win situation. That is just one example. For us, that conversation is based on an elasticity game where if we provide very aggressive pricing, we also see very aggressive volume growth. That is a conversation we continue to have. On the 35B pricing, we are not ready at this point to go out and talk about pricing. We will do that when we are closer to the actual launch. Operator: Next question will come from Catherine Schultz with Baird. Catherine Schultz: Hey, guys. Thanks for the question. Really encouraging numbers on X placements. Congrats on the strong start to the year. Could you spend some time talking about what you are seeing on the low- and mid-throughput side of the portfolio from a placement standpoint? Jacob Thaysen: Yes, thank you. If we start with low throughput, as a reminder, we launched our MiSeq i100 a little more than a year ago, and we saw very strong placements in 2025—more than 1 thousand placements—and we continue to see that momentum into 2026. There is a lot of good progress and momentum in the MiSeq i100 business and placements. In mid throughput, that has been more challenging due to the macro environment, where we are seeing both the MiSeq i100 taking a part of the low end of that business and customers transitioning up to the high-throughput part of that business. In the middle layer, we are also seeing that these customers are more sensitive to the macro environment, stalling some investments and waiting for a different type of environment. Many of them are not in production mode of sequencing and thereby are looking for more flexibility. While we see good performance in that market, we believe that when the market turns—especially in this segment—it will start to grow even better for us. Operator: Your next question will come from Casey Woodring with JPMorgan. Casey Woodring: Thank you for taking my questions. Two quick follow-ups to some of the earlier ones. Did you quantify the headwind from inflationary pressures—things like memory chips and freight—that you are planning to offset this year? And then on the NovaSeq X placements, you placed 80 in the quarter. It sounds like you expect a similar level in Q2, if I heard that right. How should we think about X placements in the back half? Jacob Thaysen: Let me start on how we have dealt with some of the curveballs that have been thrown towards Illumina, Inc. and the market generally over the last few years. If you follow our performance and how we have dealt with different types of cost challenges, the Illumina, Inc. team has done a great job finding ways to compensate. We continue to drive very strong focus on operational discipline. This is the engine running here. You can see that when we get this headwind in front of us, we find ways through it. The team is quite excited about that. There is a lot of energy going into ensuring we can deliver on our commitments. I am very pleased with the performance from the team. Ankur Dhingra: Yes, that is within the range that we can action, and we are taking a lot of actions towards mitigating this as well. On the Xs, yes, you are right. I mentioned about similar to Q1 levels in Q2 as well, and as it looks right now, the pipeline for the back half also looks fairly robust. All in all, for the full year, we expect to come in reasonably above the range that we had provided at the start of the year. Operator: Your next question will come from Jack Meehan with Nephron Research. Jack Meehan: Thank you. Good afternoon, guys. I wanted to keep asking about the NovaSeq X demand. It sounds like it has been robust. Is there more color you can share on the profile of clinical customers—where you are seeing demand as the strongest? Could you elaborate on things like multi-cancer, MRD, therapy selection, women’s health—anything that stands out? Jacob Thaysen: Thanks for the question. It is almost like saying all of the above, meaning that we see broad interest in the X. We also have large customers—centralized labs here in the U.S.—and you can see that in their numbers. We see a lot of momentum in oncology and a lot of commitment to continue growing in that space. It goes from oncology, rare disease, into NIPT, and across regions. Really great performance in clinical, which speaks to the strength and opportunity in that space going forward. Operator: Your next question will come from Michael Ryskin with Bank of America. Michael Ryskin: Hey, thanks for taking the question. Hope you can hear me. Going back to the NovaSeq X again—the placement number is the biggest surprise for us relative to our model. Is there anything you can say in terms of pricing or how you are getting those out the door? Where is the incremental demand coming from? We look at the last two years—you have been pretty steady at, outside of 4Q where you have a nice bolus, doing 50 to 60 per quarter. Now you are jumping to 80 in 1Q and 80 in 2Q, but your instrument revenue number in 1Q was $118 million. We would have expected with 80 placements to do a little bit closer to $125 to $130 million. Is there any discounting going on here? What is driving that big step up in demand? Jacob Thaysen: Let me start by answering that. First, on the X placements—when you place an X, you do that because you have an opportunity to win a customer base. It is not to have it sitting in a corner; it is really to drive consumables on it. As we mentioned at J.P. Morgan, we showed results that we are around or above $1.3 million of pull-through on the Xs, and we think that will continue to be at that level, if not above. Our focus is to get as many Xs out there so they can drive that growth in consumables over the next many years. That is the most important thing for us. Secondly, when we have customers—and we do—who order five or ten or even beyond that, of course we are giving them volume discounts on the placements, and we think that is reasonable. Again, our main focus is to get Xs out there and drive consumables. We are not putting them out there just to sit in the corner. Ankur Dhingra: The only thing I would add, Mike, is some of the units within the 80 are also going through a reagent rental or a lease model as well. There are always some units of that kind in there as well, which, of course, have a different revenue recognition pattern. Operator: Our next question will come from Mason Carrico with Stephens. Mason Carrico: Thanks, guys. A lot has been asked here, but taking into account recent competitive announcements, could you talk about where you expect Illumina, Inc. to win in spatial? Is this more of a rising-tide-lifts-all-boats, or do you see clear pockets in the market where you think Illumina, Inc. can stand out? Jacob Thaysen: We are excited about spatial, and we showcased spatial both at ASHG and at AGBT with a lot of interest from our customers. We think there is a lot of value in our spatial solution. Overall, it does raise all boats right now. I also enjoyed the launch of what 10x put out there. I am impressed with what Serge and the team are putting out. I am a big fan of that, and I think it drives much more interest overall in spatial. That said, these are different technologies addressing somewhat different customer segments. There is plenty of room for more than a few players in that space. Illumina, Inc. is here to play. We have developed a lot of our spatial technique together with customers, so we have a good sense for what they are looking for and where our opportunity is. I am pretty sure we have a winner when we come out later in the year with our spatial solution. Operator: Our final question will come from Kyle Mikson with Canaccord Genuity. Kyle Mikson: Thanks for the questions again. A follow-up on the slide in the deck about the NovaSeq transition. You have one aspect where the percentage of high-throughput consumables revenue has been stable compared to the fourth quarter at 55%. However, the volume of GB shipped as a percentage—X represents that—has been increasing nicely towards that 80% to 90%. What exactly happened in the first quarter that it moderated a bit? Is that going to inflect going forward, or should we expect 55%—maybe high 50s—to maintain going forward? Jacob Thaysen: Quarter by quarter, and I think we mentioned this in earlier quarters, it is a little bit dangerous to look at this number too precisely. It is a trend direction, and the quarter-by-quarter can vary a little bit up and down, so I would not put too much into it. What you should see is that we continue to transition our clinical customers very nicely, and as Ankur said, we believe we will have more than 85% of that transition by the end of this year, which is where we then feel the transition is behind us. Operator: This concludes the Q&A section of the call. I would now like to turn the call back to Conor McNamara for closing remarks. Conor McNamara: Thank you for joining us today. A replay of this call will be available on the Investors section of our website. This concludes our call, and we look forward to seeing you at upcoming events. Operator: This concludes today's call. We thank you for your participation. You may disconnect at this time, and have a great day.
Operator: Ladies and gentlemen, thank you for standing by. My name is Colby, and I will be your conference operator today. At this time, I would like to welcome you to the Allegiant Travel Company First Quarter 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, we will conduct a question and answer session. We please ask that you limit yourself to one question and one follow-up if needed. Thank you. If you would like to ask a question at that time, please press star then the number one on your keypad to raise your hand and enter the queue. If you would like to withdraw your question at any time, please press star 1 again. I will now turn the call over to Sherry Wilson. You may begin. Thank you, and welcome to the Allegiant Travel Company First Quarter 2026 Earnings Call. Sherry Wilson: We will begin today’s call with Greg Anderson, CEO, providing a high level overview of the quarter along with an update on our business. Drew Wells, Chief Commercial Officer, will walk through demand commentary and revenue performance, and finally, Robert Neal, President and Chief Financial Officer, will speak to our financial results and outlook. Following commentary, we will open it up to questions. We ask that you please limit yourself to one question and one follow-up if needed. The company’s comments today will contain forward-looking statements concerning our future performance and strategic plan. Various risk factors could cause the underlying assumptions of these statements and our actual results to differ materially from those expressed or implied by our forward-looking statements. These risk factors and others are more fully disclosed in our filings with the SEC. Any forward-looking statements are based on information available to us today. We undertake no obligation to update publicly any forward-looking statements whether as a result of future events, new information or otherwise. The company cautions investors not to place undue reliance on forward-looking statements which may be based on assumptions and events that do not materialize. To view this earnings release as well as the rebroadcast of the call, feel free to visit the company’s investor relations site at ir.allegiantair.com. And with that, I will turn it to Greg. Greg Anderson: Thank you, Sherry, and thanks to everyone for joining us this afternoon. For today’s call, I will start with a brief overview of our first quarter performance and then update you on our commercial initiatives, outline how we are navigating the current environment, and close with a few remarks on the status of our acquisition of Sun Country. We started the year on a very strong note. Our first quarter results reflect the momentum we built through last year, delivering a 14.9% adjusted operating margin, up nearly six points year over year and slightly above our guided range. Importantly, we achieved our highest first quarter adjusted operating margin since pre-COVID, and we believe our margin will prove to be industry leading for the second quarter in a row. That performance reflects our deliberate operating strategy. We prioritize flexible capacity to capitalize on peak demand periods rather than chasing maximum utilization over the entire year. Notably, we achieved those results serving the leisure traveler, without large international networks or premium cabins. That highlights the strength of our model and execution. Our focus remains on running a highly reliable, efficient airline because when we operate well, the financial results follow. To that point, our operational performance was outstanding, with a 99.9% controllable completion factor, even with a higher mix of peak day flying. Demand was particularly strong in peak periods, helping to drive a 16.4% increase in TRASM. ASMs were down 5.9% from the previous year and heavily influenced our CASM ex, which was up 7.1% compared to last year. However, excluding fuel, our adjusted operating expenses were down nearly 6% year over year. Our cost structure remains one of the best in the industry. We ended the quarter with total liquidity of $1.2 billion. We have a very strong financial position and that will even be stronger as we join forces with Sun Country. Turning to our commercial initiatives, after several years of investing in our technology, we are now positioned to leverage our platform to accelerate our commercial strategy. Our co-branded credit card currently has over 600 thousand cardholders. Today, card remuneration represents just over 5% of our annual revenue and is a significant contributor to our profits. In the first quarter, compensation from the bank increased by 9% compared to the same period last year, reflecting ongoing significant opportunities to encourage greater customer adoption. Our premium seating product, Allegiant Extra, is continuing to outpace expectations by contributing to our TRASM growth and driving higher loyalty, with an increasing number of Allegiant Extra purchasers being repeat customers. We expect continued strong performance. Let me now shift to how we are managing through the current environment. We have always focused on what we can control and manage through what we cannot. We strive to optimize our network for profitability and flex our schedules to match capacity with demand throughout each year. Making adjustments is simply part of our DNA. Overall, leisure demand is still strong, as shown by our robust cash sales. We had many record sales days in the quarter and continue our double-digit growth over prior year. The main pressure point is jet fuel costs, which have risen sharply, and crack spreads nearly tripled to about $1.70 per gallon in early April but have since dropped to $1.20, still about twice as much as the pre-conflict level of roughly $0.60. We are looking forward to taking deliveries on our MAX order book, particularly as that aircraft offers more than a 20% improvement in fuel burn efficiency. While we continue to see healthy fare strength overall, we are navigating the volatility by reducing off-peak capacity where margin pressure is most acute. We have also reduced service on some of our longer stage length routes where the hurdle on fuel cost is higher. All told, we are now planning for a 6.5% year over year reduction in ASMs in the second quarter, down from our initial plan at the start of the year. And we are not seeing any reasons to pull back on our peak flying. Given the strong demand and higher mix of peak flying, we expect TRASM will be up sequentially in the second quarter. We continue to closely monitor the evolving geopolitical environment and will adjust our operations as conditions warrant. While we have already taken some modest schedule actions, our flexible model and agility still give us ample time to refine these decisions as the year unfolds. The sharp rise in fuel prices will weigh on near-term industry profits. We are not immune. This is reflected in our second quarter guidance. That said, a silver lining is that the gap between efficient, well-run airlines and weaker operators is widening. Allegiant Travel Company and Sun Country are on the right side of that gap. I am very pleased with the progress we have made toward closing on our Sun Country deal, which is now expected in the coming weeks, in just over four months from the announcement. This super compressed timeline underscores the strong execution and the agility of both organizations. Our integration planning has reinforced our confidence in what this combination can deliver. Meanwhile, the value of Sun Country’s charter and cargo businesses, which carry contractual fuel pass-through structures, is even more beneficial in today’s volatile fuel environment. Both airlines own their aircraft, and our fleet strategies complement each other. In a market where managing capacity is crucial, owners have greater flexibility than those who lease. We look forward to completing the merger and demonstrating the value of the combined companies in the coming quarters. In closing, Allegiant Travel Company continues to separate itself from the pack. We have the model, the balance sheet, the people, and the strategy to extend our leadership position within the value segment. We take great pride in being the leisure carrier of choice in the communities we serve and delivering convenience and reliability that our customers know they can count on. That performance is all because of the tireless efforts of Team Allegiant Travel Company, whose dedication and passion shows up every single day, and I am deeply appreciative of all of you and honored to work by your side. With that, let me turn it over to Drew to walk through our commercial performance. Drew Wells: Thank you, Greg, and thanks, everyone, for joining us this afternoon. We finished the first quarter with $732.4 million in total revenue, up 9.6% versus the prior year, on 5.9% less capacity, producing a first quarter TRASM of 14.31¢, up 16.4% year over year. Both total revenue and TRASM represent first quarter records for the company, and in fact, the strongest quarterly performance in our history, with revenue approximately 7% higher than any previous quarter. Our fixed fee results contributed meaningfully to the first quarter. Revenue came in at $18.1 million, up 11.5% versus the prior year, an incredible performance. The demand environment was exceptional through the first quarter. Load factors increased four points, and yields were up 21%, a year over year result rivaled only by the revenge travel surge early 2023. Strength is also supported by a unit revenue-favorable schedule deployment, highlighting the benefits of our flexible capacity approach. It is worth reminding that despite the overall ASM reduction in the first quarter, peak day-of-week capacity grew very slightly versus first quarter 2025. A huge shout out and thank you to so many, including our frontline team members, for continuing to deliver while we push further on our best days of flying. While the demand environment certainly facilitated some of the load factor growth, our continued adoption and usage of Navitaire tools are coming together to drive meaningful performance lift. As Greg touched on, co-brand performance was a standout in the quarter, helping push average third-party revenue per passenger up 20% year over year. Card acquisition trends remain strong, continuing on last quarter’s remarks with seven of the last eight months being double-digit higher on a year over year basis. In addition to the healthy growth in new accounts, spend on the card remains robust, with both metrics exceeding 15% year over year in each month of the quarter. Our plan for the second quarter had a similar feeling with overall capacity down, but the expectation of peak day ASMs growing slightly. In fact, given the demand environment year to date, we were on the verge of targeted capacity increases right as fuel spiked higher, turning a feeling of potentially missed opportunity to one of feeling nearly appropriately scheduled for the environment. We now expect second quarter capacity to be slightly lower than implied on the last call and down approximately 6.5% year over year. Perhaps most importantly, cash sales are running up double digits through April, despite the reduction in capacity, and booking trends remain healthy. While I will refrain from providing a specific TRASM guide, we do expect second quarter year over year unit revenue growth to exceed the 16.4% delivered in the first quarter. Despite the macro uncertainty, our customer base continues to show strong intent to travel. Through all economic environments, leisure customers have shown the desire to continue to travel, and we are seeing that play out in our booking trends. That said, we remain disciplined. We will continue to leverage the flexibility inherent in our model to align capacity with demand, particularly during off-peak periods as we work through the current fuel environment. We have already refined second quarter capacity as noted, and expect further adjustments as we move into the third quarter. While we had previously anticipated modest growth in the third quarter, we now expect capacity to be flat to perhaps slightly down year over year, and we will solidify that plan further in the coming weeks. As has been our approach, the reductions are primarily focused on off-peak day-of-week and shoulder season flying, and as is possible in such a fluid environment, we maintain flexibility to add capacity back should the overall environment warrant. It remains early to provide specific commentary on the fourth quarter, though I remain incredibly bullish about holiday performance given extreme resiliency over the past several years. I wanted to take just a moment to mention our national partner, Make-A-Wish. April is World Wish Month, and we have been a proud partner since 2012. It is an incredibly worthy cause, which is why we have, throughout our partnership, donated over $32 million to the organization through in-kind flights and sponsorship. Most importantly, we have flown more than 2 thousand Wish kids and their families to their Wish destination, making a transformative difference in their lives. Stepping back, what we are seeing today reinforces the strength of our model. Demand remains resilient, even against a higher fuel backdrop, and our ability to dynamically align capacity with demand continues to be a key differentiator. While still ramping into the commercial platforms Greg mentioned, we are seeing the burgeoning combination of foundational technology investment and product performance align in a really powerful way. The team is truly making a strong impact on the Allegiant Travel Company results. We are operating with discipline, prioritizing peak flying, owning off-peak exposure, and maintaining the flexibility to adjust as conditions evolve. The unit revenue results speak for themselves, and we believe we are well positioned heading into the summer and beyond. And with that, I would like to hand it over to Robert. Robert Neal: Thank you, Drew, and good afternoon, everyone. I will walk through our first quarter financial results and then provide an update on our cost performance, balance sheet, and outlook. As with prior calls, my comments today will reference results on an adjusted basis excluding special items, and year over year comparisons will reference prior year airline-only results unless otherwise noted. Let me start by echoing the comments you have already heard regarding operational performance. Despite several winter storm systems that added complexity throughout the quarter, our team delivered reliably and efficiently without missing a beat. It is their level of execution that continues to underpin our financial performance. For the first quarter, we generated net income of $69.6 million, resulting in earnings per share of $3.77, coming in just above our mid-March updated guidance and up nearly 80% versus airline-only results in the prior year quarter, as demand for leisure travel remained strong throughout the period. We delivered an adjusted operating margin of 14.9% and generated $168 million in EBITDA, resulting in an EBITDA margin of 22.9%. This performance reflects the progress we have made over the past several years executing against our margin expansion initiatives, and it is a direct result of the hard work and dedication our team members bring day in and day out. Turning to costs, first quarter non-fuel unit costs were 8.64¢, up 7.1% year over year, primarily driven by a 5.9% reduction in capacity and slightly above our initial expectations. Fuel averaged $3.04 per gallon in the quarter, compared to our initial guide of $2.60, highlighting the increased energy prices and widening crack spreads that we saw late in the quarter. This dynamic is consistent with what we have seen more broadly across the industry, where fuel volatility has been a key driver of near-term earnings pressure. We are encouraged to see ASMs per gallon increase 1.2% year over year to 86.7, marking our fifth consecutive quarter of improvement. We are pleased with the continued contribution from the integration of our 737 MAX fleet and expect further efficiency gains as additional aircraft deliver. Turning to the balance sheet, we ended the quarter in a strong financial position, with total available liquidity of $1.2 billion, including $933.5 million in cash and investments and $250 million of undrawn revolver capacity. Cash and investments stood at 36% of trailing twelve-month revenues at quarter end, alongside unencumbered fleet assets with a market value of approximately $1.3 billion. Total debt at quarter end was $1.8 billion, roughly flat to 2025. Net debt was $858 million, down more than $100 million from the fourth quarter, the result of strong cash generation from operations. We made $29.4 million of debt principal payments and ended the period with net leverage of 1.8 times. Looking ahead, we expect to refinance our 2027 senior secured notes in the coming months, pending constructive market conditions. Importantly, we remain well positioned to fund upcoming capital expenditures with significant flexibility. Nearly half of our fleet remains unencumbered, providing an additional source of liquidity if needed, particularly in a more uncertain fuel environment. During the first quarter, we invested $176 million in capital expenditures, including $155 million in aircraft-related spend and $21 million in other airline investments. In addition, we had deferred heavy maintenance spend of $11 million. Moving to fleet, we ended the quarter with 123 aircraft in operation, taking delivery of one 737 MAX and retiring one A320 during the period. As we move to the second quarter, we expect to take delivery of three 737 MAX and to retire one A320. Our delivery schedule for the remainder of the year remains consistent with prior guidance. Fleet flexibility, underpinned by aircraft ownership, continues to be a key competitive advantage for Allegiant Travel Company, notably in a high fuel environment, because we retain the optionality to accelerate retirements of older aircraft if elevated fuel prices persist. And when actioned, those retirements support reductions in heavy maintenance spend. Following closing of the Sun Country transaction in a few weeks’ time, we expect the combined entity to own 163 of the 172 aircraft in the passenger fleet, further enhancing our financial and operational flexibility. On the topic of the Sun Country transaction, we received DOT approval in April, with the remaining step being shareholder votes for each of Allegiant Travel Company and Sun Country scheduled for May 8. Assuming a favorable vote at each entity, the transaction should close around May 13. Given the expectation of a near-term closing, along with the current fuel environment, we do not believe it would be valuable to provide updates to our full-year guidance at the moment. We stand to gain a great deal of insight into the combined business over the coming months, and expect to share more on full-year earnings estimates in due course. And so the guidance we are providing today is for Allegiant Travel Company on a stand-alone basis for the second quarter. At the midpoint of our guided range, we expect to produce an operating margin of 1% and to generate a loss per share of approximately $0.50, based on an assumed fuel price of $4.35 per gallon in the quarter, which is driving nearly $120 million of incremental operating expense relative to expectations at the time of our last call. At this time, we are maintaining our full-year CapEx guidance, as the transaction is not expected to materially change that outlook. Similar to prior updates, our CapEx guidance assumes management’s best estimate differs from contractual obligations. While we are not providing post-close guidance for the combined entity, we want to reiterate our confidence in the $140 million in expected synergies and our ability to grow earnings in the first full year post close. The first quarter reflected strong demand, improved cost structure, and predictable aircraft deliveries, all of which contributed to an industry-leading operating margin. As we move to the second quarter, our focus shifts to navigating the elevated fuel environment. We will continue to actively manage capacity and optimize profitability consistent with the disciplined approach we have taken in prior periods of volatility. Importantly, our healthy balance sheet and flexible operating model set us up well to manage through this environment from a position of strength, and to focus on the structural advantages that have made this model successful throughout various cycles. In closing, I would like to thank our team members for their continued hard work and operational execution this quarter. Their efforts remain the foundation of our performance. We are excited about what lies ahead, especially as we approach closing of the Sun Country acquisition and continue to build on the strong foundation both airlines have established. And with that, operator, we can open the line for analyst questions. Operator: Thank you. We will now begin the question and answer session. Again, we please ask you to limit yourself to one question and one follow-up if needed. If you would like to ask a question, please press star then the number one on your telephone keypad. If you would like to withdraw your question at any time, simply press star 1 again. We will pause just for a moment to compile the roster. Your first question comes from Mike Linenberg. Your line is open. Mike Linenberg: Hey, good afternoon, everyone. Really two questions here. Just dialing back capacity in June—and you sort of gave us a hint on what the third quarter could be. How much of that is just the higher fuel? Or how much of that maybe is a function of the fact that the Sun Country merger seems like it is closing much faster than anticipated, and so you are probably going to have a few more shells to play with. Is that having some impact on how you think about the full-year capacity outlook? And then second, I know that you are one of the card-carrying members of the Value Airline Association. What sort of feedback have you received? I know the letter went out, whatever, a week ago. I know we have been seeing a lot about Spirit and the government wanting to help them. I have not seen much in response to that. Anything that you can tell us on the response from the administration, etcetera? Thanks. Drew Wells: Hey, Mike. Drew here. Zero impact from the Sun Country timeline or integration. This is purely a fuel-related decision. Greg Anderson: Mike, it is Greg. Thanks for the question there. We have not seen, or I have not heard of, any specific feedback from some of the asks. Maybe a little background on it: the DOT requested a meeting of the AVA carriers, which we are a member of at Allegiant Travel Company. I think that was last week. The intent of the meeting was just to discuss how our segment of the industry is doing, particularly in this environment. As a follow-up of that meeting, the department did request AVA to provide some potential options that could be helpful in navigating this high fuel environment. Just candidly, Allegiant Travel Company and Sun Country—we are two of the stronger, or in a stronger financial position than some of the other members of AVA. However, if there is federal assistance, we just want to preserve our option there to consider. But we really have not heard much specifics back outside of what I just shared there. Operator: Your next question comes from the line of Duane Pfennigwerth with Evercore ISI. Your line is open. Duane Pfennigwerth: Hey. Thanks. Can you talk a little bit about the mix of fixed fee flying in your going-forward plan? Historically, I think you have leaned into that when fuel prices are higher because it is a pass-through. Maybe you could just speak to that as a potential lever and what demand looks like on the fixed fee side. And then a follow-up on the card remuneration being 5% of revenue—where do you think that could go longer term, and how would you benchmark that with where Sun Country sits today, if you know it? Drew Wells: I will speak to the extent I can. Fixed fee through the first quarter and into early April was phenomenal. I mentioned that in the prepared remarks. Going forward, I do not foresee any difference in aiming to, in high fuel environments, focus on the lines of revenue that have the fuel pass-through. Of course, it takes two parties to get that fuel pass-through, and you need counterparties that want to continue to fly and pay that rate. So I do not foresee any differences as we do integrate and plan—we are pretty like-minded in that approach. On the card remuneration, what we have talked about in the past has been kind of 10% of revenue being that stretch goal. Given some of the success we have had over really the last eight months, I think that is something that is more achievable as we go through and really try to modernize the offering and go back for our first major amendment with the bank that we have had in ten years since signing. I think there is an immense amount of upside here, and I feel more confident today than I probably did six to eight months ago saying that the 10% is achievable. I do not know specifics on the Sun Country side. They were more recent to turn over the bank provider on that side, so I think there was a little bit of time through that transition where acquisition spend was maybe a little bit slower than what they had anticipated, but as far as I am aware, it is kind of on track now. Greg Anderson: And as part of the merger with Sun Country, bringing on their meaningful fixed fee and cargo business—I think it is roughly 35% to 40% of their revenues—fuel is agnostic there, and you are able to pass that through. In the combined company, it will be a meaningful part of our combined business, I think roughly 10% or maybe a little over 10%. So just as we think about this fuel environment, bringing that into the combined business will be obviously very beneficial. Operator: Your next question comes from the line of Atul Maheswari with UBS. Your line is open. Atul Maheswari: Good afternoon. Thanks a lot for taking my question. I have a question on the RASM cadence for this year. Based on what you know today, should we expect the second quarter RASM growth year over year to be the high watermark of the year for the standalone company, given your compares are the easiest in the second quarter? It sounds like the third and fourth quarter capacity might pick up a little bit related to the down 6.5% for the second quarter. Or do you think there is any possibility of your algorithm accelerating even further in the back half of the year? And then as a follow-up, what is the zine for yield and load factors in the second quarter RASM? I assume yield would be driving the majority of the RASM growth, but would you expect load factors to be up or down year over year for the second quarter? Drew Wells: I would never say never, but I have to imagine the second quarter will be the high watermark. There is still over 80% of the third quarter left to book, so there are some pretty wide error bars there. But I think you hit the major components as to why second quarter should be the highest, with probably the easiest comp and a lower growth rate there. On your follow-up, I expect to see some continued load factor expansion. I do not know that they have got all the way to four points again. I think you are right in your hunch that yields will probably lead the way. Operator: Your next question comes from the line of Savi Syth from Raymond James. Your line is open. Analyst: Good afternoon, guys. This is Carter Eads on for Savi. Two questions for me. First, as you mentioned, you are aggressively adjusting the capacity plan in response to higher fuel, and you are no longer looking to grow in the third quarter. Could you speak further to the key aspects of those adjustments and, directionally, how we should think about the impact on standalone unit costs in the back half of the year? And secondly, did you provide quarterly fuel recapture targets, and if not, can you help frame how much you are looking to drive via fares versus capacity actions? Drew Wells: I will take the beginning on the capacity. You are primarily looking at the fall off-peak changes. Summer, we feel pretty good about. I think we pulled back July maybe a couple of points. I think there is going to be more that comes out of August and September that bridge the gap between what you see in the public filings and where I think we will end up. September is still showing about a 9% growth rate, and that should certainly come down a little bit. So, certainly more focused in off-peak periods than anything. On fuel recapture, we did not provide that explicitly. We are handling primarily through two functions: refining and honing capacity in the off peaks where we are going to be most sensitive to the fare changes, and then pushing fare where appropriate in the peaks. The 20% yield bump we saw in the first quarter gives us confidence in how customers are reacting, and we will keep dynamically approaching that on a flight-by-flight basis. We are not the carrier that is going to be passing arbitrary $5 and $10 fares through. It is more responding to where demand takes us, and so far, so good. Robert Neal: Carter, on the cost side, most of the comments that we gave at our last call should generally hold true or at least directionally remain intact. We talked about unit costs for the year being up mid-single digits. There is going to be a little bit of pressure from where we had expected to be in February to where we would expect to be now, but that range is still achievable. Based on the shape of our capacity this year, we would expect the second quarter to be the high point, and that probably still holds true. The only other thing we mentioned to help with modeling is that we were expecting non-fuel unit cost in 2026 absolute to still be down versus 2024—again, an area where there is a little bit of pressure now with some ASMs coming out of plan, but not unachievable. Operator: Your next question comes from the line of Analyst with Citigroup. Your line is open. Analyst: Hey, guys. Thank you for taking my question. I wanted to talk a little bit more about the 737 and their performance in this new fuel environment. I recall you previously saying that the EBITDA contribution was 40% higher, and they are much more fuel efficient. Any updates to incremental contribution of those aircraft? Any ability to accelerate fleet planning on the back of the fuel shock, or are you thinking this is temporary? Greg Anderson: Hey, thanks. It is a great question. I will start, and Robert will add some detail. High level on the MAX, it continues to represent a larger share of our ASMs. We mentioned more than 20% improvement in fuel burn efficiency. On an ASM per gallon basis, it is closer to 30% just because of the seat configuration. This year, we would expect a little over 20% of our ASMs to be produced by the MAX aircraft. That is going to step up each year. By 2028, we expect to get to about 50% of our ASMs. An important point: while that fuel benefit is coming in—and it is beneficial in this environment—we are going to maintain at or about the same ownership cost as our used A320. Robert Neal: Thanks, Greg. The only thing I would add is we talked on the last call about our excitement for the results we are seeing from the MAX aircraft and coming up on opportunities to exercise some of the options from our order book. We remain just as excited today as we did at the time of the last call. Given what we are seeing in fuel, there is an opportunity to potentially accelerate some retirements of some of our older A320s, but we are not making any calls quite yet. We will see how long this lasts. At the end of the day, the balance sheet will drive those decisions and how quickly we can make drastic fleet changes. Drew Wells: Maybe one last plug here on the capacity side. Having the MAX in the fleet enabled us to keep probably about 1% of added capacity in that we would have otherwise canceled in an all-Airbus state. It has benefits even in the state that are probably overweighted relative to other scenarios. It has been huge having that. Analyst: And they also have additional premium fee count in general. Does that allow you to kind of price a little bit more smartly in a high fuel price environment? Drew Wells: We are doing that across the board. We do see, while we predominantly have a price-sensitive customer, a little bit less price sensitivity in those that are picking up the Allegiant Extra seats. That has been a fascinating development for us to see that segmentation form through the customer base. Having those seats on the MAX and across all of our 180-seat Airbus A320s has proven to be really valuable for us, as Greg mentioned in his remarks. Operator: Your next question comes from the line of Connor Cunningham with Melius Research. Your line is open. Connor Cunningham: Hi, everyone. Thank you. I had a question. Taking everything that you have set out so far—RASM accelerating on a sequential basis, and then, Robert, your comments around second quarter CASM ex being the most elevated—to get to your guide, it seems like it implies a sequential deceleration versus first quarter where the RASM to CASM ex spread was like nine points. Can you help reconcile that? And then on the fleet side, you have two of the smaller A320s hanging in there a little bit longer—does that give you some swing capacity in the second half if fuel improves? Robert Neal: Hey, Connor. What you are seeing for the most part in our guide is the ASMs for the full quarter at the higher fuel rate. We do have a little bit of pressure in a handful of line items on the non-fuel side, but the main driver is capacity shape. We probably have CASM ex accelerating slightly faster in the second quarter. I mentioned second quarter would be our peak, and first quarter came in just slightly above what I was thinking at the time of the last call; I expect the same dynamic in the second quarter. On the fleet question, after the last call in early February, we were very excited about what we were seeing in the demand environment. The teams found a way to extend the useful lives on those older A320s by a number of weeks or months with a very small maintenance check. So it is actually not that big of a move, but I recognize it looks like a step up in the high fuel environment. Drew Wells: It is friendly to be able to use those as extra operational spares in a way to keep the operation humming, allowing us to use non-smaller-gauge A320s a bit more often. Even if they do not see the light of day, they do have benefit within the fleet. Operator: Your next question comes from the line of Catherine O’Brien with Goldman Sachs. Your line is open. Catherine O'Brien: Hey, good afternoon, everyone. Thanks for the time. I wanted to pull apart what is driving the acceleration in second quarter RASM growth. I am guessing a big piece is higher industry fares, but can you give color on how much more of second quarter capacity will be flown during peak times versus first quarter given some of the cuts? What does the ramp in Allegiant Extra contribution look like between the quarters, or any other Allegiant Travel Company-specific drivers you would call out apart from industry uplift? And then a follow-up for Robert: how should we think about where costs can come out as capacity is trimmed and still achieve the mid-single-digit unit cost guide? Drew Wells: Great question, Katie. On peak versus off-peak, it is not wildly different from a day-of-week perspective. The second quarter should be about 20% off-peak versus 22% or 23% in the first quarter, so generally the same. I think macro demand has just run really strong since we talked ninety days ago and continues to be a benefit. We had the biggest headwind to us on same-store markets last year, and we had a little bit of cautious optimism about what that could mean. I think we are hitting closer to the hope rather than the fear of where it could go. Robert Neal: In the back half of the year, a couple of different things drive CASM ex. Salaries—what does attrition look like, and how productive are we in the third and fourth quarters—and then the changes that could still take place with respect to capacity are why I was cautious on our non-fuel CASM guide. With more time, we can avoid scheduling certain crews and better align variable costs to capacity. While there is a range implied in mid-single digits, we still think that is achievable. Operator: Your next question comes from the line of Ravi Shanker with Morgan Stanley. Your line is open. Analyst: Hi, thanks for taking the question. This is Madison on for Ravi. Could you give more color on how you are thinking about growing again—could you start growing again standalone, or do you think that is only after absorbing Sun Country? And then do you have a sense of Investor Day timing? Drew Wells: It depends on the timeline. If we pull some capacity out here in the near term, there will be slack that we could grow back into, should the overall environment call for it—demand remains healthy and fuel comes back to us. On the longer term, there is a lot to figure out post close. But I would expect there to be growth given our delivery schedule in the back half of this year and into next year. Robert Neal: We shared on the last call that we would expect 2027 to be the high point for aircraft deliveries from our firm Boeing order. Over the last few years, we have used a lot of our deliveries for replacement. Next year, we have a lot of flexibility in how many aircraft we decide to retire, but we expect next year to be the peak year for firm deliveries on a standalone basis. Greg Anderson: On Investor Day, we certainly recognize the importance of having an Investor Day to update you on our outlook. Near term, we are focused on closing our Sun Country transaction. We still plan to have an Investor Day when it is practical. Ideally, it is before the end of this year, but we have not firmed that up yet. Operator: Your next question comes from the line of Dan McKenzie with Seaport Global. Your line is open. Dan McKenzie: Hey, good afternoon, guys. A couple of questions. Media outlets are reporting that a government rescue at Spirit has hit an impasse. You do not have a lot of overlap with them, but would it nonetheless impact your guide for the second quarter if they do not make it? And secondly, on premium revenue, I think that was previously quantified at $500 per departure. Given industry fare increases, how would you characterize that revenue today? And does Sun Country have a similar premium revenue component? Drew Wells: There is a lot of speculation there. Where I will steer is we have grown meaningfully in Fort Lauderdale in the last two years—about 30% up year over year on a trailing twelve months ending October, on a base of about 20% in the year before that. We have been growing nicely and seeing results that I would expect. If that capacity were to go away, there would be some amount of spillover coming to us, but I am not going to change the guide on that. It is probably pretty small in the grand scheme of the whole network. Greg Anderson: The only thing I would add is we are a very different model than Spirit and in a very different financial position. Whatever happens with them should not impact the success we expect to see here at Allegiant Travel Company. Drew Wells: On premium revenue, if you look at the first quarter results, the vast majority of our improvement came on the yield line, while third-party—primarily co-brand—was relatively flat. Our Allegiant Extra revenue goes into the ancillary line. You have probably seen us hold pretty steady on that $500 per departure. The hurdle rate goes up as load factor rises, but I would not move that number right now. With the Sun Country product, you are looking at a very similar layout. They have about six rows of extra legroom seats with a product mix very similar to Allegiant Extra. It is complementary, and I would expect similar strong results from them in a cohesive experience as we combine. Operator: Your next question comes from the line of Christopher Stathoulopoulos with Susquehanna. Your line is open. Christopher Stathoulopoulos: Good afternoon. As we think about the second half—post-Labor Day—demand tends to get a little squishy. If fuel is higher for longer, how are you thinking about capacity decisions so you do not cut too close or too far out? Drew Wells: We would probably be looking at that timeline in the coming weeks—May into early June, as I referred to in the prepared remarks. I am not interested in getting too close and having to cut too many passengers because things did not materialize to the eightieth percentile. I am fine to take a little less risk on upside, generating and canceling a little bit further out for passenger convenience to the extent we can. Christopher Stathoulopoulos: Did you give the spread in peak versus off-peak? If we parse out RASM—core versus initiatives—any color there? Drew Wells: We did not go down that path for this call. At 16.4% in the first quarter, just about everything was clicking—peak and off-peak looked great. We talked before the quarter about the holiday shift and a meaningful amount of traffic coming into early January from New Year’s travel, and a little bit of benefit from Easter shifting forward. Suffice to say, everything looked great no matter how you slice it. Operator: And our last question will come from Scott Group with Wolfe Research. Your line is open. Scott Group: Hey, thanks. I apologize if you touched on this. I got on a little bit late. I think I heard CASM ex accelerates a little bit more in second quarter than RASM. Can you put any numbers around that? And then is third quarter the opposite of that? And separately, since you announced Sun Country, a lot has changed with fuel. How does this change the timeline or magnitude of synergies? Lastly, the guide you gave us for second quarter—is that purely standalone or does that include Sun Country? How will you report after close? Drew Wells: We have not really touched on third quarter. The world is variable enough that it is challenging. We still have over 80% of third quarter left. I feel pretty good about how July is going to go. It will be interesting to watch what happens with leisure demand through the fall—traditionally weaker for leisure. Demand looks great right now, so we will see. Robert Neal: On CASM ex versus RASM, we did not give numbers. I referred back to commentary from February on the shape of CASM ex and said that first quarter came in a little bit above our expectations and that we expect second quarter to be the high point from a year over year perspective. With capacity as we have it today, it is possible that third quarter could be the opposite effect on the spread, though not necessarily the same magnitude inversely. Greg Anderson: On synergies, as we have gone through integration planning, we retain a very high degree of conviction on the $140 million synergy target. Some of the network synergies in a higher fuel environment may be under pressure, but we would expect that to normalize over time and achieve the $140 million in synergies. Robert Neal: When we announced the transaction, we talked about $140 million in run-rate synergies. We said it would not be unreasonable to expect to achieve half of that rate in the first full year post close. I tried to be clear that we were really thinking of that as 2027. From that perspective, they probably pull forward a little bit with the closing coming up, but we have also got a faster ramp rate now, and that is challenging when some of those synergies were coming from added capacity. That said, with the baseline changing in light of the fuel environment, I do not see a substantial change. We also see a lot of the value in this combination beyond P&L synergies—flexibility in fleet ownership, scale benefits, and a broader loyalty program. On your last question, the guide is standalone Allegiant Travel Company for the second quarter. We talked about expecting the closing around May 13. We realize the guide goes a little bit stale, but it should still give you some color into how the Allegiant Travel Company business is performing in the second quarter. As soon as possible after the closing, once we have insight into Sun Country’s financials, we hope to provide updated guidance on the combined entity. We are still working through how we expect to report and guide—what segments we will show—and expect to have answers in the coming weeks. Operator: And thank you. With no further questions in queue, I would like to turn the conference back over to Sherry for closing remarks. Sherry Wilson: Thank you all for joining this afternoon’s call. We will speak again soon. Operator: This concludes today’s conference call. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Cerus Corporation First Quarter 2026 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. You will then hear a message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. Now it is my pleasure to hand the conference over to Tim Lee, Head of Investor Relations. Please proceed. Tim Lee: Thank you, and good afternoon. I would like to thank everyone for joining us today. As part of today's webcast, we are simultaneously displaying slides that you can follow. You can access the slides from the Investor Relations website at ir.cirrus.com. With me on the call are Obi Greenman, Cerus Corporation’s president and chief executive officer; Vivek K. Jayaraman, Cerus Corporation’s chief operating officer, incoming president and chief executive officer; and Kevin D. Green, Cerus Corporation’s chief financial officer. Cerus Corporation issued a press release today announcing our financial results for the first quarter ended March 31, 2026, the company's recent business highlights, and outlook. You can access a copy of this announcement on the company's website at www.cirrus.com. I would like to remind you that some of the statements we will make on this call relate to future events and performance rather than historical facts and are forward-looking statements. Examples of forward-looking statements include those related to our future financial and operating results, including our 2026 product revenue guidance and our expectations for product gross margin, non-GAAP adjusted EBITDA performance, P&L leverage, and our government-reimbursed R&D expenses and corresponding revenue; expected future growth; the potential for us to achieve GAAP profitability; the availability and related timing of data from clinical trials; our mission to establish INTERCEPT as a global standard of care; anticipated regulatory submissions and milestones; commercial expansion prospects; projected market opportunities for the INTERCEPT Blood System, including for ISC; demand expectations with respect to our group purchasing agreement with Blood Centers of America and our multiyear agreement with the French National Blood Service; our potential platelet opportunity in Germany; the anticipated impact of tariffs and ongoing inflationary pressures and related migratory effects on our business; and other statements that are not historical facts. These forward-looking statements involve risks and uncertainties that can cause actual events, performance, and results to differ materially. They are identified and described in today's press release, in our slide presentation, and under Risk Factors in our Form 10-Q for the quarter ended March 31, 2026, which we will file shortly. We undertake no duty or obligation to update our forward-looking statements. On today's call, we will also be discussing non-GAAP adjusted EBITDA, which is a non-GAAP financial measure. Non-GAAP adjusted EBITDA should be considered a supplement to, and not a replacement for, measures presented in accordance with GAAP. For a reconciliation of non-GAAP adjusted EBITDA to net loss attributable to Cerus Corporation, the most comparable GAAP financial measure, to the extent reasonably available, please refer to today's press release and the slide presentation available on our website. We will begin today with opening remarks from Vivek, followed by Kevin to review our financial results, and lastly, closing remarks from Obi. And now it is my pleasure to introduce Vivek K. Jayaraman, Cerus Corporation’s next president and chief executive officer. Vivek K. Jayaraman: Thank you, Tim, and good afternoon, everyone. We appreciate you joining us today. At Cerus Corporation, our mission is clear: to expand access to safe blood for patients around the world. As we enter 2026, we are focused on delivering against that mission while executing on three core priorities: driving sustainable double-digit growth, advancing innovation, and strengthening our financial foundation. Our first quarter results reflect disciplined progress across each of these areas and reinforce our confidence in the path ahead. 2026 is off to a great start, with strong first quarter results and increasing confidence in our sales outlook for the full year. In the first quarter, product revenue, which reflects our core commercial business, was $53.7 million, up 24% compared to 2025. This performance was driven by continued strength in our global platelet franchise and also accelerating demand in our U.S. ISC business. Based on our better-than-expected start to the year, as well as our growing conviction in the underlying demand for INTERCEPT, we are raising our full-year 2026 product revenue guidance to $227 million to $231 million. In addition, we are raising full-year IFC revenue guidance to $22 million to $24 million. This updated guidance represents total year-over-year product revenue growth of 10% to 12% compared to 2025, and approximately 30% to 40% for IFC. From a top-line perspective, North America accounted for nearly 70% of first quarter product revenue, as our U.S. platelet franchise continued to serve as a foundation of our overall business. We are deeply grateful to our key customer partners like the American Red Cross who continue to place their trust in INTERCEPT. First quarter North American platelet kit volumes (treatable doses) increased 69% compared to 2025. This gain outpaced the overall historical market growth rate. Looking forward, we anticipate further platelet penetration as we continue to expand adoption among blood centers and hospitals. A key enabler of this growth is our group purchasing agreement with Blood Centers of America, whose members represent approximately half of the U.S. blood supply. Since the agreement took effect on January 1, we have been focused on execution—educating members through targeted engagement, supporting implementation, and expanding both existing and new customer relationships. We are already seeing early signs of traction, including increased activity at existing Cerus Corporation customers and new agreements to adopt PR platelets at BCA members who have yet to utilize INTERCEPT. Internationally, our EMEA business delivered another strong quarter led by performance in France and Belgium. We continue to view the region as an important contributor to both near- and mid-term growth. The recently signed multiyear contract with the French blood establishment, or EFS, enhances visibility into our forward outlook. We are deeply grateful to EFS for their continued trust in INTERCEPT. France was the first country of scale to fully adopt INTERCEPT to safeguard their platelet supply, and this contract renewal is a strong confirmation of the value they have seen in INTERCEPT. In Germany, progress on the INITIATE study continues to build the clinical and operational foundation for broader adoption over time. While we remain encouraged by the global opportunity, we are also navigating near-term challenges in certain regions. In the Middle East, ongoing conflict has created logistical complexities that may impact shipment timing. That said, we are actively managing the situation and believe that potential disruptions can be mitigated by strength in other parts of the business. Importantly, we remain confident in our long-term growth prospects in that region, and these near-term challenges were considered when deciding to increase our product revenue guidance for the full year. Innovation remains central to how we expand access to safe blood and drive long-term growth. A key example is the continued successful rollout of our generation INT 200 illuminator across international markets, where we are seeing encouraging adoption and operational performance. Domestically, we are on track to submit our PMA for the INT 100 to the U.S. FDA this quarter, which represents an important milestone in bringing this technology to the U.S. market. Innovation is also evident in our U.S. IFC franchise, where demand continues to increase, supported by a growing number of blood centers manufacturing IFC, deeper utilization within hospitals, and increasing awareness of the clinical and logistical advantages—particularly the highly valuable combination of immediate availability of fibrinogen alongside five-day post-thaw shelf life. As with our platelet franchise, we are seeing a marked increase in IFC engagement and adoption from BCA member blood centers under our new agreement. As a result, ISC demand in the first quarter, measured by therapeutic dose equivalents, increased approximately 120% year over year, with revenue growth approaching 90%. We are seeing a continued shift towards kit-based sales, which supports both operational efficiency and long-term margin expansion. Taken together, these results reflect a business that is executing with focus—expanding access to safe blood, delivering sustainable double-digit growth, advancing innovation, and strengthening our financial profile. While there is much work to be done, we are encouraged by the progress we are making and confident in the opportunities ahead. At the end of the day, the most important point to note is that we were able to meaningfully expand access to safer blood in the first quarter of 2026. Thank you for your continued interest in Cerus Corporation. I will now turn the call over to Kevin to review our financial results in more detail. Kevin D. Green: Thanks, Vivek. You have just heard Vivek speak to two of our three pillars: growth and innovation. Today, I will focus my comments on our third pillar, financial strength. First quarter financial tables are included in today's press release. As such, I will focus most of my comments on key takeaways and insights. In addition to the 24% product revenue growth that Vivek mentioned, total revenue, which includes government contract revenue, increased 23% compared to the prior year results. By geography, product revenue growth was broad-based, with both North America and EMEA reporting year-over-year gains of 20% or more. In EMEA, demand for our platelet product was the primary contributor, driven by both increased kit volumes and pricing discipline. As reported, EMEA revenues grew by 28%. Of that reported growth, favorable foreign currency exchange rates benefited EMEA revenue by approximately 11%. On a consolidated basis, FX provided a benefit of approximately 3% when compared to Q1 2025. In North America, growth was led by higher U.S. IFC sales, as well as increased demand for platelet kits in both the U.S. and in Canada. Speaking to IFC, which at this point is exclusively a U.S. product, first quarter revenue was $5.7 million compared to $3 million during 2025. Switching now to government contract revenue, reimbursement for government-related R&D expenses increased year over year. As I noted on our Q4 earnings call, we still expect full-year government-related R&D expenses, and the corresponding reimbursement which we recognize as government contract revenue, to taper this year compared to 2025. Turning away from the top line to gross margin, our first quarter gross margin was 52%, compared to 58.8%. Recall that first quarter 2025 margin was an unusually tough comp and was artificially high by approximately 2% due to a one-time true-up from the capitalization of inventoriable charges and the nonrecurring release of previously accounted for favorable variances. With that said, the factors that we forecast to be headwinds in Q1 have proven to be slightly less impactful than we originally predicted. Nevertheless, these headwinds have been persistent, and we expect that to be the case for the remainder of the year. These referenced headwinds include inflationary pressures, with shipping and fuel costs expected to persist; the impact of foreign currency exchange rates; and the ongoing tariffs. Given the current trends, we continue to believe 2026 gross margin will be in the low-fifties range, although we may see some relief should our assumptions on external factors prove conservative. Moving down the income statement, operating expenses for the first quarter declined 7% compared to 2025. One of our key areas of focus supporting financial strength is disciplined control of operating expenses while growing revenue. To that end, SG&A expenses were largely consistent with the prior year, reflecting our ongoing focus to drive revenue growth without the need for proportional incremental investments in SG&A. R&D expenses declined year over year, due in part to lower development costs of the INT 200 as we approach our planned U.S. PMA submission. Importantly, as you can see from this slide, Cerus Corporation-funded development programs have been trending down as a percent of total R&D expenses. Similar to SG&A, we have been making a concerted effort to generate leverage by focusing relatively more R&D spend on government-reimbursed initiatives compared to those that Cerus Corporation funds. Let us now turn to the bottom line and non-GAAP adjusted EBITDA results. For Q1 2026, GAAP net loss attributable to Cerus Corporation continued to show year-over-year improvement, to a modest level of $1.6 million. As an organization, we are committed to not just growing non-GAAP adjusted EBITDA, but achieving GAAP profitability. On a non-GAAP basis, adjusted EBITDA for the first quarter totaled $4 million and marked our eighth consecutive quarter of posting positive adjusted EBITDA. We continue to match the strong commercial results with disciplined expense management and deliver the inherent leverage in our business. Looking ahead, for the balance of 2026, we expect to deliver our third consecutive year of positive adjusted EBITDA results. Turning to the balance sheet and associated cash flows, we ended the first quarter with cash and equivalents of $80.4 million compared to $82.9 million at 2025 year-end. Cash used from operations was $3 million compared to $0.8 million during the same period of the prior year. Cash used during the first quarter was tied to working capital investments, specifically increased inventory levels in support of the expected revenue growth as suggested by our increased guidance. With all of this said, this progress has resulted in a stronger business. Since 2019, product revenue has grown at a compound annual rate of 18%. We have used that growth to expand patient access to INTERCEPT in new geographies, and to continue investing in our new wave of innovation, including the 200 device and INTERCEPT red blood cells. At the same time, we have managed the business with discipline. Since 2019, operating expenses have increased by less than 3% annually, demonstrating the operating leverage in our business as we continue to scale. As a result, net loss has narrowed meaningfully during the period from 2019 to now, and our adjusted EBITDA has consistently grown over the last few years. Accordingly, we have line of sight into GAAP profitability. With that, let me turn it over to Obi for his closing comments. Obi Greenman: Thank you, Kevin, and good afternoon, everyone. I want to thank all of you for joining us today for what will be my final earnings call as Cerus Corporation’s president and CEO. As I reflect on fifteen years in this role, and more than thirty years with the company, I do so with deep gratitude to our shareholders, to our blood center partners, to our employees, and to the clinicians and patients who have believed in our mission. The advocacy for our pathogen inactivation technology from our largest and longest-term blood center customers like the French EFS, Canadian Blood Services, the Swiss Red Cross, OneBlood, especially the American Red Cross, mattered meaningfully over the company's thirty-five-year history. From the beginning, our vision has been to make INTERCEPT the global standard of care for transfused blood components and to establish Cerus Corporation as a leader in transfusion medicine innovation. When I became CEO fifteen years ago, Cerus Corporation was still in the early stages of translating that vision into broad clinical and commercial impact. Earlier in 2006, when we took back the global commercial rights to INTERCEPT from Baxter and built our European organization to commercialize the platform in Europe and beyond, the clinical experience with INTERCEPT amounted to fewer than 10,000 platelet units transfused. Today, INTERCEPT is available in more than 40 countries. We have secured four FDA PMA approvals in the United States, established INTERCEPT as the standard of care in multiple markets, including the U.S., France, and Switzerland, and shipped kits equivalent to treating more than 22 million blood components. That is meaningful progress for Cerus Corporation, and more importantly, it is meaningful progress for patients and health care systems around the world. And yet, the underlying need remains as compelling as ever. Safe and available blood is one of the fundamental requirements of modern health care. Patients undergoing cancer treatment, trauma care, complex surgery, childbirth, and chronic transfusion support all depend on blood products that are both safe and ready when needed. That is the mission we share with our blood center customers every day. It is also why our work has impact far beyond our company. Advances in blood safety and availability strengthen care delivery and the global health care system. Today, Cerus Corporation is better positioned than at any point in our history to help meet that need. We have built a global commercial footprint, a maturing INTERCEPT portfolio designed to address all major transfused blood components, and an organization with the experience and discipline to execute. While we have made meaningful strides towards making INTERCEPT the global standard of care, I believe the opportunity ahead remains substantial. That is especially true as we advance the INTERCEPT red blood cell program. 2026 is an important year for the RBC program, with major regulatory and clinical milestones ahead in the second half. The phase 3 RETA study, which includes the broader chronic transfusion experience required for an FDA PMA, has completed enrollment and is expected to read out in the fourth quarter. As a reminder, the RBC program previously met its primary endpoint in the phase 3 RECePI study, and the acute transfusion data from that study were included in the CE Mark submission, which is now under French ANSM competent authority review for potential approval in Europe. We believe INTERCEPT red cells remains one of the most important opportunities in blood safety, and success there could materially expand both our clinical impact and our long-term growth potential. For those of you who have followed Cerus Corporation over the years, you know that transfusion medicine is careful and slow to adopt innovation. One of the defining moments in Cerus Corporation’s history was the FDA's 2019 guidance on reducing the risk of transfusion-transmitted bacterial infections, with an implementation deadline in October 2021. That guidance helped accelerate INTERCEPT adoption in the U.S. and influenced many other markets that look to the FDA as an important benchmark. It was a reminder that durable change in the field is possible, and that when regulatory standards evolve, the impact on patient care can be significant. We have built a strong foundation that supports an enduring company: a clear mission, differentiated technology, deep customer relationships, global regulatory and commercial capabilities, and a pipeline with meaningful growth drivers still ahead. That foundation is what gives me such confidence in Cerus Corporation’s future. Over the last three decades, we have built an exceptional team united by the opportunity to protect the blood supply and help ensure that life-saving transfusions are available for patients when they are needed most. For many of us, this mission has always been personal. We remember the devastating impact that HIV and hepatitis had on the blood supply in the 1980s and 1990s, and we were determined to help create a different future—one in which transfusion-transmitted infections would pose far less risk in the face of new pandemic threats, and blood centers and hospitals would be better equipped to serve patients safely and reliably, given the positive impact of INTERCEPT on blood donor deferrals. It has been the privilege of my career to help build Cerus Corporation into a lasting purpose-driven company, and I am very pleased to pass the baton to Vivek. He is a bold, team-first leader who will build on the strong foundation we have established, continue advancing our patient-first mission, and lead Cerus Corporation through its next phase of growth, innovation, and value creation for all stakeholders. With that, let me turn the call over to the operator for questions. Operator: Star 11 on your telephone and wait for your name to be announced. To remove yourself, press star 11 again. One moment for our questions. The first one comes from the line of Josh Jennings with TD Cowen. Please proceed. Josh Jennings: Hi, good afternoon. Thanks for taking the questions. And congratulations, Obi, on moving into your next chapter. It has been a long, resilient run by you, and you are leaving the company in a position of strength here, looking at these Q1 results and being on the cusp of some RBC approvals globally. We will miss you, but congratulations, Vivek, on your new CEO seat. I would like to start just by asking about guidance. It seems like the uptick is being driven mostly by IFC strength, but also by INTERCEPT platelet strength. Maybe just talk about the outlook for the U.S. INTERCEPT platelet franchise versus the OUS INTERCEPT platelet franchise, and where you are seeing more upside relative to the outlook at the beginning of the year. Obi Greenman: Yes. Thanks a lot, Josh, and thanks for the kind comments to start. Vivek, do you want to handle that question? Vivek K. Jayaraman: Yes, I would be happy to. Josh, echoing Obi’s statements, thanks for the kind words—they are much appreciated. We certainly appreciate your continued interest in our story. The thing that is most encouraging to me about Q1 results is that the strength of the performance is really broad-based, both globally and across product categories. You are right to point out that IFC performed quite well, and that is a significant part of our revised upward guidance. But as you also correctly pointed out, platelets is a big component of that as well. If you recall, late last year and earlier this calendar year, we pointed to the BCA agreement in the U.S. and the opportunity to have, effectively, a hunting license in roughly half of the U.S. market where, relatively speaking, PR platelets were underpenetrated. We saw good progress in the first quarter in that section of the market. But we also saw strength with platelets internationally, as evidenced by what Kevin spoke to in terms of strength in our EMEA organization. And then we also highlighted the renewed contract with the EFS. So, as we think about the outlook for the balance of the year, we see continued solid platelet growth in both geographies—continued expansion in the U.S. under the umbrella of the BCA agreement, as well as continued adoption both in growth areas internationally and in some of our core markets where we are seeing a recommitment from customers. There is a lot of enthusiasm coming out of first quarter results and the general qualification of demand in the marketplace. Josh Jennings: Excellent—great to hear. And maybe, clearly, the BCA agreement is bearing early fruit here and may get stronger over the course of the year. But just within U.S. IFC and BCA blood centers—it sounded like you commented about marked increased demand from BCA blood centers. Any way you could build that out, provide a little bit more detail, and whether you are seeing any new IFC customers coming on, and how that outlook drove the guidance uptick for the IFC franchise? Vivek K. Jayaraman: Yes, of course. Happy to provide a bit more color there. There are multiple factors at play, as I am sure you can appreciate. The first is we are actively in the process of moving our historical production partners under the BCA agreement, and as we do that, they are able to take advantage of the resource-sharing model that BCA utilizes. So their outlets in terms of potential blood center customers—and ultimately hospital customers—continue to grow. In addition to that, we have had BCA members who were not previously IFC manufacturers reach out to us and initiate the process of beginning IFC manufacturing. And then, fundamentally, as we have talked about previously, as we transition from selling the finished therapeutic to the kits to blood centers, that enables us to leverage and partner with the sales and marketing channels of the blood centers, thereby significantly expanding our reach and our ability to engage with more hospitals. All of those factors come together and effectively create an environment where we are just reaching out to more hospitals, engaging a broader number of clinicians about IFC, and that is all occurring while the data we collect and user experience with the product continue to grow. It has been really encouraging, but still very much early days. We are proud of the Q1 results and the outlook, but I would remind you that we are still single-digit share in terms of market penetration, so there is a tremendous amount of upside in this market. Josh Jennings: Outstanding. Thanks for the incremental detail, and congratulations on a strong start to the year. Obi Greenman: Thanks a lot, Josh. Thank you. Operator: Our next question comes from the line of William Bonello with Craig-Hallum. Please proceed. William Bonello: Thanks. Hey, I also wanted to say congratulations to Obi and Vivek. In terms of questions, you gave some timing on the expected regulatory catalysts. I am wondering if you could maybe give us some sense of the timeline from the events that you talked about today until we reach revenue generation, and maybe some of the key milestones along that pathway to commercialization. Obi Greenman: Yes, thanks for the question, Bill. I presume you are talking about red cells and not the INT 200, which we will be filing for PMA imminently here in the United States. William Bonello: Talking about both, actually. Kevin D. Green: Great. Well, I will start with red cells; I will let Vivek cover INT 200 because we are also really excited about that. Kevin D. Green: For the near term, the milestones through the remainder of the year are clearly very focused on the ANSM review of the red cell program. We are happy to announce this week we actually completed our recertification audit with TUV. That is exciting, but we have two additional milestones for the CE Mark—one is the ANSM review and then, ultimately, an audit of the manufacturing facility. As far as a pathway to ultimate revenue there, once we have an anticipated approval of the red cell CE Mark, we would move into an early launch of that product with an iteration of the device to ultimately improve the overall scale-up and operational efficiency of processing red cells. That is still a few years out, but the goal right now is to focus on getting that CE Mark so that we can launch the product. Vivek, do you want to cover the INT 200 in the U.S.? Vivek K. Jayaraman: Sure, I would be happy to. Thanks for the question, Bill. As we indicated earlier, we are moving towards the submission to the U.S. FDA—a PMA submission for the INT 200 device this quarter, so in 2026. We would anticipate a launch in 2027, and I anticipate, similar to what we are experiencing in international markets, that there will be a lot of enthusiasm for that launch. It is clear evidence of our commitment to innovation in this space, which I think differentiates us from a lot of our peers, and it will serve ultimately as the device foundation for the U.S. market. That is an upcoming catalyst and one that we are very excited about, given the positive receptivity to the illuminator in international markets. William Bonello: And then, thank you. Just as a follow-up to that, maybe give us some thoughts on the implications in terms of business—whether it is penetration or pricing—or simply this being an enabler of retention in terms of launching that INT 200. Vivek K. Jayaraman: There is a significant market in the U.S. with respect to our installed base of illuminators, and that will be an area of focus for us. Beyond that, if we think about de novo growth opportunities, as I mentioned earlier in response to Josh's question, there are some customers in the U.S. who have yet to begin their journey with us in terms of adoption of the INTERCEPT technology, and part of that process will be equipping them with illuminators. That will most likely be the INT 200 device. While we are not providing specific product-level guidance in terms of our device placements, what I can say is it is a significant enabler in terms of serving as the underlying foundation for our business. Beyond that, as we have stated before, the demonstrated investment in innovation and commitment to continuing to advance research and device development in this space positions us very uniquely relative to our industry peers because we continue to invest in R&D and ultimately bring products to market that meet customer needs and enhance their operational efficiency. We are very much looking forward to introducing that product, and you will hear more about our plans for U.S. commercialization, certainly post-submission of the PMA and then as we approach our launch date. William Bonello: Sure. Thank you. Appreciate it. Operator: Thank you. And as a reminder, if you do have a question, simply press star 11 to get in the queue. Our next question is from Mark Massaro with BTIG. Please proceed. Mark Massaro: Hey, guys. Thanks for taking the questions. Obi, it has been great working with you, and congrats as you transition into the chairman role, and Vivek, congrats on your well-deserved promotion to CEO. Moving into the business, I wanted to get a better sense on the guidance because, when I look at the IFC business, you grew 90% in Q1. The 2026 guidance for IFC has been raised to approximately 30% to 40%. I am just trying to get a sense about the seasonality of this business. It looks like in Q3 last year, it was down sequentially. I recognize there is probably lumpiness as you roll this out. But can you walk us through the assumptions as to the delta between the really strong growth at the start of this year and your full-year growth outlook for IFC? Obi Greenman: Yes, thanks for the question, Mark, and thanks for the comments to start as well. Vivek, do you want to cover that? Vivek K. Jayaraman: Yes, I would be happy to. Mark, thank you for the kind words about the organizational transition—much appreciated. You are right to point out that the business is a little bit lumpy as we are in this early growth stage, but I want to emphasize our conviction around continued growth and the fact that we are still a single-digit market share player and feel like there is a tremendous amount of headroom. I do not want any of that enthusiasm to be lost as we talk about some of the specifics about the current position itself. I will remind you that a year ago there were some anomalies in terms of our posted results. If you recall, we deferred, from an accounting standpoint, some revenue recognition to the second quarter as we were starting the process of transitioning from a finished therapeutic sale to a kit sale. That transition continues, and we are really driving towards being fully kit sales, ideally by the end of this calendar year—that may bleed a little bit into 2027. We have been talking about unit volume from the standpoint of therapeutic dose equivalents as opposed to revenue growth, and you will see that transition accelerate through the balance of 2026. That was part of what factored into the guidance for the full year. Obviously, we took it up pretty significantly—from original guidance of $20 million to $22 million for the full year now to $22 million to $24 million. Underlying growth remains strong. There will probably be some period-to-period idiosyncrasies given that transition and the nature of our business model. But when we think about blood centers manufacturing IFC and hospital starts—some of the things that we are paying attention to—all of those trend lines are strongly positive. Hopefully that gives you a little bit more color. Certainly happy to answer any more questions about the IFC business as you have them. Mark Massaro: That is really helpful. Maybe switching gears to red blood cells. I think I heard you talk about the transition to ANSM, and it seems like we are now getting close. I think you are on the clock. As we put these pieces together, I think you talked about a readout in 2026. Would it be reasonable to think that CE Mark could occur shortly after that readout time period? I am coming in somewhere between either 2027, but I just wanted to get your sense on the timing of CE Mark. Obi Greenman: Yes, thanks, Mark. I think right now it is probably safe to assume a first half 2027 approval timeline, just given that we do not know what questions the ANSM will ask and the timeline for our responding to those questions. I think that is the timing you should be looking at. We will have a lot more clarity through year-end, and I think specifically, as we think about our Q3 earnings call, not only will there be the phase 3 study readout in that time frame, but also some increased clarity around the ANSM timing. That is the way I think you should think about it. Mark Massaro: Great. And then, I know this is probably not core to the thesis or anything, but I figured I would ask if you are still planning to pursue regulatory approval for platelets in China, and maybe any update on that process? Vivek K. Jayaraman: Yes, I would be happy to. Mark, it is a great question. We absolutely continue to be excited about the opportunity in the China market. In fact, we will be meeting with our joint venture partner, ZB, at the upcoming ISCT meeting, which is scheduled to take place in Kuala Lumpur in mid-June. Part of what we are continuing to refine is our strategy to collect in vitro data that is requested in the Chinese market for resubmission to the NMPA. In parallel, our continued channel checks and clinical engagement continue to validate the excitement for, and the need for, pathogen inactivation in that marketplace. It is probably an opportunity that we will realize in terms of revenue generation towards the latter part of the second half, but it is very much a market opportunity that we are working, in partnership with ZB under our joint venture agreement, to advance. Mark Massaro: That makes perfect sense. Congrats on the strong quarter, guys. Operator: Thank you. And, ladies and gentlemen, this will conclude our Q&A session and conference for today. Thank you all for participating. You may now disconnect.
Operator: Hello everyone. Thank you for joining us and welcome to iRhythm Technologies, Inc. Q1 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. I will now hand the call over to Lisa Pricora, senior vice president of finance and investor relations, for opening remarks. Lisa Pricora: Thank you, operator, and thank you all for joining iRhythm Technologies, Inc.'s first quarter 2026 earnings call. With me today are Quentin Blackford, iRhythm Technologies, Inc.'s president and chief executive officer, and Daniel Wilson, our chief financial officer. Before we begin, please note that management will make forward-looking statements within the meaning of federal securities laws under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements regarding our intentions, beliefs, and expectations about future events, strategy, competition, products, operating plans, and performance. Forward-looking statements on this call are based on current estimates and assumptions, involve risks and uncertainties, and actual results may differ materially. These statements are made as of today, 04/30/2026, and are time sensitive. We undertake no obligation to update or revise them, except as required by law. Accordingly, you should not place undue reliance on these statements. For a discussion of risks and uncertainties, please refer to our most recent annual report on Form 10-Ks, quarterly reports on Form 10-Q, and other filings with the SEC. Additionally, during the call, we will discuss certain financial measures that have not been prepared in accordance with GAAP. Unless otherwise noted, all references to financial measures on this call are presented on a non-GAAP basis. These non-GAAP measures should not be considered in isolation or as a substitute for or superior to GAAP results. Reconciliations to the most directly comparable GAAP measures can be found in our earnings release and the slides accompanying today's call. I will now turn the call over to Quentin. Quentin Blackford: Good afternoon, everyone, and thank you for joining us. I am pleased to discuss our first quarter 2026 performance and outlook for the balance of the year. I will begin with an overview of the quarter, strategic progress, and our outlook for 2026 and beyond. Daniel will then talk about our financial performance and guidance in more detail. We delivered a strong first quarter, exceeding expectations on both the top and bottom line. Revenue grew 26% year over year, driven by volume, and we continued to execute on our profitability improvement commitments as we expanded margins. Importantly, our performance was broad-based across ZioMonitor and Zio AT and in each of our key growth pillars, including cardiology, primary care, innovative channels, and international. Our results reflect both strong execution in the core business and continued progress against the strategic priorities we believe will support durable growth over time. At the center of that strategy is our effort to expand the long-term continuous monitoring market by redefining how arrhythmias are diagnosed once patients enter the diagnostic pathway. A growing body of clinical evidence, now spanning more than 140 publications, consistently shows that nearly two thirds of arrhythmias are often detected only after 48 hours of monitoring, reinforcing the limitations of short-duration monitoring. Yet nearly 2 million short-duration Holter and event monitors are still prescribed annually in the U.S., representing a significant opportunity to upgrade care. By continuing to shift clinical practice towards longer-duration monitoring, we believe iRhythm Technologies, Inc. is not only gaining share but actively growing the market by increasing diagnostic yield and improving patient outcomes. ZioMonitor remains the foundation of our platform, supported by consistent prescribing trends, broad clinical adoption, and continued growth across new channels and international markets. Zio AT also continued to advance this quarter, taking share with new account wins and expanding utilization within existing accounts. That progress came despite a challenging prior-year comparison and reinforces our view of the MCT category as a durable and increasingly important contributor to the platform. One of the most important drivers of our long-term opportunity is our continued move upstream in the patient pathway. We estimate that more than 27 million people in the U.S. are at risk for arrhythmias, many of whom are first evaluated in primary care settings. As a result, primary care is becoming an increasingly important entry point for earlier detection and more proactive management. We continue to expand our reach and engagement within primary care, helping clinicians rule arrhythmias in or out while enabling cardiology to focus more efficiently on the highest-acuity patients. This is not a shift away from cardiology. Rather, it expands the overall market and improves patient flow, diagnostic efficiency, and care coordination across settings. A key enabler of this strategy is workflow integration. Approximately 53% of our volume now flows through EHR-integrated accounts, and more than three quarters of our top 100 customers are now integrated. This level of integration is particularly valuable in primary care, where once embedded, we partner closely with our customers to help them develop best-in-class clinical pathways rather than just a transactional tool. We continue to see traction across innovative care channels with growth supported by a broad and expanding set of value-based primary care and population health partners. Activity remains consistent and repeatable, driven by both new account wins and expanding utilization within existing relationships. Importantly, as certain programs mature, we are seeing adoption broaden across both symptomatic and asymptomatic populations, reinforcing the relevance and durability of the Zio platform as care delivery continues to shift upstream and toward value-based models. International remains another emerging source of opportunity. In the U.K., we had our best quarter in company history, reflecting growing traction and validation of our model in a cost-constrained health system. In Japan, we recently received an update to the reimbursement framework that introduces a modest supplemental payment for longer-duration monitoring. While the economics remain early and are not a meaningful contributor today, we view this as a positive signal that reflects growing recognition of long-term continuous monitoring and reinforces the pathway to more favorable reimbursement as we generate local head-to-head clinical evidence. We are also making progress in adjacent markets. In sleep, our pilots continue to produce encouraging early feedback and reinforce the meaningful opportunity ahead in a U.S. market of nearly 40 million sleep apnea patients, of which there is significant overlap with arrhythmia populations. Sleep is another good example of why workflow integration matters. Sleep diagnostics today remain highly fragmented across primary care, cardiology, sleep specialists, sleep labs, home testing, interpretation, and follow-up, and often across disconnected systems. Our focus is not simply on introducing a new device or algorithm, but on building a streamlined end-to-end clinical workflow that simplifies how sleep diagnostics are ordered, interpreted, and acted upon. As we have done in cardiac monitoring, we believe workflow can create meaningful value for both providers and the health care system, particularly as care continues to shift upstream. From a clinical perspective, recent evidence continues to support our position and reinforces the significant opportunity ahead of us. At ACC, we shared new real-world evidence showing Zio's high diagnostic yield for clinically actionable arrhythmias across cardiometabolic risk populations, including increased risk in chronic kidney disease and rising atrial fibrillation detection with obesity. We also launched iRhythm Academy, which scales high-quality, on-demand education to help clinicians adopt best practices and new advances more efficiently. At HRS, we presented new data reinforcing the superiority of Zio after AF ablation and in pregnancy. In addition, we published two peer-reviewed studies highlighting the clinical and utilization advantages of long-term continuous monitoring using Zio. The data show that traditional short-term monitoring often misses actual arrhythmias and that Zio enables earlier diagnosis with fewer repeat tests across both Medicare and commercially insured patients. Taken together, these efforts reinforce three points: Zio long-term monitoring improves diagnostic yield; it expands relevance across broader patient populations; and it can reduce inefficiency and downstream cost. All of which are critical as we continue to expand beyond traditional symptomatic populations and move further upstream into earlier detection with the potential to lower downstream costs for the health care system. Consistent with that clinical expansion, recent CMS policy developments continue to emphasize objective diagnosis, quality, and measurable outcomes over documentation-driven strategies. The final 2027 Medicare Advantage rate announcement reflects funding stability alongside continued tightening around risk and coding practices. This policy trajectory reinforces the importance of confirmatory diagnostics that drive accurate diagnosis and appropriate care, and positions Zio well as health care continues to shift towards value-based models. With our vision to scale beyond traditional arrhythmia monitoring, our ability to execute is supported by an integrated AI-enabled platform. We now have more than 3 billion hours of curated ECG data, and we continue to build on that foundation by combining internal and external datasets, including claims and EHR data, to improve detection, identify at-risk patients earlier, and enhance clinical workflows. As we continue to advance our AI predictive capabilities, we are now in our first health system deployment of predictive identification workflows integrated with iRhythm Technologies, Inc. monitoring solutions, and we have an active pipeline for additional health systems to follow. Early pilots show more than 85% accuracy in pre-identifying patients with clinically relevant arrhythmias, reinforcing our conviction that iRhythm Technologies, Inc. is positioned not just to detect disease, but also help predict risk earlier and ultimately prevent it. Our initial programs focus on high-risk populations, including patients with diabetes, CKD, CAD, COPD, sleep disorders, and heart failure, where arrhythmias are both common and costly. These initiatives aim to improve efficiency and quality and reduce cost of care delivery, and we look forward to real-world data being published later this year. More broadly, iRhythm Technologies, Inc.'s durability in an AI-driven environment is grounded in the fact that health care value is not created by algorithms alone. It is created by operating an end-to-end AI-embedded, FDA-regulated, clinically integrated, and reimbursed service at scale. Our platform is deeply embedded across leading health systems and supported by deep workflow integration, broad reimbursement, extensive clinical evidence, and a proprietary ECG dataset that continues to grow significantly. Coupled with the operational complexity of device programs, specialized clinical support, and high regulatory scrutiny, our platform will continue to compound in value over time, particularly as we expand beyond cardiovascular into a multispecialty intelligence platform. I am pleased to share that the same foundation is helping drive progress as we expand our AI capabilities with our new next-generation AI algorithm. Leveraging our large proprietary multibillion-hour dataset, we believe this next-generation algorithm that will be used across our entire platform of ZioMonitor, Zio AT, and our future Zio MCT can reduce clinical technician review time by as much as half over time, which would improve efficiency, support future margin expansion, and further strengthen our competitive position as we increase the clinical value to our patients and physicians. We submitted the 510(k) for this next-generation AI algorithm to the FDA last year alongside, albeit separate from, our Zio MCT 510(k) submission. Next, I would like to provide an update on our regulatory progress. As you know, we remain subject to an FDA warning letter. As part of our remediation efforts, we committed to address all of the agency's concerns. We also elected to go beyond the specific actions requested by the FDA, which included conducting a comprehensive review of our entire quality management system to identify and implement further improvements, which we have now completed. Consistent with our commitments to the agency, we also engaged an independent third party to conduct a comprehensive review of our quality management system. That review was completed in the first quarter and did not identify any material observations. We believe this outcome reflects both the seriousness with which we have approached this work and the substantial progress we have made. While the timing of any action by the FDA remains with the agency, we believe the work completed to date positions us well as the agency continues its review. With respect to our next-generation MCT program, we have made a lot of progress over the past few months and are happy to reaffirm our first-half 2027 release timeline. As we noted on our last earnings call, we identified a clear path to our next-generation MCT clearance, including the determination it was in our best long-term interest to move to a new mobile gateway sooner, which would require some additional work and data to be submitted to the FDA. As we continue to work collaboratively with the FDA, they have clarified that rather than submit additional data on a rolling basis, the preferred path is to provide a complete package once all elements are finalized later this year. We had anticipated this might be one outcome for how we might update our submission, so it falls within our previously communicated clearance and launch timeframe. We believe this collaborative approach—enabling us to stay on track with our approval and launch timelines while also advancing an enhanced next-generation AI algorithm for clearance at a potentially earlier time point—is a clear sign that all of our hard work over the past few years to improve our relationship with the FDA has been paying off. Looking ahead, our priorities remain clear: to drive durable, volume-led growth across cardiology, primary care, and innovative channels; continue expanding margins through operating discipline, efficiency, and scale; advance our innovation road map, including next-generation MCT and predictive AI; build international and adjacent markets with discipline; and maintain high standards of operational excellence and compliance in a rapidly evolving health care environment. With that, I will turn the call over to Daniel. Daniel Wilson: Thank you, Quentin. iRhythm Technologies, Inc. delivered continued strong financial performance in 2026, reflecting durable demand for iRhythm Technologies, Inc.'s ambulatory cardiac monitoring services and disciplined execution across the organization. Our results demonstrate once again our focus on profitable growth, as we recorded another quarter of strong year-over-year revenue growth while driving 880 basis points of improvement to adjusted EBITDA margin. We are encouraged to see the continued growth in the business while driving strong operating leverage. We delivered revenue of $199.4 million, representing 25.7% year-over-year growth. Performance was driven primarily by sustained volume demand across our customer base, reflecting continued strength in our core business and contributions from newer growth channels. Volume remained the primary driver of year-over-year revenue growth, while we also benefited from improvements with our estimated collections reserves related to our market access, contracting, and collection efforts. These results were supported by continued engagement across a broad and expanding prescriber base, reinforcing the durability of volume demand. New store growth—with “new store” defined as accounts that have been open for less than 12 months—accounted for approximately 64% of our year-over-year volume growth. Home enrollment for Zio services in the U.S. remained consistent from prior quarters at approximately 23% of volume in the first quarter. Moving down the P&L, gross margin in the first quarter was 70.9%, an increase of 210 basis points year over year. This sustainable improvement was driven by continued operational efficiencies, including manufacturing automation and workflow optimization, as well as scale benefits from higher volumes. First quarter 2026 adjusted operating expenses were $153.5 million compared to $140.4 million in the prior-year period, an increase of 9.3% year over year, primarily driven by an increase in volume-related costs to serve, litigation-related expenses, and investments to drive future revenue growth. We invested purposefully in the business to fuel near-, mid-, and long-term growth, delivering strong operating leverage with revenue growing meaningfully faster than operating expenses. On the bottom line, GAAP net loss for the first quarter was $13.9 million, or a net loss of $0.43 per diluted share, compared to a GAAP net loss of $30.7 million, or a net loss of $0.97 per diluted share, in 2025. Adjusted net loss for the first quarter was $11.3 million, or a net loss of $0.35 per diluted share, compared to an adjusted net loss of $30.3 million, or a net loss of $0.95 per diluted share, in 2025. Adjusted EBITDA for the first quarter was $14.1 million, or 7.1% of revenue, representing an 880 basis point improvement year over year and a significant improvement in profitability, demonstrative of the operating leverage inherent in our business. Free cash flow during the first quarter was negative $33 million, in line with normal seasonality attributable to annual compensation payments and working capital seasonality. We ended the quarter with $549.6 million in cash, cash equivalents, and marketable securities, a strong cash position that provides us with substantial flexibility to support future growth initiatives. Looking ahead, we are raising full-year 2026 revenue guidance to $875 million to $885 million, representing 17% to 18% year-over-year growth. This outlook reflects sustained demand across our core business, while maintaining a disciplined approach to forecasting newer and emerging channels. On a full-year basis, we continue to expect pricing to be flat overall to 2025, with revenue growth driven by continued volume growth across core Zio Monitor, Zio AT, innovative channels, and international. In the second quarter of 2026, we anticipate revenue to be in the range of $218 million to $220 million, consistent with typical revenue seasonality. For gross margin, we expect the clinical operations and manufacturing efficiencies we have driven will continue to incrementally improve our gross margin profile for full-year 2026. We believe that these sustainable improvements will continue to lower our cost to serve as we leverage our fixed-cost infrastructure over a higher volume of patients over time and introduce new artificial intelligence and workflow tools. Regarding the current geopolitical situation, we have cost containment initiatives in place and do not expect a material impact to gross margin. From a profitability standpoint, we are raising our full-year 2026 adjusted EBITDA margin guidance to 12% to 13%, reflecting increased operating leverage and a balanced approach to investing in our key priorities, including product innovation, commercial initiatives, international expansion, and platform capabilities. For the second quarter of 2026, we anticipate adjusted EBITDA margin to be between 11.5% and 12.5%. We continue to expect full-year free cash flow in 2026 to grow versus 2025, with free cash flow more heavily weighted in the second half of the year due to normal operating seasonality. In summary, our first quarter results demonstrate the resilience of our business model and the progress we are making in scaling our platform with disciplined investment. We are seeing increasing validation of the value our services deliver, particularly in their ability to help lower downstream health care utilization. This dynamic reinforces demand for our solutions, especially as health care systems remain focused on efficiency and cost-effective care delivery. We similarly remain focused on growing the number of patients we serve while operating efficiently and investing in the opportunities we believe will drive sustainable growth in our business. I will now turn the call back to Quentin for closing remarks. Quentin Blackford: In the first quarter, we were pleased with our start to the year, with strong top-line growth, continued margin expansion, and ongoing investments in the capabilities that support durable long-term value creation. As we enter iRhythm Technologies, Inc.'s twentieth year, our performance reflects the strength of our platform, the discipline of our execution, and the relevance of the problem we are solving. Arrhythmias remain a significant clinical and economic challenge. They are often episodic, asymptomatic, or misattributed to other conditions and are often missed by short-duration diagnostics. Delayed or misdiagnosis can lead to worse patient outcomes and avoidable cost across the health care system. iRhythm Technologies, Inc. sits at the intersection of several powerful trends: an aging population, increasing prevalence of arrhythmias, growing cost pressure, cardiology capacity constraints, and the shift towards value-based, proactive care. We believe the market opportunity ahead is significantly larger than it has historically been recognized, and that our platform positions us well to lead that expansion to create long-term value for patients, physicians, providers, payers, and shareholders. Our focus remains on disciplined execution. We are driving volume-led growth by expanding access through primary care and integrated networks, advancing our platform through AI and workflow innovation, and investing selectively where we see clear clinical and economic return. Looking ahead, the opportunity is not only about expanding the market; it is about strengthening our platform advantage. Our growing clinical dataset, AI capabilities, and deep body of clinical validation increasingly differentiate iRhythm Technologies, Inc. As health care increasingly prioritizes accuracy, evidence, and efficiency, we believe validated, data-driven diagnostics will be increasingly important in improving outcomes and lowering system cost, attractively positioning iRhythm Technologies, Inc. to create long-term value for all stakeholders. Before we move to Q&A, I want to briefly touch on a couple of items that are often top of mind. With respect to the DOJ, we have not received any request for additional information since the CID issued in December and continue to cooperate fully. Separately, regarding finalization of the local coverage determination, we have not yet heard back from the MACs. As expected, timing remains uncertain given the current official silent period. With that, now happy to take your questions. Operator: We will now open the call for questions. We will now begin the question and answer session. Please limit yourself to one question. 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 is from JPMorgan. Please go ahead. Analyst: Just the first one is going to be on the guide. You are coming off of a quarter where I think you came in $5 million or so above consensus. You raised the full year by that amount, but then the rest of the year implies a bit of a deceleration from there. So help me understand how much of that is conservatism and how much of that is informed by what you are seeing so far in April? Daniel Wilson: Yeah, thanks for the question. I guess maybe to start, as always, we do not like to get ahead of ourselves. It is early in the year. We want to be thoughtful around how we set up the year. Certainly a great start to the year in the quarter. We talked about momentum across the business. We are really encouraged about what we are seeing in the trends that we expect to see for the remainder of the year. I would point to the back part of the year, in particular, starting to have some pretty difficult comps given the performance that we had in 2025. But again, we feel really good about what we are seeing in the business. There is certainly potential upside that we are not going to bake into the guide given the early part of the year, and that is a similar approach that we have taken previously. If those play through, that is great, but there is a reason we leave them outside the guide to start. We like what we are seeing in the business and see a lot of good contribution across the different growth drivers. Quentin Blackford: In terms of what we are seeing in April, we are encouraged. Good results, so we feel good about that. Obviously, we contemplated that in the reiteration and the increase in the guide as well. One last point with respect to your point on slower growth rates in Q2, Q3, and Q4: when you look at things on a stacked growth comp basis, the momentum is very strong. Despite the tougher year-over-year comps over the next few quarters, which we contemplate, overall momentum in the business continues to be really strong. Analyst: Got it. And then just as a follow-up, one of the pressures on the broader medtech space recently has been a fear around AI. Looking at your business, it does seem as though you might be a little bit more exposed than other medtech companies. You are talking about this new algorithm that you are planning to launch. When we think about potential competition from outside of the traditional medtech sphere, how concerned are you about that, and how do you position yourself to better compete against those kinds of entrants? Quentin Blackford: It is a fair question, and one that we get a lot. I feel very good about our defensibility and the moat that we have built. You have to keep in mind, we are not simply offering a software capability or an algorithm. It is much more than that. It is running an end-to-end program for our customers around cardiac monitoring and ultimately arrhythmia diagnosis, which includes AI capabilities that we now have 20 years of experience behind and 3 billion hours of curated ECG data that we can build off of. Frankly, that has enabled us to move into spaces like predictive capabilities, and we are excited to be launching our first commercial predictive AI collaboration that I mentioned in prepared remarks. It has also enabled us to advance our next-gen algorithm that will reduce our technician review time by nearly half over the next several years, which is going to be a meaningful financial contributor. But it is the power of that data that allows us to move quickly in those spaces, and also the broader end-to-end program that we enable customers to run without worry—whether that is a hardware device on the front end like our patch that has incredible patient compliance. Ninety-eight percent of our patients will wear the patch up to 14 days. We know duration of monitoring is important, so getting a longer duration wear period is important, which is more than just an algorithm. That is a form factor and a hardware component. There is the intake process, downloading the data, coupling it with the patient context. Many times you look at feedback and there might not be any arrhythmia in the ECG data, but the patient feedback in the diary or the app is meaningful. The physician wants to know that. You are not going to capture all that in an algorithm alone. Then on top of that, it has to be clinically validated and upheld to FDA scrutiny from a quality perspective, and then reimbursed. There is a massive market access component to ensuring that your solution is reimbursed, and that takes tremendous effort. We are up to 93% of all lives in the U.S. now covered with respect to access to Zio. That takes time and effort. There is a lot that goes into it. It is not just an AI capability. It is an end-to-end program that we have mastered over the years, and we have a market-leading position for a reason, and we will continue to defend that well. The platform we built ultimately gives us the ability to drop incremental AI capabilities on, and through the large integration platform that we have with the vast majority of our customers, enable them to have access to some of these capabilities seamlessly. They are not having to integrate multiple times over. They have a single point of integration with iRhythm Technologies, Inc., and we can bring several of these solutions to them and give very quick, easy access. We are excited by the position we have, we will continue to move quickly, and we are bullish on our position. Operator: Your next question is from BofA. Please go ahead. Analyst: I wanted to ask on the EBITDA margin in the quarter. It was pretty strong at 7% and better than your guide of 3% to 4%. What drove that outperformance? And then you raised the guide slightly to 12% to 13%. Why not raise more—is it just early in the year? Quentin Blackford: Thanks for the question. Maybe the second part first—yes, we are raising the guide essentially by the magnitude of the beat in the quarter. Daniel Wilson: Again, early in the year, we do not want to get ahead of ourselves, but we are certainly seeing the profitability flow through nicely and saw a nice result in the quarter. I would comment on continued strong execution across our teams. We have seen gross margin continue to step up nicely—lots of efficiencies being driven within our clinical operations and manufacturing teams and the automation that we have implemented. There is continued opportunity as we leverage our scale, technology, and our next-generation algorithm, and we have a nice roadmap to continue to drive efficiencies and operating leverage. Below gross margin, I would say similar efficiencies and automation. I will also call out some of the more underappreciated aspects of our business that can drive operating leverage—the innovative channel with a one-to-many selling model; our land-and-expand model as we open an account and then expand in primary care and other prescriber bases, which we can do very efficiently; EHR integration that drives operating leverage on an account level and allows us to expand prescribers efficiently; and disciplined SG&A with a lot of opportunities to continue to drive leverage. We are excited about what we have driven over the last couple of years and see a lot of opportunity in front of us to continue to drive profitability expansion. Analyst: Thank you. And then on the next-gen algorithm—you mentioned efficiency benefits. Anything else you can share on features? You said it is a separate filing from MCT but submitted at a similar time. Should we expect FDA approval in the coming months? And what is the plan for rolling it out once you get approval? Quentin Blackford: In terms of the financial lever, there is probably not a larger one that we have than the next-generation algorithm when it gets implemented, and we are excited by what that will bring. Our view is it has the opportunity to cut review time by nearly half, if not more, over time, which will allow us to scale very efficiently. As we do the math, over the next five years or so, it is well north of $100 million of cumulative value we expect to be delivered. We submitted it last year alongside MCT. It continues to run independent and on its own timeline. We would expect approval later this year and will keep you updated. In terms of implementing it, we will implement it alongside MCT when MCT is approved and implemented in 2027. There is some work from the development teams to integrate that algorithm onto the production side. We will team that up with the MCT launch and keep those coupled. Operator: Your next question is from William Blair. Please go ahead. Max Kruszeski: You have a handful of innovative channel partners that have been with you for a few quarters now. Can you touch on what you have learned from the more tenured relationships and how that is helping as you approach some of the newer accounts? And then, Quentin, you previously talked about how MCT can eventually drive share closer towards that 40% to 50% range over time. How should we think about that market share ramp once MCT launches in 2027? I understand AT continues to take share. Should we see the MCT launch as a continuation of that trend? And how does the next-gen algorithm with MCT play into that? Quentin Blackford: One of the most encouraging things with our innovative channel partners is that every single one of these partners who piloted with us in 2025 is up and patching consistently in 2026. We are starting to see more consistency in that channel. There continues to be lumpiness at the customer level, but overall we are seeing more consistency, so we are encouraged. We continued to sign up new partners over the course of Q1. The pipeline is incredibly healthy as we head into Q2 and Q3, so we are excited by what innovative channel partners will bring. We are also seeing most of these customers—who start with us on the asymptomatic side or undiagnosed/unaware arrhythmia patients—begin to use the device much more on the symptomatic side as well. Part of that comes back to Zio’s attributes and these partners learning through their own real-world data that longer-duration monitoring produces a higher diagnostic yield. Where in the past their symptomatic patients were using a traditional Holter, they were missing arrhythmias. They are realizing that and starting to patch with longer duration. On MCT share, think of it as a continuation of the trend. We know the new MCT product closes a lot of the competitive gaps that our current Zio AT product has, but we will want to see it play in the market before guiding to something different. With Zio AT’s performance, we continue to demonstrate the ability to take share with an inferior product, so we are excited to get MCT into the market. With respect to getting the algorithm into the product, it is going to drive meaningful gross margin benefit. Zio MCT is coming on the same form factor that our ZioMonitor is already on, enabling us to leverage a lot of the manufacturing automation we already have. We were already going to see a nice benefit moving from AT to MCT; now adding the next-gen algorithm onto that platform will really enhance the gross margin profile. Note that the next-gen algorithm, while we will bring it to market alongside Zio MCT, will apply across our entire platform. It will be immediately applied against ZioMonitor and the large presence we have there. It will continue to run on Zio AT as we work through those inventory levels and migrate towards Zio MCT, and it will also be on the MCT product. Operator: Your next question is from Evercore ISI. Please go ahead. Analyst: This is Kevin on for Vijay. On the DOJ CID request—you mentioned there has not been any request for additional information. Can you update us on what exactly was asked for so far? And looking forward, do you have a preliminary view on the range of outcomes from this request? Quentin Blackford: The request for information in that CID was very consistent with the original that dates back to 2023. It seems very clear that they are focused in and around the AT product line and really specific to dates back in the 2021–2022 timeframe. That is what we can infer from the line of questions and the information request. Beyond that, it would be hard for us to provide more clarity. For the breadth of their review and investigation, it has been focused in that area and tied into those timeframes. As we have more clarity, we will share it. Zio AT was not a big part of our portfolio back in those early days; it was newly launched and was growing. It is hard to size up anything along those lines, and we will not speculate. Operator: A reminder to all analysts to please limit yourself to one question. Our next question will be from Wells Fargo. Please go ahead. Nathan Treybeck: Are you beginning to see any benefit flow through from reconfirmations for chart-derived diagnoses, and are you anticipating any benefit in your guidance? Quentin Blackford: We have not contemplated anything in the guide. We continue to believe that we are in a very good position relative to the focus around chart-derived mentions and the increased scrutiny. Our partners consistently use Zio to get to a confirmed diagnosis, which is exactly what CMS is trying to ensure—there is a real confirmed diagnosis versus speculation off of chart notes. We like the position. We have not seen a change in behavior necessarily, but most of our channel partners are using the product to get to that confirmatory diagnosis, and that is what they have been doing from the beginning of the relationships. We will continue to monitor it. We think this is a nice tailwind, but we have not adjusted guidance at this point for it. Operator: Your next question is from R.W. Baird. Please go ahead. David Rescott: I wanted to ask about the sleep market. It sounds like there are some pilots ongoing. When should we expect to hear something more on sleep and when might this become something you are more meaningfully moving into? And given the competitive offerings, what value do you think iRhythm Technologies, Inc. can bring to that market longer term with not only a hardware component but also the broader service offering? Quentin Blackford: You will continue to hear about sleep over the course of the year. It is an important strategic opportunity and our pilots are validating it as real. In terms of meaningful contribution, we will talk about that as we get into 2027. I do not see it moving the needle in a significant way just yet, but as we get more confidence and lean into it, we will keep you apprised. We think we have a real opportunity to disrupt this space. It is more than a home sleep device or an algorithm. Similar to cardiac arrhythmias, we disrupted the market by providing an easier end-to-end solution to identify, monitor, and diagnose patients. Today, sleep patients are being lost in their journey across fragmented steps. We can make it as simple as ordering a sleep test via our Zio Suite, getting a device to the patient via office or home enrollment, returning data, and providing a report through an IDTF capability right back through the digital tool to the physician. It becomes seamless and all the back-end effort is invisible to the physician. Our customers are already prescribing home sleep tests or are willing to. As care moves upstream and with the proliferation of GLP-1s to treat sleep disease, you will see more prescribing in primary care. We can make this seamless and easy. We do not think there is a single competitor able to provide an offering like we can—nobody else brings that end-to-end solution, particularly through the large presence of system integrations that we already have. There is a real opportunity to disrupt. Operator: Your next question is from BTIG. Please go ahead. Analyst: Hi, this is Alex on for Marie. Congrats on a nice quarter. On the international business—you mentioned in prepared remarks a recent update to the reimbursement framework with a supplemental payment. Any more detail on that? And is there ongoing work to continue getting the reimbursement rate further up there? Daniel Wilson: Thanks for the question. In Japan, we did see a small increase in the reimbursement rate. It is still below what we think reflects the value we are bringing to the market, and we are still running the head-to-head study and collecting data to ultimately secure more favorable reimbursement in that market. We will continue to work towards that. That is likely a 2027 event, but we are collecting the data to ultimately support more favorable reimbursement. It is encouraging that we saw a bit of a step up, but again, we do not believe it reflects the value we are bringing, and we will continue to pursue premium reimbursement. Operator: Your next question is from Truist Securities. Please go ahead. Analyst: On the proposed LCD for ACM, if it were finalized today in its current state, what are your expectations for the potential impact or implications? And second, on the electrophysiology opportunity, what inning of penetration are you in there, and how does MCT approval unlock patients you are maybe not getting to? Quentin Blackford: With respect to the LCD, as written today, it would move just about everything into an MCT category because it is requiring continuous monitoring with 24-hour monitoring. If that were the case, you would be moving a significant amount of LTCM monitoring business into the MCT category, which would have a significant uplift from a revenue perspective for the company. I do not believe that is the intention of the three MACs who put that proposed language forward. We have engaged directly with the MACs, as has nearly all of industry. We are consistent in our recommendation on how to clarify the language, and we expect to see that revised in some form in the final language. As currently written, it would start to confuse or even contradict aspects of the national coverage decision. I think they are trying to provide more clarity around what they want to see within MCT, but as currently written, it starts to restrict the ability to provide the other modalities of monitoring, which I do not believe is what they are after. We will continue to engage where opportunities present themselves. They are in a quiet period, and we are waiting to see what comes out. Other LCDs, like Novitas, have provided clarity around ambulatory cardiac monitoring; you might see the three MACs end up closer to that. As currently written, it would move the majority of the market into an MCT-style monitor, and that cannot be the intent given cost implications. Operator: Your next question is from Oppenheimer. Please go ahead. Suraj Kalia: Quentin, two-part question. Where do you think the current monitoring market stands? Historically we have used numbers of 5 million to 6 million, but you continue solid growth, which means the overall pie is shifting. Can you quantify where long-term monitoring is versus MCT in terms of U.S. patients? And secondly, there has been chatter about EP slowdown. Are you picking it up in Zio scripts, in post-ablation hospital monitoring? Quentin Blackford: Our view is the monitoring market is around 6.5 million to 7 million tests today in the U.S., of which probably 3.5 million to 4 million are long-term cardiac monitoring or patch-based longer-duration monitors, where we have roughly 72% share based upon the last data points we had. There are also about 1 million MCT tests performed in the U.S. market—that is a rough estimate based on our data. We do think we are expanding the market. We believe the market is much larger than 6.5 million tests performed today. There are at least 27 million folks in the U.S. who most likely have arrhythmias but have been undiagnosed and are confusing symptoms with other comorbidities. It is our intent to open the market and find those folks. That is a big part of why the predictive algorithm capabilities we built and are implementing in our first commercial relationship are so important. We know we can find these patients. It is important we find and monitor them because when you diagnose early, the downstream reduction in cost is proving to be significant. On an EP slowdown, there is nothing in our data that indicates that at this point, but we will watch closely. Data continues to show that longer-duration monitoring, even post-ablation, is important. Current guidelines for post-monitoring of a PFA procedure generally call for short-duration monitoring at two to three months and then annually. The data would tell us we are missing 25% to 30% of arrhythmias by not using longer-duration monitoring in those procedures, which can be dangerous if you are changing anticoagulation prescribing off of short-duration monitoring. That data continues to build—we had interesting data at HRS. If there is a slowdown, we might see an offsetting mix shift towards longer-duration monitoring that masks it. We do not have anything indicating a slowdown at this time, and our data would not tell us that either. We are in a nice position to increase the amount of monitoring post-PFA. Operator: Your next question is from Freedom Capital Markets. Please go ahead. Gene Mannheimer: Congrats on a good quarter and outlook. Running ahead of guidance and raising it—have you contemplated any change to your long-term financial targets? And as a follow-up, could you remind us the percent of registrations coming from primary care lately? Daniel Wilson: We have not updated our long-term guidance for 2027—revenue, gross margin, and adjusted EBITDA margin. The guidance we have for 2026 puts us on pace to deliver those targets. As we get a bit closer, we will think about potentially updating those, but we continue to feel really good about delivering on that long-range guidance set back in 2022. On primary care, we continue to see it increase as a percent of volume. That is a big part of the growth we are driving as we move upstream. Last quarter, we mentioned over 40 thousand primary care prescribers, and we see that number continuing to increase. We previously said roughly a third or a little bit over of our volume coming from primary care, and that has been steadily upticking as well. That will remain a growth driver. Quentin Blackford: Thank you. Operator: Your next question is from Canaccord Genuity. Please go ahead. Analyst: To what you were just speaking about with longer-term monitoring showing that arrhythmias can be missed even after ablation because of shorter-term monitoring—beyond generating data, is there interaction with societies about switching protocols for these studies? In post-ablation patients, is there penetration you can pick up from there? Quentin Blackford: It is certainly an approach we are interested in pursuing and are moving down that pathway. You need data, and the data is coming together. This was the first study published recently, and we will continue to add to it to make it more powerful. Ultimately, you would love to see guidelines change. The guidelines today may put patients at greater risk than necessary if using a suboptimal modality. We know longer-duration monitoring is there—we know Zio is it—and we will lean into trying to change guidelines. Operator: Your next question is from Goldman Sachs. Please go ahead. Analyst: On profitability—the $5 million raise in revenue for the year and roughly a $5 million raise on EBITDA. The incremental gross margin continues to go up, now approaching something like 80% if you look at Q1. Can you help us think through the factors contributing to the improved P&L, the drop-through rate you are seeing, and where the biggest opportunities for incremental margin and investment are? Daniel Wilson: We are really excited about what we are seeing in the business in terms of profitability. It starts with gross margin, and we have seen nice leverage there and continued expansion. We see a good roadmap to continue to drive that. Manufacturing automation and subsequent phases will continue to drive efficiencies on the device side of our cost of service. Within clinical operations, there are opportunities to continue to drive efficiencies with our next-generation algorithm and clinical workflow tools. We are making those investments now and will implement them to continue to drive gross margin leverage. On OpEx, we feel good that we have a balanced approach—driving upside in revenue year over year, letting some of that play through to the bottom line, while reinvesting back into the business. There is no shortage of things that get us excited: Zio MCT, the next-generation algorithm, clinical evidence, marketing programs, international, innovative channel, and sleep. There are many opportunities to invest, and that drives us to be disciplined and efficient in the spend we control so we can afford to invest in those items. Operator: There are no further questions at this time. We will now turn the call back over to Quentin Blackford, president and CEO, for closing remarks. Quentin Blackford: Thank you. As we close another strong quarter, I want to thank our iRhythm Technologies, Inc. employees around the world. Their execution has been very good, and our results are a direct reflection of their hard work. The future has never been brighter, and our market continues to expand around us with many meaningful drivers. As we enter our twentieth year, I could not be more proud of the team, and I could not be more confident in the future that we will achieve together. Thank you for your time. I will see you all soon. Take care. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good afternoon and welcome to OrthoPediatrics Corp.'s First Quarter 2026 Conference Call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Trip Taylor from The Gilmartin Group for a few introductory comments. Trip Taylor: Thank you for joining today's call. With me from the company are David R. Bailey, President and Chief Executive Officer, and Fred L. Hite, Chief Operating and Financial Officer. Before we begin today, let me remind you that the company's remarks include forward-looking statements within the meaning of federal securities laws, including the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to numerous risks and uncertainties, and the company's actual results may differ materially. For a discussion of risk factors, I encourage you to review the company's most recent Annual Report on Form 10-K, which was filed with the SEC on 03/04/2026, and its subsequent Quarterly Reports on Form 10-Q. During the call today, management will also discuss certain non-GAAP financial measures, which are supplemental measures of performance. The company believes these measures provide useful information for evaluating its operations period over period. For each non-GAAP financial measure referenced on this call, the company has included a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures in its first quarter earnings release. Please note that the non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for OrthoPediatrics Corp. financial results prepared in accordance with GAAP. In addition, the content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast today, 04/30/2026. Except as required by law, the company undertakes no obligation to revise or update any statements to reflect events or circumstances taking place after the date of this call. With that, I would like to turn the call over to David R. Bailey, President and Chief Executive Officer. David R. Bailey: Thanks, Trip. Afternoon, everyone, and thank you for joining us today. We are pleased to begin 2026 by highlighting our most meaningful metric, patient impact. In the first quarter, we supported the treatment of a record 45,000 children, extending our cumulative impact to nearly 1.4 million kids helped. Pediatric patients have long been underserved by solutions not tailored to their needs. We at OrthoPediatrics Corp. are dedicated to changing that through focused innovation and a continued commitment to this most important patient population. 2026 started strong with 13% first quarter revenue growth, further highlighted by significant improvements in adjusted EBITDA and free cash flow over the prior year. We look closer at the quarter, we saw a softer start to the first quarter due to weather-related shutdowns in many of our OPSB clinics in January and February, but trends rebounded in March. Since then, momentum remains strong and is carrying into the second quarter. Growth remains solid across the business, with particular strength internationally, and continued 20% plus expansion in OPSB driven by new products and clinic growth. Importantly, we are at the earliest stages of the multiyear innovation super cycle consisting of what we believe is the most clinically significant and technologically advanced series of product launches in our history. During the quarter, we began to see small contributions from recent beta launches, including 3P Hip and Vertiglyde. These products are generating strong demand, and we are confident that as we move into full market release and increase set deployments in the second quarter, we are positioned well for more meaningful impacts in each of the upcoming quarters. Early trends are reinforcing our expectations for higher ASPs, margin expansion, and improved capital efficiency as each of these products continues to scale. As we expand our portfolio and reinforce our core orthopedic platform in this unassailable position, we see a clear opportunity for continued growth. Our consistent execution underpins our confidence in sustained revenue growth, expanding profitability, and achieving free cash flow breakeven in 2026. We continue to gain share across each of our businesses with our legacy product portfolio, and the share gain will only continue to accelerate as we execute our super cycle and further expand OPSB. Our powerful competitive position is becoming increasingly dominant and will only grow stronger as we further execute our strategy and demonstrate both top and bottom-line expansion in a way that is unique in our industry. We remain focused on enhancing shareholder value while advancing our cause of helping 1 million kids per year in the future. Accordingly, we are raising our 2026 revenue guidance to a range of $263 million to $267 million, representing 11% to 13% growth, and reaffirming our expectations for approximately $25 million in adjusted EBITDA and full-year free cash flow breakeven driven by continued share gains, OPSB expansion, and execution of our multiyear new product launch cycle. Turning to our T&D business, in 2026 the T&D business grew by 14%, driven by increased sales of our flagship trauma and deformity systems and early returns from the beta launch of new implant and OPSB systems. We continue to see success in case volume growth as we move deeper into the launch of PMP Tibia, and we will pick up additional share as we launch 3P Hip. We are also pleased to advance toward the beta launch of the next 3P system, 3P Small Mini, beyond those products, which should kick off late in Q2. We are advancing the next system within the 3P family as well as the next TMP system, PMP Retrograde. Looking closer at 3P, our 3P Hip system has exceeded early expectations. With limited set availability in Q1, we will increase supply of 3P Hip in Q2 and commence the beta launch of 3P Small Mini. We expect a more meaningful impact on growth in the second half of the year. We will also continue advancing additional systems over the next several years. The 3P platform is building strong momentum, and we believe it will become the most advanced and comprehensive pediatric plating system in our field. Overall, T&D remains a key growth driver for the business supported by consistent execution and a pipeline that is both highly clinically relevant and increasingly robust. We believe the depth and quality of our development efforts position us well to sustain innovation, drive future revenue growth, and reinforce our leadership position in the market. Looking at our specialty bracing business, OPSB remains a key growth driver and delivered over 20% growth in the quarter, contributing meaningfully to both revenue expansion and profitability. Our clinic expansion strategy continues to progress ahead of plan, supported by both greenfield openings and selective acqui-hires. Same-store sales growth remained strong, reinforced by ongoing new product introductions and continued sales force expansion. Overall, we are on track to meet or exceed our goal of expanding to 27 territories by 2027. Within OPSB, we are seeing the impact of our new product development engine. We have recently advanced the modular hip brace portfolio into commercial release and initiated the beta launch of the Traxio Halo Gravity Traction System. Early feedback for Traxio has been strong, with initial customer engagement including multiple requests for quotes for this differentiated system. In addition, we remain on track to beta launch the OP contracture management brace, which is designed to integrate directly with our Orthex external fixation platform, further enhancing synergies across our surgical and nonsurgical offerings. OPSB is progressing as planned toward our goal of delivering four to five new product introductions annually, reinforcing a consistent cadence of innovation going forward. We continue to execute effectively across our three-pillar OPSB strategy, which includes sales force expansion, targeted product innovation, and disciplined clinic growth. Overall, we are very pleased with the performance of the business and its increasingly important role within our broader growth strategy. In scoliosis, we experienced 13% growth in the first quarter 2026, driven by increased sales of Response and Vertiglyde systems, and revenue generated from 7D technology. During the quarter, we continued our push into the EOS space with Response Ribbon Pelvic and the Vertiglyde systems, which we believe provide a promising new growth-friendly treatment option for young scoliosis patients. Looking more closely at this progress, we continue to see strong demand for Vertiglyde despite very limited set availability. With approximately 80 surgeons now trained and additional training sessions scheduled, this success is triggering our move to full market release of this important system in the second quarter supported by additional set deployment to meet the rising demand. This growing adoption, along with 7D placements, is driving higher utilization of our Response fusion system, all ahead of the anticipated limited release of our next-generation scoliosis fusion platform, Veraxis, purposely built exclusively for the treatment of pediatric spinal deformity. Designed from the ground up for growing patients and the surgeons who treat them, Veraxis represents a step change in fusion technology by combining advanced implant design, streamlined instrumentation, and integrated digital planning into a single cohesive platform with first surgeries by year end. In addition, we remain on track for first-in-patient procedures with Ellie, our third and most complex EOS product, in the fourth quarter. As a reminder, Ellie is a next-generation smart electromechanical lengthening spinal implant designed to deliver consistent, reliable power through RF power transmission. We expect the first implantation of the Ellie device in late 2026. We are proud of how far our EOS products have come, and they further bolster our belief that our EOS strategy is working. We believe that OrthoPediatrics Corp. is continuing to establish an unmatched portfolio of pediatric scoliosis technology enabling clinicians to treat even the most complex and severe pediatric spinal deformities with a comprehensive set of advanced solutions. Moving to our international business, OUS had a strong first quarter, with growth in excess of 20% highlighted by great sales in EMEA and a nice performance in Brazil under our new agency structure. Continued success in EMEA is being driven by increased sales of legacy T&D products in our agency markets and a small but rapidly growing scoliosis franchise. We are pleased to have received full EU MDR approval for our T&D portfolio, scoliosis products, and most recently, our external fixation devices. We are now actively working to make these long-anticipated products available across our European markets, and we expect this expanded access to support improved EMEA growth in 2026. LATAM is building on our structural improvement in Brazil. While we are still cautious, we do believe an improvement is on track, and over the next several quarters, we expect to turn this headwind into a potential tailwind. The structural improvements we have made in Brazil through the purchase of one of our Brazilian distributors will improve our cash collection and, over time, will normalize ordering patterns and allow for additional growth and market penetration. In addition, we were once again the largest sponsor of the European Orthopedic Society meeting in Seville, Spain. In early April, we showcased a broad range of new products that had previously not been available in Europe under prior regulatory constraints. These offerings were well received by both surgeons and distributors and are expected to contribute to revenue growth in the second half of the year. Lastly, looking beyond our traditional segments, we are building on the success of our 7D experience and are kicking off the launch of our digital preoperative and intraoperative workflow management platform, Playbook, and expect deployment of beta launch sites in 2026. Beyond that, we completed the deployment and the first cases with the Iota Motion robot for pediatric cochlear implant placement and expect additional deployments throughout 2026 and beyond. OrthoPediatrics Corp. is also making deliberate, focused investments in artificial intelligence to drive meaningful clinical and operational impact. We are advancing multiple AI initiatives, including embedding intelligence into our Playbook platform, leveraging AI-enabled tools to support presurgical planning, and evaluating opportunities to enhance patient care and efficiency across our OPSB clinics. Earlier this year, we completed an internal AI flight school to build organizational readiness, and we have established a corporate objective to deploy six to eight targeted AI agents to drive tangible efficiencies. After prioritizing data security and foundational controls last year, our focus in 2026 is firmly on execution, moving from experimentation to scaled implementation that delivers real value to surgeons, clinicians, and our teams. In summary, we believe the company is entering its most compelling phase of expansion to date, supported by a multiyear product launch super cycle that will increasingly shape results over the coming years. These new technologies are meaningfully more advanced and clinically differentiated, addressing significant unmet needs and supporting higher ASPs, improved gross margins, and stronger returns on invested capital. They also enhance our ability to bundle solutions across accounts, supporting broader contract opportunities in pediatric hospitals and reinforcing share gains across our legacy portfolio. At the same time, OPSB continues to scale through both new product introductions and disciplined clinic expansion via greenfield openings and acqui-hires, a trajectory we expect to sustain over the coming years. Collectively, these initiatives are expected to drive significant improvement in profitability and cash flow generation over the long term. More broadly, we believe our hospital and surgeon partners increasingly recognize the value of working with a dedicated, self-sustaining pediatric platform focused exclusively on improving care for children. Together, we are advancing innovation in a historically underserved area of health care and building a stronger long-term outlook for patients and the business. With that, I would like to turn the call over to Fred to provide more detail on our financial results. Fred L. Hite: Thanks, Dave. Taking a closer look at the P&L, our 2026 worldwide revenue of $59.4 million increased 13% compared to 2025. The increase in revenue in the quarter was driven primarily by strong performance across Trauma and Deformity, Scoliosis, and OPSB. U.S. revenue was $45.3 million, an 11% increase from 2025, representing 76% of total revenue. Growth in the quarter was primarily driven by Trauma, Deformity, Scoliosis, and OPSB. We generated total international revenue of $414.1 million, representing growth of 22% compared to 2025, or 24% of our total revenue. In 2026, Trauma and Deformity global revenue of $43 million increased 14% compared to the prior-year period. Growth was primarily driven across numerous product lines, specifically our TRON product, X-Fix, and OPSB. In 2026, Scoliosis global revenue of $15.4 million increased 13% compared to the prior-year period. Growth was primarily driven by increased sales of Response and Vertiglyde systems, and revenue generated from 7D technology. Finally, Sports Medicine/Other revenue in the first quarter 2026 was $900,000, which stayed consistent year over year. Touching briefly on a few key metrics, for 2026, gross profit margin was 73%, which is consistent year over year. Total operating expense increased $2.5 million, or 5%, compared to the prior-year period to $51.7 million in 2026. Sales and marketing expenses increased $1.9 million, or 11%, compared to the prior-year period, driven primarily by increased sales commission expense and an overall increase in volume of units sold, to $18.5 million in 2026. General and administrative expenses increased $700,000, or 2% year over year, to $31 million in 2026. The increase was due primarily to additional personnel supporting recent clinic expansion and other small-scale acquisitions, partially offset by savings being realized from prior restructuring actions. Research and development expenses decreased by $100,000, or 5%, in 2026 to $2.2 million. GAAP net loss per share for the period was $0.45 per basic and diluted share, compared to $0.46 per basic and diluted share for the same period last year. Non-GAAP net loss per share for the period was $0.42 per basic and diluted share compared to $0.39 per basic and diluted share for the same period last year. Adjusted EBITDA was $2.2 million in 2026, compared to a loss of $400,000 in 2025. We ended the first quarter with $50.9 million in cash, short-term investments, and restricted cash. Set deployment was $2.3 million in the first quarter 2026 compared to $3.6 million in 2025. As a reminder, although the amount of sets being deployed in 2026 is lower than historical years, these are primarily all new products being launched as part of our innovation super cycle and are generating a much higher level of revenue per deployed dollar than our previous legacy systems generated. Free cash flow used in 2026 was $5 million, a 40% improvement as compared to $8.4 million used in 2025. Increased adjusted EBITDA, lower sets deployed, and improved working capital metrics contributed to the year-over-year improvement. On March 31, we amended our existing credit agreement with Braidwell LP to add a $20 million delayed-draw term loan facility. This amendment enhances our financial flexibility by providing on-demand access to additional capital through June 2027, while maintaining consistent economics and covenants within our existing term loan. Importantly, this structure allows us to preserve liquidity and avoid dilution, as the facility is fully discretionary and interest-only through maturity in 2029. We view this as a prudent addition to our capital toolkit that further strengthens our balance sheet and positions us to opportunistically fund growth or strategic initiatives while maintaining disciplined capital deployment. Turning to guidance, as Dave mentioned, we raised our expectation for full-year 2026 revenue to be in the range of $263 million to $267 million, representing year-over-year growth of 11% to 13%. We also continue to expect to generate approximately $25 million of adjusted EBITDA, deploy approximately $10 million in sets, and to achieve free cash flow breakeven in 2026. We would expect EBITDA and free cash flow to exhibit similar quarterly seasonality patterns to 2025. It is important to note some periods of free cash flow will be negative and others positive but still cumulatively tracking to our annual guidance metrics. Operator, let us open the call for Q&A. Operator: Thank you. Press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. And our first question comes from Matthew Blackman with TD Cowen. You may proceed. Matthew Blackman: Great. Can you hear me okay? Operator: Sounds good. Yes. Matthew Blackman: Great. Well, thank you for taking my questions. Good afternoon, guys. I am going to start with a question for Fred, and then I have one for you, Dave. I heard you talk about the impact of weather in January and February. Is there any way to quantify the impact on T&D from the OPSB weather-related headwinds? And is that revenue that you recapture, or is it just lost? And then I have a follow-up question for Dave. Fred L. Hite: Yes. So that comment was specific to our clinics, which were shut down a week during January and a week in February. Typically, those appointments get rescheduled. So as Dave mentioned, we saw a nice rebound across the entire business in the month of March, and that has continued in April. I would say that the vast majority of those got cleared in the month of March and now here in April, and it is all behind us by now. Matthew Blackman: Okay. But some of it did sort of scoot into the second quarter, lost in the first quarter, though. That is some of the takeaway, right? Fred L. Hite: Correct. Matthew Blackman: Fair enough. And then, Dave, on the 3P platform, I heard you loud and clear, early days but very encouraging. You are going to ramp from here. It sounds like in 2026, you will be in a more scaled launch with 3P, maybe gaining some 3P Small Mini momentum. Do you think that translates into a visible, at least to us, uptick in T&D second-half growth? Or do we need more sets, more pieces of the platform beyond 3P and 3P Small Mini to inflect U.S. T&D growth? And does that happen in 2027? Just trying to think about the moving parts here and when perhaps we see a visible inflection in that franchise. David R. Bailey: Yes, Matt. Good question. We have very few sets available on the 3P side at this stage. In fact, we have some opportunities to sell sets that we have not done yet just because we want to make them available to more and more users as we are moving those around through our loaner pool. Additional sets, hopefully coming here at the back half of Q2 and certainly Q3, will impact results as we add sets. It is not a huge volume of sets, so I do think that it is going to have some meaningful impact on the implant side of our T&D business. But these rollouts take years. As you have seen over the last several years, even products like PMP Tibia, which I think now have been out two and a half years, are still being rolled out and still impacting top-line revenue growth. What we really like to see about the early days of 3P is very strong ASP in addition to extremely high demand, very strong margins, and consistent with what we have been telling the Street for a while, this new product—and Vertiglyde as well on the scoliosis side—are dramatically more capital efficient. They require less capital deployment to drive top line, so their impact is not just in the back half of the year on top-line revenue but also on profitability and cash usage. We will see more of that from the Small Mini and more of that from PMP Retrograde and the new systems on the scoliosis side. It is very encouraging what we are seeing early on with 3P and these other systems. I think it will probably start to impact the growth of the implant side of our business here in the second half and really in 2027 and 2028. Matthew Blackman: Okay. Thank you, guys. Really appreciate it. Operator: Thanks, Matt. Thank you. Our next question comes from Rick Wise with Stifel. You may proceed. Rick Wise: Good afternoon to you both, and it really is great to see that despite the challenging start to the quarter and weather and everything, you finished strong and that momentum is continuing. Now that I have paid you a compliment, I was hoping to, at a high level, understand your thinking: despite the outperformance in the first quarter and everything we are hearing just on the execution front that just sounds so great, each part of the business working well, some of last year's challenges worked through, resolved, turning into potentially a tailwind, and the new product launches clearly well set up for installing second half. Why leave top-line guidance unchanged? Is there any particular reason other than just being careful as you set up the year, or is there anything that we should understand about maybe some challenges ahead as you start the rollout here? Just help us think about the rest of the year—you left the rest of your guidance unchanged, basically. Fred L. Hite: Yes. We increased the full-year guidance by the amount that we did. Dave continues to talk about the super cycle, which is awesome, and we have more sets coming, which is great. Those sets will be here in the second half, or really the end of the second quarter, to help the second half of the year. But as normal, we like to wait for those things to show up and to show up in the numbers before we get too far ahead of ourselves. So in traditional fashion, we will continue to stay conservative and let the numbers speak for themselves when they show up. Rick Wise: Alright. Sounds good. I am sure it is a similar answer to the very strong performance on the adjusted EBITDA line. I heard what you said, Fred, about some quarters a little better or stronger given the demands of the business. But it seems like you are set up well there with higher-margin products coming on and volume and leveraging the fixed cost base. It just sounds like you are well positioned to do even better. Fred L. Hite: Yes. We were very pleased with the leverage that showed up through the P&L here in the first quarter. Thirteen percent sales growth, G&A grew 2%, and that to us was very encouraging. Typically, first quarter is the lowest sales quarter that we will see for the year. If you add on some incremental revenue in the second and third quarter in particular, which are typically our strongest, that should drop through very nicely to the bottom line. Rick Wise: Gotcha. Thank you very much, and great to see the excellent start to the year. Operator: Thank you. Our next question comes from Ryan Zimmerman with BTIG. You may proceed. Analyst: Hi, everyone. This is Izzy on for Ryan. Thanks for taking the questions. I just wanted to start with the international. I saw that strong 22% growth for the quarter, and I was wondering if that is the right baseline to be at for the rest of the year, or if it could potentially be a little bit stronger as you start to see more contributions from the new products, especially as that EU MDR comes online? David R. Bailey: Good question, Izzy. I am not sure we are going to get too far ahead of ourselves on 22% growth—very pleased to see it. It was certainly an acceleration of growth over 2025; I think we came in at 19% in 2025. The headline here is that we are seeing very consistent performance and consistent growth in these agencies with a lot of the legacy products. As Fred mentioned, we do not want to get ahead of ourselves in terms of set deployment and how much revenue that set deployment of some of these new products generates. But it is safe to say that we have a really nice opportunity in the second half of the year as we start to deploy some of the sets that are now approved in Europe through EU MDR. The timing of those sets coming into our warehouse and then getting out to our customers is a bit of the rate limiter—certainly not demand. As we see some of those sets come in, I think we will be able to give some updated guide as to what we think we can see in the second half of the year. It is early; we are not going to get ahead of ourselves there yet, but it was certainly good to see that kind of acceleration in growth led by our agency markets. Of note, there were very limited set sales. We have been challenged over the last several years to balance margin and top line against some of the lower-margin set sales. Most of that revenue, I would say, in this quarter and hopefully in future quarters is primarily just replenishment orders coming through our agencies and coming through our hospitals in Europe. The acquisition of our Brazilian distributor we called out certainly started to stabilize the markets in Brazil, and we hope over the course of the next several quarters to create a bit of a tailwind in a market where there is extremely high demand, but we needed to adjust our model to be able to extinguish some of that demand. As we see that develop, it is possible that growth could accelerate, but 22% growth is very strong—we are very pleased with that—and if we could stay in that ballpark, it would be a great year. Fred L. Hite: With that said, we do expect international to outgrow the domestic market for each quarter for the rest of the year. While it might not be 22%, we think it will continue to grow very nicely and probably outperform domestic growth for the rest of this year and starting into next year. Analyst: Appreciate it. Thank you. And then I saw the press release today and heard your comments about the launch of Traxio. Could you talk a little bit more about your plans there for the rollout and what we can look forward to? David R. Bailey: Yes. Traxio is a halo gravity traction product. It is primarily designed to help children and physicians who are taking care of very complex early onset scoliosis patients. The initial launch is of a few sizes of the traction device. Those devices are sold as a capital purchase, and then there is replenishment of different components of that device inside the children's hospitals. Eventually, we will launch the surgical component of Traxio, which will be the actual halo itself that attaches to the skull of these kids. What is exciting is, number one, there is very high demand. We have a lot of hospitals that have called us for quotes. There is really nothing like it available in the market. Most hospitals that do traction are having to build a lot of these devices in-house. You can imagine the demand from a pure risk management standpoint to have an FDA-approved device that can take care of that patient population. It is also really encouraging to see its connection to our EOS business and ultimately the fusion business. We have talked about treating the entire disease state of scoliosis, not just the end state for fusion. You can see Traxio and how that fits in—patients may be going from bracing to halo gravity traction, to our suite of early onset scoliosis products, to potential non-fusion products like ApiFix, and then ultimately, final fusion if required. It creates a portfolio that is unlike any in the spine space, and it is a very strong adder in terms of our value proposition to children's hospitals within scoliosis. Operator: Thank you. Our next question comes from Mike Matson with Needham & Company. You may proceed. Analyst: Hey, guys. This is Joseph on for Mike. Given the rapid growth you have been calling out in OPSB, just being an increasing part of revenue for the whole company, I am wondering if you can provide more color on SG&A expenses as a percentage of revenue from here. Should we expect maybe some small gross margin improvement moving forward, with the real margin expansion coming on operating leverage? Fred L. Hite: Absolutely. Just like we saw in the first quarter, the true leverage down to the EBITDA line is coming from G&A. This year, it is both on the cash and the non-cash portion of G&A. I think the leverage we saw in the first quarter will be similar in the rest of the year in each of those quarters. A little bit on sales and marketing, but that is not our focus—it is all really on the G&A side of the business. The dollars may go up a little bit on G&A as the business grows in the second and third quarter pretty dramatically, but the leverage will come through very nicely. Analyst: Okay, that is great. And then, on pull-through for the scoliosis products, I know it may be early days, but you called out great beta launches generating demand and Response growing really well. How does that compare to expectations prior? I believe you said the real pull-through driver for scoliosis would maybe be driven by Ellie. Is that still the case? David R. Bailey: Certainly, Ellie is the most complex and probably the largest opportunity on the early onset scoliosis side. But we have seen remarkable interest in Vertiglyde—maybe more interest in that particular type of technique for the EOS indication than we had expected when we launched. We have nearly 80 surgeons already trained, and at this point we are having to have surgeons notify us well in advance when they schedule cases just to move inventory around. On pull-through, a number of surgeons and children's hospitals that are not historically large users of our fusion platform, Response, are the main users of the EOS product, Vertiglyde. That is exactly part of the strategy. We want to grow into this blue ocean growth opportunity in early onset scoliosis with Vertiglyde and Ellie and Ribbon Pelvic, and it also brings opportunities to show just how good we are on the scoliosis side to major institutions where they may use a lot of our trauma and deformity products but have not had much experience with Response and our fusion system. We are picking up pull-through already. You can imagine it is fairly small given the limited access to Vertiglyde, but we are certainly involved with children's hospitals and physicians that historically were not as exposed to our fusion platform. As the EOS portfolio more fully launches—more sets available on Vertiglyde, Ellie launching, followed by continued deployment of Response and the launch of our next-gen fusion system, Veraxis—that is a very compelling set of technologies and a value proposition for the hospital. Not to mention bracing on top of that providing halo and synergies, as well as now the Traxio system on the EOS side. It is a really good setup for us in the coming several quarters and really several years as those products roll out. Analyst: Maybe one quick one. Now that you are finished with EU MDR approval in Europe, are there other geographies you are targeting for further catalog expansion? Is it time to be thinking about moving into China? David R. Bailey: We have a very small presence in Japan, essentially no presence in India, and no presence in China. Historically, we have spent our dollars focusing on EU MDR. There is remarkable demand for our products in some of those markets, particularly India, where we have strong surgeon connections. While it is not part of guidance right now, in time it would be natural to extend into some of those bigger markets. Over the coming years, that could be a real opportunity for us. Analyst: Okay, makes sense. Well, congratulations on the strong quarter. Operator: Thank you. Our next question comes from David Turkaly with Citizens. You may proceed. David Turkaly: Hey. Good evening. I just wanted to follow up on that last one. Did you give timing for the Veraxis system? David R. Bailey: We expect first surgeries for both Ellie and Veraxis by the end of the year. David Turkaly: And does that mean that domestically that is cleared? What is your approval process with that device? Is that a 510(k)? David R. Bailey: Yes. It is a 510(k). We are working towards that at this point; it is not yet cleared, but we would expect it in the back half of the year. Certainly, timing is a bit of a wildcard, but our success with these 510(k) products has been very strong. Generally, with all the testing, we get these things through pretty rapidly. I do not expect Veraxis to have a huge impact on revenue in the second half of the year—more of a 2027–2028 rollout. Our goal is to get surgeons access to that product so we can start getting feedback at some point in the fourth quarter, and I think we are on track for that. David Turkaly: Great. And I think you said OPSB grew 20% in the quarter, and I am looking back at notes—I think you said six territories maybe this year. Can you give any color if you have done any of those and what you expect in terms of greenfield or acqui-hire specifically for 2026? David R. Bailey: So far, the guide has been by 2027 we would be at 27 of these markets. I think we are at or a little ahead of that. I would expect we would reach the necessary six markets in 2026 for sure. There is continued demand and opportunities for both greenfield as well as acqui-hire. There are also opportunities within some of the existing open territories to expand our clinic presence. Same-store sales in clinic locations where we have had a presence for a year are going extremely well. We are seeing increased revenue there. There are opportunities to more fully penetrate territories we are already in while we balance that against opening new territories. Deeper penetration in existing territories does not take as much expense, and when we have opportunities to accelerate patient care and revenue where we already are, we weigh that against how much we would want to accelerate into new territories. It is very safe to say we are on track, if not ahead of track, in 2026, and will meet or exceed our objectives for 2027. David Turkaly: Thank you. Operator: Thank you. Our next question comes from Caitlin Roberts with Canaccord Genuity. You may proceed. Caitlin Roberts: Hi. Thanks for taking the questions. In LATAM, you noted you purchased your largest distributor in Brazil. How much of the LATAM business does this distributor encompass, and would you look to the same formula and acquire more distributors down there to drive more consistency in the region? Fred L. Hite: Historically, we have had about 15 stocking distributors. This was one of the larger, but not the majority of the sales down there—roughly one-fifteenth of our sales in Brazil. The good news is we now have a legal entity and an operating entity down there, and all of our other sales into Brazil are going through this legal entity, which dramatically enhances our ability to collect cash in Brazil, to deliver inventory on a more timely basis because we are now stocking inventory in Brazil, and to better serve those other stocking distributors. We do not, at this time, have big plans to buy additional distributors. It is all about the ability to collect cash more efficiently and to better serve our partners down there so we can continue to grow that entire region in more and more procedures. Caitlin Roberts: Understood. And just on Veraxis, what are your thoughts on the competitive landscape in pediatric spinal deformity as you look to launch? David R. Bailey: The pediatric spinal fusion portion of our business is the most competitive—it always has been. Most companies on the adult side have good deformity correction systems that kind of dual-function in pediatric deformities. With Veraxis, we have a system that is built from the ground up with pediatric spine surgeons, not a system designed for adults. When physicians see the development work done by their colleagues from major children's hospitals, the competitive position of that product, in conjunction with products we offer that are not offered by really any other competitors, creates a value proposition that is hard to beat. We are excited. It is early—we have not done first case—but I am excited to see how it stacks up. Response, which has been in the market for a number of years, continues to take share. Leapfrogging our own best-in-class technology will hopefully accelerate further the share taking we have experienced over the last several years. Caitlin Roberts: Great. Thank you. Operator: Thank you. Our next question comes from Benjamin Charles Haynor with Lake Street Capital Markets. You may proceed. Benjamin Charles Haynor: First off, on the almost 80 Vertiglyde surgeons trained, can you talk about the number of folks that are doing these sorts of procedures—kind of an 80/20 where X surgeons are doing 80% of procedures? What does the total look like in terms of people doing these procedures? David R. Bailey: Great question. This is a tough one because the technology that surgeons have had access to for some of these procedures has been so limited that the technology itself has been a limiting factor to who would actually use guided growth for spinal deformity correction. It is fair to say that every children's hospital that does spinal deformity correction—which is, say, 300 procedures—has at least one physician there, if not more, who would be willing to take care of these EOS patients. Certainly, places like Children's of Philadelphia, Boston Children's, Wash U, and several others are doing higher volumes of those very complex procedures. In total, between Ellie and Veraxis, it is a sub-$100 million, maybe $80 million market opportunity with essentially very limited competition and a deep unmet need. Our customers recognize we are willing to take on these complex things they care about, and that is what we are seeing from the pull-through already on Response. Benjamin Charles Haynor: Thanks for the color there. And then on Traxio, obviously it would improve the economics versus MacGyvering these sorts of things. What do the economics look like for the hospitals that make these capital purchases? And how did the relationship with Syntech Group come about? David R. Bailey: We got connected to Syntech through partnerships we have in Montreal. As you know, we have an operation there after the acquisition of Pega, and we formed a nice relationship as they have helped us with different products on the nonsurgical side through specialty bracing. On economics, this is one of those products that, if you do this procedure, it is almost a must-have for children's hospitals. Not all children’s hospitals perform the procedure—you need hospitals that can have patients stay inpatient for several weeks. Often these kids get halo and literally live in the halo device for as long as six weeks before they ultimately have a surgical procedure. The economics are probably pretty strong for children’s hospitals; they have these patients in the hospital and then are doing multiple surgical procedures thereafter. Traxio is not a $1 million PO the hospital has to issue, so it is not such a large capital purchase that we are seeing resistance. There is an opportunity to partner Traxio with 7D, Vertiglyde, Response—these very novel systems that you just cannot get from any other company—to leverage opportunities to bundle our services and products. We are in more of those bundling discussions now at major children's hospitals than we have ever been in the history of the company. As more differentiated products like Traxio launch, our position in those negotiations strengthens and, again, hopefully drives accelerating revenue in the next few years. Benjamin Charles Haynor: Lastly, thinking about opportunities outside of orthopedics within pediatrics—any updates there? Any conversations that are happening? Anything that folks should expect the remainder of the year? David R. Bailey: We have long walked alongside a number of technologies in other subspecialties in pediatric health care. We like to think of ourselves as a beacon for entrepreneurs who could help us meet unmet needs in pediatric health care. When the time is right—the right company with the right culture where we could help scale revenue globally—we would be opportunistic, but nothing is pending at the moment. We will continue to be good partners with companies like Iota Motion, which is a little bit outside of our call point, and help those companies commercialize. When the time is right, we will probably step into some of these other subspecialties. Benjamin Charles Haynor: Excellent. Thanks for taking the questions, and congrats on all the progress. David R. Bailey: Absolutely. Thanks, Ben. Operator: And as a reminder, to ask a question, please press 1-1. Our next question comes from Ravi Misra with Truist Securities. You may proceed. Ravi Misra: Hi. Thank you for taking the questions. Good evening. Maybe a philosophical question here. I would love to understand the thinking at the company around balancing this 11% to 13% growth outlook amidst what appears to be a pretty significant product cycle. You have talked in the past about competitors leaving the space, giving you opportunities as a pure play focused on pediatrics. Then again, at the same time, set deployment is around $10 million this year. Why not really accelerate the set deployment to capture revenue? Are we underestimating the leverage potential from sets out in the field, or is it just something you are being conservative and measured about? David R. Bailey: That is a great question. There is certainly a healthy tension within the organization as we think about how fast we want to accelerate revenue versus generate positive free cash flow, and then, when we generate positive free cash flow and that becomes a bigger number, how much of that we would want to use to accelerate growth. You are right—we have a great opportunity in front of us to launch these new products and continue to scale legacy products, given the evacuation in the market of some quasi-competitors. We have been on a quest over the last few years to deliver increasing EBITDA and to deliver free cash flow breakeven. Our commitment is unwavering there, and nothing will knock us off that path to deliver that in 2026. As we think about 2027, 2028, and through 2030 as the super cycle ramps, I am not sure our strategy will be to maximize the capital that the business would ultimately generate. We would probably start utilizing some of the additional free cash flow to scale some of these products—that would be the smart competitive thing when you have the opportunity we have. In the short term, delivering on our commitments, balancing top-line revenue growth against profitability expectations, as well as the drive to free cash flow breakeven, is what we have in front of us. Then we will have bigger decisions to make—good opportunities to execute and maybe put out a little more inventory when we get more into the first, second, and third inning of the super cycle. At this stage, we are in the batter’s box. As we get into 2027 through 2030, it is likely we would want to put more inventory on the street, particularly inventory that has the kind of margin that products like 3P and Vertiglyde have and the return on capital that is so much better than our legacy systems. Ravi Misra: Thanks. And then just one last one. On the roughly 80-surgeon base around Vertiglyde, should we think of that as seeding the field for Ellie once that comes in, or is that a different subset of pediatric specialists? David R. Bailey: Very astute. We talk about Ellie—in theory, since it is not approved yet—and the potential features with surgeons when we go through training. Any surgeon who is training or interested in training on Vertiglyde is most certainly a candidate for the use of Ellie as well as our Response Ribbon Pelvic, which is great news. You will also see increased sales of our small stature systems on the Response side because these are very young patients and surgeons who treat those patients. Ellie is not a substitute for Vertiglyde, and Vertiglyde is not Ellie. There are different indications within this very complex patient population that require Ribbon Pelvic, Vertiglyde, and Ellie. Capturing mindshare within the surgeons who treat that patient population is very good for our prospects in the future. Operator: I would now like to turn the call back over to David R. Bailey for any closing remarks. David R. Bailey: Great. Thanks, operator. We appreciate all of your time, and we will be at a number of conferences over the course of the next several weeks. We look forward to meeting with you all there. Thanks, and have a great evening. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Q1 2026 OneSpan Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Joseph A. Maxa. Please go ahead. Joseph A. Maxa: Thank you, operator. Hello, everyone, and thank you for joining the OneSpan Inc. First Quarter 2026 Earnings Conference Call. This call is being webcast and can be accessed on the Investor Relations section of OneSpan Inc.'s website at investors.onespan.com. Joining me on the call today is Victor T. Limongelli, our Chief Executive Officer, and Jorge Martell, our Chief Financial Officer. This afternoon, after market close, OneSpan Inc. issued a press release announcing results for Q1 2026. To access a copy of the press release and other investor information, please visit our website. Following our prepared comments today, we will open the call for questions. Please note that statements made during this conference call that relate to future plans, events, and performance, including the outlook for full year 2026 and other long-term financial targets, are forward-looking statements. These statements involve risks and uncertainties and are based on current assumptions. Consequently, actual results could differ materially from the expectations expressed in these forward-looking statements. I direct your attention to today's press release and OneSpan Inc.'s filings with the U.S. Securities and Exchange Commission for a discussion of such risks and uncertainties. Also note that financial measures that may be discussed on this call are expressed on a non-GAAP basis and have been adjusted from the related GAAP financial measures. We have provided an explanation for and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in the earnings press release and in the investor presentation available on our website. In addition, please note that all growth rates discussed on this call refer to a year-over-year basis unless otherwise indicated. The date of this conference call is 04/30/2026. Any forward-looking statements and related assumptions are made as of this date. Except as required by law, we undertake no obligation to update these statements as a result of new information or future events or for any other reason. I will now turn the call to Victor. Victor T. Limongelli: Hello, everyone. Thank you for joining us today. We had a good first quarter with strong profitability and solid revenue growth. Subscription revenue grew 8% year over year and our adjusted EBITDA margin was 32%. I am also happy to report that notwithstanding the doom and gloom you might hear about software, our gross revenue retention reached 90% for the company as a whole and 94% for our digital agreements business. We also generated healthy cash flows, and we returned capital to shareholders via share buybacks, which have totaled approximately 1.5 million shares for more than $18 million over the past three quarters, and via an increased quarterly dividend as well. Before reviewing our results in more detail, I would like to provide an update on our investments and how we are positioning OneSpan Inc. for stronger growth over time. First, in Q1, we completed the acquisition of Build 38, which brings a fantastic team to OneSpan Inc., with deep expertise in mobile threats and mobile application protection, and provides customers with telemetry to help them understand the attacks targeting their mobile applications and the environment in which they operate. Keep in mind that the vast majority of consumer banking is now conducted through mobile banking applications, making this a critical attack surface for banks to protect. We now offer post-compilation application protection, sometimes called post-compilation wrapping, as well as an SDK-based approach through which customers can build in application protection and the telemetry necessary for visibility into the threat environment and overall operating environment. With the addition of Build 38’s capabilities, I am happy to report that we now offer a comprehensive set of leading mobile application security technologies across the app shielding landscape. Second, I want to update you on the acquisition we completed last year of Nok Nok Labs, the pioneer of the FIDO Alliance and passwordless authentication. A fabulous team from Nok Nok joined OneSpan Inc. and together we have grown that business materially, with ARR having increased about 20% in less than ten months since close, and it has broadened our product set as well. We now have the broadest B2B2C authentication offering: both hardware and software, cloud and on-prem, and OTP and FIDO. Third, we continue to invest in internal research and development. In our digital agreements business, we continue to make strides towards our goal of delivering secure, seamless agreement workflows purpose built for the financial services industry, combining white-label capabilities with embedded security, compliance, and identity assurance across the e-signature journey. We are also planning to integrate AI-driven capabilities to provide deeper insights, streamline decision-making, and further simplify integration into our customers' existing environments. Last but not least, I want to reiterate that neither our digital agreements business nor our cybersecurity business has seat-based licensing as the primary revenue model. In cybersecurity, we sell to our customers based on the number of their end users and not based on the number of their employees or seats. Our licenses are tied to the number of consumers using strong authentication or app shielding solutions. Similarly, in digital agreements, the vast majority of our business, about 97%, is priced based on the number of expected e-signature transactions or documents rather than customer employee counts or user counts. Turning to our results, as mentioned, we started the year with a strong first quarter. We generated $21 million of adjusted EBITDA in the quarter, or 32% of revenue. We ended the first quarter with annual recurring revenue of $192 million, up 14% year over year inclusive of the uplift from the two acquisitions in the past year. This strong ARR growth continues a positive trend, as ARR is now up 24% since 03/31/2024. Total revenue grew 4% to $66 million, driven by 11% growth in digital agreements, which had another strong quarter, and 2% growth in cybersecurity. Subscription revenue in digital agreements grew 11%, driven by demand for e-signatures, while subscription revenue in cybersecurity grew about 6.5%, reflecting growth in cloud authentication, passwordless authentication, and app shielding. Both business units were solidly profitable at the division level. Overall, OneSpan Inc. generated $28 million in cash from operations during the quarter. Our Board remains committed to a balanced capital allocation strategy that considers shareholder returns, organic investment, and targeted M&A. In the first quarter, we invested nearly $35 million to acquire Build 38, and returned more than $10 million to shareholders through dividends and share repurchases, following nearly $32 million returned in 2025. The Board has approved a quarterly dividend of $0.13 per share to be paid in the current quarter, and we will continue to evaluate additional share repurchase opportunities. In summary, we serve a diverse global customer base, and we deliver comprehensive offerings in strong B2B2C authentication, app shielding, and e-signatures. We are investing internally and through targeted M&A to strengthen our portfolio and go-to-market execution, and we continue to make solid progress in building a stronger foundation for growth. We remain committed to maintaining strong profitability, cash generation, and returning capital to shareholders. With that, I will turn the call over to Jorge. Jorge Martell: Thanks, Victor, and good afternoon, everyone. I am pleased to report another strong quarter and continued progress in building a solid foundation for future growth. I am particularly excited about our acquisition of Build 38, which strengthens our mobile application security offering and enhances our ability to protect customers and their customers from increasingly sophisticated AI-driven threats. We acquired Build 38 on February 27, and as such, our first quarter results include just over one month of Build 38's financial contribution. Before turning to our Q1 results, I would like to briefly highlight a change we made this quarter to how we present revenue by operating segment. To better align with how we manage the business and our strategic focus on growing recurring revenues, we now include term maintenance revenue within subscription revenue. As a result, subscription revenue now consists primarily of term licenses for on-prem software, the related maintenance and support revenue, and SaaS revenue. In addition, maintenance revenue associated with perpetual licenses and professional services is now presented together, better reflecting the continued evolution of our business away from perpetual license arrangements. These changes are presentation only and have no impact on total revenue, operating income, or cash flows, and prior period results have been updated for comparability. Additional details are included in the revenue tables in today's press release, our Form 10-Q, and the investor presentation on our website. With that context, let me turn to our first quarter results. Annual recurring revenue, or ARR, increased 14.1% year over year to $192.1 million, inclusive of the two acquisitions. Our net retention rate was 105%, benefiting from customer expansion contracts. ARR also benefited from new customer additions and M&A. First quarter revenue was $65.9 million, an increase of 4.1% compared to last year's Q1, driven by 5.8% growth in software and services revenues, partially offset by a 4.3% decline in hardware revenue. Continuing a long-term declining trend, in Q1 hardware comprised only 16% of our overall revenue. Subscription revenue grew 8.2% to $52.7 million and accounted for 80% of total revenue. Gross margin was approximately 74%, consistent with the prior year period. I will provide additional detail on these metrics as I review each business division in a couple of minutes. First quarter GAAP operating income was $14.8 million, compared to $17.2 million in Q1 of last year. The year-over-year decline in operating income primarily reflects increased operating costs related to the acquisition of Nok Nok and Build 38, including headcount and nonrecurring acquisition-related consulting costs, as well as certain costs related to organic investments, partially offset by lower share-based compensation expenses. GAAP net income per share was $0.30 compared to $0.37 a year ago. Non-GAAP net income per share was $0.39 compared to $0.45 in the prior year period. First quarter adjusted EBITDA and adjusted EBITDA margin was $21 million and 31.9%, compared to $23 million and 36.4% in the first quarter of last year. Turning to our cybersecurity division, cybersecurity ARR grew 6.5% year over year to $124.6 million, again inclusive of the two acquisitions in the past year. First quarter revenue increased 1.7% to $48.5 million. Subscription revenue grew 6.6% to $35.3 million, driven by customer expansions, new logos, and M&A, partially offset by lower multiyear term license revenue. Hardware revenue declined 4.3%, which was less than expected due to the earlier-than-anticipated delivery of certain customer shipments. As expected, perpetual maintenance and service revenue declined as we continue to transition legacy perpetual contracts to term-based arrangements. Gross margin for the cybersecurity division was 74%, compared to 76% in the prior-year quarter, primarily reflecting incremental third-party license costs as well as subscription and professional services costs. Operating income was $20.8 million or 43% of revenue, compared to $24.2 million or 51% of revenue in last year's Q1, driven by increased operating expenses from the acquisitions, the incremental cost of revenues just discussed, higher nonrecurring acquisition-related consulting costs, and increased investments. Now turning to digital agreements, ARR grew 9.9% year over year to $67.5 million. First quarter revenue grew 11.2% to $17.4 million, driven by expansion of renewal contracts, new customer additions, and overage fees. Gross margin improved to 72.5%, up from 70.3% in the prior year period, reflecting higher revenues and greater efficiency in our cloud infrastructure costs. Operating income was $5.3 million or 30.4% of revenue, compared to $3.4 million or 21.5% in the same period last year, driven by revenue growth, higher gross margins, and a modest decline in operating expenses. Turning to our balance sheet, we ended the first quarter with $49.8 million in cash and cash equivalents, compared to $70.5 million at the end of 2025. We generated $28.2 million in operating cash flows during the quarter. Uses of cash included $5 million for our quarterly dividend, $5.4 million to repurchase approximately 510 thousand shares of common stock, $34.6 million related to the Build 38 acquisition, and $2.6 million in capitalized software development costs, among other things. We ended the quarter with no long-term debt. Geographically, revenue in 2026 was 43% from EMEA, 38% from the Americas, and 19% from Asia Pacific, compared to 49%, 33%, and 18% from the same regions in 2025, respectively. Year-over-year changes reflect growth in digital agreements and cybersecurity software revenue in the Americas, lower cybersecurity hardware and software revenue in EMEA, and increased hardware revenue in Asia Pacific. Now turning to some modeling notes and our outlook. We are pleased with our first quarter results and the progress we have made in positioning OneSpan Inc. for long-term growth. We are affirming our full year 2026 guidance for revenue and adjusted EBITDA, and we are raising our guidance for ARR. We expect continued growth in software and services revenue, driven by solid performance in digital agreements and moderate growth in cybersecurity. In cybersecurity, we anticipate a second quarter ARR headwind of approximately $3 million from two contracts not expected to renew. In both cases, the customer is not a bank or a financial institution, and the majority of that total is from a customer moving to passwordless authentication, with the decision taken a year ago before we had acquired Nok Nok. Indeed, this reinforces our belief that adding Nok Nok to our product portfolio was the right strategic move, as we expect passwordless authentication to only grow going forward. As such, we expect ARR to grow in the second half of the year, with most of that growth occurring in the fourth quarter. Finally, we also expect the secular shift away from consumer banking hardware tokens to continue. For the full year 2026, we expect total revenue to be in the range of $244 million to $249 million. We expect software and services revenue to be in the range of $201 million to $204 million. We expect hardware revenue to be in the range of $43 million to $45 million. We expect ARR to be in the range of $194 million to $198 million, as compared to our previous guidance range of $192 million to $196 million. And we expect adjusted EBITDA in the range of $66 million to $68 million. That concludes my remarks. I will now turn the call back to Victor. Victor T. Limongelli: To recap, we delivered a strong first quarter, and over the past year, we have better positioned OneSpan Inc. to deliver value to customers and create value for shareholders. While we know there is more work ahead and that one good quarter does not make an excellent year, we are encouraged by the progress we have made. Jorge and I will now be happy to take your questions. Operator: We will now open the call for questions. At this time, we will conduct the question-and-answer session. We kindly request that each participant ask one question and one follow-up question. You may re-queue if you have more questions. As a reminder, please mute your line when not speaking. To ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your questions, please press star 11 again. Please standby while we compile the Q&A roster. Our first question comes from the line of Erik Suppiger of B. Riley Securities. Your line is now open. Erik Suppiger: Yes, thanks for taking the questions. First off, when will we start to realize some of the returns that you are making in the operations over the course of 2026? When can we anticipate some acceleration in top line, and do you have a time frame when you can get back to delivering on the rule of 40? Victor T. Limongelli: Thanks, Erik. I think before getting to the exact timeline for the rule of 40, it is important to highlight the progress we have made. If you look at where we were on the rule of 40 metrics in 2023, I believe the number was 12 on a combined basis, not for one of the metrics. And for the most recent quarter, we are at 36, and 32 last year. So we have definitely made progress. I do not want to pin an exact date on when we will be at exactly 40, but we are making progress. You see it in our ARR growth. You see it in our subscription growth. Of course, for quite a long time we have had a consumer banking token decline, and you saw hardware decline again year over year. It is now only 16% of our revenue. We feel like we have made some good progress. We have added some real key functionality to our product set, and we are investing in go-to-market as well to continue to try to drive that subscription growth and try to drive the ARR forward. Erik Suppiger: Okay. Thank you. Operator: Thank you. Our next question comes from the line of Rudy Grayson Kessinger of D.A. Davidson. Your line is now open. Rudy Grayson Kessinger: Hey, great. Thanks for taking my questions. First one for me on ARR, just so we can try to get to an organic ARR growth rate. What was the Nok Nok ARR and Build 38 ARR as it came out of Q1? Jorge Martell: Hey, Rudy. Thanks for the question. As of the end of Q1, Nok Nok's ARR was $9.7 million, which is an increase from the $8.1 million that we acquired about nine months ago, which we feel pretty good about, and Victor alluded to that 20% growth over the last nine-ish months. The Build 38 ARR that we acquired was $2.8 million. So combined, it is about $10.9 million—call it $11 million. And so when you look at ARR growth organic, it is about 7% to 8%. Rudy Grayson Kessinger: Got it. That is super helpful, and the growth on Nok Nok is good to see—obviously you would lap that next quarter as far as organic goes. And then second question for me, just given your significant EMEA mix, I am curious what impacts, if any, you saw in the quarter or you are seeing in current deal conversations given the conflict in the Middle East right now. Victor T. Limongelli: Thanks, Rudy. The Middle East itself—while the Gulf region itself—is a small part of our business, only about 4% of revenue, and we are obviously keeping an eye on it like many people are. For Europe, I think you will see in the geographic mix—Jorge talked about the geographic mix—EMEA is a little bit of a smaller portion compared to growth in the Americas. Part of that is strategic; we do think we are under-indexed to North America when it comes to security in particular. So we feel like we are going to grow faster in North America than we had in the past, and also the digital agreements business has been doing well, and that is largely a North American business. Overall, we are optimistic, I would say, about EMEA, and cautiously watching the Middle East situation. Rudy Grayson Kessinger: That is helpful. Thank you, guys. Operator: Thank you. Our next question comes from the line of Gray Powell of BTIG. Your line is now open. Gray Powell: Great, thanks for taking the questions. I just had a couple here. So it is good to hear the commentary on Nok Nok. Where are you seeing the strongest pull with Nok Nok within your base? Then when a customer decides to take the product set, how should we think about the upsell opportunity? Victor T. Limongelli: Nok Nok, I think, is an upsell opportunity because people are going to move to passwordless over the coming years. So having that capability is a core part of our offering. Some of that is customer retention. We talked about GRR in the first quarter. It was at a very strong level—94% for digital agreements and 88% for cybersecurity—so higher than it had been in quite a while. And there is also opportunity to get new customers with Nok Nok's offering as passwordless becomes more and more prevalent. Having a super strong offering, having the board seat on the FIDO Alliance, having the history with FIDO that Nok Nok had, brings a lot to the table. Geographically, we have seen it so far be stronger in North America with strength in Japan as well, but we expect it to grow in Europe, ultimately to grow in Latin America, and all over the world. In five years, everyone will use passkeys, and passwords will seem outdated. Gray Powell: Okay. That is really helpful. And then I just want to make sure I am thinking about Build 38 correctly. It makes perfect sense how it can make your existing products better. Was the acquisition's main purpose simply to make you more competitive on the authentication side and to make your existing stuff more compelling, or is it going to ultimately result in another SKU you can sell to customers and therefore generate additional revenue? Victor T. Limongelli: It broadens the offering. If you think about what our app shielding offering was, first of all, it was through a partner. We had a long partnership in that realm that was successful, but that offering was what is called wrapping—so you build the application and then after it is compiled, there is a wrapper or protection put around the app. It is useful and blocks attacks, but it does not give you as much information about what type of attacks are coming in and what the operating environment is. The Build 38 approach is different. It has an SDK-based implementation where the protection is built into the app, and it enables telemetry back from the applications. Remember, they do not control the devices—these are all consumer devices that are using mobile banking apps. It gives them lots of information about the devices themselves and about what attacks are happening. That has all kinds of implications to broaden the cybersecurity solution that we are offering customers. Gray Powell: Understood. Thank you very much. Operator: Thank you. Our next question comes from the line of Anja Soderstrom of Sidoti. Your line is now open. Anja Soderstrom: Just curious, the contracts that are not renewing in the second quarter—how big of a shortfall is that? And can you double-click on what gives you confidence in raising the ARR guidance? Victor T. Limongelli: Sure. We have seen good progress with ARR. Those two accounts—one of them is about $2 million. That decision was taken a year ago for them to move to passwordless. It just underscores why the Nok Nok acquisition was important for us. We did not have an offering at the time, so we did not have the opportunity to even compete effectively as they moved to passwordless. We do now. Unfortunately, that decision had already been taken. So in the short run, we are going to have a little bit of a hit, as mentioned, to ARR, but we do feel good about the growth that we have seen so far, the pipeline, and the seasonality in our business. We close a lot more business in Q4 than we do in the summer, typically in most years. So we think most of that ARR reinvigoration will happen in the latter part of the year—say September through December. Anja Soderstrom: Thank you. And now that you have Nok Nok, do you feel you are getting more attention since you have that offering? Victor T. Limongelli: It is hard to provide a precise quantification on it. But if you look at the growth in our GRR, I think we are positioned better with our customers. Instead of having technology that maybe a few years ago someone would have viewed as dated, we have up-to-date, market-leading technology in critical areas. That helps customers feel that they should stick with you, that you are going to be a long-term solution. We have seen our GRR go up. I do not think it is only as a result of that because our renewals team has done a great job and we have done better engagement with customers as well, but I think it certainly helps. Anja Soderstrom: Okay. Thank you. That was all for me. Victor T. Limongelli: Thank you. Operator: Thank you. Our next question comes from the line of Erik Suppiger of B. Riley Securities. Your line is now open. Erik Suppiger: Thanks. Follow-up here. Of your 502 customers, how many of them are buying both the Nok Nok back-end software as well as the tokens? Victor T. Limongelli: To date, not too many. The Nok Nok business, of course, did not have a token business, so most of them are pure software customers. That is another area that I think, as we look ahead, we have an opportunity to do better in. It is something that we are hoping can blunt the decline in the consumer banking tokens as we move forward. Having that broad offering does give flexibility to customers—if they have a portion of their workforce that they want to have hardware authentication for, we can offer that without them needing to go to a hardware-only vendor, as an example. But to date, we have not had a ton of cross-sell on that. It is an opportunity rather than a material contributor at the moment. Erik Suppiger: Is it a synergistic sale where you are able to provide any kind of advantage by using an end-to-end solution, or is it simply standards-based and therefore there is no end-to-end benefit? Victor T. Limongelli: The Nok Nok offering has advantages. Of course, it is an open protocol—FIDO protocol—but the Nok Nok solution has additional technology built in to enable device binding of keys, which financial institutions like a lot. Not to get too much into the weeds, but keys synced to Google or other cloud providers can sometimes make banks nervous, and the Nok Nok offering has the ability to have device-bound keys that are not synced—on the software side. On the hardware side, again, it is an open protocol, so they could buy hardware from someone else. It is advantageous having the same vendor. We do very nice branding on the devices, which we have a history of having done with banks for many, many years. To the extent that they like that, it is an appealing offering. But again, open protocol, so there is not a vendor lock-in situation when it comes to hardware. Erik Suppiger: Very good. Thank you. Operator: Thank you. Our next question comes from the line of Catharine Anne Trebnick of Rosenblatt. Your line is now open. Catharine Anne Trebnick: Thanks for taking my question. Now with subscription revenue roughly 80% of total, and you have a good track record—digital agreements and cybersecurity subscription are growing—can you lay out a plan for whether it will always be 80% to 85%? What is going to happen with the hardware over the next twelve months? I know it has been lumpy and there are obvious changes—just lay out a roadmap. Thank you. Victor T. Limongelli: Let me talk about the underlying business trends. The consumer banking tokens we expect to continue to decline. We do not think they will go to zero. We think there will be some portion of consumers in Europe and Asia that are using tokens to authenticate because they are doing web banking and not doing their banking through a mobile banking app. If you ask banks, a lot of them will say 80% of their traffic is now through their mobile app versus laptops or desktops. The hardware piece—the part that could offset that ongoing decline that has been going on for over a decade—is the FIDO2 security piece. If we can get that piece to grow, we could offset that and keep the hardware business at a stable rate. Of course, most of our focus, most of our attention, is on growing the subscription, growing the ARR, and driving value that way. Jorge, anything to add on modeling? Jorge Martell: For purposes of 2026, Catharine, we did not change our guide for hardware. Where it goes in 2027 or 2028—nobody has a crystal ball. It is obviously still in secular decline, but to Vic’s point, we do not think it is going to go to zero. Corporate banking, for example, is still done through hardware tokens—it is the safest way to do high-value transaction signing and things of that nature. There will be a target customer base that will continue to use that device. Hopefully it stabilizes and finds a new baseline soon. Catharine Anne Trebnick: Alright. Thank you very much. Sorry to keep asking that question, but it keeps coming up. Bye-bye. Victor T. Limongelli: Thanks. Operator: Thank you. This concludes the question-and-answer session. I would now like to turn it back to Joseph A. Maxa for closing remarks. Joseph A. Maxa: Thanks for joining today, everyone. We look forward to talking with you again next quarter. Have a great evening. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Thank you for standing by and welcome to the Schneider National, Inc. 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. Thank you. I would now like to turn the call over to Christyne McGarvey, Vice President of Investor Relations. You may begin. Christyne McGarvey: Thank you, operator, and good afternoon, everyone. Joining me on the call today are Mark B. Rourke, president and chief executive officer; Darrell G. Campbell, executive vice president and chief financial officer; and James S. Filter, executive vice president and group president of transportation and logistics. Earlier today, the company issued an earnings press release. This release and our investor presentation are available on the Investor Relations section of our website at schneider.com. Our call will include remarks about future expectations, forecasts, plans, and prospects for Schneider National, Inc. These constitute forward-looking statements for the purpose of the safe harbor provisions under applicable federal securities laws. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from current expectations. The company urges investors to review the risks and uncertainties discussed in our SEC filings including, but not limited to, our most recent annual report on Form 10-K, and those risks identified in today’s earnings release. All forward-looking statements are made as of the date of this call, and Schneider National, Inc. disclaims any duty to update such statements except as required by law. In addition, pursuant to Regulation G, a reconciliation of any non-GAAP financial measures referenced during today’s call can be found directly in our earnings release and investor presentation, which include reconciliations to the most directly comparable GAAP measures. I will now turn the call over to our CEO, Mark B. Rourke. Mark B. Rourke: Thank you, Christyne. Hello, everyone. First, I want to thank our associates, especially our professional drivers, for their hard work navigating a dynamic quarter and safely supporting our customers. The stress in the market over the last several months is a direct reflection of structural supply rationalization, and we believe this upcycle has now gained its foothold. While we experienced headwinds from challenging weather and fuel volatility in the quarter, we were ultimately able to mitigate the impact of these factors because of the proactive actions we have taken to position the business to capitalize on improved conditions. This includes execution on our cost and productivity initiatives, investment in differentiated services and capabilities, and a disciplined approach to customer allocation events. In a moment, James will share more perspective on the freight market before Darrell provides a more detailed financial overview of the first quarter results and our 2026 guidance. Then I will share my view on the actions we are taking to position the enterprise for near- and long-term success. After, we will answer your questions. With that, I will hand it over to James. James S. Filter: Thank you, Mark. As we look at the freight market, the momentum we saw as we exited 2025 grew in 2026. As Mark highlighted, the quarter was negatively impacted by unusually disruptive weather in parts of the country where we have significant operations and in areas that are less equipped to manage winter storms. While weather contributed to initial supply chain disruption, we believe the tighter market conditions that followed are a function of capacity attrition we have seen over the last several quarters. The attrition is the culmination of the DOT’s actions to improve public safety by addressing noncompliant capacity, including curtailing non-domicile CDLs, enforcing English language proficiency, removing CDL mills, and targeting ELDs that enable tampering. Based on developments to date, we expect this rationalization to occur rapidly as the mere threat of enforcement and proactive actions in certain states are driving more capacity out of the market sooner. We do not believe we have yet reached a new normal for supply, so we expect additional capacity to leave the market from here. Fuel cost inflation, which is outpacing rate recovery for the long-tail carriers, and the upcoming road check are likely to be catalysts for additional drivers to permanently exit. We believe that we will see more supply exit than what was removed by the 2017 ELD mandate while also restricting the funnel of new entrants. We continue to expect that the removal of this capacity will restore the market to more normal conditions after several years of irrational supply dynamics. With regards to demand, realized volume in the first quarter was a tale of two halves, with adverse weather impacts in the first half giving way to increased volume in the second half as we supported customers dealing with stress in their supply chains. Looking at underlying trends, we saw a resilient consumer and signs of life in our industrial end markets, mirrored by what we saw in ISM PMI. However, overall macro uncertainty has also increased amid rising inflation expectations and diminished prospects for additional rate cuts, which adds demand risk for the balance of the year. While we have not seen any adverse impact to date, we will be monitoring changes closely. Altogether, the market is seeing increasingly reduced capacity at a time when spot prices are recovering. As a result, many cycle indicators such as tender rejections, spot/contract spreads, and fleet utilization flashed green in the first quarter, with some of these signals at levels last seen during the pandemic. Encouraging trends seen in March have persisted into April, with continued strength in the spot market, traction in rate recovery, and volume retention in our allocation events, and indications of moderate customer restocking and seasonal volume activity. I will now turn it over to Darrell to share additional observations on first quarter performance. Darrell G. Campbell: Thank you, James, and good afternoon, everyone. I will review our enterprise and segment financial results for the first quarter and provide insights on our full-year 2026 EPS and net CapEx guidance. Summaries of our financial results and guidance can be found in our investor presentation available on the Investor Relations section of our website. Starting with the first quarter results, enterprise revenues excluding fuel surcharge were $1.2 billion, down 1% compared to a year ago. Adjusted income from operations was $35 million, a 21% decrease year over year. Enterprise adjusted operating ratio increased 70 basis points compared to 2025. Adjusted diluted earnings per share for the first quarter were $0.12 compared to $0.16 in 2025. First quarter results reflected strong execution across the portfolio as well as effectively capitalizing on commercial opportunities. This enabled us to mitigate headwinds from significant storms and fuel volatility. Our actions include traction on our $40 million cost savings initiatives, where we implemented additional headcount actions, and disciplined execution on our Cowen system integration synergies. From a segment perspective, Truckload revenues excluding fuel surcharge were $618 million in the first quarter, up 1% year over year. This growth was driven by improvements in revenue per truck per week. Network revenues grew 4% year over year, driven by productivity and price, with revenue per truck per week up 7% year over year and up 2% sequentially, which is atypical for the first quarter. This more than offset truck count declines, which reflect a combination of asset efficiency efforts and growing driver scarcity. Dedicated revenue per truck per week was up modestly year over year, reflecting our focus on productivity as we take action on assets where we see opportunity to improve returns. Truckload operating income was $20 million, a 20% decline year over year. Operating ratio was 96.7%, an increase of 80 basis points compared to last year. Earnings were negatively impacted by cost headwinds in maintenance and fuel that were exacerbated by the challenges referenced earlier, as well as lower gain on sale due to delayed equipment disposal. Intermodal revenues excluding fuel surcharge were $254 million in the first quarter, down 3% year over year. Revenue per order declined 4% and included impacts from lower length of haul. Volumes grew year over year despite a challenging comp related to last year’s inventory pull-forward that we referenced on our previous earnings call, marking the eighth consecutive quarter of load growth. Intermodal operating income was $11 million, a 21% decrease compared to the same period last year, but in line with our expectations as weather disruptions impacted maintenance costs. This was offset by cost saving actions, including lower rail repositioning costs and realizing the benefits of AI-driven headcount actions. Operating ratio was 95.7% compared to 94.7% last year. Logistics revenues excluding fuel surcharge totaled $312 million in the first quarter, down 6% from the same period a year ago, with lower volumes partially offset by higher revenue per order. Logistics income from operations was $7 million, down $2 million year over year. Operating ratio was 97.9%, an increase of 30 basis points primarily due to the impact of lower volumes. This was partially offset by improved net revenue per order, which reflected strong spot and premium project business as well as productivity gains. Turning to our balance sheet and capital allocation, as of March 31, we had $399 million in debt and lease obligations and $228 million in cash and cash equivalents. Our net debt leverage was 0.3x at the end of the quarter. The strength of our balance sheet leaves us ample dry powder to maintain an investment grade profile and complete additional accretive acquisitions if the right target becomes available. We are confident in our proven playbook to select quality accretive targets, deliver synergies, and enhance those brands’ ability to grow profitably. We will also continue to prioritize robust shareholder returns. In the first quarter, we returned over $22 million to shareholders in the form of dividends, which we recently raised by 5%, and opportunistic repurchases of shares under a newly authorized share repurchase program. Net CapEx was $45 million compared to $97 million last year due to timing of equipment purchases. As a result, free cash flow increased by $54 million year over year. Looking forward, our CapEx guidance for 2026 remains unchanged and is expected to be in the range of $400 million to $450 million. This primarily encompasses replacement CapEx needed to protect our Asia fleet. As we move through 2026, our priorities are unchanged, and we remain focused on capital and resource efficiency. We believe we have runway for growth with our existing equipment. Our containers can support double-digit intermodal growth, and we continue to see positive trends in truckload productivity. Additionally, we continue to support scaling our power-only and owner-operator capacity to help extract incremental growth over the medium and long term in a capital-efficient way. As we think about our guidance, since our last update our confidence in the cost program and the realization of supply attrition has grown based on the progress delivered to date. That said, macro uncertainty has increased in the form of higher inflation expectations, softer consumer sentiment, and diminished likelihood of additional rate cuts. These factors push more demand risk to the right. Even so, we also see a constructive demand scenario supported by a resilient consumer, continued improvement in industrial end markets, and support from fiscal policy. As a result, we are maintaining our 2026 EPS guidance of $0.70 to $1.00, which assumes an effective tax rate of approximately 24%. I will turn it back to Mark for more detail on our enterprise outlook. Mark B. Rourke: Thank you, Darrell. As freight fundamentals continue to move back to more rational conditions, we expect the benefits of the actions we took to structurally improve the business will be increasingly evident. These actions include building on our nimble, multimodal portfolio; investments in differentiated service capabilities; a disciplined approach to prior allocation events; and $40 million and growing in cost savings actions. As cycle dynamics shift, we are already rolling out our early cycle playbook to capitalize on improving trends. This includes dynamically shifting our capacity to meet changing customer needs, quickly enacting yield management actions, and extracting returns on our cost and productivity efforts, all of which will lead to enhanced operating leverage across our segments. In Truckload, we were disciplined in how we managed customer allocations through the down cycle knowing rates have not been where they need to be. In doing so, our spot exposure grew to nearly double its historical levels in Network. This has a dual benefit of allowing Network to immediately take advantage of improved spot rates, and it creates latent capacity to add more accretive contract-rated business. While we remain predominantly contractual in our asset businesses, we must balance our customer commitments with the need for improved rates to support our investments in service, several years of cost inflation, and the growing cost of securing capacity. We saw meaningful traction in the first quarter as spot rates were accretive to overall Network rate in February and March, with strength outpacing normal seasonal patterns. This is the benefit of operating a scale Network solution that is able to capture premium opportunities and help shippers navigate supply chain disruptions, whether from storms or broader routing-guide breakdowns. Network will continue to support our customers as cycle conditions shift and the value of our assets becomes more apparent. Price renewals are now at the highest level since 2021, and shippers are increasingly recognizing that the tightness is not simply winter weather. A growing number of shippers who have completed their allocation season are returning to us as some carrier rates agreed upon earlier are no longer holding. We expect Network 2026 rate renewals to be in the mid- to high-single digits for the full year, and we are acting decisively with the most transactional customers where there is more ground to make up in rate recovery. In these instances, we expect to see double-digit increases. As conditions improve, the focus on doing more with less by tightening our equipment ratios will drive even greater operating leverage. Though there is more to come, we are encouraged by the improvement in Network productivity in the first quarter. We showed strong improvement year over year, especially in March. Excluding peak holiday periods, March Network productivity was the strongest it has been since 2023. In Dedicated, rate improved year over year and versus the fourth quarter as we continue to scrutinize our portfolio to ensure assets are being deployed to their highest and best use. Looking forward, we will continue to evaluate performance across our portfolio, enabling further rate improvement while also benefiting from more accretive Dedicated haul as spot rates move higher. As we look at our Dedicated fleet in the first quarter, we continued to ramp up new accounts that were sold in 2025. In 2026 to date, we have sold over 150 new trucks, and we are seeing a growing number of our customers asking us to expand their existing fleets. However, in the near term, this will be offset by some incremental churn. We are focused on productivity and portfolio management actions where success will be measured in revenue-per-truck-per-week improvements rather than just truck count. Driver capacity will be a constraint as supply tightens, which we believe will generate incremental Dedicated demand; we remain focused on adding durable Dedicated solutions. In Intermodal, Mexico growth continued its momentum, growing double digits. This helped to offset softer transcon volume and the impact from lapping last year’s inventory pull-forward. Looking forward, Intermodal rate traditionally lags the Truckload market, which we anticipate will remain the case. Still, we see significant opportunities in 2026 to continue to drive volume and share gains as we lean into our asset-based model, build on the launch of Fast Track, and our differentiated Mexico offering, while taking advantage of growing over-the-road conversion opportunities amid elevated fuel and rising Truckload rates. We are already seeing over-the-road conversion with customers, and we feel well positioned to capture this growth at high incremental margins given our prior investments in trailing capacity and our ability to effectively recruit and retain company dray drivers. In Logistics, the earnings recovery from the fourth quarter reflects our ability to leverage the complementary nature of being an asset-based provider as the cost of capacity continues to rise. In the first quarter, we positively managed our net revenue per order after experiencing a significant squeeze in the fourth quarter. We became increasingly discerning of what contractual volume was accepted, including in our power-only offering, which is primarily contract-rated. This was effective and profitable as we were able to support power-only through our Network offering while contractual brokerage volume was backfilled by greater spot opportunities and by project business in specialty verticals that we have cultivated. In closing, we are encouraged by how the business was able to navigate a dynamic operating environment that included challenges from fuel and weather. Our results are not where they need to be. Clearly, early signals in both the market and our performance give us greater confidence in our trajectory from here. As freight fundamentals continue to normalize and capacity rationalization progresses, we are more ready than ever to benefit from improving cycle dynamics. Our methodical approach to pricing, cost control, and capital allocation combined with the flexibility of our diversified multimodal portfolio allows us to position the enterprise for strong operating leverage. With that, thank you for your continued interest in Schneider National, Inc., and we will now open the line for your questions. Operator: Thank you. We will now begin the question and answer session. To ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, simply press star one again. We ask that you limit yourself to one question and one follow-up. Your first question comes from the line of Thomas Richard Wadewitz from UBS. Your line is open. Thomas Richard Wadewitz: Good afternoon. It is great to hear a number of these positive comments on momentum in the business and to see it for Schneider National, Inc. as well. I wanted to ask Mark or James if you could give a sense on Network. I think your revenue per load was pretty favorable in Network, and you are talking about mid- to high-single-digit contract increases. Is there a chance that you end up seeing stronger than that? It would seem like what you got in the first quarter might point to something that could be a bit higher than that. And then the second question would be on Dedicated. How should we think about how that business can move up in an elevating Truckload pricing cycle, how quickly that can happen, and what the levers are to get some quick responsiveness in Dedicated as well? Thank you. James S. Filter: Tom, this is James. Thanks for the question. I will start with Network and price. We gave some background on what we are seeing through allocation season, but there are a number of ways that we can extract rates: normal allocation events, turnbacks, load acceptance, and spot. We are seeing positive trends with each. With normal allocation events, we expect renewals in Network to be mid- to high-single digits for the full year, but we are seeing momentum building. Those shippers that drove the largest price decreases are experiencing double-digit increases and know they are going to have to make the largest changes. With turnbacks, we are seeing an increase in post-allocation activity, particularly with the most transactional customers. They are feeling the impact of spot prices, trying to avoid that, and going back out to look for opportunities to contract that freight. With acceptance, more shippers are prioritizing acceptance in their metrics. That is a telltale sign they are not happy with what they are seeing with acceptance and are willing to take strategic actions to drive changes. In spot, our Network spot rate was accretive for the majority of the quarter, so there are opportunities to continue to lean in to drive pricing up to a different level. For us, that 7% increase in revenue per truck per week in Network had price as only a small part. An awful lot of what we experienced was productivity. That has been our focus because the number one place we can help our drivers, our customers, and our business is to improve driver productivity. I am thrilled with the activities that drove productivity, because that creates leverage for our organization. We still believe we have more opportunities. We are in the early stages of implementing some AI that will help remove friction for our drivers and improve their productivity. So there is still room to run in Network. On Dedicated, our focus is that the business is durable through cycles, leaning into our differentiation, especially specialty Dedicated, and executing the early cycle playbook. In the short term, productivity will drive the most success in earnings growth, so the focus is improving revenue per truck per week rather than just total truck count. We are not slowing down; we sold over 150 trucks and we are also seeing customers ask us to increase their fleets after several quarters of shrinkage. We will be disciplined because we want to make sure these are truly Dedicated opportunities. As the market improves, we also get more backhaul, whether contracted or spot, and I would expect continued improvement there as well. Thomas Richard Wadewitz: Do you have a quick thought on timing? Do you see the revenue per truck per week higher in Network and then wait a couple of quarters before seeing the same dynamic in Dedicated, or is it quicker than that? James S. Filter: I think it is a little bit quicker than that. We will see opportunities to fill that in sooner. Thomas Richard Wadewitz: Okay. Great. Thank you. Operator: Your next question comes from the line of Scott Group from Wolfe Research. Your line is open. Scott Group: Thanks. Afternoon, guys. So, James, we have an environment with rising truck rates, high fuel, and seemingly still good rail service. It feels like a very good setup for Intermodal. What are you hearing from customers on that front? And do we need to be concerned about a longer lag between truck rates and Intermodal rates this time, or do you think it will be similar to what we have seen in the past? James S. Filter: Thanks, Scott. You are correct in terms of how customers are starting to look at this, especially the most strategic customers that have moved into acceptance that there has been a change in market conditions. They are looking to take control of their supply chain. We are seeing increased demand in how they are thinking about Intermodal and what they can allocate to Intermodal. Current fuel cost is making a difference as well as their anticipation of what capacity will look like later this year. We are seeing really great service levels from the railroads. The most strategic customers also look and say, while there is plenty of box capacity, the real constraint in this industry is always dray capacity. They are looking at who can support those opportunities with their own dray, and we feel really good about that opportunity. In terms of pricing, the over-the-road market dropped much further than Intermodal did. So, in terms of the degree of change, I am not sure we will see the same degree in Intermodal as over the road. In terms of timing, typically we say about two quarters, and from what we can see, we stay pretty consistent with that, but just not to the same magnitude. Scott Group: Second question. Your point about utilization was interesting because in prior periods of tightening markets, we typically see unseated tractors go up and utilization go down. It sounds like you think you can get price and utilization this time. What is different to let you do that? Because if you can do it, I think it is pretty powerful. James S. Filter: You are right. That is a powerful lever when you can get both. Initially, some of the utilization opportunities were just better freight availability. Our Network business is split between company drivers, owner-operators, and power-only. That gives us more opportunities to take freight and prioritize with our company drivers and then make sure we are driving the best mix to owner-operators. Also different is our access back into our brokerage business to find better opportunities to utilize our company drivers. We have had some AI opportunities in our Intermodal business that removed friction for our drivers, which helped as well. Bringing those together is powerful. Mark B. Rourke: Yes, Scott. The place to feel most favorable about is that we were able to increase productivity, particularly sequentially and year over year, and did so with a pretty disruptive quarter from a weather standpoint where we lost more time than we would typically lose in a winter season because of the depth and location of the storms. That gives us encouragement that leaning into these actions will be even more powerful with more operating leverage going forward when we have less weather disruption. Operator: Your next question comes from the line of Ravi Shanker from Morgan Stanley. Your line is open. Ravi Shanker: Great, thanks. Hope everyone is well. Darrell, I hear you on there still being uncertainties on the macro. But I reckon your commentary on this call has probably been the most constructive we have heard from anyone so far this earnings season, yet you did not raise the guide. What more do you need to see, and when will you get the confidence that the idiosyncratic tailwinds in trucking are outweighing the uncertainty in macro? Darrell G. Campbell: Good question, Ravi. As I mentioned in my remarks, we expected that supply would exit, and we did see supply exiting at an even more rapid pace, which is encouraging. Mark alluded to our cost and productivity initiatives and the fact that we are doubling down on some of those, and those came through, especially in the face of disruption. So positives in Q1. We are one of the very few that guide, especially for a full year. We are one quarter in, and we have a whole lot of year left. While encouraged by Q1, we have to balance that with the rest of the year, and there is some demand risk introduced based on the macro environment—higher inflation expectations and uncertainty on rate cuts. It is about balancing that there are three quarters left, and we need to see more of what we saw in the first quarter persist. Ravi Shanker: Understood. Follow-up for James or Mark. You referred to things you are doing on the AI and tech side a couple of times. Can you elaborate with specific examples of tools or functions you are excited about, when we may see it drop to the bottom line, and maybe quantify it? Mark B. Rourke: Thanks, Ravi. AI is focused on reducing friction in our business, particularly in places facing our driver and customer communities. We are targeting areas with leverage from a value standpoint. Early innings show that when you face those communities and remove queues so you get to information faster and prioritize more effectively, you get real impact. For example, triaging driver communications: a breakdown over the road versus a radio not working. AI can help us triage, route to the right people, and tackle the most impactful situations first. That improves service performance, improves the driver experience, and allows better cost decisions. Brokerage gets a lot of AI attention in the industry, but we are as excited, if not more so, about core asset businesses in both Intermodal and Truckload. We are prioritizing high-impact areas, using primarily in-house development with some outside capability, particularly around voice. It is allowing our people to be more effective because they are getting to the right work at the right time. Early innings, but highly encouraging. We will continue to invest throughout 2026. We are already seeing it in results and expect more operating leverage going forward. Ravi Shanker: Very helpful. Thank you, Mark. Operator: Your next question comes from the line of Dan Moore from Baird. Your line is open. Dan Moore: Good afternoon, everybody. Mark, you are going to retire in July. This is probably your last call. It has been great working with you on both sides of the fence as both an investor and a sell-side analyst, and I just wanted to wish you the very best in your retirement. Absolutely, a couple of quick questions to dovetail on Tom’s and Scott’s. Hoping to get some context around the cadence of rate repair in Network, Dedicated, and Intermodal—how we should think about each of those divisions working through renewal as we calibrate our models. Second, what was the impact from fuel and weather in the first quarter? Thanks so much. Mark B. Rourke: I appreciate those kind remarks. Thank you, Dan. On rate recovery, it is incredibly important given the inflation we and the industry have experienced and not fully recovered from over the last couple of years. In our segments, Network Truckload typically shows the most pronounced rate change, up or down, given the options James described and how we can play our portfolio. We would expect Network to be most responsive to the upcycle. We also have a big second quarter for allocation events and expect to get through that successfully. Dedicated generally operates under longer-term contracts, but we have the ability through indexing and other items to get increases across the contract term depending on the calendar. There is also a great opportunity because, outside of really specialty services, we can share backhaul opportunities with our customers—bringing them value and getting after yield in Dedicated by having a better pool of freight to choose from. As demand increases, that increases productivity leverage as well. So not all of it is rate recovery; throughput matters, which is why we are steering toward success being seen first in revenue per truck per week. Intermodal will lag Truckload, as James noted. We will lean into key differentiators—premium products like Fast Track and our industry-leading solution in and out of Mexico, as well as broadening services in other parts of the Mexico geography—which can influence revenue per order. Darrell G. Campbell: On weather and fuel, these events happen every year, but this past quarter was more impactful in the short term. Negatives included increased maintenance costs and loss of productivity. On the flip side, disruptive weather can serve as a catalyst. As we got into March, we saw recovery and opportunities we capitalized on—longer-term positives from the stress. On fuel, we did see volatility and sharp movements, particularly in March; much of that moderated by the end of March. Mark B. Rourke: In the short term, weather and fuel were negatives, but the combination of tighter capacity and disruption generally has a longer benefit than just the short-term impact. Operator: Your next question comes from the line of Christian F. Wetherbee from Wells Fargo. Your line is open. Christian F. Wetherbee: Thanks. Good afternoon. I wanted to come back to the guidance. Do we think that to get more confident toward the high end of the range, demand is the biggest variable? We are beginning to see some contract pricing move in the right direction, but how do you think about the upside and downside around the $0.70 to $1.00? Darrell G. Campbell: You nailed it with demand as the swing factor. When we gave guidance three months ago, demand was the swing factor. Capacity and our self-help actions—cost, productivity, revenue management strategies—played out as expected, although supply did come out at a more rapid pace. But to get to the higher end, we needed a demand inflection. While demand was stable in the first quarter, there is more risk introduced. So it is balancing the optimism from Q1 with incremental demand risk, which on balance keeps us in our range. Christian F. Wetherbee: Zooming out, how do you think about the margin opportunity for the Truck business in a cycle that is more supply-driven, at least for now? What can mid-cycle margins get back to, and timing? Darrell G. Campbell: When we set our long-term margin target ranges, we assume normalized conditions. Over the past several years, we have not been in a normal environment—there has been irrational excess capacity. We are seeing signs of that capacity exiting based on regulatory actions, and we believe we are on a path back to more normalized earnings. It will take more than one allocation event; we need rate for more than one year. We are not waiting for the market—we are executing on cost and productivity, and we saw benefits in Q1 even after disruptions, which gives us optimism to continue on that path. Network has the most ground to cover but also the most visible inflection opportunity, especially given where rationalization has been most acute. Dedicated, Intermodal, and Logistics are within striking range of their long-term target ranges, and Network has notable upside. James S. Filter: On Network, this is where we have been most impacted by irrational capacity and the early-quarter noise. We are executing the early cycle playbook and are encouraged by what we saw in productivity and price metrics. Achieving that level of productivity despite lost days in the quarter was encouraging. We still have room to go on both productivity and price to get back to our long-term range. Operator: Your next question comes from the line of Jordan Alliger from Goldman Sachs. Your line is open. Jordan Alliger: Hi. I wanted to come back to revenue per truck per week in the Network business. I think it was up about 7% in the first quarter. You have talked about productivity, but can you talk about the components—miles per truck per week versus revenue per mile—and how you see that developing from here? Second, can you talk about your current spot exposure and whether there is an optimal target level in a stronger Truckload environment? Thanks. James S. Filter: On revenue per truck per week, the 7% improvement had a small amount from price in Q1. Price has more opportunity going forward. The majority was productivity. We gave more freight options to our trucks and improved efficiency. What is still ahead is the opportunity to get a little leaner on trucks, so we still have room to drive further gains from truck efficiency as well as price and productivity. On spot exposure, we increased from mid-single digits historically to low double digits last year. The ideal level depends on the market. We will handle it dynamically to maintain good customer relationships with mutual value creation and will pivot to get the best mix. Mark B. Rourke: As we went through last year’s allocation events, we purposefully put more Network capacity into spot. We are getting benefit from that and expect to continue down that path as one of several levers—allocation, spot, acceptance—to improve yields. We are encouraged by what we saw in the first quarter and in April, and we expect to keep using spot as a lever. Jordan Alliger: Thank you. Operator: Your next question comes from the line of Jonathan B. Chappell from Evercore ISI. Your line is open. Jonathan B. Chappell: Thank you. Good afternoon. On Logistics, last quarter the margin was pretty close to zero, and now you turned it around quickly in one quarter in a backdrop that is usually more difficult for traditional brokerage, even though revenue is down. Was the improvement more structural—cost and productivity? And as we think about the starting point, do you continue to get margin improvement if volume picks up through the rest of the year? James S. Filter: Thank you. We are proud of our Logistics business and its differentiation. Across the industry, rising third-party carrier costs can weigh on contract-rated business, especially power-only. Our earnings recovery reflects our strategy with three parts. First, we aim to be a trusted partner, investing in new capabilities and rapidly expanding verticals. That differentiation has enabled us to become a sole-source provider in those areas and sell additional value-added services. Second, we are seeing early productivity benefits from AI enhancements that structurally lower cost to serve, enabling us to capture incremental volume at very low cost. Third, being an asset-based provider is complementary; as the cost of capacity rises or uncertainty increases, we can pivot quicker, and it gives customers more confidence to utilize our Logistics solution over a non-asset solution. We believe this strategy gives us a strong footing going forward. Mark B. Rourke: We certainly had a net revenue per order squeeze in the fourth quarter. In the first quarter, we were more discerning on acceptance of contract business, particularly with transactional shippers, so we could pursue more spot. Nearly half of Logistics remains under contract, but we were nimble around the edges, which showed up in the net revenue per order recovery. Our tools and technology investments, particularly around pricing and acceptance, allow us to be very nimble when there is market disruption or inflection like we saw in the first quarter. Jonathan B. Chappell: In the context of the guide, each quarter in 2025 the margin deteriorated sequentially and troughed in the fourth quarter. Now you are starting at basically the same point—would you say the anticipation is that each quarter improves sequentially, and that is how you get to the midpoint, as it relates to Logistics contribution? Mark B. Rourke: Looking at our guide, we expect improvement from the first quarter. We feel very good about our controllables—cost management and productivity initiatives James has led. The swing factor is demand. We have not seen weakness to date, but because we guide for the full year, we must balance the resilience of the consumer with consumer sentiment and fuel’s impact on pocketbooks. Our customers are watching that closely. We are encouraged by the industrial side with manufacturing investments, which could offset. Net, we are balancing gives and takes. Darrell G. Campbell: We also noted in January and in this update that our guidance is second-half weighted. Seasonality indicates more earnings in the second half. Jonathan B. Chappell: Got it. Thanks, Darrell, Mark, and James. Operator: Your next question comes from the line of Ariel Luis Rosa from Citigroup. Your line is open. Analyst: Hi. This is Ben Moore on for Ari. Thanks for taking the question. Adding to Tom’s and Dan’s questions, can you remind us of the average length of your Dedicated contracts and how your Dedicated contract renewals are bucketed by percentage each quarter so we can model the shape of the lift to Dedicated rates throughout the year? Mark B. Rourke: Good question. Our general range in Dedicated is three to five years, with the median at three. Because of the long tail and the size and scope of our Dedicated—about 8,500 trucks—renewals are fairly evenly distributed by quarter and by year. On average, with a three-year median, roughly a third of the book is in renewal in a given calendar year. We also have greater than 92% to 93% retention of our Dedicated contracts. Analyst: Thank you. You mentioned the 150 trucks you sold. You did not have many big conversations in 4Q that could have supported 1Q implementations, but you expected those to pick up in February and beyond. How are those trending, and how many gross trucks were added in January, and how many are expected to be added in February, March, and April? James S. Filter: Our early cycle focus in Dedicated is productivity, not just the number of trucks. Our key metric is revenue per truck per week. We see opportunities to pull some trucks out of existing customers and improve efficiency. That is the metric we are focused on going forward. Analyst: Great. Thanks for the clarification. Operator: That concludes our question and answer session. I will now turn the call back over to Mark B. Rourke for closing remarks. Mark B. Rourke: Thank you, operator. Once again, I want to recognize our professional drivers, maintenance technicians, and the entire Schneider National, Inc. associate team for their commitment to safely supporting our customers during a quarter that was marked by significant disruptions. As we discussed today, we are optimistic that the much-anticipated freight recovery driven by substantial supply reductions has finally taken hold, and our versatile multimodal platform is built to provide us and our customers with flexible freight coverage options. This optionality, along with our diligent efforts to manage costs, invest wisely in technology, and prioritize people and asset productivity, positions us to achieve strong operating leverage and advance toward our long-term margin goals in the midterm. On a personal note, as Dan mentioned, this does mark my thirty-sixth and final Schneider National, Inc. earnings call before James S. Filter’s transition to president and CEO in July and my move to executive chairman. I want to express my heartfelt gratitude to this group and to our shareholders for your steadfast support and thoughtful engagement throughout each of those quarters. It has been both a privilege and a joy. I also know that with James, Darrell, and Christyne, you are in great hands moving forward. As always, we thank you for your interest in Schneider National, Inc. Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.
Operator: Good afternoon, and welcome to Sandisk Corporation's Third Quarter Fiscal Year 2026 Earnings Conference Call. All participants will be in listen-only mode. To ask a question, please press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Ivan Donaldson, Vice President of Investor Relations. Please go ahead. Ivan Donaldson: 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 technology and product portfolio, our business plans and performance, our capital allocation priorities, market trends and opportunities, and our future financial results. We assume no obligation to update these statements. Please refer to our 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. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the written materials posted in the Investor Relations section of our website. With that, I will turn the call over to David. David V. Goeckeler: Thanks, Ivan. Good afternoon, and thank you for joining Sandisk Corporation's fiscal third quarter earnings call. We delivered another strong quarter with excellent performance across all key metrics, reflecting the strength of the Sandisk Corporation franchise. Before turning to our end markets, I would like to provide an update on a priority we previously outlined. Last quarter, we were engaged in discussions with customers on multiyear supply partnerships—what we refer to as new business models, or NBMs. I am pleased to share that we have successfully advanced those conversations, with five multiyear partnerships signed so far. These partnerships are structured to lock in committed supply for our customers and committed financials for Sandisk Corporation. Our customers' commitments are backed by firm financial guarantees. These partnerships support durable, structurally higher earnings and a significantly more predictable and less cyclical business for Sandisk Corporation. We believe this marks a fundamental evolution of our business centered on deeper customer alignment, enhanced visibility, and long-term value creation. These NBMs reflect the strategic value of our world-class NAND technology, which is built on decades of innovation. Investment we have made in R&D and manufacturing, including tens of billions of dollars in cumulative CapEx and IP, have built the foundation for a powerful new business model in which we manage the full stack—from front-end manufacturing through chip and system-level design to final back-end assembly and test. Both the extension of our joint venture with Kioxia and the supply agreement for DRAM following our investment in Nanya further strengthen our supply chain resiliency. This leverage is enabling us to drive stronger customer engagement, allowing long-term conversations with partners who value technology performance and long-term supply assurance. With increased engagement and optionality across the portfolio, we can optimize our end-market mix more effectively. Together, these transformations have resulted in a step change in what we believe to be sustainable gross margins, free cash flow generation, and earnings power in a market that we expect to grow in the double digits for the foreseeable future. Data center is a clear example of this strategy in action, with revenue growing 233% sequentially. This milestone reflects years of preparation and our deliberate shift toward what is now the most strategic and fastest-growing end market. While we have made substantial progress, there are significant growth opportunities ahead driven by the fundamental shift in underlying infrastructure requirements of artificial intelligence. We are witnessing extraordinary growth not just in model size, but in resulting token generation, the duration and complexity of model runs, and the increasing importance of context. As AI models scale from billions to trillions of parameters, and deployments advance from simple inference to deep reasoning in increasingly autonomous agentic systems, NAND has become a critical component of the underlying infrastructure. Inference optimizations such as KV cache, along with workloads like RAG, require substantial high-performance, low-latency flash to deliver real-time responsiveness and quality of user experience. These workloads expand the amount of data that now needs to be stored on low-latency flash well beyond the model itself, as systems must retain context, intermediate data, and large external data sets. As a result, NAND flash is emerging as the only economically viable solution to deliver the capacity, performance, and efficiency required to keep models accessible for real-time inference at scale. This shift in understanding the critical nature of our technology comes at a time when our product differentiation is strongest, anchored in what has been recognized as an industry gold standard for NAND technology with BiCS 8, and a broad, leading portfolio with TLC and QLC offerings. We are confident that our world-class product portfolio and technology leadership will continue to drive data center customers to see Sandisk Corporation as a partner of choice over the long term, and we are already seeing that preference translate into results. Our fiscal third quarter revenue was enhanced by strong demand for our TLC-based enterprise SSD portfolio, which powers performance-intensive compute workloads where speed and latency are paramount. Looking ahead to the fiscal fourth quarter, we expect to begin shipping our QLC Stargate solutions for revenue, adding another layer of revenue growth. Together, TLC and QLC serve distinct but complementary roles, reflecting how we are deliberately architecting our portfolio to meet evolving customer needs with our broad portfolio of AI-focused data center products. In edge, we are seeing a continued shift toward premium devices across both PC and smartphone markets. These platforms are increasingly incorporating on-device capabilities, which are driving higher storage requirements and greater demand for high-performance solutions. As a result, our mix continues to shift to high-value configurations and customers that assign the appropriate value to our technology. Consumer saw strong year-over-year revenue growth across all key storage categories and regions despite evolving consumer industry dynamics. This performance was supported by our strong brand recognition and channel presence as we focused on the most financially attractive demand. In February, we unveiled our next-generation portable SSD portfolio designed to support faster, more demanding workflows and AI-enabled content creation. This launch reinforced our innovation and leadership in the SSD category, generating meaningful external visibility with coverage across multiple global media outlets. We also continue to strengthen global consumer engagement through new brand-led go-to-market activities such as our “Space to Hold More” campaign, which is driving deeper customer connection by localizing global narratives and engaging diverse communities worldwide. Together, these efforts reflect our focus on our end markets and commitment to driving demand through brand recognition, product innovation, and strong go-to-market execution as we shift our portfolio toward higher-value opportunities and transition away from legacy upsell models. Our broad end-market exposure sets us apart, and we remain committed to serving customers across these markets. With that, I will turn the call over to Luis to dive deeper into our financial performance and guidance. Luis Visoso: Thank you, David. I will begin with an update on our new business models, or NBMs, which are designed to provide us with demand certainty and provide our customers with supply assurance. We signed three agreements in the third quarter and an additional two so far in the fourth quarter, and we are currently in active negotiations with several other customers. These agreements are tailored to meet the needs of our customers and, in aggregate, provide us with demand certainty at financials that we expect will be consistent with our fiscal fourth quarter guidance. The duration of these agreements varies, with the longest contract extending to five years. In aggregate, volume commitments increase during the life of the contracts, with quarterly commitments and a combination of fixed and variable pricing. These agreements with variable pricing allow us to capture upside if prices rise, while allowing our customers some upside if prices decline over time. As you will see in our 10-Q, the three contracts signed during the quarter provide minimum contractual revenue of approximately $42 billion. We will update you as we make more progress. Each contract is secured with financial guarantees that protect us if the purchase obligations are not fully performed by our customers. In aggregate, the five agreements signed so far include financial guarantees that exceed $11 billion and include prepayments and other financial instruments managed by third-party financial institutions. Out of these agreements, $400 million in prepayments are included in our Q3 balance sheet. These five new business models account for over a third of our bits in fiscal year 2027, which we expect to increase as we conclude additional agreements over the next few months. We expect these new business models to reduce the historical cyclicality of our business, improving visibility and resulting in pricing and margins that reflect the value of our technology and investments, ultimately delivering higher, more consistent, and durable returns for shareholders. Moving on to our results for the quarter. Revenue for the third quarter was $5.95 billion, up 97% sequentially and up 251% year-over-year. This compares favorably to our guidance of $4.4 billion to $4.8 billion and was driven by both a mix shift toward higher-value customers and higher pricing. Our bit shipments were flat year-over-year and down high-teens sequentially as we build higher inventory levels, primarily to support strong BiCS 8 QLC demand in the fourth quarter Stargate ramp and to prepare for our recently signed new business models. In line with our mid- to high-teens growth model, bit shipments increased 18% fiscal year-to-date. Moving on to the end markets. Sequentially, data center revenue grew 233% to $1.467 billion. Edge grew 118% to $3.163 billion, and consumer came in at $820 million, down 10% in line with our historical seasonality. Our portfolio planning strategy focuses on delivering attractive long-term economics, with diversification remaining a core strength. We remain committed to serving all three end markets to maximize long-term value creation. Our non-GAAP gross margin for the third quarter was 78.4%, up from 51.1% in the prior quarter. This compares favorably to our guidance of 65% to 67% and was driven by our shift toward higher-value mix and the overall pricing environment. Non-GAAP operating expenses for the third quarter were $448 million and represent 7.5% of revenue, as compared to 13.7% of revenue in the prior quarter, as we generate additional leverage. This compares favorably to our guidance range of $450 million to $470 million. As a result, non-GAAP operating margin was 70.9%, up from 37.5% in the prior quarter. Non-GAAP EPS was $23.41, up from $6.20 in the prior quarter. This compares favorably to our guidance range of $4.12 to $14. Key GAAP to non-GAAP reconciliation items include $20 million in stock-based compensation, net of taxes, which represents 0.3% of revenue, and $46 million related to the write-off of unamortized issuance fees as a result of our repayment of the remaining $650 million balance in our TLB. We closed the quarter with $3.735 billion in cash and cash equivalents on our balance sheet. Moving on to free cash flow. During the quarter, we generated $2.955 billion in adjusted free cash flow, which represents a 49.7% margin. Cash flow from operations came in at $3.038 billion, partially offset by $83 million from net cash capital spending. Gross capital expenditures totaled $240 million and represented 4% of revenue. Our capital plan is designed to balance growth opportunities and generate attractive returns while supporting our ongoing BiCS 8 transition. We remain highly disciplined in how we evaluate such investments to protect the long-term sustainability of our business financials. Moving on to guidance. For the fourth quarter, we forecast revenue between $7.75 billion and $8.25 billion from both bits growth and higher pricing. Our forecast for non-GAAP gross margin is between 79% and 81%. We expect non-GAAP operating expenses between $480 million and $500 million as we continue to invest in innovation and R&D. We expect non-GAAP interest and other income between $10 million and $30 million and non-GAAP tax expenses between $775 million and $875 million. We forecast non-GAAP EPS between $30 and $33, assuming 158 million fully diluted shares. Moving to capital allocation. The priorities we outlined in February were to invest in the business, achieve a net cash position, and then return cash to shareholders. In line with these priorities, we have taken steps over the last two quarters to solidify our supply chain, including extending our JV with Kioxia through December 2034 and investing approximately $1 billion in Nanya to secure long-term DRAM supply. We have also taken actions that put us in a strong net cash position by paying off the remaining balance of our TLB. Given the strong progress, today we are announcing that our board of directors has authorized a $6 billion share buyback program of outstanding shares of common stock. The repurchase authorization is effective immediately with no expiration date. With that, I will turn the call back to David for closing remarks. David V. Goeckeler: Thank you, Luis. In summary, we continue to execute with conviction at a critical inflection point for this business. NAND has always been a foundational technology, empowering the world's best-in-class semiconductor storage solutions required to drive the largest technological movements, including PC, mobile, cloud, and now artificial intelligence. Data center has become our fastest-growing market, and the workloads driving that demand—including inference, reasoning, and agentic systems—represent a structural and durable shift in how the world's most consequential technology is built and deployed. Our new business models reflect this shift. Five signed agreements to date, over $11 billion in financial guarantees, and over a third of our bits in fiscal year 2027 under firm customer commitments represent a fundamental reshaping of our business, providing visibility, pricing protection, and more consistent, durable returns. Our technology and product portfolio are intersecting this extraordinary demand at exactly the right moment. Equipped with a complete portfolio that now includes a scaled and rapidly growing enterprise SSD business, we are allocating supply to the highest-value opportunities and establishing a new pillar of growth for Sandisk Corporation. This progress has converged in a single moment. We believe our margins are sustainable, we have achieved our net cash target, and we have announced plans to return capital to shareholders through buybacks—all while reinforcing our operational foundation. Combined with our multiyear NBMs and the acceleration in the data center end market, this gives us both financial strength and structural resilience. The result is a durable growth model, a valuable franchise, and a business built to generate substantial, sustained cash flow. With that, Ivan, let us see if there are any questions. Operator: Thank you. We will now open the call for questions. To ask a question, please press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Mark Newman with Bernstein. Please go ahead. Mark Newman: Thanks very much for taking my question, and congrats on another great quarter. A couple of quick questions here. So the EPS guidance you have given, $30 to $33—these are fantastic numbers. It does imply that the rate of price increase is slowing a bit into the current quarter. I wondered if that is either being conservative on your side because we are still quite early in the quarter, or is that related to some of these very long-term agreements that you signed? And with regards to the long-term agreements, I believe you mentioned about a third of bits for FY '27 in some kind of long-term agreement. I would like to ask to what degree is price fixed in the coming quarters, just so I can get a sense for that. Thank you very much. Really appreciate it. David V. Goeckeler: Hey, Mark. It is good to hear from you, and thanks for the comments. First, on next quarter and pricing, we do not really guide pricing, but I think you saw in FQ3 rather extraordinary pricing acceleration across the business, so we are very happy about that. And you are right, it is early in the quarter and it is an extremely dynamic market, so it pays to be a bit conservative when you are going down that path. But we are very confident in the numbers. On the agreements, I will make a few comments and Luis will have something to say as well. You were asking about pricing being fixed. These agreements are really tailored to individual customers. They have different elements depending on the customer and on the length of the agreement that give us assurance on consistency of demand, which is what we need. We run a fab. We have very consistent output. We need very consistent consumption. One of the major attributes of these agreements is they give us that. Our customers understand the dynamic very clearly. These agreements do not just happen overnight. It is not just about prepaying for a couple of quarters’ worth of supply. This is about establishing up to a five-year agreement on supply that is very consistent quarter over quarter. And as we said, there are financial instruments in place such that if that consumption does not happen on that very predictable time frame, there are financial commitments that come to us immediately. The pricing has fixed elements and variable elements. Maybe I will let Luis talk about it in a little more detail. Luis Visoso: I just want to reinforce what David was saying. These models are here to deliver more durable, more predictable, more attractive, more consistent financial results. They are very good, and, frankly, a win-win for us and for our customers. We provide supply; they provide demand. We have visibility for many years, all the way to five years, so we are very happy about that. You have never heard us talk about RPO, or remaining performance obligations, in this business, and we started to talk about that. You will see it in our 10-Q—about $42 billion of RPO in this business. On pricing, it is a combination of fixed and variable. To address your question directly, the shorter term within the contract is more fixed; the longer out you go, there is more variable. You can assume most of the pricing in the very short term is mostly fixed, and as you go out, there is a little bit more variable for us to capture upside and for our customers to capture some upside if prices were to go down. Mark Newman: Thanks so much. I really appreciate it. David V. Goeckeler: Thanks, Mark. Operator: The next question comes from Joseph Moore with Morgan Stanley. Please go ahead. Joseph Moore: Great, thank you. I wonder if you could talk about the growth in enterprise SSD that you saw—pretty impressive. How much of that is the market, and how much of that is you putting the product portfolio in a better place? David V. Goeckeler: Like a lot of things, when you see 233% sequential growth, Joe, there are a lot of elements to that. It starts with the portfolio. The portfolio is in great shape. Our TLC product—this is almost exclusively our TLC product. We are going to start shipping our Stargate product for revenue next quarter. So really strong performance, very strong product, and a broadening of qualifications. It takes a while to get into all these accounts, so we are now in a large number of accounts. And there is strong market pull. There is a lot of demand in the market for these high-performance enterprise SSDs. We have the right product at the right time, and we are really happy to see this part of the portfolio expand and get to the levels where we expect it to be. We were 25% of the portfolio this quarter, and we expect that to increase as we go forward. Joseph Moore: And my follow-up: where do you see that in a few years? It seems like hyperscalers want everything you can make and then some. Just how much of the business could be enterprise in the long term? David V. Goeckeler: It could be a significant amount. You have known for a long time we value a balanced portfolio. We want to mix in the way that gets the best financial return for us, and that changes quarter over quarter. The key point is we are in a position where we can mix into data center in a way that we have never been able to do before. I expect that number to keep rising over the next several quarters and the next several years. Operator: The next question comes from Analyst with Melius Research. Please go ahead. Analyst: Hey, guys. It is great to be on board here. I almost feel like I am on a software call here. You said one-third of bit growth next year is contracted. Where do you see this going based on your conversations? It is one-third next year, but can this be above 50% where you know how much is kind of done going into the year? And then I have a follow-up. Thanks. David V. Goeckeler: First of all, welcome. We are glad you are here. We are still in a lot of conversations about how we are changing this business. It takes a while depending on the customer. Some customers come into the conversation really concerned about multiyear supply agreements, so it is an easier conversation. Other customers are used to the way the market has worked in the past—commit volume and negotiate price every quarter. That is not the kind of agreement we are interested in. We are interested in agreements that give us certainty of economics. A key point of what Luis said in the script: there are fixed and variable elements of these agreements, but we are targeting financials for the five agreements we signed that are in line with what we just forecasted to—this is very attractive business. We are in active conversations for our supply going forward—that includes next year all the way through the next five years. We said at least a third; we are over a third, and I expect that number to go up over the next several quarters. Where can it get to? I definitely think it can get above 50%, and we have a desire to drive it quite high. Analyst: And with regard to margins, when you do these kinds of agreements, can you lock in margins? Is there a target margin range you are comfortable talking about? You could argue the stock is trading like your margin is going back into the 40s. David V. Goeckeler: I do not think we are there yet to talk about a target. When we get a little further along, we will wrap this all up in a new model for everybody. We are very proud of our technology. I think for the first time in decades in this business we are getting to the point where the value of our technology is getting recognized by producers. We are not interested in trading away that value for certainty; we are interested in getting that value and getting certainty as well. We are very focused on getting the cyclicality out of this business. It is corrosive to how we invest our CapEx and to our customers' ability to get sufficient product to drive their businesses. We have taken meaningful steps: very significant commitments from very significant customers. We will move this entire business to a very different spot to everybody’s benefit. It was questionable if we could make that progress; people told me it would never happen. It is happening—but we are still in the early stages. As we make continued progress, we will continue to give updates. Luis Visoso: Thanks. Operator: The next question comes from C.J. Muse with Cantor Fitzgerald. Please go ahead. C.J. Muse: Good afternoon. Thanks for taking the question. Curious to get your thoughts around supply-demand going forward for NAND. We are getting only limited greenfield, mostly layer count driving bit growth, while new greenfield is being prioritized for DRAM. With that construct and the agentic AI incremental growth, how are you thinking about when the industry might get into balance? David V. Goeckeler: My point of view is the industry is always in balance—markets always balance supply and demand. Implicit in your question is, if you lower the price, will you meet more demand? We are working around that whole environment. On the demand side, we continue to see data center accelerate. We would raise our calendar year '26 data center growth number to the mid-70s from the 60s just three months ago, which is up from the 40s three months before that and the 20s three months before that. Very strong growth in data center. Outside of data center, we are seeing some contraction due to unit decline; we expect that to bounce back in '27. On the supply side, a major benefit of this franchise is that we can increase supply through nodal transitions. We have a very productive R&D pipeline with our JV partner and the BiCS roadmap. We can continue to drive the mid- to high-teens bit growth through nodal transitions. We need to add some cleanroom space because each node has more steps, so there is some additional CapEx, but it is not like other markets where you must add capacity because you are not getting that much from the nodal transition. This is what makes this franchise such a spectacular cash generator: CapEx as a percent of revenue continues to go down substantially. The absolute CapEx is still there, but relative to revenue generation we have years of runway into what nodes are going to be and what the bit growth will be. We will continue to invest in those and drive nodal transitions to grow the market in that mid- to high-teens rate, and that is basically what we see across the NAND players. C.J. Muse: Very helpful. Just quickly, in terms of capital structure, you are now no debt, $3.7 billion cash. What do you think you need to retain given your view today and the new contracts, and how should we think about buybacks from here? Luis Visoso: We announced a $6 billion share buyback with this call. We will keep tracking our cash flow—we are generating good cash—and as things change and as we execute the share buyback program, we will keep you updated. Operator: The next question comes from James Schneider with Goldman Sachs. Please go ahead. James Schneider: Good afternoon. Thanks for taking my question. One more question on the new business models. Can you talk about whether any of the five largest U.S. hyperscalers are included in those contracts thus far? And related to this, on a go-forward basis, do you plan on providing any sort of ACV or confirmed contract value per your normal disclosures? Luis Visoso: We are not going to disclose the names of our customers, but as David said at the beginning, we have some very meaningful customers who are joining and more that we are working with. To your second question, we will provide the RPO metric, which is how much of the business is already contracted, and that is based on minimum prices. We will continue to give that information every quarter, and you will have that visibility as we make progress. James Schneider: Thank you. As a quick follow-up, given these new business models and your visibility on customer demand, what is the state of your discussions with Kioxia in terms of potentially increasing bit supply? Are you contemplating anything above the sort of 20% range of growth you have outlined previously? David V. Goeckeler: We still have the same plans. The conversations with Kioxia are always very robust and ongoing, and the teams are working on this every day. We have our BiCS 8 transition plan that we have aligned on, and we are executing to it. It is going extremely well. James Schneider: Thank you. Luis Visoso: Thanks, Jim. Operator: The next question comes from Aaron Rakers with Wells Fargo. Please go ahead. Aaron Rakers: Hi. This is Jake on for Aaron. Congrats on the great results, guys. Looking at Stargate starting to ship for revenue in April, can you give some color on how meaningful that ramp could be over the next few quarters? David V. Goeckeler: There are two major products in the data center space. There is the compute-focused enterprise SSD—lower capacities and much higher interface speeds—and then there are much higher densities. The progress we have seen so far is coming off that compute-focused TLC drive, and now we are going to bring the whole QLC product to market, which has been under qualification with some major players for well over a year. We are not going to forecast a specific market segment, but we are very proud of that product, and we think it is going to do quite well in the market. Aaron Rakers: Thanks. As a follow-on, with more powerful LLMs released over the past few weeks, how are you thinking about the KV cache opportunity as we see agentic AI grow? Has that meaningfully changed over the last few quarters, and how have customer discussions changed there? David V. Goeckeler: We have advanced our understanding a lot over the last quarter or two since it became a major part of the conversation. When you drill into that opportunity and try to size it, it gets complicated quickly—number of concurrent sessions, average input tokens, cache hit ratios, storage durations, and more. We need to stay very close to our customers because they will have the detail on the infrastructure they are building. Those doing infrastructure at scale have great insight into how those variables come together. This reinforces the business model conversation as our customers understand the significance of NAND—this is a foundation for striking two-, three-, or five-year deals that are very substantial in demand. It is an extremely dynamic situation. Our customers are responding very positively to our products. They are willing to commit years of purchasing with a financial model that is very attractive for us and gives them guaranteed supply. They are putting up billions of dollars of collateral through various financial instruments that will survive for the life of these contracts, and if they do not meet their obligations on consistent purchasing every quarter, that financial commitment immediately comes to us. We do not expect to collect those because our customers are extremely serious about needing this product. The normal case is we sign an agreement and within weeks we are having a conversation about increasing the amount of product. The market is moving very quickly—literally every day—and that makes it difficult to forecast. We want to solve a bunch of issues for our business: get a fair return for our product, leverage our substantial investments in IP and fabs with our JV partner, and get the cyclicality out of the business. There are now very substantial customers that do not want to play the quarter-by-quarter price game. They want the best products on a consistent basis so they can plan their own business. That opens the opportunity to fundamentally change how this business has worked for decades. There are lots of other technology industries that understand recurring revenue models—it is a very powerful financial model, and we think we can bring it to our franchise. Operator: The next question comes from Asiya Merchant with Citigroup. Please go ahead. Asiya Merchant: Thanks for taking my questions and a great set of numbers. David, I think I heard you say some client demand with PCs or smartphones may be snapping back; you sounded optimistic on that into next year. Are you seeing anything—AI on edge devices—that underpins your optimism? And given that demand seems tilted toward meeting hyperscaler demand, what gives you confidence you can meet some of that client demand if it snaps back? And for Luis, CapEx used to be mid-teens as a percentage of revenues. How should we think about that going forward? David V. Goeckeler: Looking at '27, we see PC and phone units are down now as you would expect; we see those flattening out and up slightly in '27. That reflects the market’s ability to adapt. Device companies are spectacular—very smart people that understand how to change their portfolio mix. We will still see content per device increase this year—phones up, PCs flat—and we will see both inflect up next year while units are flat to up slightly. What will we supply? We are going to supply the customers that we have agreements with. That is the change we have been talking about. We are talking to edge customers as well about these NBMs—multiyear agreements with the same characteristics. Those customers understand their businesses extremely well; if we reach the finish line, we will have great insight into their demand because they will have told us and put a financial commitment behind it. We are navigating away from a market where we just show up and see what demand and price are, to one where customers commit demand we can really count on—and they can really count on us. Luis Visoso: On CapEx, we continue to invest toward a mid-teens capacity growth over time. You should think about it more in dollars than percent of revenue. It is a little bit of an increase into the next several quarters as we continue transitions—we did the easier conversions first, and the next conversions will be a little more expensive on a dollar basis to deliver the same kind of growth. Nothing dramatic, and no change in philosophy. Operator: The next question comes from Vijay Rakesh with Mizuho. Please go ahead. Vijay Rakesh: Phenomenal set of results. On the guarantees and RPO: data center is already at $1.5 billion, an annualized $6 billion run rate. Are the $11 billion in guarantees and the $42 billion RPO mostly in data center? And on pricing in these guarantees, is it mark-to-market as you look out two to three years? Luis Visoso: We are not disclosing customers or segment mix tied to the $42 billion RPO. That $42 billion is the minimum contractual revenue from the three deals signed before the end of the quarter. If you include the other two signed so far in Q4, that would be a larger number—you will see that number in our next quarter, but it is not part of the $42 billion. Regarding the $11 billion, they are different financial instruments used to protect us. There is a portion in prepayments—around $400 million you will see on our balance sheet—and there are other financial instruments managed by third-party financial institutions, triggered if the contract is not fulfilled. Vijay Rakesh: As you look at your NAND roadmap, you have a pretty disruptive technology coming in terms of high bandwidth flash. Any thoughts on how that is progressing? David V. Goeckeler: We are happy with how it is going—steady as she goes. We are having conversations with customers on how they would deploy it. We are building the technology—the NAND die and the controller. We are still on the timeline we talked about earlier of having the NAND late this year, and looking for more of a system with the controller early to mid next year. Operator: The next question comes from Blayne Curtis with Jefferies. Please go ahead. Blayne Curtis: Maybe following on that: you are hearing more discussion about different memory tiering—maybe accelerators using more DRAM. Any perspective on where high bandwidth flash fits into that? Any change over the last quarter on where that storage will be? David V. Goeckeler: Not really. The tiering architecture that came out maybe a quarter ago is what is being deployed. High bandwidth flash is not a substitute for an enterprise SSD; it is a way to bring a lot more to inference in a different way. You can see it in our numbers—enormous pull on the portfolio of high-performance enterprise SSDs as these architectures get deployed and inference scales. NAND is the most scalable semiconductor technology in the world and is now a critical component of that architecture. We still expect refinements as we go forward. That is why we are staying close to customers deploying at scale. Understanding what that means for demand on our product is driving demand signals years into the future for us, allowing us to align our business model around that demand. Operator: The next question comes from Ruplu Bhattacharya with Bank of America. Please go ahead. Ruplu Bhattacharya: Hi. Thanks for taking my question. Two quick ones. For Luis: on the long-term agreements, is there any restriction on when you can raise prices? Is it allowing for annual price increases, or are there conditions when you can raise prices? And for Dave: how do you see interest in QLC flash trending, and how do you see the mix of TLC versus QLC trending over the next couple of quarters? Luis Visoso: We cannot go into pricing details for each contract. As said, there are fixed-price components and variable components, and it is different depending on each agreement. There is no overall answer on pricing cadence. David V. Goeckeler: On TLC versus QLC, across the whole portfolio it is roughly two-thirds TLC and one-third QLC. In data center, for us it is predominantly TLC, and we will be launching major QLC products next quarter. There is a lot of demand for TLC in enterprise SSDs given the inference architectures and the importance of KV cache, which can scale dramatically based on use case assumptions. That said, we expect our QLC products to do very well. Operator: This concludes our question and answer session. I would like to turn the conference back over to Ivan Donaldson for any closing remarks. Ivan Donaldson: Yes. I just want to say thank you, everyone, for joining the call today. Thank you for your support. David V. Goeckeler: We look forward to speaking with you throughout the quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. 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 afternoon. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to Reddit's First Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the call over to Jesse Rose, Head of Investor Relations. Jesse, you may begin your conference. George Josh Beck: Thanks, Krista. Hi, everyone. Welcome to Reddit's First Quarter 2026 Earnings Call. Joining me are Steve Huffman, Reddit's Co-Founder and CEO; Jen Wong, Reddit's COO; and Andrew Vollero, Reddit's CFO. I'd like to remind you that our remarks today will include forward-looking statements, and actual results may vary. Information concerning risks and other factors that could cause these results to vary is included in our SEC filings. These forward-looking statements represent our outlook only as of the date of this call. And we undertake no obligation to update any forward-looking statements. During this call, we will discuss both GAAP and non-GAAP financials. Reconciliation of GAAP to non-GAAP financials can be found in our letter to shareholders. Our first quarter letter to shareholders and earnings press release are available on our Investor Relations website and Investor Relations subreddit. And now I'll turn the call over to Steve. Steven Huffman: Thanks, Jesse. Hi, everyone, and thank you for joining us today. We're excited to start the year off with a strong first quarter. As we've been building Reddit over the years, I have often reflected on and been inspired by the unique opportunity in front of us and the fact that Reddit is truly a one-of-one company. That idea came up again and again during Q1 with one of the most tangible proof points in our strong commercial results. This marks our seventh consecutive quarter with revenue growth over 60% and with industry-leading gross margins over 90% and adjusted EBITDA margin of 40% and record cash flow of more than $300 million. At the same time, our capital expenditures remained low as $1 million, underscoring the advantage of Reddit's capital-light model. When you look across the more than 300 publicly traded tech companies, there's only one that combines this type of growth, profitability and efficiency, and that's Reddit. Our commercial success is differentiated because our community product is differentiated. But powers these results are Reddit's raw materials. First, we have deeply engaged users who come to Reddit it for high-intent uses, authentic recommendations and answers to questions like, what should I watch next and what type of stroller is best for 2 kids. Second, we have an ads business that is built on contact, interest and commercial intent. Around 40% of conversations on Reddit are commercial in nature, where people are actively discussing products, services and purchase decisions. And these conversations are uniquely influential. 84% of shoppers say they feel more confident in their decisions after researching on Reddit. When you combine these two things, engage communities and commercial intent you create a powerful environment for advertisers. We see this in the outcomes we're delivering and in the continued scaling of our ads business and ARPU growth. Another reason Reddit stands out today is our position in the AI landscape. Reddit is built on more than 2 decades of human conversation. Over 25 billion posts and comments and every month, our communities generate the equivalent of Wikipedia's entire content library in new content. As AI becomes more prevalent, people increasingly seek out real human perspectives and in turn, AI models rely on these perspectives to train and power their products. Scarce assets tend to become more valuable over time and authentic human conversation at scale is becoming increasingly rare. Reddit's conversations are like oil for the modern Internet, a foundational resources powering the next generation of technology. On the user side, we are making steady progress, but we still have work to do to increase frequency and accelerate growth toward the levels we see on leading platforms. We believe Reddit it has the potential to be one of a handful of scaled global platforms on the Internet. We already have tremendous reach today with nearly 500 million weekly users globally and 200 million in the United States. Now it's about driving both greater reach and greater frequency. In particular, we're focused on growing our daily user base in the U.S. to a size closer to that of the largest platforms. Our goal is to reach 100 million daily U.S. users and are actively executing a strategy to get us there. One thing that has become clear is that product quality leads to growth. I believe our previous ways of working yielded the best results we were capable of, but not the results we aspire to. So to get to the next level, we first had to improve ourselves. Over the last year, we've made and continue to make a number of foundational changes to both our talent and infrastructure that we believe will unlock significantly greater headroom for Reddit's growth. We strengthened our teams with more people who have successfully grown other major platforms, we've added critical machine learning talent to build the capabilities required for today's Internet, and we've improved our processes for data, experiments and shipping more quickly while still improving quality so we can realize our vision. We made advancements across several product areas this quarter that we're encouraged by, including bot verification, improvements in core user engagement, performance gains across the stack and continued success with machine translation. Looking ahead to the remainder of 2026, our priorities include broadening the top of funnel, improving new user retention and making Reddit faster across the board, which remains a meaningful opportunity and can lead to an outsized impact. Our mission to empower communities and make their knowledge accessible to everyone is ambitious, and it won't be achieved in a single quarter, but we're making steady progress, and we won't rest until we get there. As always, thank you for being on this journey with us. With that, I'll hand it over to Jen. Jennifer Wong: Thank you, Steve. Hello, everyone. It was a strong quarter and an excellent start to the year for Reddit. There are a number of encouraging factors contributing to our commercial success and we're also seeing favorable secular trends that support Reddit's it's long-term opportunity. Beyond the raw materials Reddit has for an advertising platform, Reddit is playing a bigger role in the consumer decision journey. While people are using AI summarized information, people are also increasingly wanting to see and incorporate a breadth of perspectives from other people into their decision-making. The value of authentic human perspective is increasing as more information is generated and summarized by models. That's where Reddit stands apart. People are looking for real opinions, real experiences and real product usage from other people. For example, people are coming to Reddit to validate what they read and hear elsewhere, including the responses they get from LLMs. This adds to our billions of conversations and perspectives that help people evaluate products, services and ideas through the lens of genuine human experience. This search for human perspective is embedded in how people make decisions, especially purchase decisions. And as a result, Reddit is becoming more integral to that journey. At the same time, our advertising platform is becoming increasingly effective at converting that growing intent into meaningful business outcomes. Now moving to our results. In Q1, total revenue grew 69% year-over-year to $663 million, and advertising revenue grew 74% year-over-year to $625 million as we saw broad-based strength across the business. Revenue growth in Q1 was driven by a combination of both impressions and pricing growth reflecting the scale of our platform and our investments in the ad stack to deliver strong outcomes and make every impression more valuable. Our investments in the ad stack, including machine learning for signal optimization and ad formats, combined with our go-to-market strategy are delivering meaningful outcomes for advertisers and driving strong growth in new advertisers. In Q1, conversion-driven lower funnel revenue remained an area of strength growing triple digits year-over-year. Performance-oriented revenue represents over 60% of total ad revenue and is well balanced across industry verticals, creating durability and resilience while still leaving significant headroom for growth. In Q1, we saw strength across most of our top verticals, particularly retail CPG, tech and media and entertainment, while the number of active advertisers on the platform grew more than 75% year-over-year. Now I'll discuss the progress in our ad stack and road map where our investments are measurable and our strategy is to make all businesses successful on Reddit by delivering market competitive outcomes across objectives. We're executing this strategy across 3 areas: number one, scaling automation through our ads platform in Reddit Max; number two, delivering advertiser value across all objectives; number three, expanding the Reddit for Business ecosystem. Now starting with automation. Our strategy is to integrate more automation and AI into our ad stack to enable faster adoption of new features, make sure advertisers are set up to get the best performance from Reddit ads and increase the productivity and impact of our sales team. Reddit Max launched to beta in early Q1, and we're seeing strong adoption and performance outcomes for converting mid- and lower funnel advertisers. On average, advertisers are seeing a 17% reduction in cost per action and 25% more conversion outcomes when running Max campaigns. Advertisers are also increasingly adopting AI in their campaign setups with about 50% of Max campaign advertisers using AI-powered creative features to unlock even stronger performance. For example, modern furniture and rug company, Cozy, launched a Max campaign utilizing AI-driven targeting, automated bidding and creative rotation to scale customer acquisition with fewer manual inputs. Max quickly became one of their most efficient levers for acquiring new customers, delivering 35% higher ROAS and 28% lower CPA, while saving the team approximately 2 to 3 hours per week on setup and optimization. Now moving to our progress across all marketing objectives. With our reach of nearly 0.5 billion weekly users, Reddit delivers strong outcomes for brand advertisers. In the upper funnel, brand auto bidding is now available to all advertisers, which dynamically adjust bids enabling advertisers to spend more efficiently and simplifying campaign management. Our tests show an average 16% pricing improvement when advertisers adopt auto bidding. And in the lower funnel, our investments in machine learning signals and optimization are continuing to deliver performance and efficiency for advertisers. In Q1, we doubled the number of conversions delivered for advertisers across the platform versus last year, which means advertisers benefit from more conversions on their ad spend at lower cost per action, reflecting the efficiency and performance of our ads platform. As I mentioned earlier, Reddit is deeply ingrained in the consumer shopping experience and we saw the momentum continue with 40% year-over-year growth in high-intent shopping conversations last year. Our shopping products help businesses capture that intent more effectively. And with dynamic product ads or DPA, we're improving relevance in ad formats to drive stronger performance and advertiser value. Recent investments in DPA delivered more than 90% higher ROAS year-over-year on average and brands, including the health and wellness company, Liquid I.V., saw Reddit's DPAs outperformed their conversion -- other conversion campaigns by 40%. We're building on the progress with new shopping app formats designed to improve discovery and conversion including collection ads and Reddit-unique overlays such as Redditor's Top Pick that capture the perspectives of Reddit's communities for specific products. And lastly, I'll touch on our strategy to build an ecosystem of partners around Reddit. At Shoptalk in March, we announced an integration with Shopify, that strengthens our retail and e-commerce partnership ecosystem. The integration expands our reach to advertisers and makes it easier for them to set up and scale lower funnel campaigns on Reddit. The integration is early and in the process of ramping, we're excited about how this can build a deeper presence with mid-market and SMBs. As we scale performance advertising on Reddit, third-party measurement partners are important for validating our impact. In its latest retail commerce study, Fospha found that Reddit improved cost per purchase by 34%, while increasing ROAS and helping advertisers scale spend by 2.5x year-over-year. We have seen growing adoption of Reddit Pro since expanding access to all publishers, giving them self-serve tools through auto import articles receive AI-powered community recommendations on where to share them and measure the reach and engagement of their content on Reddit. Publishers ranging from global outlets to local press like Fortune Media to the SF Chronicle and Dallas Morning News and sports brands like Arsenal FC are now using Reddit Pro. Overall, there's a lot to be excited about this year. And every day, we see more businesses coming to Reddit it to connect with their audience and grow their business. And as the pace of change in the market grows, Reddit's fundamental assets and value proposition built on authenticity, trust and high intent keep us exceptionally well positioned. Thank you for joining us and for your continued support. Now I'll turn the call over to Drew. Andrew Vollero: Thank you, Jen, and good afternoon, everyone. The financial headlines for Q1 was that Reddit's results stand alone in a very positive way. Reddit continues to scale quickly, generating cash flow and profitability results that few companies can match at this scale. Specifically, Reddit's Q1 47% free cash flow margin was a powerful proof point to superior cash flow generation. While Reddit's earnings power was evident in 2 financial milestone achievements. On a GAAP basis, EPS reached triple digits in Q1 at $1.01 a share, up more than 7x from last year. And on a non-GAAP basis, Reddit achieved a 40% adjusted EBITDA margin in Q1, up almost 1,100 basis points from last year, a similar signal of strength and differentiation. This strong starts encouraging, particularly since historically, seasonality has contributed to making Q1 our slowest quarter of the year. I'll now provide more color on our Q1 results. Q1 revenues of $663 million grew 69% year-over-year, driven by a ramp in ad revenue, which grew 74% year-over-year to $625 million as we saw strong advertising demand across the funnel. It's our seventh consecutive quarter by growing more than 60%. Other revenue, which included revenue from our Content Licensing business reached $39 million, up 15% year-over-year. U.S. revenues were up 67%. International revenues were up 76%. Average revenue per user ARPU grew 44% year-over-year to $5.23. Moving to expenses. Our Q1 total adjusted costs, which included both adjusted cost of revenue and adjusted OpEx were $397 million in Q1, up 43% year-over-year, but sequentially lower than Q4. Working our way down the income statement, gross margins were 91.5%, up 97 basis points year-over-year, our seventh consecutive quarter over 90%. Incremental revenues and hosting efficiencies helped to offset increases in cost of revenue, which was $56 million in the quarter, up 52% year-over-year. Those cost of revenue increases reflect volume growth and users and ads served more ML usage and more international investments in speed and reliability. Operating expenses remain a bigger piece of our expense composition, which on an adjusted basis were $341 million in Q1 or about 51% of revenue, down from 61% of revenue last year as we gain operating leverage across the business. For Q1, adjusted operating expenses were about flat sequentially, but did grow 42% year-over-year, slightly elevated from last quarter. These year-over-year increases continue to be driven by investments in 2 key areas: hiring and marketing. On hiring, we added about 32 net people in Q1, up 12% from last year and up about 1% sequentially from Q4. We're selectively hiring talent in key revenue and consumer functions like sales, ad tech and ML engineering. The returns from our investments in these areas are measurable and multiples of the cost within a short period of time. Second, on marketing, our spend was primarily in the U.S., where we prioritize both paid and brand strategies to expand awareness and drive traffic. Total marketing costs in Q1 were in the mid-single digits as a percentage of revenue, but were lower nominally and as a percentage of revenue from Q4 as we benefited from lower seasonal ad pricing in Q1. Overall, user retention remains an opportunity and an important unlocker to improving investment returns and marketing. Our third major cost is stock compensation and dilution, which remains a positive story. Stock-based compensation and related tax expense was $79 million or 12% of revenue in Q1 and down sequentially from Q4. Similarly, dilution remains modest. Total fully diluted shares outstanding was $206.4 million, up 0.1% sequentially and up 0.2% year-over-year. The modest share growth in the quarter reflects the continued tight management of our equity spend. For Q1, there was a slight tailwind for dilution for share repurchase activity, although share repurchase activity was modest in the quarter, about 35,000 shares and about $995 million remains on our $1 billion authorization from February. A few more financial points of interest. The business remains capital-light. CapEx was $1 million, 0.2% of revenue. Net income was $204 million, $1.07 per basic share and $1.01 per diluted share, up more than 7x to $0.14 and $0.13 last year, respectively. We ended Q1 with $2.8 billion in cash and investments and we're well positioned to deploy capital across our 3 priorities, including investing in the core business, M&A and share repurchases. Now turning to the outlook. We'll share our internal thoughts on revenue adjusted EBITDA for the second quarter. In the second quarter of 2026, we estimate revenue in the range of $715 million to $725 million, representing 43% to 45% year-over-year revenue growth with a midpoint of about 44%. Our Q2 revenue guide considers the strong growth and momentum in the business as we exited Q1 and takes into account the lapping of a particularly strong growth period in Q2 2025 where total revenues grew 78% and ad revenue grew 84%. Moving to adjusted EBITDA. We expect Q2 adjusted EBITDA to be in the range of $285 million to $295 million, representing approximately 71% to 77% year-over-year growth and an adjusted EBITDA margin of 40% at the midpoint. The Q2 guide assumes a total adjusted cost basis of $430 million, which implies a growth rate of approximately 29% year-over-year, which is lower than prior quarters as we begin to lap our investments in sales and marketing, which started in Q2 of 2025. I'd also like to make a couple of other points. We anticipate our Q2 stock-based compensation-related tax expense to be sequentially higher than Q1, driven by increased hiring and the timing of our annual stock refresh grant which happens mid-second quarter. That said, for the quarter, we expect to see good cost leverage on SBC expenses with our internal estimates showing that year-over-year stock-based comp expenses could grow about half the rate of revenue for the quarter. Also, as we mentioned on our Q4 call, 2026 will be the last period we disclosed logged in and logged out DAUq metrics. Beginning in Q3 2026 our user disclosures will continue to include U.S. and international DAUq and WAUq as we've done historically. So to summarize, strong fundamentals matter and Reddit's financial model is scaling in a very positive way. Reddit is becoming a leader, a leader in growth, a leader in profitability and a leader in cash flow margin. We're off to a strong financial start in 2026. Reddit's raw materials position us well for growth and our advantaged financial model is turning top line gains into meaningful increases in cash and profitability. That concludes my comments. So let me turn the call back over to the operator. Operator: [Operator Instructions] First question comes from Doug Anmuth with JPMorgan. Douglas Anmuth: One for Steve and one for Jen. Steve, can you just talk about the work you have to do on the user side to increase frequency and accelerate growth and what you think will be most impactful over the next several quarters? And then, Jen, on DPAs, you announced a number of shopping tools to enhance DPAs. Can you just help us understand you're thinking about current adoption and the progress you're seeing with that format? Steven Huffman: Sure. Thanks, Chuck. Okay. On the user side, we've seen some progress in the quarter that we're happy with improvements in onboarding. We had a couple of experiments do well, ramped up to 100%, some contribution from feeds as well. I think as we look over the rest of the year, the biggest drivers will probably be performance. So just the kind of pure speed of both iOS and Android, I still think there's a lot to do on onboarding. And I think the biggest driver long term will be the feed. And so hence, the kind of focus on ML talent for us right now. So I think all of this is in alignment with what we've talked about for a long time, which is make the core product work better. I will say over there, we've seen nice progress on search as well, which is itself a driver. Search WAUqs are up 30% year-over-year. So I think solid progress there as well. The big picture story here is we've been really focused on the team, the processes, the tech, upgrading all of those things over the last year. So I feel the foundation is better than what we've seen in the past to achieve these outcomes. Jennifer Wong: I think the second one on DPA. Look, we launched DPA a year ago. And this is -- in the world of that, I'd say shopping is probably one of the more complicated products. And obviously, folks have been offering DPA for longer than we have. So there's a lot of headroom there to, I think, improve our models and the onboarding process, et cetera. But I think the team has done a really good job in giving, I think, great ROAS improvements to our customers. With the Shopify and WooCommerce partnerships, I think that's an opportunity for us to acquire more sort of mid-market and SMB customers into DPA. So we're excited about that. Again, very early, but we're excited about that opportunity. And because right now, there's still thousands of advertisers that can adopt DPA that haven't adopted yet. I will say, we're still early. We're very focused on retail and retail catalogs in the future that's still ahead of us. Folks use DPA for travel, for auto, for other categories that we haven't even focused on to date. So I think there's a long road map of opportunity here for us. Operator: Your next question comes from the line of Josh Beck with Raymond James. George Josh Beck: Yes. I wanted to maybe double-click on the ML talent, Steve. And maybe if you could kind of give us the short list of maybe some of the projects that the team is working on, what was most important this year? And then also with respect to top of funnel, obviously, that's a goal for you all. I'm just kind of curious what have been maybe some of the most successful strategies and kind of how you're thinking about driving more top of funnel as you move through the year? Steven Huffman: Sure. Thanks, Josh. So Josh, on machine translation -- excuse me, machine learning, so the feed, look, it's basically everything. So it's both collecting more signals. It's also being more judicious about the weighting of those signals. It is updating our models faster. So designing a new model, getting into production, I think that can be quite a lot faster. It's pretty much the entire stack. This reminds me of kind of our journey in the -- on the ad side, where when we look ahead, we feel confident basically everything we do will work because it has worked for other platforms. And we're just on the early side of this journey. We've been bringing in a lot of talent from platforms that have billions of users who have worked on this problem before. So it's really the entire stack. And quite honestly, it's all of our processes around it. Our goal is to go from where we are today, about 50 million U.S. users to 100 million U.S. users. Since we have 200 million U.S. weeklies on the platform already, we believe investing in the feed here will improve retention and increase frequency and get us there. But really, my answer is everything. Jennifer Wong: Yes, I can talk about the top of funnel. So let me start with our existing top of funnel, which is really significant, and that's some of the traffic that we get from search. And there's an effort to think about how do we convert that traffic from that search use case to the core Reddit use case, which is a combination of search, enjoying different communities and enjoying the feed. So that's an opportunity for us, and that's core to our road map strategy. The second is increasing the top of funnel, which is the work that we do with marketing. And it's different by different territories. So if you think of a mature market like the U.S., that's an area where we go after specific audiences where we have a great content foundation in parenting or in football, like NFL. And we're just trying to help with people know that there's great content for parents and for football fans on Reddit. And so we've done some of that brand and lead generation work to sort of prime the market to increase that awareness. Then we have work outside of the U.S. where we also have more brand foundational work. For example, people might know ready through search, but they may not have the broader understanding of the differentiators of Reddit that we're the most human place on the Internet that we have this network of communities. And so we're building, investing in some of the more broader brand foundations that, again, will allow us to prime a new top of funnel and add to the top of funnel that exists today. So -- and both, I think we're very early in that journey and that for many years, Reddit, for most of its life has not invested in marketing. So that remains, I think, fertile ground for us. Operator: Your next question comes from the line of Ron Josey with Citi. Ronald Josey: Steve, I want to sort of understand a little bit more your points on the progress around verification processes and bot labeling here, particularly as a sign-up and log-in process evolves and the feed evolves as well. So help us understand a little bit more about the process around verification and the successor progress with bot labeling? And then, Jen, with Reddit Max in the first quarter, clearly seeing a lot of progress and momentum here. Just talk to us about some of the key learnings that you're looking to take to this next level of Reddit Max and next version as we continue to see greater adoption? Steven Huffman: Thanks, Ron. So Yes. You asked about verification and bot labeling, and there's also a third dimension to this, which is user log-in in general. These things are actually all overlapping. So I'll start with the easiest one, bot verification. So we have what we call good bots on Reddit, which are basically programs that mostly moderators have written to help run communities on Reddit. We're porting those over to our developer platform. And that will both result in them being labeled on Reddit more transparently and also allow us to batten down the hatches more on unauthorized spot usage. So this is both transparency for users and also part of the human verification and defense of Reddit. On the verification and login side, one of the key technologies there is something like Passkeys. So Passkeys is a general technology that includes things like Facetime, Touch ID, UB keys, it's basically a log-in system that requires a person to do something, look at your phone or touch something. This is both a more secure way of logging in, an easier way of locking in, which will help us just grow login users in general and then also serves as probably the lightest weight and most privacy and user acceptable way doing human verification as well. So all of these things kind of tie together to add more transparency to Reddit, improve bot defenses for Reddit and increase login for Reddit. All of this work is underway on all 3 of those dimensions. So we shipped a few things in Q1. We've got a few more coming in this quarter as well. Jennifer Wong: Okay. Regarding Reddit MAX, I've been really pleased with the adoption of Max. I think customers have been really willing to make the conversion. We've been focused on existing customers and converting existing customers. They're very pleased with the CPA benefits that they're seeing out of the gate, which is great. And I think what this opens the door for us to do is to have faster adoption of our new performance features. And we see this because some of that benefit is coming from the fact that they hadn't adopted maybe one or two features that they auto adopted when they move to Reddit Max and immediately, they are seeing the performance benefit of that. And so this will shorten the time line by which we can roll out performance features to customers what we're really excited about and sort of take the operational friction there out. The other thing is they really love the insight. So we invested not only in delivering the performance, we invested in giving insights on, okay, well, what did the automation sign that was unique on Reddit that makes you learn about what you're creative -- how your creative match to what community on Reddit? And we're getting an incredible like positive response from our customers in that it doesn't feel black boxy to them. They're actually learning from using Reddit Max, and that's an area that we'll continue to invest in. And we really started with converting existing advertisers. But given the adoption and the positive response, we're now moving toward onboarding new customers directly into it. So feeling really, really positive about what we've seen so far. Operator: Your next question comes from the line of Jason Holstein with Oppenheimer. Jason Helfstein: Maybe like one DAU-related question with two parts. So one, we get a lot of questions from investors just about DAU and how important it is. And obviously, from a long-term perspective, it's important. But right now, it's not a huge focus of the company given it's more about monetization. But I guess, Steve, maybe just talk about like, again, how important is it to you to see stable to improving DAU growth and the ways that you can kind of control that in the short term. And then as we think about the discussions around AI and the third-party agents leveraging your data, how potentially you can get credit for, call it, DAU that's generated on third parties and perhaps that's a part of the larger discussions around AI licensing. Steven Huffman: Okay. So contrary to that, DAU is the primary focus of the company because revenue is doing very, very well. So DAU is both our mission, communities for everybody and also fuel for the business. So DAU is the top priority. We have a particular focus right now on the U.S. DAU. So how do we go from 50 million daily to 100 million daily. As I mentioned before, the opportunity is on our doorstep because you look at our weekly number, there are 200 million Americans on Reddit every week. So, we think about how do we increase that frequency from maybe once a week to, for example, every day. There are -- there's a lot on the list here. Our focus the last couple of quarters has been onboarding. We're seeing progress there. We've moved new user retention in the quarter. Feeds will be a major driver looking forward. I think we're at the relative beginning of our journey there. Search has been a consistent driver. So carrying most of the weight the last couple of quarters has been machine translation were translated in the 30 languages today. We've been able to lower the cost there, which is nice. It allows us to scale even more there. And then performance is another big driver. And we look at gaps between iOS and Android and what we -- the expected delta should be, which is basically 0. So I think a lot of opportunity there as well. So I'll just reiterate, DAU is actually the top focus of Reddit and in particular, U.S. DAU. You had a second part of your question about AI and some third-party agents. Look, this is an ecosystem we live in. We have important partnerships with both Google and OpenAI. Those are very meaningful to us. And I think it's mutual. We continue to value those. We continue to look for other top of funnel opportunities in the way to make our products mutually help each other, but nothing new to share on those specific relationships at this time. Operator: Your next question comes from the line of Rich Greenfield with LightShed Partners. Richard Greenfield: I got a couple. First, I just want to circle back on this ambitious 100 million DAU goal. Is there a time frame for how you're thinking about achieving that? And if I look at weeklies versus dailies, weeklies are actually growing even faster than daily. So engagement on that metric is going down. I'm curious what's driving that? And how does that play into getting to this ambitious 100 million goal, Steve? And then sort of a big picture question that ties to the quote you had in the letter. If you're the oil powering the modern Internet, $50 million to $60 million a year from Google and OpenAI seems like a pimple, I guess. How are the conversations changing heading into 2027 renewals given the state of where AI is today? Steven Huffman: Thanks, Rich. Okay, 100 million. Look, when I came back to the company about 10 years ago, we were 12 million DAU. And over the last 10 years, we've 10x that to over 120 million DAU. Now we've got our sights set on 1 billion global DAU and 100 million in the U.S. specifically. I don't know the time line, but we are, I think, relentless in our work to get there. As I mentioned in my script, the strategy is the same, which is build the best version of Reddit. And we've been focused on the last year. I thought we built the best version that our company was capable of, but that's not the best version that we needed. So we've done a lot of work on the team, on the processes, on the technology to get there. We'd like to get there as quickly as possible, but it's going to come through with very consistent product improvements. I've added a lot of the things on the list there, but it's all sensible things if you've used Reddit. And look, I will note your comments on the pricing for AI deals and include you in our conversations with our partners. Look, the world can see that Reddit's data is valuable, both our existing partners and potential ones. Look, at the end of the day, there is no artificial intelligence without actual intelligence, and that comes from Reddit. I think one of the dynamics we're seeing in the modern Internet is the more it becomes sanitized and summarized and optimized for attention by AI, the more that people crave the human, the human information that's both AI that crave it and also the Internet consumer or people in general that crave it. And that's our business is those human connection and conversations. Richard Greenfield: Is there ever a value to an exclusive deal with one company versus opening up to everyone? Steven Huffman: No comment on that, Rich. Operator: Your next question comes from the line of Mark Shmulik with Bernstein. Mark Shmulik: Steve, I kind of hate to belabor this point a little bit. But kind of in your opening remarks about the foundational changes to talent and infrastructure. Is that really just focused on engagement and the product? And if so, kind of when did you realize that you were kind of hitting a ceiling? And so kind of how far are we into kind of some of these material changes? And I guess kind of following on Rich's point, when could we start to see a reflection in the KPIs of some of the efforts of these new changes? And then secondly, Jen, you mentioned you've seen kind of strong performance in both price and ad impressions ad load. How do you kind of think about the tolerance of users for kind of increased ad load and kind of as you also think about balancing kind of the engagement question or ask it another way, is there any risk of kind of pushing the revenue lever too far that may have adverse effects on engagement? Steven Huffman: Thanks, Mark. Look, we've been, I think, upgrading the company top to bottom, the people, the processes, the tech, we're in the middle of that now. I think we've made some important changes with new leadership on product and engineering. We're also bringing in a lot of experienced talent into the company as we speak. But I think there's more work to do there. There will probably always be more work to do there, but we are really in the middle of it. That said, we are working now. And so we've made changes to onboarding to the feeds, to search that have all started to drive growth. We've seen some improvements in user retention, which is the number we care the most about. So I'd like to see our progress here accelerate. There's a lot, I think, below the surface just in terms of how quickly can we get code into production, how sophisticated our experiment readouts, how quick is our decision-making around these things. But I look at all of these holistically as getting Reddit to the next level. And I think we're partway there. I know we can get there. I think there's another couple of levels for us. And so we've been hard at it. But we do expect to see improvements in the results immediately, and we've seen some in this quarter. Jennifer Wong: I think the one on ad loads. So our ad load overall is still quite low compared to peers, especially if you look at it just on a feed-to-feed basis, it's still substantially lower and overall on Reddit, we actually don't even have ads in certain high growing surfaces like search, for example. So overall, I actually feel comfortable on an absolute basis of the ad experiences, there actually is not a high ad load. But that aside, we test this all the time, and I think we're very thoughtful about it. As you increase the ad relevancy, which we do through our ML work and we increased the diversity of advertisers in our marketplace, which we're doing. We said we're growing active advertisers, 75% year-over-year. That actually helps with enabling, if you were to move the ad load lever like giving you the diversity to still maintain performance. So just know that there are other levers that we focus on more than a lot, like our strategy is not to increase ad load. Our strategy is to grow users, all the things that Steve talked about, where we think we have a 10x opportunity there and to make the value of every impression more valuable through more competition and diversity, through stronger optimization and hard marketing outcomes, more clicks, more conversions, more installs per impression so that the marketer -- we increased our inventory of outcomes versus our inventory of impressions. Obviously, impressions will grow, especially with that underlying user growth, but we're very focused on the value that you get from the impression. Operator: Your next question comes from the line of Tom Champion with Piper Sandler. Thomas Champion: Just curious if you could talk about the monetization trends between U.S. logged in and logged out users. Just curious if those are converging at all? And then maybe for Jen, just any thoughts on the ad market? Anything looking wonky from the high oil prices or travel interruptions overseas? Just curious any general comments there. Jennifer Wong: Sure. So for logged in and logged out, which we spent a lot of time on it. I think the way we think about it is the value of an impression. And so the value of impressions is actually pretty consistent across our 2 main surfaces, the speed and our conversation page. And the only reason why logged-in users, you'd say have a higher ARPU than a logged out user is just because they spend more time and they see more impressions. But the -- because of the time spent and the engagement, but the impressions are actually pretty equal in terms of their value. So there's no differential in our ability to monetize any impression against those users. There's no difference. And we do monetize both types of users, we have great contextual signal on all our users. And then obviously, for -- and obviously, we have history on logged-out users and even more in terms of logged-in users because they subscribe to communities, et cetera. In terms of the ad market, look, it's -- we've seen this before. There's volatility in the backdrop, geopolitical. I would say we haven't seen anything acute in any vertical. What we have heard from our partners is that some are planning on shorter cycles. They're planning month-to-month. They don't have as much visibility, no material change in their commitments and their outlook and what they're working on, but just that it might be shorter time line as they sort of assess the market. And we're staying close to our customers, helping them through it with insights from Reddit. That's actually been very helpful in this moment. But overall, the market seems pretty stable, just maybe a little bit more month-to-month with lower visibility. Operator: Your next question comes from the line of Mark Mahaney with Evercore. Mark Stephen Mahaney: Okay. I'll try two questions. I think when we focus on this DAU over weekly users were just trying to get a sense of engagement. I imagine there's a series of metrics that you track internally that track engagement. Can you just talk about those at least qualitatively, like maybe it's -- maybe hours per session or minutes per session or something else, something that that touches on the quality of engagement. Could you just talk about whether there's some trends there that we can't really see from the disclosures that we have? And then just on Reddit Max. And Jen, I know you talked about this earlier, but where are we in terms of the adoption of Reddit Max? And how do you increase that adoption across your advertiser base? Steven Huffman: Sure, Mark. Thank you. Okay. So on engagement metrics, there are a couple of key ones we look at. One is new user retention. So does the user come back after 7 days, after 30 days, after 90 days. That's our core measure of kind of product quality and stickiness. The second we look at is frequency. So how many days per week do users come to Reddit. We have a lot of users. But if you were to do a histogram of days per week, the 2 tallest bars will be 1 day and 7 days. And I think this aligns with our intuition on Reddit. Once we've got you, we've really got you. And then we have a lot of people bouncing off us from search or trying Reddit out. So converting more of those 1 days to 7 days, I think it's a big opportunity. We're starting to mature our thinking around sessions, so sessions per day. That's relatively, I think, a new way of looking at it for us. But again, that will be a measure of the feed quality and general retention. So I think all of these things are important. The most consistent and I think most valuable long term will be new user retention. We don't report it, though you can peak at it through some third-party measurement, which I think will show kind of where we are in maybe relative to other folks. And again, the strategy on all of these things is quality, it's performance, it's relevance, all of the basics. I think there's a lot of opportunity on each of these things. Jennifer Wong: Just on Reddit Max. So it's a top priority for our sales team in adoption this year. They started with converting advertisers. There's thousands of advertisers on Max already, but there's many more to convert still and we do want to move toward new advertisers onboarding directly into Max. We're working on putting Max in the API as well, so that partners who transact that way have access to MAX. So look, it's still early. I just was launched in January. So it's still early. This is a multiyear journey in adoption that those before us with PMax and Advantage+ have been at for many years. But I'm very pleased with the adoption rate and the interest and the benefits that people are getting -- customers are getting, so that's very, very encouraging, but we are less than half a year into this. Operator: Your next question comes from John Colantoni, with Jefferies. John Colantuoni: I wanted to ask about international users. Can you talk through how engagement has trended across markets that have undergone a machine translation and if you've seen any notable shift in logging and adoption or localized content creation once availability of the local language expands? And second, following up on the logged in versus logged out users, is there any component of monetization for the logged in related to personalization since you have more data on their usage trends and interest just sort of outside of the impressions themselves? Steven Huffman: Sure. Thanks, John. So on international, what we've learned is every market is different. Machine translation is a great starting point for building the content base. But for the long term, what's most important is getting more native communities, like communities created in country with content consumed locally in country. And so we've seen the effects of that be different in different markets. And what we've learned there is we need to have a focus on basically, what we call community success. So how easy is it to create and grow a community on Reddit and this includes in the U.S. And so that's one of the dimensions to our product work is making it easier to create and grow subreddits. I think there's a lot of headroom here as well, and that will affect Reddit in all markets. On logged in and logged out, it's exactly as you would expect, as Jen was saying earlier, logged in users spend more time on Reddit and that's because, as you imply in your question, we know them better. And so we can -- we know their interests. We can do personalization and that, of course, just improves retention and time spent. So seeing more users in the app, more users logging in, more users getting the personalization faster drives engagement and then, therefore, monetization. Again, all roads lead to basically the same strategy, which is help users find content that's relevant to them and come back to the app more often. Operator: Your next question comes from the line of Justin Post with Bank of America. Justin Post: A couple of questions. Just wondering if you can update us on how the generative AI engines are using your data? And is that increasing since the deal started over 2 years ago? Any changes or evolution in the partnership on how they're using your data and the outputs we're providing? And then second, I think Google made some algorithm changes in April. Maybe there's a question for Drew, but any impacts on usage retention or time spend or anything like that? Steven Huffman: Okay. Look, Reddit has been for a while and continues to be the most cited source in AI citations across all platforms. We have also for quite some time then in the word Reddit has been one of the most searched words on Google. It's been in the top 10, I think, for a couple of years now. So both AIs and Internet consumers love Reddit content. This is because that basically human verification of what AI is telling people is really important. At the end of the day, you can get a surface level answer from AI, but you need the context. For many questions, there isn't an answer. There are multiple perspectives describing that answer and multiple reasons why different parts of that answer might be relevant to you or not. For example, take a simple question. What movie should I watch tonight? Well, it depends what you're into, how old you are, all these things. So Reddit is the best at providing those answers and we've seen basically across the Internet, people increasingly crave the human perspective that Reddit provides. Google algorithm change, these things are business as usual for us. There are always puts and takes. So we see these things. Sometimes they help, sometimes they hurt. They almost never stand out on our traffic long term. So we saw some changes in the quarter, but nothing further to comment on. Operator: Your next question comes from the line of Benjamin Black with Deutsche Bank. Benjamin Black: So Steve, you mentioned that authentic human connection and that content is your key differentiator. So can you maybe talk about the contribution rates on the platform. How those have been trending? What are you doing to support growth there? And then secondly, maybe a slightly different take on a data licensing question. What criteria are you looking for sort of other than dollars to perhaps go from 2 partners to maybe 3 to 4 data licensing partners? Steven Huffman: Sure. Thanks, Ben. So, we've touched on the call, actually the 3 pillars of our product strategy. So we spent most of our time in these contexts talking about the onboarding and performance and retention, but we had a question about basically the community ecosystem and how important that is for both international and domestic growth. And then your question is on basically the content ecosystem. So communities attract users, users create content. That's one flywheel. And the second is the users create content, content attracts users. That's another area of a lot of opportunity on Reddit. So things we look at there are post success rate. So what percent of posts successfully survive on Reddit, so they don't get removed by a moderator, that sort of thing. That's been a focus of ours. So things like post guidance, which is an LLM that basically helps the user navigate the rules of Reddit have been a big driver there. We're making improvements to post creation in this quarter. And so I think there's a lot of opportunity there as well. And then some maybe -- you need to Reddit, things like the age and Karma limits. So a lot of communities don't let new users submit, which makes it hard to grow new users. So working our way out of age and Karma limits with better AI-powered spam protection to help protect communities from bad new users like spammers, but be welcoming to good new users. So there's a lot there as well. Maybe next quarter, we can spend more time on the community and content contribution because those are both important aspects of credit that we don't usually get into on these calls. And second, on data licensing, things other than dollars. But, obviously, it's citations, it's mind share. It's just general partnership. Like these companies have the data centers, the foundational models. And so our partnerships with all of these companies are multifaceted. And so there's a lot we can do in terms of beyond just the dollars. It's how can these relationships help Reddit achieve its mission. So bringing in new users, advancing our own AI technology. So things like the machine translation, the LLM powered onboarding, all of the safety things, all of these things are kind of part of what we get through these relationships, which is why they're so meaningful to us beyond just the core dev relationship or the business relationship. Operator: We have time for one more question, and that question comes from Naved Khan with B. Riley Securities. Naved Khan: Two-part question. One on the rollout of AnswerPlus search that you did in the U.S. Curious if it helped in increasing the session time or what are the benefits you may be seeing there or not maybe? That's one. The second question I had is just on the international markets. And I think usually, you do not start to monetize markets until they reach a certain scale in terms of reach and usage. So of the markets that you are in currently, how many are you starting to monetize, give us your thoughts there. Steven Huffman: Sure. So on search, search, we've seen great performance. Search DAU, search WAU, search queries, all up meaningfully year-over-year. Search is a great driver of retention. Search has also been a driver of DAU. The search team is, quite frankly, I think, doing a great job. If you use Reddit answers, you can see it better integrated into the product. It itself has more agentic behavior behind the scenes. So things like you can now ask it to compare 2 things, should I watch movie A or movie B. And we're now integrating the product search catalog. So when you get answers from Reddit about, let's say, what's the best headphone actually getting the links to the products as well. So search is one of the kind of main new use cases of Reddit. And across the board is a contributor to basically all of the things we care about in addition to search itself. Jennifer Wong: Regarding the international markets. So we have direct sales footprint across all channels in the U.S., Canada, U.K., covering Continental Europe as well as Australia through -- with a little bit of the APAC sweep from Singapore. That's where we have direct sales across actually both large customers and our scale channel, which includes SMB and mid-market. We then have channel partners that cover other areas, other regions where we're able to bring in active advertisers who might want cross-border export through a partner as those markets continue to grow audience. So we're very thoughtful. We reevaluate this periodically in terms of our coverage model, but it's really based on how the users are growing in different areas and then we'll decide our coverage model. Operator: Thank you. I would now like to turn the call back over to Steve Huffman, Founder and CEO, for closing comments. Steven Huffman: Thanks all. Appreciate the questions. Operator: This concludes Reddit's First Quarter 2026 Earnings Call. You may now disconnect.