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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.
Operator: Good afternoon, and welcome to Asure Software's First Quarter 2026 Earnings Conference Call. Joining us today's call are Chairman and CEO, Pat Goepel; Chief Financial Officer, John Pence; and Vice President of Investor Relations, Patrick McKillop. Following their prepared remarks, there will be a question-and-answer session for analysts and investors. I would now like to turn the call over to Patrick McKillop for introductory remarks. Please go ahead. Patrick McKillop: Thank you, operator. Good afternoon, everyone, and thank you for joining us for Asure Software's First Quarter 2026 Earnings Results Call. Following the close of the market, we released our financial results. The earnings release is available on the SEC's website and our Investor Relations website at investor.asuresoftware.com, where you can also find our investor presentation. During our call today we will reference non-GAAP financial measures, which we believe to be useful to investors and exclude the impact of certain items. The description and timing of these items, along with a reconciliation of non-GAAP measures to their most comparable GAAP measures can be found in our earnings release. Today's call will also contain forward-looking statements that refer to future events and as such, involve some risks. We use words such as expects, believes and may to indicate forward-looking statements, and we encourage you to review our filings with the SEC for additional information on factors that could cause actual results to differ materially from our current expectations. I'll hand the call over to Pat in a moment, but I just wanted to take a moment to remind people of our upcoming Investor Relations activities. On May 13, we are attending the 21st Annual Needham TMT Conference in New York. And on May 14, the ONE Houlihan Lokey Conference also in New York. On May 28, we will attend the Craig-Hallum Conference in Minneapolis. On June 23, we will participate in the Northland Capital Markets Conference, which is being held virtually. We also are in the process of scheduling some nondeal roadshows. Investor outreach is very important to Asure, and I would like to thank all of those that assist us in our efforts to connect with investors. Finally, I would like to remind everyone that this call is being recorded, and it will be made available for replay via a link available on the Investor Relations section of our website. With that, I would like to -- now I'll turn the call over to Pat Goepel, Chairman and CEO. Pat? Patrick Goepel: Thank you, Patrick, and welcome, everyone, to Asure Software's First Quarter 2026 Earnings Results Call. I'm joined on this call by our CFO, John Pence, and we will provide a business update for quarter 1 2026 results as well as our updated outlook for the remainder of the year. We are very pleased to report a strong start in 2026. First quarter revenues came in at $42.8 million, representing growth of 23% compared to Q1 of 2025. This performance reflects continued momentum across our core business lines and validate the investments we've made in our platform, sales force and AI capabilities over the past year. Our organic growth rate for quarter 1 2026 was 7% compared with 3% in quarter 1 2025, and 3.5% in quarter 1 2024. This is a significant acceleration in a quarter, which historically has shown some seasonality. We're encouraged by the drivers behind it, increasing attach rates with our existing client base as well as continued new logo wins. Given global uncertainty, we're taking a conservative stance on operating the business. However, we remain very bullish on the customer response to our platform improvements, and we believe we can deliver double-digit organic growth as we move through the remainder of 2026. Since the launch of Asure Central in October 2025, adoption has continued at a rapid pace, and we believe that by the end of the second quarter of 2026, the majority of our approximately 30,000 direct clients will be on the platform. With the majority of our direct client base now on a single unified platform, we believe we are increasingly well positioned to accelerate cross-sell and attach rates throughout the remainder of 2026. Our multiproduct attach rates continue to improve. The number of clients purchasing multiple products in our payroll business grew by 15% in quarter 1 compared to quarter 1 of 2025. We continue to work toward our internal goal of moving clients from an average to 2 products to 4 or more products per relationship. Earlier this year, at our sales kickoff, we introduced AsureWorks, which is our administrative services outsourcing or ASO model, which allows clients to delegate key payroll and HR compliance processes to Asure. We are scaling AsureWorks thoughtfully building sales, implementation and support capacity based on early results, it's still early days. However, the reception has been very positive. Our pipeline is growing and we've started to win new clients. We're seeing interest across multiple types of buyers, small hotel chains, restaurants. HVAC companies are among the early adopters, which is consistent with our broader client base of Main Street businesses that need payroll and HR compliance support, but lack the internal resources to manage it themselves. We currently have 6 sales reps dedicated to AsureWorks in the pilot effort and plan to add a few more in the near term. This offering is strategically important. Clients who adopt managed payroll and compliance services typically represent 2x to 3x the revenue of a payroll-only client. Importantly, AsureWorks is not a PEO model. We're not taking on co-employment risk. So for clients constrained by the costs or rigidity of a traditional PEO, we believe AsureWorks is a compelling flexible alternative. We are on track toward our full year target of 150 sales reps and continue to invest in training and enablement. Sales leadership upon our President and Chief Revenue Officer, Eyal Goldstein, is driving focus on both new logo acquisition and multiproduct cross-sell within our existing base with the goal of transitioning our mix over time towards approximately 35% new logos and 65% base expansion. Our new bookings in our core human capital management payroll continued at a strong pace in quarter 1 up 13% versus last year, and our contracted backlog remains healthy at approximately $85.6 million. We expect to convert approximately 38% of that backlog over the next 12 months. Our client base, primarily small and midsized businesses in payroll intensive, compliance-driven industries remains resilient. We have not observed meaningful changes in sales cycle dynamics or competitive behavior in quarter 1. I want to take a moment to reiterate our thoughts on AI and what it means for our business. Much of the disruption narrative applies to productivity and workflow software, tools where AI can replicate or replace the core function of a software that the software performs. Payroll and HR compliance is not in that category. We move approximately $20 billion annually on behalf of our clients. And to do so, we hold money transmitter licenses in every states and requires them a regulatory infrastructure that takes years to build. It represents a significant barrier to entry. We interface directly with the IRS, state and local tax agencies and banking institutions. Our clients carry 7 or more years of employment history, complex multi-jurisdictional tax obligations and real-time compliance requirements where the margin of error is effectively 0. These are not functions that a generic AI layer can absorb. The regulatory complexity does not go away. In fact, it compounds. What makes Asure a system of record rather than a workflow tool is precisely this. We are embedded in the legal and financial infrastructure of our clients' businesses, switching costs are high, our revenue model is consumption based on headcount and payroll runs rather than a seat license and our client base is concentrated in the frontline essential workforce, economy, plumbers, hotel workers, tradespeople. Those work is among the most resilient to automation. At the same time, we believe AI is a meaningful accelerator for us. Luna, our AI agent, has been adopted by greater than 15% of potential users to date without any active marketing or onboarding from Asure. In quarter 1, Luna interactions increased by nearly 50% over the prior quarter. To date, we have transcribed, categorized and scored approximately 80,000 support calls for sentiment and our ticket mining capability analyzes more than 100,000 cases monthly. These numbers reflect AI working across both the client basing and operational sides of the business, deflecting support volume, enabling employees and administrators to self-serve across payroll, benefits and compliance workflows and driving continuous product and service improvements. The result is a smarter, faster and more responsive organization without reducing the compliance expertise and accountability our clients rely on us to provide. On our last call, we told you that Luna could perform over 50 actions live, audible and permission control. Since then, we've proven the model at scale. Our Canadian tax solution is the clearest example. A fully automated Luna AI-powered pipeline that converted a traditionally manual compliance workflow into a proactive, continuous modern system. Our more periodic checks, continuous coverage, that architecture is now a blueprint, and we're systematically replacing it across U.S. payroll, U.S. tax and HR compliance. This is not a feature rollout. It is a platform-wide operating model shift from reactive to proactive, from human check to AI verified, from process dependent to infrastructure-driven. That same shift that makes AsureWorks possible. We can now take on the work itself, not just deliver to software, because the AI layer gives us the efficiency and the audit ability to do it at scale without scaling headcount literally. Through Asure Central, every payroll specialist works from a unified action surface. Discrepancies, missing data, pending filings, require approvals, surfaced in real time, not buried in reports. Luna identifies what needs attention. Central delivers it to the right person at the right moment. Detection, notification, action, close the loop, these capabilities compound. Every compliance workflow we automate strengthens our models across the entire client base. And when you're processing approximately $20 billion in payroll annually, that compounding effect on system-wide intelligence is very meaningful. Internally, the same AI foundation is accelerating product development, sharpening sales intelligence and improving support operations, all of which we expect to continue to expand the margin profile over time. The result, higher accuracy, greater efficiency and a structural lower cost to serve with human accountability preserved for every compliance sensitive decision. In short, we are a system of record business with compounding data gravity operating in a highly regulated compliance critical environment. This is an entirely different category than the SaaS segments where disruption concerns are most valid, and we remain confident in both the durability of our model and the opportunity that AI creates for us going forward. With that, I'd like to turn the call over to John to discuss our quarter 1 financial results in more detail and provide an update on our 2026 guidance. John? John Pence: Thanks, Pat. As Patrick noted, several figures discussed today are on a non-GAAP or adjusted basis. Reconciliations are available in our meeting, in our earnings release and our investor presentation at investor.asuresoftware.com. First quarter total revenues were $42.8 million compared to $34.9 million in Q1 2025, representing growth of 23% year-over-year. Recurring revenue for Q1 2026 was $37.8 million compared to $33.2 million in Q1 2025, an increase of over 14% year-over-year. Recurring revenue represented approximately 88% of total revenue in the quarter. We believe that in 2026 recurring revenue as a percentage of total revenue will be in the low 90% range, and we anticipate that will continue to trend upwards in 2027. Professional services and hardware revenue was $5 million in Q1 2026 compared to $1.7 million in Q1 2025. The increase in nonrecurring revenue was primarily due to hardware sales from our Lathem acquisition, and professional services tied to enterprise tax. Float revenue was relatively flat in Q1 2026 compared to Q1 2025. We have modeled 2 additional rate cuts in 2026, which we anticipate will be partially offset by continued growth in client fund balances. Gross profit for Q1 2026 was $30.5 million compared to $24.6 million in Q1 of 2025. GAAP gross margin for Q1 2026 was 71%, in line with Q1 of 2025. Non-GAAP gross margin for Q1 2026 was 76% compared to 75% in Q1 of 2025. Net income for Q1 2026 was $0.6 million compared to a net loss of $2.4 million in Q1 of 2025. EBITDA for Q1 2026 was $9.4 million compared to $4.1 million in Q1 of 2025. Adjusted EBITDA for Q1 2026 was $12.3 million compared to $7.3 million in Q1 of 2025, an increase of 69% year-over-year. Adjusted EBITDA margin for Q1 2026 was 29% compared to 21% in Q1 of 2025, an increase of approximately 800 basis points. For the full year, we continue to expect to generate positive unlevered free cash flow in the mid- to high teens range, which we calculate by taking adjusted EBITDA at the midpoint of our guidance range, less software capitalization of approximately $15 million to $16 million, and approximately $6 million in cash interest cost. We ended the first quarter with cash and cash equivalents of $19.2 million and debt of $68.8 million as of March 31, 2026. Based on continued positive momentum in our business, we are updating our full year 2026 guidance and also providing Q2 guidance. It's important to keep in mind that the first quarters are seasonally strong as recurring year-end W2/ACA revenue is recognized in this period. Full year 2026 guidance. Revenue of $159 million to $163 million, and adjusted EBITDA margin of 23% to 25%. Q2 2026 guidance. Revenue of $36 million to $38 million, and adjusted EBITDA of $6 million to $8 million. Our cost structure, including CapEx and capitalized R&D is expected to remain relatively stable on a dollar basis. With that, I'll turn the call back to Pat for closing remarks. Patrick Goepel: Thanks, John. Quarter 1 2026 marks continued progress towards the inflection point we've been building towards. With Asure Central now substantially adopted across our direct client base, our Luna AI delivering measurable efficiency gains, AsureWorks gaining early traction, and our sales force growing towards 150 reps, we're executing on the plan we've been sharing with investors. We believe we are at an important inflection point in the business where growth and profitability are advancing together. This combination, top-line momentum, bottom-line discipline at the same time is what we've been working towards. And we're very pleased to be delivering on it. We remain on track toward our medium-term target of $180 million to $200 million in revenues with adjusted EBITDA margins of 30% or better, a level we came within close range of during this quarter and in Quarter 4 2025. And our longer-term vision, which we have discussed with investors, reflects the potential for margins to expand well beyond 30% as we achieve scale. AI continues to reduce our cost to serve while simultaneously expanding our market and revenue opportunities. We're excited about 2026, and remain committed to delivering value to our shareholders, our clients and our stakeholders. Thank you for joining us today. And now I'll send the call back to the operator for the question-and-answer session. Operator? Operator: [Operator Instructions] Our first question comes from Jeff Van Rhee with Craig-Hallum Capital Group. Jeff Van Rhee: Just a couple of quick ones for you. On Asure Central, I'm curious, now that you're getting a little further into it, what are you observing with respect to the path of adoption as people get single sign on capabilities and are getting exposed to more products. Just kind of curious what the paths of adoption are looking like so far? Patrick Goepel: Yes, really, really pleased. Attach rates were up about 15% year-over-year. People are really getting into the flow of it. And I think more important than that, it's 1 of the reasons why we also introduced AsureWorks. The bigger story for us with small and medium-sized businesses is we can go to a small business and say, hey, we'll give you the tools to manage compliance end-to-end across all products in human capital management or we can do the work for you. And because we have the proof point of Asure Central where all the products are under a single pane of glass, the light bulbs are starting to go on. So I think we're early innings yet. But boy, we're really, really pleased. And then our acquisition of Lathem, which we acquired in July, they're undergoing Asure Central and they'll be largely done in the second quarter here. So really, really pleased with our sales motion, our customer service motion. And the other thing that's coming out which is interesting is the prompts or the trigger events. So if you get to 20 employees and -- now by law, you have to offer COBRA, it's almost a no-brainer to say, "Hey, do you want Asure to manage that for you as opposed to try to introduce that somewhere else? Or if you're in a state at 401(k) is a regulatory requirement, hey, we noticed you don't have any 401(k) deductions, would you like us to help you with that plan? It's a real easy conversation. So we're just getting started, but those are some of the things that are popping out quickly. Jeff Van Rhee: Yes. That's helpful. And in the deck, you talk about the expanding PEPM. Can you talk -- I mean, I can see you're taking it from $15 in 2020 to $100 in 2026. But where by your math are you at this point in terms of PEPM, and any thoughts on '27, '28 trend to just get a sense? I know what the potential is, but where are you and where do you think you can be? Patrick Goepel: Yes. What I would say right now is we have kind of an internal goal that we're shooting for 2 products to 4 products because we have a direct model and an indirect model, et cetera. In the investor deck, we have 64% of our business in the small kind of mid business, and it's a focus area for more and more products. We'll have a better kind of RPU, but from an intentionality perspective, we were kind of in the area of $12 to $15 per employee per month. I think what you're going to see is a double here over the next 3 years or so. And you're going to see, I would say, we're pretty optimistic right now. But it is the first quarter. I think we'll have a better answer here when we get Lathem in probably on the second earnings call. But I would be disappointed with the -- that we don't do a double over the next 2 to 3 years here. Jeff Van Rhee: Yes. I mean you've certainly added an incredible amount of breadth to the product set over the last several years. So it makes sense. One last maybe for me on tax season impact. Just what was the seasonal uplift in Q1 from tax season? Patrick Goepel: Are you talking W-2s or are you talking to float... Jeff Van Rhee: No [indiscernible] sorry. Patrick Goepel: We were probably up in the area of 300,000 or so on W-2s and ACA. Some of our employee count, they have PEPM environment where we don't bill separately for W-2s. But for the ones we bill separately, it's about a 6% increase. And I would say anecdotally float balances ended the quarter and double-digit increase in float balances. Operator: Our next question comes from Joshua Reilly with Needham & Co. Joshua Reilly: I just wanted to start off on the last piece you were talking about there with the forms growth. The 7% organic growth is pretty impressive versus what, 3.5% the last couple of years in the first quarter. How much of a headwind or a tailwind, I guess, was the forms growth in this March quarter versus the last couple of years? Because I know it's been a headwind the last couple of years and I know you just threw out the 6% number. What was that referencing exactly? Was that the forms growth for the quarter? Patrick Goepel: That was the forms growth. So really, Josh, there was no headwind in forms growth. Maybe it's 1%. Joshua Reilly: Got it. And in the prior 2 years, there was somewhat of a -- more of a headwind. Is that the right way to think about it [indiscernible] in this year? Patrick Goepel: Yes. If you think that you had the great resignation and that you had have the great stay, during a couple of those periods, turnover was really heavy which would add more to W-2s and then when you stay, it's a little bit less. So there was a headwind, a couple of percentage points in that area. Joshua Reilly: Got it. And then on the Lathem transition -- the business model transition, how is that going? Because the hardware revenue was a little bit above my estimates here for the March quarter. And just curious, is that still on track with your expectations entering the year? John Pence: Yes, I think so. I'm not sure that the hardware was that much up. I think we also had some pretty healthy professional services, Josh, with regard to some of the larger tax implementations. So I think from my perspective, [ hardware ] was kind of in line with last year and nothing too crazy. In terms of the integration and the plan, I would say we're going to be in earnest in the back half of this year and into next converting to that HaaS model. So early stages and we haven't started to see that transition, which will, again, obviously be really good for the mix of revenue, right, turn it into recurring, but it will put some pressure on the nonrecurring side, right? So on the compares, we're going to be adding a lot more recurring revenue in a couple of quarters, and you're going to see a decrease in nonrecurring. Again, good for the health of the business, but it will be a little bit of a transition in terms of the mix. And that's what we expect to happen kind of over the next, I would say, 18 months to 2 years. Patrick Goepel: Yes. And Josh, I would say really, really pleased with the Lathem acquisition overall. It was absolutely the right acquisition for us. Our customers love it. And anecdotally, the install times and the coordination around multiproduct implementations has gone really, really well. Joshua Reilly: Last point for me is on the enterprise payroll tax deals, can you just give us -- we've seen some kind of mixed feedback in the market about ERP migrations. How important is the cloud ERP migration for you or just any type of key migration for you to win business there? And can you still win some deals even if ERP migrations are in a period that's a little bit slower? Patrick Goepel: Yes. First of all, Josh, and I hope you appreciate this. In addition to analysts and investors, we have people from Team Red on the call, who is our primary competitor. So I can't go too much into detail like I used to be able to because they've noticed us. But anyway, what I'd like to talk about here is, first of all, the market for tax is really compelling. We have -- we think we're miles ahead of the competition. I think we have a really good offering there, and we're going to continue to grow in that area. As far as ERP migrations or implementations, first of all, we do a lot of times, we are the tail not the dog in the sense that when somebody goes to an Oracle or UKG or an SAP or Workday, what happens is we are -- the timing of some of those deals are when they do implement with ERP. So sometimes that can lengthen an install center but -- install cycle -- but it absolutely -- actually, it's -- the market right now for compliance and tax services, especially with how we go about it with AI is very strong. And then Eyal Goldstein is here -- real quick, Josh, Eyal Goldstein is here. We're lucky to have him today. Eyal, I don't know if you want to comment on that, please. Eyal Goldstein: Yes, Josh. So we also have a really big opportunity not only on the greenfield, new ERP deployments, but also the current installed base. And we're doing quite a bit of work within the current base, and we've got such a long runway there as well. So we're not seeing any impact from what might be happening with the broader group around ERP in general. Operator: Our next question comes from Bryan Bergin with TD Cowen. Jared Levine: It's actually Jared Levine for Bryan tonight. To start, can you talk about your managed service offerings, the recent announcements there? What do you see in terms of the revenue opportunity, including the PEPM uplift specifically from those managed service offerings? Patrick Goepel: Yes. I mean, first of all AsureWorks, we're really excited about it. The fact that we could do it all for them or a customer doesn't necessarily have to hire a full-time either payroll or HR professional and they can help us -- they can use us to help them. [ For some metrics ], we see an opportunity of about $50 or so per employee per month where we're doing the work for them. Now some of that can change based on the size and scale of the customer and the breadth of what we're doing. But that's the kind of opportunity we see with AsureWorks. We have had this in motion for quite some time. We had 1 of our resellers kind of pilot the program and we -- since acquired that reseller. And then we're rolling that model all across the country. I would say it's more of a '27, '28 initiative, but I do think you'll see somewhere around kind of $3 million to $5 million in opportunity in this year's revenue. But over time, it's going to continue to grow. And that's what's exciting for us. And not only that, but when you can go to a customer, they don't need to go to a PEO or employee leasing to get all their kind of compliance and all their offering done where we can do it for them or the same software that we're doing it for them, they can use internally. We think that's a real compelling message. And even if we don't get the entire business, we're going to get a good majority of the business. So many times, we'll pitch that, if you will, and they'd say, well, maybe we'll start with HR compliance, and we'll start with benefits or we'll start with payroll tax in time. So we think we're just getting started. We had 6 people offering. We're selling it today. But clearly, we've exposed the sales organization and we have a set of learning and development training going on to roll this out. So we're pretty bullish on this. Jared Levine: Great. And then a follow-up here in terms of the guidance. So it looks like you didn't pass through all of the quarterly revenue and adjusted EBITDA beat. Anything to call out there? And just also want to confirm there was no kind of incremental M&A since the last earnings here. John Pence: Yes. No M&A since the last earnings. And again, we tried to kind of get you where we think we need to be for the rest of the year. Operator: Our next question comes from Eric Martinuzzi with Lake Street. Eric Martinuzzi: Yes. I wanted to ask about the -- when the Lathem folks come on to Asure Central, will that entire base be viewed as kind of a multiproduct adoption customer base? In other words, should we see a spike in the percentage of customers when we have this same conversation... Patrick Goepel: Eric, what I would say it depends. We're -- in our business, what we do is we have some stand-alone channels. We'll do a stand-alone tax channel, for example, where we partner with other payroll companies. We won't cross sell without their permission into those kind of companies that we have relationships with. And then what we do with Lathem is, we have some other payroll companies that use Lathem and are partnered with them, and we'll respect that the same way. But a large majority of the Lathem customers will be in Asure Central. We're still going through kind of that flow, if you will, and those will all be available to cross-sell, et cetera. It hasn't really slowed us down because we prioritize Asure Central and the upgrades with the customers that have already been sold with the cross-sell of Lathem products. So those customers are already on Asure Central. We'll just continue to adopt them through the second quarter. It will, by no question, add velocity to our cross-sell approach and our attachment of those customers. Eric Martinuzzi: Got it. And then you talked about you're still on target for the 150 sales reps by the end of the year. You finished out at 118, I believe, at the end of 2025. Are we talking about kind of a linear progression on our way to 2026? Or -- in other words, I guess a better way to ask the question is, what's the sales headcount now? Patrick Goepel: Yes. We're about 10 under where I really would like to be, and Eyal is with me, and he can comment, but for us, we've been really choosing quality. If you think about where we're going with the Asure Central and where we're going with the AsureWorks, we're looking for people that really have a consultative sell versus, let's say, a product sale. And maybe, Eyal, you could talk a little bit about some of the candidates and the flow there. Eyal Goldstein: Yes. So we've -- historically, we've looked at more small business, transactional sales professionals, and that worked well for us where we had point solutions, and we're really selling more payroll tax deals than anything else. Now that we're selling more of the broader product, the complete product and especially with AsureWorks, it's a much more consultative sale. It's a much more solution sale. Much more disciplined around the sales process and needs analysis and demoing the product and the software, which we're really proud of these days. And so that just is a different caliber and profile of a sales professional. Now the good news is, the folks we're bringing in check all those boxes and they're actually ramping a lot quicker than historically what reps were ramping at. But we're being more disciplined about who we're bringing in, and we feel confident we'll get to that 150 by the end of the year. Operator: Our next question comes from Richard Baldry with ROTH Capital Partners. Richard Baldry: When you talk about accelerating to double-digit organic growth, can you talk maybe about the pieces that get you there? Presumably, some of it's the head count, but -- how much of it's ARPU and maybe how much visibility do you have into that acceleration, whether it's in pipeline, retention rate changes, win rate changes, et cetera? Patrick Goepel: Yes. Rich, thank you. Definitely, the attach rate numbers are really positive and we have pretty good retention on that. Candidly, in the fourth quarter and first quarter, we did a lot of professional services work. And I would say that one time probably is the only thing that's noise in the numbers sometimes because we have been a little one-time heavy. Now that ultimately will be a very strong indicator for us. But short term, sometimes you have to grow over bigger compares on a one time. But what I would tell you is the ARPU, the attach rate, the number of reps, the rollout of Asure Central, the rollout of AsureWorks, AsurePay, we're right down the -- we're early days, but I would tell you, really good pipeline development, real good underpinning of the pipeline, real good focus on attach rates. I can see from our deal alerts, we've had a really exciting not only first quarter, but second quarter and I can see it just based on our hiring profile in our learning and development as people get up to speed. So we have pretty good visibility, but we're also want to be conservative in an environment that has a lot of global uncertainty. We, for that matter, really haven't pressed same-store sales or we haven't pressed a ton of employment growth or interest rate increases, right? So what we have tried to do is be conservative in our forecast. And hopefully we can upside and produce an outsized income or outsized goals in the second half. Richard Baldry: And for a follow-up. Can you talk about the internal sort of use deployment of newer AI efficiency tools. How much do you feel that, that can help you either hold the line on costs in some areas, maybe cut costs to sort of bolster your EBITDA growth maybe in excess of what organic growth might otherwise argue? John Pence: Yes. Rich, we're seeing it used all throughout the organization. I mean there's really not an area that's not started to investigate and start to deploy it. We're using it in the financial organization just basic stuff like doing variance analysis and helping on the forecasting. The operations team is using it to again interact with customers and make things more efficient in those interactions with the processing the payrolls, sales team is doing a lot of work with the front end of analyzing customers and getting a lot more effective and a lot more throughput. So I think we're seeing it throughout the organization. And I think it's really, really early days. It's pretty interesting. But you're exactly right. I think it's going to help. I don't think we're going to necessarily want to exit a bunch of people. But what we're going to do is we're going to kind of change the profile of what they're doing, right? So if somebody was more on the data entry side, interaction with the customer, that's going to go away or that's going to be much more diminished. They're going to be much more involved with making that customer happy, trying to solve their problems. And that goes back to the AsureWorks concept, right? We're really going to be a lot closer and tighter with the people we've got servicing the customers and less on the data manipulation side of the business. So I think we can do that and not really change the cost structure, add to the top line. And ultimately, you're right, it's going to fall through to the bottom on EBITDA. Patrick Goepel: Eyal, maybe if you could talk about sales and marketing with AI. Eyal Goldstein: Yes, Rich. So on the front end, we're using it quite a bit as well. And we're doing a lot on the marketing side around content creation and around being able to put out much more thought leadership much quicker. That's helped quite a bit for us. And then on the sales side, we're looking at quite a bit of tools, but what we've implemented already is some AI tools around the needs analysis and discovery. And again, as we do more of these larger deals in that 20 to 100 space, we're doing much more quicker research. We're able to get output much quicker around certain company and maybe who they're competing with or their peers and help drive more of the front end of the sales process and making sure our reps are well versed and knowledgeable when they engage with the prospect as well as taking all of the data that they learn from an actual discovery or needs analysis and being able to put a pretty quick deliverable and output with all of our services tied to that, and then the ROI and value from it. All of that now for us is done through different AI tools. It's helped speed up quite a bit of the process for us on the front end. And frankly, now we're leaning into some more technology around the actual outbound motion that we have around the demand gen. And we actually think that, that will have quite a big impact on how many people were able to reach and having really good bespoke conversations with thousands more companies than we would normally have, leveraging more human motion around the business development side. Patrick Goepel: And then finally, Rich, just operationally we quoted last quarter about 80,000 transactions that Luna assisted with and over 100,000 this quarter. And so that obviously helps us with scale. It helps the customer experience where they're changing their W-4 withholding with Luna assisting and that. So I think what you're going to see is more velocity in the model, the financial model. I know in our long-term model we had 40%. We believe over time we can achieve 50%, and that's all AI-assisted. Operator: Our next question comes from Greg Gibas with Northland Securities. Gregory Gibas: Could you discuss the pace of organic growth implied by your guidance through the balance of the year? And maybe what your updated expectations perhaps are the same for professional services and hardware on a go-forward basis? John Pence: Yes. So real quick at the midpoint of the guide, I think it puts us at kind of roughly around 15% full year, year-over-year in terms of growth. I think it's going to be kind of split evenly. It will be a second half between the organic and inorganic based on the guide. So I think they're obviously the upside. We don't have any acquisitions plan. So the upside to the numbers would be on the organic side right now as we're sitting today. Gregory Gibas: Just professional services and hardware considering it was a little higher than expected, but I know some of that is seasonal. John Pence: Yes. I think it will normalize back down to -- we're going to be in the kind of high 90% recurring for the full year. I do think this quarter was a little heavier than the rest of the quarters. Gregory Gibas: Got it. And you maybe beat me through this one a little bit, but just on the outlook for reseller acquisitions, and you mentioned nothing since the last earnings. Could you remind us on what's been done year-to-date? And curious to hear your stance on incremental strategic platform acquisitions? Or is the focus right now, just more integration, expanding the sales force and cross-sell opportunities and then even the Lathem model transition? Patrick Goepel: Yes. Just really quick, I really feel pretty good about the components of our solution. We've pointed in an area where we strengthened the products around payroll and have done a really good job there. And then with the integration of Asure Central, the development of AsurePay, we just announced AsureWorks here, but we've been working on that for a quarter. I really think we got our product kind of set, if you will. Now to me, it's attachment rates, ARPU, revenue per unit, we're really going to try to cross-sell, et cetera. As a reminder, I thought Eyal did a wonderful job leading the sales organization. Historically, we're close to 70% new logo, now we're closer to 50-50, and we're not dropping down new logos, right? So it really speaks to kind of broadening out the revenue. Now that being said, we do have a reseller kind of network, if you will, and we'll continue to add that. You see and we published some of the cost takeouts in that model, but also now that we have the products and services to cross-sell and attach based on the reseller network, we think it's even more compelling to go that way. So I think you'll see a series of small acquisitions. I don't think you'll see anything major, but that will be our focus here. John Pence: And to answer your question, yes, the only acquisition we talked about on the last earnings call was done kind of in the January time frame. Operator: Our next question comes from Vincent Colicchio with Barrington Research. Vincent Colicchio: Yes. Pat, could you talk to the health of your client base? Is it expanding? And are clients hiring in this environment? Patrick Goepel: It's a great question, Vince. I would say, in general, it's -- I think people are cautiously optimistic. I think in some cases depending where you sit, maybe oil prices has kind of swooped them a little bit or what have you, they definitely see a very strong opportunity in the business environment. In some cases, they have a stable employment workforce, which is great. They're trying to figure out kind of -- and separate what they're seeing is good cash register versus if they listen to a war or listen to all the kind of news, sometimes it is a cause for pause, right? And so I don't see employment growth growing a ton here. And some of it's just demographic where you have a little bit of an aging population, you have as many people retiring as coming into the workforce. But I would certainly -- I see a lot of opportunities. I think Eyal, who's on the front line here would agree to that, I think. And for me, it's a very stable thriving small business workplace. Vincent Colicchio: And how should we think about the organic growth this quarter? Would you say it was broadly distributed across your core categories? John Pence: Yes. I'd say so. I think -- we're trying to get to a point where we describe the business and it's in the IR deck, there's a pie chart. I would say, in general, most of the growth this quarter was probably on the HR -- HCM platform side of the business as opposed to enterprise tax. So that's the way I would think about it, Vince. I mean, I really think about -- that's the kind of the buckets that we're trying to describe the business. And so that's where the majority of the growth was this quarter. Patrick Goepel: And as far as through the year, I think attach rates and RPU growth in small business is going to carry today. I think you're -- we've had some really good milestones of getting customers live and we see good prospects in the tax business and continue to grow. I think we have some professional services and hardware that in some cases, we'll continue professional services as we implement, but as far as hardware, I think you'll see a moving of the mix from 1 time to reoccurring over a period of time, but we'll still have some onetime. And then we have some nonstrategic businesses that will, over time, not be as focused, but we'll continue to be with it. But really AsureWorks, Asure Central, AsurePay, we're going to lean in there. And then we're going to absolutely grow our -- continue to grow our money movement and compliance offerings up and down the HR stack. Operator: We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Pat Goepel for closing comments. Patrick Goepel: Yes. I appreciate each and every one of you from an investor perspective and an analyst. We have a great analyst community, and they do a good job representing Asure Software. And then as far as if you've been an investor with us here a while, we continue to make progress. I think we're pretty consistent. We have the investor deck on the customer website. I would say we've done some non-deal roadshows. And with Patrick coming on board, we're going to have some conferences here throughout the year. And definitely I'm coming to New York here soon on some investor conferences. So we look forward to meeting you and seeing you soon, and we're very thankful for you and just keep following our progress because we're pretty confident in our growth. Thank you. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, and welcome to the Franklin BSP Realty Trust First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Lindsey Crabbe, Executive Director, Investor Relations. Please go ahead. Lindsey Crabbe: Good morning, and welcome to FBRT's first quarter earnings conference call. Thank you for joining us today. As the operator mentioned, I'm Lindsey Crabbe. With me on the call today are Michael Comparato, Chief Executive Officer of FBRT; Jerry Baglien, Chief Financial Officer and Chief Operating Officer of FBRT; and Brian Buffone, President of FBRT. Before we begin, I want to mention that some of today's comments are forward-looking statements and are based on certain assumptions. Those comments and assumptions are subject to inherent risks and uncertainties as described in our most recently filed SEC periodic reports and actual future results may differ materially. The information conveyed on this call is current only as of the date of this call, April 30, 2026. The company assumes no obligation to update any statements made during this call, including any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Additionally, we will refer to certain non-GAAP financial measures, which are reconciled to GAAP figures in our earnings release and supplementary slide deck, each of which are available on our website. We will refer to the supplementary slide deck on today's call. With that, I'll turn the call over to Mike Comparato. Michael Comparato: Thank you, Lindsey, and good morning, everyone. Thank you for joining today. I will begin with key developments from the first quarter and an overview of the market, then Jerry will walk through our financial results, and Brian will provide updates on our portfolio. The quarter played out against an increasingly complex macro backdrop. Geopolitical uncertainty and ongoing conflict have added volatility across markets. But in many ways, commercial real estate has already gone through its correction over the past few years. Values have reset meaningfully across all asset classes, and we believe we are much closer to the end of the cycle than the beginning. What remains is the final phase, working through the legacy positions as lenders move beyond extend and pretend. Against that backdrop, liquidity in our markets remains strong and competition is high with spreads near cyclical tights. We've stayed disciplined in that environment while continuing to find opportunities in origination. Our origination activity outpaced repayments this quarter, resulting in portfolio growth. That speaks to the strength of our platform and our ability to operate outside of the most crowded parts of the market. In addition, last year, we selectively began deploying capital into equity investments where we saw the potential for strong risk-adjusted returns. We've already seen meaningful appreciation in those assets with the estimated fair value significantly increasing since our initial investment. This is another good example of how we're using the breadth of our platform to allocate capital opportunistically and enhance overall returns. We expect the equity allocation of the portfolio to increase throughout 2026, but we will also strategically exit equity investments if the pricing is compelling. On the credit side, we continue to make progress resolving legacy assets, including reducing our REO count this quarter. We believe the majority of the legacy issues have been identified and are prioritizing resolution and redeployment of capital over holding underperforming assets. Within NewPoint, first quarter activity was seasonally higher, which is typical -- excuse me, seasonally lighter, which is typical. If rates stabilize, we would expect origination volumes to build throughout the remainder of the year. As we've said before, even modest movements in rates today have an outsized impact on transaction activity. All in all, I would put this in the excellent category for a quarter. Our adjusted distributable earnings covered our dividend. We increased book value. We bought back a meaningful amount of stock at a substantial discount to book value. The Board approved more stock buybacks post quarter end. We sold our largest REO position early in the second quarter, grew the overall portfolio size, issued a highly accretive CRE CLO that closed in the second quarter. We integrated the entire BSP servicing book into NewPoint and we had meaningful appreciation on 2 equity investments. The team really did an outstanding job this quarter. And with that, I'll hand it off to Gerry. Jerome Baglien: Great. Thanks, Mike. I appreciate everyone joining the call today. I'll walk through the financial results for the quarter. FBRT reported GAAP net income of $12.3 million or $0.08 per fully converted common share. Distributable earnings for the quarter were $13.5 million or $0.09 per fully converted share. Distributable earnings includes $12.3 million of realized losses tied to foreclosure real estate that we sold. Excluding these losses, distributable earnings were $0.22 per fully converted share. Results this quarter were supported by relatively stable net interest margins compared to Q4, along with a more normalized contribution from NewPoint, which I'll touch on briefly. During the quarter, we recorded a CECL provision of $13.5 million, which included a $1.3 million benefit from our general reserve and a $14.8 million specific reserve primarily tied to one watch list loan. Book value per share increased to $14.18, driven by our share repurchase activity. We've been consistent in allocating capital where we see the best risk-adjusted return, and we view our stock as one of those opportunities. We repurchased nearly $40 million of common stock during the quarter. Subsequent to quarter end, the Board reauthorized the share repurchase program with $50 million available through December 31, 2026. Net leverage ended the quarter at 2.84x with recourse leverage standing at 1.16x. Excluding the leverage on NewPoint assets, our net leverage for the vehicle was 2.62x and with our current leverage target in the range of 2.75 to 3x with NewPoint excluded. Subsequent to quarter end, we issued an $880.4 million managed CRE CLO. In connection with that transaction, we called the 2022 vintage CLO that had exited its reinvestment period. We continue to maintain strong liquidity and financial flexibility with reinvestment capacity now available across 3 CLOs. Looking ahead, we expect earnings to benefit from the larger core portfolio and a more stable contribution from NewPoint over the course of 2026. Slide 11 highlights NewPoint's contribution for the quarter. Distributable earnings from NewPoint totaled $5.6 million, which is more consistent with what we view as a normalized steady-state level of income from the platform. Agency origination volume was $646 million in Q1, reflecting typical seasonal softness compared to the back half of 2025. At quarter end, the MSR portfolio was valued at approximately $217 million and generated $6.7 million of income in Q1, representing an average MSR rate of roughly 100 basis points. NewPoint's servicing portfolio totaled $58.1 billion at quarter end. The quarter-over-quarter increase was largely driven by integration efforts, including the successful transition of all BSP real estate loans onto the NewPoint servicing platform, which occurred over the course of the quarter. The full earnings benefit from this transition will be realized in the coming quarters. This marks a significant milestone in our integration process and positions us to be a more differentiated servicing provider going forward. We continue to see NewPoint as a meaningful driver of long-term value with increasing contribution expected as volumes build, MSR and the servicing book grow and the benefits of integration come through. With that, I'll turn it over to Brian to give you an update on our portfolio. Brian Buffone: Thanks, Jerry, and good morning, everyone. I'll start on Slide 14. Our core portfolio finished Q1 at roughly $4.6 billion. As Mike mentioned, we grew that core loan portfolio during the quarter with net growth of $173 million. This was driven by $468 million of new loan commitments in addition to future funding commitments from previously closed loans. was partially offset by $323 million of repayments. We expect continued modest portfolio growth throughout the rest of this year. Approximately 79% of our loans are backed by multifamily assets and our office exposure is extremely limited sitting at just 1% of our core portfolio. That office loan exposure is now only $55 million across 3 loans, 2 of which are performing and the third is nonperforming and on our watch list. During the quarter, we originated 26 loans at a weighted average spread of 278 basis points with multifamily accounting for 92% of that production. We remained active in a highly competitive market but stayed disciplined in how we deployed capital. Our focus continues to be on high-quality multifamily loans with lower loan-to-value profiles where we believe we are best positioned from a risk-adjusted return perspective. Our pre-rate hike portfolio continues to be reduced and now represents approximately 29% of our total loan commitments with $175 million of payoffs during the first quarter tied to that vintage. This continued runoff reflects steady progress in rotating the portfolio into newer post-rate hike originations. Turning to Slide 16. The overall portfolio remains stable with an average risk rating of 2.5 and 11 loans on watch list at quarter end. During the quarter, we resolved one watch list loan completing that loan sale within the quarter, and we added 2 multifamily loans during the quarter. Slide 17 covers our foreclosure REO portfolio. We reduced our REO count to 6 assets at quarter end, down from 7 last quarter, reflecting continued execution on asset resolutions. But the most meaningful milestone in resolving our REO positions came very shortly after quarter end with the sale of the Raleigh multifamily asset, which was by far our largest REO position. Our financing of that sale will return equity associated with that investment from a negative to a positive contribution next quarter. Write-downs associated with that sale were recognized this quarter and contributed to realized losses as we continue to take a proactive approach to resolving these positions. With that, I would like to turn it back over to the operator to begin the Q&A session. Operator: [Operator Instructions] The first question comes from Matthew Erdner from JonesTrading. Matthew Erdner: I'd like to kind of touch on NewPoint to start. a lot better quarter this quarter than the prior. Could you talk a little bit about the timing of when those loans were kind of transferred on to the servicing book and if it had the full effect for this quarter? And then if you expect any kind of normalization of that going forward? Jerome Baglien: Yes. This is Jerry. I'll take that. It occurred during first quarter. So you're not getting the entirety of the benefit, effectively done kind of mid-first quarter. But keep in mind, you've got to have the personnel to run that ahead of that. So from a contribution in the first quarter perspective, you're certainly not capturing the entirety of what we expect that to contribute on a go-forward basis. And when we gave our estimations last quarter on kind of the expected growing contribution for 2026, the back or latter half of the year beyond this will show the full benefit of having the yield in its entirety throughout the rest of the quarters of the year. So it's going to be more positive than it was in Q1. Matthew Erdner: Got it. That's helpful. And then turning to the watch list real quick. Is there, I guess, anything specific that you guys are seeing kind of across the Southeast, Southwest from a borrower profile perspective that's leading to kind of, I guess, the Texas and Arizonas finding their way onto the watch list? Michael Comparato: Matt, it's Mike. I don't think much has changed, honestly, probably in the past 2 years in that regard. Rates are kind of in the same spot that they've been. Everybody has been hoping for greener pastures that just haven't really materialized. We've also been talking for the past 2 years just about borrower behavior and how difficult it's been to predict what borrowers are going to keep things current and pay loans down versus those that are walking away. So I would say largely not much has changed. We just learn more things every quarter. We got almost $200 million of paydowns from those kind of legacy 2021, 2022 vintage originations. So I continue to say that not everything originated in those years necessarily is bad and is losses, right? We've had billions of dollars of paydowns at par on that stuff. It's just the natural kind of adverse selection of working through the rest of that portfolio. And I think the team is doing a great job, but I don't think there's any new information that we have today that we haven't had for the last few quarters or years. It's just kind of working through the system. Operator: The next question comes from Timothy D'Agostino from B. Riley Securities. Timothy D'Agostino: It'd be great to just hear a little bit more on your capital management and balance sheet management going forward. Obviously, you repurchased about $40 million of common stock and the Board increased the repurchase program back to $50 million. So I guess, going forward, is buying back stock continue to be kind of a focal point? How do you feel about -- obviously, the dividend was cut last quarter. How do you feel about that going forward? I'm just trying to get an overall sense. Obviously, book value increased quarter-over-quarter, which is a positive. Michael Comparato: Tim, it's Mike. Thanks for the question. Let me start with the dividend, so I'll answer backwards and then go to the share repurchases. So I think we were -- we're pretty straightforward in saying we thought the earnings potential of the company was in that -- where the dividend previously was, right? We thought through the passage of time, the recycling of the REO portfolio and nonperforming loans into performing investments that we could get back up into that general area. The cut obviously was a decision that we made just to stop burning book value while we went through that transition. So I don't think anything has changed from a macro perspective. I think we still believe the earnings power of the firm is substantially higher than what we performed this quarter. It's really just about the team continuing the execution of getting through those legacy assets, liquidating the REO and getting that capital reinvested. So I would hope that earnings continue to move in the upward right trajectory. And I think that's been consistent with what we've said all along. With respect to share repurchases, we walk in the office every day looking for what we think are the best investments for our capital on any given day. Our shares are clearly one of those options. So I can't tell you, obviously, the magnitude at which we would buyback on any given day, week or month, but it's something that the Board is supportive of. And Jerry, Brian and I and the rest of the management team discussed it regularly. Operator: The next question comes from John Nickodemus from BTIG. John Nickodemus: Regarding the 2 loans moved on to the watch list, just if you wouldn't mind expanding on sort of what drove both of those downgrades. I know one went from a prior 3 rating to a 5 and the other from a 2 to a 4. So I'd just love to hear a little more detail on specifically what went into those changes this quarter. Michael Comparato: John, it's Mike again. I would say, again, this is based on mostly borrower behavior. One of them went from a 2 to a 4 because a borrower defaulted. Shortly after the default, I think they realized that, that was not the greatest outcome for them. They actually came whole on all of the payments due, including about $300,000 of default interest and late fees. So that loan is current as we sit here today. But given that it did have a default, we thought it appropriate to risk rate it at a 4. With respect to the loan that was risk rated at I would say this is exhibit A of trying to figure out borrower behavior and what happens next. These are, I would say, average to above average assets in average to above average locations. This is a major, major sponsor who has been contributing, I would say, an exceptional amount of equity to the property and keeping the loan current for several years. And unfortunately, they just decided that the well had run dry. We thought that they were going to right size the loan and continue to keep things current, and they woke up and said no loss. And so we got a valuation in conjunction with that default that currently indicates that it would be a loss. Obviously, we'll see when we actually exit the positions, what that turns out to be, but that's kind of the back story behind that one. John Nickodemus: That's super helpful for both of those. And then just the other one for me. Congratulations again on the sale of your largest REO position. I was just curious how you're thinking through the remaining 5 assets and any sort of timing or just what the cadence could look like for those potentially being sold throughout the rest of 2026? Michael Comparato: Yes. Brian, do you want to take that one? Brian Buffone: Sure. on the majority of them, we are actively marketing for sale. We hope to have resolution in Q2, Q3 on 2 or 3 of them. But right now, we are actively looking to resolve those. And as Jerry and Mike both pointed out, redeploy that capital back into what is our core portfolio on multifamily assets on the lending side, but very actively in the market on those and hope to have resolution within the next couple of quarters there. Michael Comparato: And I would add to that, John, the 2 that are closest to being sold, indications are that they will be collectively at or maybe even above where we have them currently marked. Operator: The next question comes from Chris Muller from JMP Securities. Christopher Muller: So following up on a prior question. On the increase in specific CECL reserves, so there wasn't much of a change in risk ratings in the quarter, 1 new 4-rated loan and 1 new 5-rated loan. Was that increase in specific reserves due to those downward migrations? Or is it more related to the other watch list loans? Michael Comparato: It's really just position. Yes, go ahead, Jerry, sorry. Jerome Baglien: Yes, we're saying the same thing. It's the one position that went to a 5. That's the majority of the increase in the quarter. It's just a specific provision on that asset. Christopher Muller: Got it. Makes a lot of sense. And then I guess shifting gears to the NewPoint business. You guys originated $1.1 billion in 4Q and then down to $646 million in 1Q. And Jerry touched on this a little bit. But how much of that dip was due to seasonality? And how much was due to the conflict in the Middle East causing some interest rate volatility? I'm just trying to see where the seasonally adjusted baseline for this business should be. Michael Comparato: Yes, Chris, a harder question to answer, obviously. I think Q1 is seasonally lower historically in the agency business overall. But we are just in this really complicated rate environment, right? We saw the 10-year briefly hit kind of 3.75%, 3.80%. And I would say borrowers became euphoric again and the amount of inquiries shot through the roof. And then we completely reversed ourselves. And I think the high I saw was 4.48% in just the past few weeks. And so every borrower has kind of said, well, I'm going to wait again. So we're just in this unfortunate period of -- I've said this a few times, 25 basis points with 4.25% kind of being the start rate. At 4.50%, I think everything comes to a screeching halt. And at 4%, I think you're going to see a deluge of transactional volume. And so unfortunately, right now, we're at the higher end of that range to really see origination ramp, you need to see rates come down a little bit and have borrowers stop bridging and taking floating rate debt hoping for that lower rate environment. But I can't say it's 60-40, 70-30. There's just no way that I could really answer that or measure that for you. Christopher Muller: Got it. That's fair. And if I could just squeeze one last one in. Is that dynamic of interest rate volatility also impacting your guys' conduit business? And that business has been a nice contributor to earnings. It looked like it was about $0.06 this quarter. If we do see rates start to settle in a little bit, could there be some upside to the conduit business as well? Michael Comparato: I think there could be. I also think there's potentially upside to the conduit business in that we are buying our first CMBSB piece that we bought in probably 5 years. And I think we're going to be able to give borrowers much more certainty of execution within that space, which is a very sought-out commodity. But we talk about this regularly. You didn't directly ask this, but I'm going in a slightly different direction. When you put all of the pieces on the board now and how we've acquired NewPoint, we have a conduit business, we've got a servicing business, and we've got a floating rate debt business and a growing equity business. FBRT in its totality has kind of become a perfect hedge for itself, right? If rates go down, it benefits this side of the group. It probably is to the detriment of others. As rates go up, we do more floating rate business, maybe the conduit underperforms and the agency underperforms. But what we really have built is something that should be just a natural hedge based on rates overall. And I think that the market will figure that out in the coming quarters and years as the different pockets of the company perform in certain market environments. Operator: [Operator Instructions] The next question comes from Gabe Poggi from Raymond James. Gabriel Poggi: A lot of what I wanted to ask has been asked. I want to ask kind of a 20,000-foot question here. FBRT has, over the last years, rent against newer vintage. Obviously, you got 70-plus percent of the book in newer vintage multi. Two questions on that. Can you, Mike, talk about just general market color between what you're seeing in the transaction market between newer vintage product and older and then kind of A/B/C product? And then the piggyback to that is, as you mentioned, potential more equity investments, is there at even Benefit Street in totality, more want or interest in potentially owning some of the multifamily that you guys have been in and around the hoop on for longer from an equity perspective because of longer-term tailwinds? Michael Comparato: Gabe, thanks for the question. I appreciate it. I'll channel my inner Charles Dickens and say it's kind of a tale of 2 -- the best of times and the worst of times when it comes to Class A new vintage to the older stuff. It seems like everybody, whether that is equity or credit, wants to be in the nicer, newer vintage, higher-quality assets. It's easy for an equity investor to walk into their investment committee or look themselves in the mirror and say, okay, I'm buying a brand-new asset below replacement cost, construction starts have declined, supply is declining. If I own this thing for 5, 7 years, 10 years, as long as I just operate it correctly, don't over lever it, I'm probably going to have a pretty good investment experience. For credit guys, it's the same exact conversation. It's slightly different, but it has the same foundations, which is this is the best -- new best asset in the market. If the buyer is below replacement cost, we're substantially below replacement cost. And I just think that, that's a very, very easy thesis for people to understand and sink their teeth into. For example, I mean, Austin is the most -- probably 1 of the 3 most oversupplied markets in the country. We closed 2 loans last quarter in Austin on brand-new delivered stuff, I think 2024, maybe even the 2025 vintage assets, where we were lending at $135,000 to $140,000 a unit. And we just kind of all looked at ourselves and said, if that's not money good, wow, like we're in trouble. So I think that everybody is kind of piling into that space. And I think the exact same is true of people avoiding kind of the 1970s and 1980s vintage stuff. It feels like that has to correct a little bit more on cap rates. There are a small handful of equity investors that are actively trying to play in that 1980s vintage stuff. And I don't think you're going to get more equity investors there until you see returns adequately reflect the additional risk of buying kind of that older vintage asset. So I would say we've generally avoided it as well from a lender standpoint. But with the void there, we are slowly talking about does it make sense to go back into some of that 1980 vintage stuff if we're getting paid appropriately, if our attachment point is priced appropriately. So definitely a tale of 2 different worlds, and it will be interesting to see how that kind of plays out over the course of the next 12 to 18 months. But I do still think that older vintage stuff has to correct a little bit more. With respect -- I'm sorry for the long-winded answer, but with respect to equity investment, yes, with respect to the equity investments, we always look at them and just say, is this the type of stuff that we want to own long term? As you and I have talked about, as I've talked about with the market, we are generally bullish on commercial real estate. I think what's always left out of that question of debt versus equity is duration. And commercial real estate is an outstanding inflation hedge. If you own it long enough and just let inflation compound and let inflation do a thing, you're probably going to have a good investment experience. So every time we've got a loan that is downgraded to a 4 or downgraded to a 5, we sit in the room and we have a conversation, hey, is this the type of asset that we want to own for the next 5, 7, 10 years? Or is it time to move on, take our licks and just reinvest the capital. So -- and that question -- that answer is different, obviously, for every asset and location that we look at. But it is certainly something that we take into consideration. I think there's probably some assets that we wish we kept a little bit longer, but it is something that certainly goes into the narrative and something that we talk about actively. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Lindsey Crabbe for closing remarks. Lindsey Crabbe: We appreciate you joining us today. Please reach out if you have any further questions. Thanks, and have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you. Good day, ladies and gentlemen, and welcome to the First Quarter 2026 ACRES Commercial Realty Corp. Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Kyle Brengel, Vice President, Operations. You may begin. Kyle Brengel: Good morning and thank you for joining our call. I would like to highlight that we have posted the first quarter 2026 earnings presentation to our website. This presentation contains summary and detailed information about the quarterly results of the company. Before we begin, I want to remind everyone that certain statements made during this call are not based on historical information and may constitute forward-looking statements. When used in this conference call, the words believes, anticipates, expects, and similar expressions are intended to identify forward-looking statements. Although the company believes these forward-looking statements are based on reasonable assumptions, such statements are based on management's current expectations and beliefs and are subject to several trends, risks, and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. These risks and uncertainties are discussed in the company's reports filed with the SEC, including its reports on Forms 8-K, 10-Q and 10-K, and in particular, the Risk Factors section of its Form 10-K. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The company undertakes no obligation to update any of these forward-looking statements. Furthermore, certain non-GAAP financial measures may be discussed on this conference call. Our presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations of non-GAAP financial measures to the most comparable measures prepared in accordance with generally accepted accounting principles are contained in the earnings presentation for the past quarter. With me on the call today are Mark Fogel, President and CEO; Andrew Fentress, Chairman of ACR; and Eldron Blackwell, ACR's CFO. I will now turn the call over to Mark. Mark Fogel: Good morning, everyone, and thank you for joining our call. Today, I will provide an overview of our loan operations, real estate investments, and the health of the investment portfolio, while Eldron Blackwell, our CFO, will discuss the financial statements, liquidity condition, book value, and operating results for the first quarter of 2026. Of course, we look forward to your questions at the end of our prepared remarks. Since acquiring the ACR management contract in 2020, we have executed on our strategy to drive book value by originating high-quality loans, aggressively managing the portfolio, repurchasing our stock and creatively using tax assets available to the company. As part of that strategy, this quarter, we sold another of our real estate investments and realized a $3.3 million GAAP and EAD gain. This sale, coupled with the sale of an office building in 2024 and our development and sale of the student housing project in Florida and other projects were key components to our real estate investment strategy. The gains on the real estate investments, stock repurchases and retained earnings raised our book value by 66% since 2020, $29.98 per share. We deployed the proceeds from sales back into our loan book, originating high-quality loans and this quarter closed on our new CRE securitization. ACRES 2026-FL4 is a $1 billion CRE securitization that has leverage of 86.5% at SOFR plus 1.68%, and includes a 30-month reinvestment period. We completed the ramp-up period investments during the first quarter of 2026, and we'll see the full run rate benefit of the transaction in the second quarter. This is the fourth securitization transaction that we have completed at the REIT. We were able to increase our GAAP leverage from 2.8x at December 31 to 3.4x at March 31, which was a stated objective we had last year to increase portfolio leverage and the size of the CRE loan portfolio. In the first quarter of 2026, we closed new commitments of $495.6 million, offset by loan payoffs and net unfunded commitments totaling $121.2 million, producing a net increase to the loan portfolio of $374.4 million. The weighted average spread on newly originated loans is 3.09%. We have increased the loan portfolio to $2.2 billion and 60 investments as of March 31, and the spread is now 3.29% over 1-month term SOFR rates. We now have over half of the portfolio at SOFR floors of over 3%, so we have yield protection in a declining base rate environment. The portfolio generally continues to perform, demonstrating sound and consistent underwriting and proactive asset management. At March 31, our weighted average risk rating was 2.5, a decrease from 2.7 at December 31, and the number of loans rated 4 or 5 was 10, no change from the end of the fourth quarter. The portion of our CRE loan portfolio rated 4 or 5 based on the company's economic interest was 14% at March 31, down from 17% at December 31. As noted earlier, we are excited to announce that we sold one of our real estate investments in the Greater Philadelphia area this quarter, which resulted in a GAAP and EAD gain of $3.3 million. We will now have ACR's CFO, Eldron Blackwell, discuss the financial statements and operating results during the first quarter. Eldron Blackwell: Thank you, and good morning, everyone. GAAP net loss allocable to common shares in the first quarter was $1 million or $0.16 per share. GAAP net loss for the quarter included $9.3 million in net interest income, which was a decrease of $1.4 million over the prior quarter. This decrease in net interest income was primarily driven by the ramp-up period of our new CRE securitization, combined with lower fee recognition from loan payoffs. As Mark noted, we'll see the run rate impact of the fully invested FL4 securitization during the second quarter. GAAP net loss for the quarter also included a $1.3 million net decrease in the performance of our net real estate operations to a net loss of $1.2 million and a $3.3 million net gain on the sale of the previously mentioned land sale in the Philadelphia area. We saw a decrease in current expected CECL losses or CECL reserves of $1 million or $0.15 per share as compared to a decrease in CECL reserves during the fourth quarter of $1.3 million, which was primarily driven by improvements in projected macroeconomic factors during the quarter, offset by an increase in the model credit risk of the company's loan portfolio. The total allowance for credit losses at March 31 was $19.4 million and represented 0.88% or 88 basis points on our $2.2 billion loan portfolio at par, and was composed entirely of general credit reserves. EAD for the first quarter of 2026 was $0.02 per share as compared to an EAD loss of $0.48 per share for the fourth quarter. GAAP book value per share was $29.98 on March 31 versus $30.01 on December 31. Available liquidity at March 31 was $87 million, which comprised $48 million of unrestricted cash and $38 million of projected financing available on unlevered assets. Our GAAP debt-to-equity leverage ratio increased to 3.4x at March 31 from 2.8x at December 31, primarily from the closing of the securitization. At the end of the first quarter 2026, the company's net operating loss carryforwards were $32.1 million or approximately $4.89 per share. And with that, I will turn the call to Andrew Fentress for closing remarks. Andrew Fentress: Thank you, Eldron. Along with the entire ACRES team and Board members of ACRES Commercial Realty, I'm thrilled to announce the internalization combination of these two companies. The logic for the combination is simple: to be the best resource possible for our middle market customers. To be the best partner, we have to offer creative solutions, competitive, flexible capital and exceptional customer experience. Today, ACRES provides a complete dirt-to-perm financing solution program. As we continue to grow this roughly $5 billion platform, our offering and service will only improve, further driving value for all of our stakeholders. Post the merger, the ACRES employees and board members will be the largest shareholders in the company with over a 40% interest. This will keep us directly aligned with our other shareholders and focused on credit, customers and costs. Over time, we want to deliver a sector-leading return profile defined by consistent above-market dividends while employing modest leverage with complete transparency. Management will remain in place. All the ACRES owners and employees received 100% of their consideration for this transaction in ACR shares at book value, signaling our belief in the long-term success of this company. While we humbly recognize the challenges in our market, ACRES is front-footed and growing. We love to compete each day and look forward to working with each of you in the coming years. In addition to our regular shareholder presentation for the Q1, we've also added a short presentation to help further explain the merit of the transaction. Both can be found on our website. This concludes our opening remarks. I'll now turn the call back to the operator for questions. Operator: [Operator Instructions] We'll take our first question from Matthew Erdner with JonesTrading. Matthew Erdner: Congrats on all the continued progress and on the internalization announcement. I'd like to kind of touch on that first as to just the timing of it, why now, why you felt like it was a good time? And then I guess, the economic impact of that going forward if this were to be approved. Andrew Fentress: Sure. So with respect to the timeline, -- the expectation is that this will be obviously an item in our Annual Shareholder Meeting, which is scheduled for June 23 -- excuse me, June 22. And then we would expect it to close shortly thereafter, most likely in the July time frame. With respect to why now, listen, we feel like there's a great market opportunity. We have positive momentum as a firm, as a team. And we felt like the rough size of the two companies made sense to do it at this juncture in our trajectory as well. And then on economic impacts, we've outlined a lot of it in the deck that's in the -- that's available for shareholders. But look, the punchline is we expect to be able to drive non-balance sheet-related revenues from our asset management activities and other operations that exist inside of ACRES today that will all flow up and be available to pay higher and increasing EAD. Matthew Erdner: Got it. That's helpful. I appreciate that. And then as it relates to the $87 million in liquidity, would you guys say you're close to fully invested from a loan portfolio size? How should we think about that and just capital deployment going forward? Andrew Fentress: Yes. I would say today, we would say that we're fully invested. And look, part of the strategy is as we expect to drive a dividend, that will get us to a place where we hope to be able to issue and grow from there. Operator: We'll move on to Chris Muller with Citizens Capital Markets. Christopher Muller: So really great to see the merger and internalization announcement. I guess once the transaction closes, what will the combined company look like? And apologies if this is in the deck, I haven't had a chance to go through that yet. Is it going to look like just a larger ACR with the servicing portfolio? Or are there other complementary businesses that are part of ACC that are going to be part of this combined company? Andrew Fentress: Sure. So the company will have an asset management component. So the public entity will be the registered investment adviser for an existing asset management business that resides inside of funds and SMA structures. Those fees will flow up to the public company and be available to be included in the EAD calculation on a go-forward basis. Christopher Muller: Got it. Got it. And then I see you guys mentioned that EAD supporting a common dividend in the press release there. Should we expect a dividend to be implemented in quick order once the transaction closes? Or is it kind of just getting everything integrated together and then you'll address the dividend down the road? Andrew Fentress: So our general view on dividends is we will pay them as we earn them. And that we expect that once the companies combine, that we'll have a very clear picture on exactly the earnings power of the company, and then we expect to distribute those earnings through EAD as they're earned. Christopher Muller: Got it. Very fair. And just last housekeeping one, if I could. Do you guys have an estimated pro forma book value for this transaction? Andrew Fentress: Not at this time. Operator: We'll move on to Gabe Poggi with Raymond James. Gabriel Poggi: With the internalization happening at book value and management being aligned at book, is book value the bogey for any fresh kind of capital as you guys see going forward as you grow the business? Andrew Fentress: Yes, Gabe, we believe in doing things accretively for shareholders. I think we've demonstrated that by repurchasing shares at a discount. I think as we expect to grow the company, we want to do it accretively as well. So by definition, that means we're issuing at or above book value going forward. Gabriel Poggi: Got it. And then a follow-up. Just as it pertains to leverage and then leverage to total capital leverage to common, I know you guys have the slide, the usual, kind of, base bull case for where you want to get the loan book to be. Where is your comfort level on a total leverage to common? Or do you really talk about this at this size, you just think about it as total leverageable capital, obviously, inclusive of the preferred and non-controlling interest, et cetera. Andrew Fentress: Yes. Look, I think four turns, we expect we're very comfortable. I think one of the advantages of the transaction is that we can target a higher dividend without increasing leverage. And so over time, that's one of the advantages of having essentially non-balance sheet-related earnings where you don't have to increase leverage to increase earnings available for distribution. So that's one of the things that we like about the profile of the company on a pro forma basis. But I think what we've put out is that we've shown three cases where we're basically all at 3.5x leverage with different assumptions for non-balance sheet-related fees that drive to dividends that start the mid-single digits on up into the mid-teens. Operator: And it appears that we have no further questions at this time. I'd be happy to return the call to our hosts for any closing comments. Andrew Fentress: Great. Well, thank you all for attending the call this morning. We know there's a lot of information to digest in the presentation. So please follow up with us directly with any questions going forward, and we look forward to all the conversations. Thank you. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to Twilio, Inc.'s First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Rodney Nelson, VP, Investor Relations. Please go ahead. Rodney Nelson: Good afternoon, everyone, and thank you for joining us for Twilio's First Quarter 2026 Earnings Conference Call. Joining me today are Khozema Shipchandler, Chief Executive Officer; Aidan Viggiano, Chief Financial Officer; and Thomas Wyatt, Chief Revenue Officer. As a reminder, we will disclose non-GAAP financial measures on this call. Definitions and reconciliations between our GAAP and non-GAAP results can be found in our earnings presentation posted on our IR website at investors.twilio.com. We will also make forward-looking statements on this call, including statements about our future outlook and goals. Such statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described. Many of those risks and uncertainties are described in our SEC filings, including our most recent Form 10-K and our forthcoming Form 10-Q. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We disclaim any obligation to update any forward-looking statements, except as required by law. With that, I'll hand it over to Khozema and Aidan, who will discuss our Q1 results, and we'll then open up the call for Q&A. Khozema Shipchandler: Thank you, Rodney. Good afternoon, everyone, and thank you for joining us today. Twilio had a terrific Q1, accelerating revenue and gross profit to their highest growth rates in more than 3 years. We delivered over $1.4 billion in revenue, up 20% year-over-year on a reported basis and drove 16% growth in both organic revenue and non-GAAP gross profit. We also generated $279 million of non-GAAP income from operations and $132 million of free cash flow. Today's results are the outcome of a multiyear company-wide evolution that has fundamentally transformed Twilio's innovation velocity, go-to-market efficiency and financial rigor. In Q1, we continued to see unprecedented demand for voice, reimagined through the lens of AI, which is increasingly an entry point to the Twilio platform for AI natives and enterprises alike. Customers no longer view Twilio as just a provider of communications channels. Instead, they are relying on us to be a foundational infrastructure layer for the era of AI. I can't wait to unveil the next evolution of Twilio's platform at SIGNAL next week. Our voice channel revenue grew 20% year-over-year, marking its sixth consecutive quarter of accelerated growth with AI being a catalyst. We expect voice AI use cases will continue to evolve, to be more conversational and cross-channel over time. We've already begun to see evidence of this as our customers expand their footprint on Twilio's platform. For example, software add-ons such as Branded Calling and Conversational Intelligence both grew revenue more than 100% year-over-year. Our platform strategy is delivering immediate measurable ROI for our customers. As an example, Scorpion, a leading digital marketing and technology partner for local businesses, developed an AI agent by integrating Voice, Messaging and ConversationRelay. In just 3 months, the agent boosted its booking rates by 39%, capturing 6,500 appointments that otherwise would have been lost and generated $8.4 million in revenue. That same performance is why AI native leaders like Sierra and Bland.ai are also deepening their relationships with Twilio. Sierra, a leading customer experience AI company, signed a significant cross-sell deal to fuel their global expansion, while Bland.ai committed to a multiyear partnership to use Messaging, Voice and software add-ons such as recordings and Branded Calling to power their AI agent platform. Finally, Twilio's reputation for reliability is what won over a historic professional sports league, which signed a 7-figure deal to use Verify as the high-trust authentication layer for millions of fans. Messaging revenue growth also accelerated in the quarter, aided by strong growth in WhatsApp and RCS. RCS volume more than doubled quarter-over-quarter, and we saw significant traction in our international markets, inking notable RCS deals with KPN Netherlands to power RCS across all major mobile operators in the Netherlands and with Telavox to enable RCS for organizations in regulated industries. We are encouraged by the continued strength in messaging even as carriers have raised fees on our customers. While this dynamic doesn't impact Twilio's profitability directly, we recognize the pressure it puts on our customers, particularly small businesses. This is exactly why our platform strategy is so important. Our priority is to ensure our customers understand the choice of channels available to them, including over-the-top channels so they can deliver on their use cases and cost effectively reach their customers while maintaining high ROI. Our go-to-market initiatives continue to perform with our self-serve and ISV cohorts driving exceptional revenue growth again this quarter at 25% plus year-over-year. On the self-serve front, we've made significant investments to simplify our onboarding and upgrade process, which has driven higher conversion rates. I'm excited to share more on how we've reimagined the Twilio console experience next week at SIGNAL. In Q1, the team also signed customers, including Aloware, Grupo ProTG, Posh, Sela AI and Solace and landed a key multiyear partnership with the PGA of America. The PGA of America will be expanding their usage of the Twilio platform to power personalized engagement for 30,000 PGA of America golf professionals and millions of golfers. Without giving too much away today, next week at SIGNAL, we'll launch some of the most consequential innovations in our company's history, introducing new capabilities that orchestrate context-rich conversations with persistent memory across every channel for humans and AI agents. We will also unveil new partners. And most importantly, we'll show how Twilio is becoming the foundation for how businesses engage their customers in the age of AI. This moment in time demands a new kind of infrastructure and Twilio has been building just that. It's been amazing watching our marquee customers experience Twilio's new platform and products during our private beta, and many of them will be speaking about their early experiences at the conference. We can't wait to share more on the SIGNAL stage in San Francisco on May 6 and 7. Twilio's innovations continue to get industry analyst recognition as Twilio was positioned as a leader in the inaugural IDC Worldwide Communications Engagement Platform 2026 MarketScape, scoring highest in both strategies and capabilities. Twilio was also named a leader for the fourth time by Omdia in its CEP Universe report. This validation, coupled with our strong execution this quarter, illustrates why we believe that Twilio is truly positioned to be a critical infrastructure leader in the age of AI. Before closing, I also wanted to officially welcome Doug Robinson to Twilio's Board of Directors. Doug is known for growing teams and businesses, helping to scale Workday to the multibillion-dollar business that it is today. His expertise will be invaluable at Twilio as we drive operational excellence and continue to transform our go-to-market organization. Welcome, Doug. And with that, I'll turn it over to Aidan. Aidan Viggiano: Thank you, Khozema, and good afternoon, everyone. Twilio had an outstanding Q1, delivering revenue of $1.4 billion, up 20% year-over-year on a reported basis and 16% year-over-year on an organic basis, along with non-GAAP gross profit growth of 16%. We also generated record non-GAAP income from operations of $279 million. Free cash flow was $132 million. Top line performance was driven by strong volumes and solid execution, resulting in our fastest organic revenue growth rate since 2022. Our self-serve and ISV channels delivered revenue growth of 25% plus in the quarter, and we are seeing strength across the product portfolio. Voice growth accelerated once again with revenue up 20% year-over-year. We continue to see strong growth from Voice AI use cases as well as accelerating growth in voice software add-ons. Messaging revenue growth accelerated to 25%, driven by solid growth in SMS and aided by strength in WhatsApp and RCS. Incremental carrier fees contributed roughly 7 points to messaging's growth. Finally, software add-on revenue growth exceeded 20% year-over-year, driven by Verify and newer products such as Branded Calling and Conversational Intelligence. Our Q1 dollar-based net expansion rate was 114%, reflecting the improving growth trends we've seen in our business over the last several quarters. Incremental carrier fees contributed roughly 4 points to DBNE. We delivered record non-GAAP gross profit of $697 million for the quarter, with growth accelerating to 16% year-over-year, up from 10% in Q4 '25, our best non-GAAP gross profit growth rate since 2022. This was driven by continued momentum in our higher-margin products in addition to meaningful cost efficiencies. Non-GAAP gross margin was 49.6%, down 180 basis points year-over-year and 40 basis points quarter-over-quarter. We incurred incremental carrier pass-through fees of $46 million associated with increased U.S. A2P fees, which drove the year-over-year and quarter-over-quarter declines. Without these incremental fees, non-GAAP gross margin would have been 50 basis points higher sequentially. Q1 non-GAAP income from operations came in ahead of expectations at a record $279 million, up 31% year-over-year, driven by strong gross profit growth and continued cost leverage. Non-GAAP operating margin was a record 19.8%, up 160 basis points year-over-year and 110 basis points quarter-over-quarter despite a roughly 70 basis point headwind from incremental U.S. carrier fees. In addition, we generated $108 million in GAAP income from operations. Q1 stock-based compensation as a percentage of revenue was 9.7%, down 220 basis points year-over-year and 160 basis points quarter-over-quarter. This marks the first time since our IPO that stock-based compensation has fallen below 10% of revenue, and we've reached this level well ahead of our prior target of 2027. We generated free cash flow of $132 million in the quarter, which includes $141 million payment tied to our 2025 cash bonus program that we noted during our Q4 earnings call. Additionally, we completed $253 million in share repurchases in Q1 and have roughly $900 million remaining on our current authorization. Turning to guidance. For Q2, we're initiating a revenue target of $1.42 billion to $1.43 billion, representing 15.5% to 16.5% reported growth and 10% to 11% organic growth. In addition to previously announced U.S. carrier fee increases, Verizon has implemented an additional fee increase that will take effect on May 1. As a result, our Q2 reported revenue guidance assumes $71 million in incremental U.S. carrier fees. As a reminder, our organic revenue excludes the contribution from incremental increases to U.S. carrier fees. Moving to the full year. We're encouraged by the broad-based trends we saw in the first quarter. For the full year, we're raising our organic growth range to 9.5% to 10.5%, up from 8% to 9% previously. We are raising our reported revenue growth range to 14% to 15%, up from 11.5% to 12.5% previously. In addition, we continue to expect full year non-GAAP gross profit dollar growth to be similar to our organic revenue growth rate. Our full year revenue guidance assumes approximately $235 million in incremental pass-through revenue from U.S. carrier fees, up from $190 million previously. This reflects the U.S. carrier fee increases announced in prior earnings cycles plus Verizon's most recent fee increase that takes effect on May 1. As a reminder, while the pass-through fees have no impact on our gross profit, income from operations or free cash flow dollars, they do impact our margin rates. For modeling purposes, we would expect the incremental fees to reduce our full year 2026 non-GAAP gross margin by roughly 200 basis points when compared to full year 2025 non-GAAP gross margins, all else equal. Turning to our profit outlook. For Q2, we expect non-GAAP income from operations of $250 million to $260 million, reflecting incremental costs associated with our annual merit increases as well as expenses for our SIGNAL conference next week. Based on our Q1 performance and Q2 guidance, we're raising our full year 2026 non-GAAP income from operations range to $1.08 billion to $1.1 billion, up from $1.04 billion to $1.06 billion previously. Similarly, we are raising our full year free cash flow guidance to $1.08 billion to $1.1 billion. I'm very pleased with the accelerated revenue and gross profit growth we delivered in the first quarter as well as our ongoing cost leverage that is driving strong profitability and free cash flow. We remain focused on our key go-to-market initiatives and delivering the essential infrastructure that will help our customers win in the AI era. And finally, we're looking forward to seeing many of you at SIGNAL in San Francisco next week. And with that, we'll now open it up for questions. Operator: [Operator Instructions] Our first question comes from the line of Alex Zukin of Wolfe Research. Aleksandr Zukin: I cannot express my congratulations enough on a truly exceptional quarter in a truly difficult environment for software. So maybe first on -- I'm going to make it really easy. I'm going to ask about messaging, and I'm going to ask about voice. Messaging, extremely strong growth, again, almost surprising, I think, for Q1. So just maybe if you could unpack some of the meaningful drivers also between geographies, U.S. and international and how we think about that trajectory? And then on Voice, it's continuing to accelerate, as you mentioned, Kho. Maybe just stepping back, any unique experiences either on the consumer-facing side -- consumer-facing agent side or B2B that you're seeing kind of with some of these deals that you're announcing driving that growth rate? Aidan Viggiano: Alex, I'll start, and then I'll hand it over to Thomas and Khozema to chime in. So yes, really strong quarter for both messaging and voice, both grew 20% plus. On the messaging side, just to be clear, it was -- it grew about 25%, but about 7 points of that was driven by the fees. So high teens on an apples-to-apples basis, but really strong growth. And we've seen that in the messaging business over the last several quarters. This isn't a new dynamic. And I would say it was pretty broad-based when you look at it geographically. The U.S. was strong. International was strong. I think pretty exciting to see RCS volumes ramping. It's still early there, but we are seeing some adopters on that product, which is great. And then I'd say increasingly, volume from AI natives on the messaging channel. And then voice continues to accelerate, 20% growth in that product. That's the highest growth rate in that product in 19 quarters. So really excited about that. And it's a continuation of the acceleration we've seen on the back of the AI use cases as well as, I'd say, the adoption of software add-on products like Conversational Intelligence, Branded Calling, et cetera. So really strong performance in both products, and I'll hand it over to Thomas to give you more of the go-to-market perspective. Thomas Wyatt: Yes. Just -- thanks, Alex. So just to dig in a little more on the Voice specifically. We saw a real acceleration in Voice in our self-service business. It was up 45%. And then if you look at the Voice add-on software, that was also really strong in the mid-30s. So more broadly, it wasn't just connectivity. It was the software layer on top of that. And what's important about it is what we're seeing is most of our customers are not going at it just single channel. They are expanding. If they started in Voice, they're adding that messaging capability. We talked about some of that already with Sierra and Bland and a handful of others. But just think of it as use cases like customer support and services. We're seeing a lot more self-service agents that ISVs are rolling out to help small businesses, for example, when they can't be attentive 24/7 with humans. AI assistants are helping with that. We're seeing a lot of AI Copilots being built for live agents and contact centers. And we're seeing a lot of sales use cases as well where using AI assistant for inbound leads and using that to help customers qualify, answer questions and ultimately hand it off to a sales representative once it's needed. So just a wide variety of use cases across a wide variety of verticals, and it's pretty broad-based strength. Operator: Our next question comes from the line of Taylor McGinnis of UBS. Taylor McGinnis: Congrats on a great quarter. One question for me, just on a continuation on the messaging side. So if we look at the strong growth in 1Q, I think you guys made 2 comments, which is, one, you're seeing good adoption of RCS. And then two, you mentioned that AI natives are starting to attach more Messaging volumes to use cases. So is there any way to quantify, I guess, how much of that led to the acceleration that you guys saw in 1Q? And then as we think about the durability of the messaging channel growth from here, I know as you get into 2Q, you're coming up against a little bit of a tougher compare. But with some of these emerging trends, like how early are we in that? And could you potentially continue to build off of that as we look into the future? And could this be a reason why messaging growth maintains similar levels as we move throughout the year? Aidan Viggiano: I don't think RCS and the AI natives are contributing super meaningfully. Remember, messaging is like almost 60% of our business, right? So it's got a huge revenue base. RCS is very small. It's grown very quickly, but it's not contributing meaningfully. I would say on the AI native side, maybe a little bit more, but nothing outsized in terms of what we're seeing there. I don't know that there's too much else I would say. If you look at it again, operationally, it's up about 18% year-over-year. And that's not too far off from how we've been trending in messaging, a little bit higher, but that business has been growing kind of mid- to high teens for several quarters now. So strong operational growth in that business. It's our biggest biz product, and we continue to perform well there. Khozema Shipchandler: Yes. I would just add, Taylor, I mean, I think you asked about durability. I mean, like we feel pretty good about like the way that the business is performing. We obviously took up our guidance, right, for the balance of the year, and that reflects it in some respects. But I think the kind of bigger opportunity going forward with respect to messaging and AI is, as Thomas alluded to, there's Voice customers who are now going more cross-channel and who are doing much more conversational AI as we go forward. And I think while everything has sort of started in Voice, the opportunity is in some of these other channels as we go forward. And we think that, that provides kind of ongoing durability into the future. Operator: Our next question comes from the line of Ittai Kidron of Oppenheimer & Company. George Iwanyc: This is George Iwanyc on for Ittai. And I'll add my congratulations to the strong results. From -- given how strongly the business is performing, can you give us some perspective on whether macro is having any impact at all either on a regional basis or on a vertical basis? Khozema Shipchandler: Yes. I don't think macro is like -- I mean it's a super dynamic macro environment, right? I mean -- which is probably the understatement of the year. So I wouldn't say it's really having any effect one way or the other. I mean you got a lot of, obviously, things in sort of the consumer realm that would point to pressure potentially. You've obviously got the Middle East. You've got inflation. So I don't think it's really playing into it one way or the other. I think what we're finding is that broadly, the business is performing very nicely. Obviously, we're in a little bit of an AI tailwind right now. But I think broadly, I mean, the business is performing well. And I mean, even AI is not, I would say, meaningfully contributing to the overall results. It's certainly a catalyst for some of it. But I think on balance, the business is just having kind of all around good results. George Iwanyc: And maybe building on that, with the success you're seeing with the sales motion, can you give us some color on what you're seeing from a multiproduct adoption standpoint and how broadly across the customer base that is unfolding? Thomas Wyatt: Yes. We are seeing acceleration of our multiproduct customer count. It was actually up 29% in Q1, which is really encouraging and revenue from multiproduct customers is also accelerating, and we think it will continue to accelerate throughout the year as customers begin rolling out more of these software capabilities that sit on top of the channels. And what's interesting about it is what we're seeing is the use cases that customers want to roll out are naturally multiproduct in nature because you're talking about use cases where personalization and understanding of the relationship between a brand and a consumer requires software orchestration and memory that connects to the underlying communication channel, whether it be e-mail, voice or messaging and having a consistent experience where you have observability and sentiment across all those channels. It just makes it so that customers see the value of the platform and they consolidate spend across the channels with Twilio. So all in all, I think the multiproduct motion is just in the early stages of really accelerating. And it's fundamentally because customers look at Twilio as critical infrastructure for how customer engagement is done in the agentic era, and we're just helping them throughout that journey. Operator: Our next question comes from the line of Siti Panigrahi of Mizuho. Sitikantha Panigrahi: Congrats on a great quarter. I want to ask about Voice AI. How would you characterize your largest Voice AI customer scale at this point? I know you talked about a lot about experiments and testing last year moving in that direction to a full-scale production in use cases. So has that opened up in a meaningful way yet? Or are you still seeing some kind of experiment? And if so, what's the bottleneck there? Khozema Shipchandler: I think it depends on the kind of company and then -- well, it depends on the kind of company. So I would say that with a lot of the AI natives that we support, we're seeing a lot of takeoff velocity there, but it's off of a relatively small base, which is why it contributes to our financial results, but it's not meaningful in sort of the way that Aidan characterized earlier. I think the second thing is that you see it -- you see a higher adoption in -- I'll just make it super simple, like nonregulated industries versus regulated industries. So I think e-commerce, retail, food service, like we're seeing a lot of pilots and heavy experimentation translate into production environments. And I wouldn't say that we're seeing a lot of agent-to-agent necessarily there, but certainly human-to-agent interactions. On the regulated side, I would say it's pretty slow. You're definitely seeing very, very heavy experimentation. But I think just given the high stakes nature of what many of those companies do, it's going to take some time, which I think is good for us because it sort of provides like a longer-term tailwind, if you will, and certainly larger spend, but I think it's going to take some time. Operator: Our next question comes from the line of Mark Murphy of JPMorgan. Mark Murphy: I'll add my congrats. So Aidan, you have margins continually expanding. You grew operating income 31% year-over-year. It's quite impressive. I'm interested in structurally, how are you thinking about the headcount that's going to be required to run the business, especially as some of the AI tooling becomes more powerful, you can augment some of your employees and you can amplify what they could do. And then secondarily, can you comment on what are you budgeting for like seat-based SaaS applications that you use internally? I think there's a little bit of a debate. Will that kind of grow in line with your headcount? Or do you think -- is there any motion to try to vibe code some of the SaaS solutions yourself in-house? Aidan Viggiano: Yes. Let me start on the headcount side and maybe the AI cost. So what I would say, like as you would imagine, right, we tested a variety of AI tools over the last couple of years. We've rolled out a select number of them to our employee base, including some coding tools, some tools for knowledge workers. And I'd say while it's an area of spend that we're watching, our inference costs are manageable. The impact of those are kind of embedded in the guidance that we're providing. And so from a headcount perspective, we've been roughly flat for, I don't know, 2 or 3 years at this point. I would -- for your modeling purposes, I'd keep it around that level, Mark. We're not intending to add meaningful numbers of heads. We continue to focus on controlling our OpEx. I mean if you look at our track record over the last couple of years, we've been about flat from an OpEx perspective. We continue to take down stock-based compensation. So we'll continue to be very disciplined in that regard. In terms of the SaaS tooling, I would say nothing meaningful to highlight there. We regularly invest in different tools. I don't expect the costs associated with them to grow meaningfully, maybe down a little bit. But again, it's all embedded in our guidance. And in terms of vibe coding tools, I mean, nothing that I'd call out that's worthy of noting here. Operator: Our next question comes from the line of Nick Altmann of BTIG. Nicholas Altmann: Awesome. Actually, I kind of wanted to stick on the margin side of the equation. The 8% GAAP operating margins this quarter is super impressive. Aidan, you talked about stock-based comp and how that's well ahead of targets. But just any onetime items that helped the GAAP margins this quarter? And then going forward, any goalposts for how we should think about GAAP operating margins for the remainder of the year? Aidan Viggiano: Yes. Thanks, Nick. No, there's nothing I would call out that's unusual. Like when you look at our GAAP operating margins, it's really driven by a couple of things. Number one, obviously, our non-GAAP op profit is growing. We saw margins expand there. Second is we continue to take down stock-based compensation. We were sub 10% as a percentage of revenue. Our original target was to get there in 2027, got there much earlier. And as you know, we've taken a number of different actions to enable that. The last thing I'd call out is that our intangible amortization, which impacts GAAP but not non-GAAP has come down as well. So those are the 3 drivers of what's kind of resulting in the 8% GAAP op margin as well as the over $100 million of GAAP profit in the quarter. Big focus for us. We'll continue to focus on both non-GAAP OpEx as well as SBC going forward. Operator: Our next question comes from the line of Derrick Wood of TD Cowen. James Wood: Great. And I'll echo my congratulations. Khozema, could you talk about how you see the next phase of Segment playing out as you look over the next few years? I mean you've completed the back-end rearchitecture. I think you've made the data interoperability much more native on a communications platform. So where do you see the most synergies with the comms product? And can we be expecting a revival in growth in Segment this year? Khozema Shipchandler: Yes. I mean we're not as focused, I would say, on Segment as a stand-alone. I think we're much more interested in using the data technology to enrich communications. I mean I think what's obvious in sort of the AI era is that if you don't have context, you're probably looking at much higher cost in terms of your AI workloads and you're not actually solving the customer's problem. And so I think having a CDP in that respect is incredibly valuable, enriching every one of our communications with data is incredibly valuable. And as you look at like some of these AI natives, for example, that we've cited recently that are using tools such as conversational intelligence, just that ability to use data as a means to get smarter about the conversation that's in progress, get to problem resolution a lot faster, like that's kind of the way that I see it. We're going to talk more about it certainly next week at SIGNAL, largely through the lens of having memory and persistency in these interactions so that you can truly create what's sort of proverbially been known as this notion of like lifetime customer value is actually now really possible if you can create memory. So the business on a kind of stand-alone is less the focus. It's more about how it fits into the overall picture. Operator: Our next question comes from the line of Arjun Bhatia of William Blair. Arjun Bhatia: Congrats on a great quarter here. I had 2 quick questions. First, maybe for you, Khozema. I'm curious why AI and the benefit that you're sort of getting from it is different between Voice and Messaging. I know it's super early on both fronts, but would you expect messaging to see somewhat of a similar tailwind from AI adoption? Or is this sort of a Voice-specific use case? And then second, I'm just curious in terms of go-to-market, how you think about readiness and the sales force's ability to sell more software add-ons, given you have, I think, a lot of product with things like Verify, ConversationRelay and others? Khozema Shipchandler: Yes. I'll take the first question and then let Thomas take the second. I do think that there's a longer-term opportunity with respect to Messaging. I mean both are growing really, really well, right? Let me start there. I think as it relates to Voice, the reason you're seeing the takeoff there initially at least is that most of the AI start-ups are starting in Voice. It's our expectation completely that in the same way as happened, I don't know, 10, 15 years ago and Voice workloads moved over to text, I think you're not going to see quite as dramatic a shift, but instead, what you're going to see is conversational AI, where basically, you're using the AI to be able to reach the customer through the channel that they want and using the context that they want. And so I think that benefits not just Messaging, by the way, but also e-mail. And so we're very excited about the longer-term prospects as a result of AI in all of our channels, frankly. Thomas, do you want to take the go-to-market? Thomas Wyatt: Yes. Just on the go-to-market side, we put a lot of energy into organizing the sales organization this year, setting up compensation plans and driving enablement to enable AEs combined with specialist motion to really optimize the multiproduct selling and the cross-sell of the portfolio that we have. And what we're seeing now is the acceleration of the software add-ons that sit on top of those channels like Verify, ConversationRelay, Branded Calling, all good examples of what we've seen, but also the percentage of deals that have multiple products involved at the close is increasing as well. And so from a readiness perspective, we feel pretty good about where we are in Q1. We think it's going to get better every quarter as we get more reps and continue to -- repetitions, I should say, not necessarily reps, but get more repetitions into this motion, but generally feeling good about the progression our team is making and the skill set they have to continue to drive multiproduct scale selling. Operator: Our next question comes from the line of Koji Ikeda at Bank of America. Koji Ikeda: So voice and voice AI demand sounds really good. And I think the opportunity is big and really just getting started. And so what is it about Twilio's offering today and what Twilio may offer in the coming years that's giving you the confidence that you don't get disrupted by the time the opportunity really starts to get going from here? Thomas Wyatt: Yes. A couple of things. So first of all, I mean, we're the market leader by a mile. We have the best technology. We're priced higher than the competition, which I think reflects the fact that we do, in fact, have the best technology. Our multichannel ability is unprecedented relative to anybody out there in the marketplace. And then finally, having a great brand is a really, really good place to be because as the average vibe coder is trying to go figure out how to use connectivity, which they may not even understand any of the vernacular on the way in. They're just trying to figure out a way to reach a customer on the other side. All of our research indicates that Twilio will always be sort of the first person -- first company, excuse me, that is requested. So that's a pretty good starting point. Longer term, I mean, the way that I would characterize it is that if you just think about like what being an infrastructure company means as it relates to communications and data, I think on the communications side, I mean, it's very, very challenging for any AI-related company to be able to get 4,800 different kinds of interconnections across 180 and plus growing countries. And going through all of the compliance checks and KYC hurdles, that is like a very complex body of work that's very regulated and turns out to be like quite operational and relatively physical, not necessarily entirely software-driven. So that creates a substantial amount of moat. And then going forward, being able to drive, and I don't want to get too far ahead of it, but we'll talk about this at SIGNAL next week, our ability to migrate from Voice, which is already sort of a source of strength to multichannel orchestration where now any one of our customers can reach their consumers in exactly the way in which they want to be reached, that's where the data asset really shines because you're using the channels, but then you're using data to inform how that happens, when it happens, what's the kind of context that's necessary and then using that data to actually be able to go and solve the consumer's problem. Like that full wrapper, I think, is a real advantage for Twilio that no other company on the planet has. Operator: Our next question comes from the line of William Power of Baird. William Power: Okay. Great. I'm going to come back to the organic revenue growth improvement. Obviously, really impressive, reaching 16%. I mean it sounds like the answer maybe that it's broad-based given the commentary on Messaging, Voice, software add-ons, et cetera. But nicely above the trend line you've been on for a while. So I just want to see if there's anything else you'd call out as to why now we're seeing this kind of inflection versus the last -- maybe the past couple of quarters. And then kind of tied to that, as you look at guidance, I guess, Q2, it does assume a decent deceleration in growth from Q1. So I'm just trying to think through any potential comps versus conservatives and other things that are factored in there. Aidan Viggiano: Yes. So I mean, it was a really good quarter, Will. I mean, like you said, 16% growth. Like last year in total, we were -- or for the year, we were 13%. It's our strongest growth rate in several years. I would say from a product perspective, you highlighted the 2, Messaging and Voice, we've talked about them quite a bit here. From a sales channel perspective, it was ISVs and self-serve, 25% plus each. I will say it was partly driven by higher seasonal volumes earlier in the quarter as well. But really mostly, it was solid execution across the board. I guess the other data point I'd give you is from an industry perspective, it was pretty broad as well. Some of our biggest industries, financial services, tech, health care, they were all very strong. And then I think importantly, all of that -- all of those factors contributed to revenue growth, and I would say, perhaps more importantly, accelerated gross profit growth at 16% as well. And then from a Q2 guidance perspective, I'd say the guidance trends are pretty strong. Our Q2 guidance is 10% to 11% organically. That's consistent with our Q1 guidance, which was at the time we gave it, right, 3 months ago, the highest guidance we had provided in several years, and it really just reflects the strong underlying trends that we're seeing in the business. But I would say, consistent with how we've guided over the last, I'd say, few years, we continue to plan prudently just given the usage-based nature of the business. Operator: Our next question comes from the line of Jim Fish of Piper Sandler. James Fish: Great quarter. Not trying to take away from the quarter and the deals that you guys are landing here as they're quite impressive. But obviously, one of your competitors on the agent force side of things and just trying to understand how you guys kind of thought about that opportunity, what you guys see on sort of aligning with some of the more CRMs in the space, how you guys see the environment playing out between really these up and comers that you guys are tracking well with as, kind of, the underneath infrastructure versus those systems of records of the world. Khozema Shipchandler: Yes. It's not really what we're worried about. I mean I would say it this way that I think in the emerging AI landscape, what's important is can you be the company that is the single best integrator of all the tools and capabilities that are out there. And so for Twilio, like we've always occupied this space where if you want to bring your own data warehouse, fantastic. If you want to bring your own cloud, fantastic. And the interoperability with those different kinds of tools may also include systems of record, by the way, with which we also integrate. But then going forward, increasingly, like the way that we see it playing out is that customers are going to bring their own LLM capabilities. They're going to bring their own agent capabilities. I think our bet is that it's possible that it could happen in systems of record. I don't think that's going to happen just based on the way that AI is developing with respect to the way that SaaS tools historically develop. And so that's not our concern, whether it's agent force, whether it's the company that you're referring to with respect to agent force, I think we see a much broader opportunity in the landscape, and we're going to continue supporting all of these AI companies and continue to be kind of like the Switzerland, if you will, in support of integrations with anybody that brings them to us to be able to support their business needs. Thomas Wyatt: And just to maybe add one more point to that is we -- last week, we did announce an embeddable version of our Flex products that can be integrated into CRMs or other systems of record, and that allows customers to take advantage of Twilio inside of these systems and also consume usage-based pricing for that as well, so including bringing your own voice. So we're definitely trying to integrate where our customers are and make sure the tools are all available to them. Operator: The next question comes from the line of Joshua Reilly of Needham. Joshua Reilly: This kind of builds off the last point you were making here, but it seems like your competitive moat is being enhanced given the complexity of the evolving ecosystem around AI is kind of the trusted neutral partner. You can orchestrate agents using OpenAI running on AWS infrastructure and pulling data from a Snowflake warehouse. How much of this neutrality is helping accelerate your opportunity as the complexity of the broader kind of ecosystem with AI is growing? Khozema Shipchandler: Yes. I would say it's like a mild accelerant probably today. I mean I think going forward, like it probably helps a lot more. I mean the reality is, is that today, you have sort of conventional developers putting together a lot of this different tooling. I think going forward, I think we all imagine a world in which both agents and vibe coders like really take off in a much more meaningful way. And as that happens and companies have already kind of built on their own stacks, they tend not to want to rip and replace. And so a company's ability to use its existing technology, they're going to need communications and data to be able to create the outcomes that they are for their consumers on the other side and then being able to plug into all of these other different choice points that we have. I think the example that Thomas pointed out a moment ago, I think, is representative. Like it's great to have that, but it's also necessary to have as many other integration points as we possibly can so that the customer always has choice and that they don't have to add cost to their existing tech stack. So going forward, I'd say sort of mild accelerant becomes larger as Vibe coding and agent-based coding starts to take off. Operator: Our next question comes from the line of Jackson Ader of KeyBanc Capital Markets. Jackson Ader: It's really nice to see the self-serve improvement that you've made so far. I hate to be greedy, but do you guys think -- is this one of those situations where the low-hanging fruit on the self-serve mechanism has kind of been picked and now we might be entering a normalized phase in that channel? Or is it you're just kind of laying the foundation and now it unlocks like a bunch more actions that you can take in order to optimize this channel over the next multi-years, maybe? Thomas Wyatt: Yes. Jackson, it's Thomas. We feel really good about the strength of our self-service business, and it's -- some of it is things that we've done over the last 12 months to optimize the onboarding and the upgrade process for customers. But it's going beyond that. In fact, next week, we're going to launch some new capabilities as part of the console that's going to really make it even easier for our self-service customers to get started with Twilio and adopt more than one product. And so multiproduct adoption should continue to accelerate through our channel there. So we continue to see opportunities to continue to improve conversion rates across the funnel, but we feel really good about the strength and durability of that business and the new products that are coming over the next week or 2 to unlock even more growth. Operator: Our next question comes from the line of Jamie Reynolds of Morgan Stanley. James Reynolds: This is Jamie on for Elizabeth Porter and congrats on the strong results. Just the ISV channel, obviously, really good traction here. Is that primarily being driven by just like a handful of ISVs? Or is this more a sign that the breadth is kind of widening in a material way? Thomas Wyatt: Yes. So it's a wide range of ISVs across the major verticals. So it's beyond the marketing, it's service desk, it's education ISVs. We see it in hospitality, just a broad portfolio across all the different verticals. And I think really, the growth is coming from the adoption of multiple channels. So if an ISV grew up with us in one area, they're now expanding to that second or third area, and that's helping us accelerate growth in multimillion-dollar customers as part of that. Operator: Our next question comes from the line of Patrick Walravens of Citizens. Nicholas Lee: This is Nick Lee on for Pat. Congrats on the quarter. On Voice AI, I've sort of come to understand that customer service is one of the most popular uses for it. But as these deployments mature, where do you see customers taking Voice AI next? Thomas Wyatt: Yes. I think the very early Voice AI use cases were largely just customer support. But what we're seeing now is much more outbound sales motions, inbound sales motions. I'll give you a couple of examples like live seller augmentation. Next best actions for sellers to be able to recommend what product given the live nature of a conversation they may be having with a virtual agent. There's use cases around compliance that are starting to be introduced. We're seeing increases in Voice Recording as a software layer on top of our stack. So it's just the beginning of what we're seeing. The classic use cases have been evaluated and rolling into production. And now people are getting creative and they're introducing a whole new variety of virtual agents combined with human-assisted agents through an escalation path. And it really just depends on the vertical, but there's a lot of different use cases being unlocked. Khozema Shipchandler: I'd say one of the more interesting ones from our perspective is like Mainstreet businesses, when they're closed at night, their ability to service customers during the off hours like that's super exciting and benefits the real economy and businesses that would otherwise not be able to afford it. They'll probably get served by an ISV in between. But still, I mean, it's really compelling technology for a Mainstreet business. Operator: Our next question comes from the line of Ryan MacWilliams of Wells Fargo. Zeeshan Rauf: This is Zeeshan on for Ryan Mac. In your top customer wins, there was a mention of a large customer consolidating their traffic on to Twilio. I wanted to get your perspective on how meaningful competitive takeaways have been for you over the past couple of quarters and where competitors might be falling short and consequently ceding share. Thomas Wyatt: Yes, I can speak to that one, Ryan. So it really starts with the platform capabilities that Twilio is offering and the value prop of having a brand work with a consumer and have the understanding of sentiment, observability and orchestration of how to work with the consumer across multiple channels. And so when customers understand that road map and they see the power of the software that sits on top of our traditional communication channels, they see the value to consolidate spend with Twilio, which is leading us to take more market share in different parts of the world. And so I think it's the platform approach that we're taking and the uniqueness of our ability to scale globally across all the different channels that we do provides customers the confidence and trust that we're the right partner to pick, especially when they have to introduce the more complex use cases that we've talked to about some of these Voice AI use cases, in particular, it does require personalization and memory and orchestration. And you just can't do all of that if you're using multiple providers across multiple channels, and that's been an advantage for us. Operator: Our next question comes from the line of Rishi Jaluria of RBC. Rishi Jaluria: Nice to see continued strength and acceleration at scale, especially given everything going on in the environment. Maybe I want to touch a little bit on the momentum that you're getting with the AI natives and particularly in Voice AI. Without speaking to a particular customer, a lot of us have been on the outside looking at the headline numbers that we've seen out of some of your reference customers and can imagine some of that is helping. But maybe just from a high-level perspective, can you help us understand as those companies grow and you not only grow with them on your consumption/usage-based model, but also expand your footprint on them, how should we just be thinking about what that time line looks like because it's clearly not everything can happen in real time. But I just want to kind of be able to control and temper our expectations as we see exciting headline numbers out there. Khozema Shipchandler: Yes. I mean I guess the way I would characterize it, Rishi, is that it's still relatively early. I mean most of these companies that are in that start-up space, as you know, I mean, they're relatively small still. I mean they're growing at very, very fast rates, no question. But they're at relatively low, let's say, triple-digit kind of hundreds of millions revenue numbers. We will obviously end up taking a piece of that based on the work that they end up doing with us. So I would characterize it as like quite early days. I mean, frankly, I think the bigger pony here is probably as this migrates over to enterprises, whether those AI companies -- AI start-ups that is act as ISVs on our behalf or whether we end up deploying directly to enterprises, I would say that is happening just more slowly given the nature of enterprises and their buying cycles. I'm sure you heard the answer to my question earlier about like what's sort of the schism here. You've got retail, e-comm, food service adopting rapidly. On the other side, you've got regulated adopting less rapidly. So I think there's a lot of tailwind here in terms of the way that this plays out. I think there's a lot of Voice AI workloads still to deploy. And as we've said a number of times, I think Voice ends up moving over to other channels as well. And when this becomes conversational AI, there's an even bigger opportunity there. So pretty early days. Operator: Our next question comes from the line of Andrew King of Rosenblatt Securities. Andrew King: Congratulations on the good quarter. Just wanted to see if you could provide any color as to how much of an accelerator that AI has been to these cross-sell opportunities for you? And then if I can just sneak in a second one. Can you just remind us as to how you are viewing the balance between driving profitability and maintaining AI investments? Aidan Viggiano: Maybe I'll start with the second one. So we are -- as I think someone asked a question similar on AI earlier, but we're definitely investing in AI tools. It's embedded in our guidance. And I'd say it's moderate right now in terms of the amount of cost. It's manageable in terms of what's hitting the P&L. It's all embedded in guidance right now. Profitability continues to be a big focus for us. We just increased our guidance for the year on both cash and profitability. And yes, continue to be a focus for us, both on the GAAP and the non-GAAP line. Thomas Wyatt: And I'll just take the first part of the question around AI acceleration from cross-sell. And it's really just -- there's probably 2 elements to it. One is the direct acceleration, which you're seeing in the acceleration of our software add-ons because we use AI as part of that software stack to do fraud detection or to do personalization of conversations using our conversational insights layer and the ConversationRelay layer. But also, we're getting an indirect acceleration because overall spend is consolidating with us as well across the channels to take advantage of that software stack. So it's hard to quantify financially exactly what the accelerant is, but we do see it in the deal cycles where customers really want to go deeper in some of these more advanced areas of our portfolio, and that's setting us up nicely from a pipeline perspective for the rest of the year. Operator: I am showing no further questions at this time. This does conclude the program. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to Patrick Industries First Quarter 2026 Earnings Conference Call. My name is Sherry, and I'll be your operator for today's call. [Operator Instructions] Please note, this conference is being recorded. And I will now turn the call over to Mr. Steve O'Hara, Vice President, Investor Relations. Mr. O'Hara, you may begin. Steve O’Hara: Good morning, everyone, and welcome to our call this morning. I'm joined on the call today by Andy Nemeth, CEO; Jeff Rodino, President; and Matt Filer, CFO. Certain statements made in today's conference call regarding Patrick Industries and its operations may be considered forward-looking statements under the securities laws. The company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in the company's annual report on Form 10-K for the year ended December 31, 2025, and the company's other filings with the Securities and Exchange Commission. Before we begin, I would like to remind you that on April 17, 2026, Patrick announced the merger of equals discussions with LCI Industries. Andy will be providing a brief comment in his remarks. However, we are unable to answer any further questions or discuss the potential for a transaction beyond Andy's remarks at this time. I would now like to turn the call over to Andy Nemeth. Andy L. Nemeth: Thank you, Steve. Good morning, everyone. We appreciate you joining us on the call. Today, we'd like to talk about our first quarter results, industry conditions, expectations for the year and also briefly discuss our recent announcement related to discussions for a potential merger of equals with LCI Industries. First quarter results continue to highlight the strength and resilience of our diversified platform, our innovation and product development efforts over the last 2 years and the incredible dedication of our team to support our customers in this dynamic environment. Marine revenue growth in spite of shipment declines, along with powersports revenue growth helped to offset double-digit shipment declines in our RV and manufactured housing markets. Net sales for the first quarter were $997 million, up 1%, with overall organic growth contributing 8% Earnings per diluted share was $1.10, including approximately $0.10 of dilution from our convertible notes and related warrants. On a trailing 12-month basis, net sales were approximately $3.9 billion. I'm incredibly proud of our team's disciplined execution on our operational playbook to deliver results in an uncertain and unbalanced shipment environment. Retail demand is seemingly constrained by macroeconomic factors, the war in Iran, consumer confidence and interest rate uncertainty. Importantly, OEMs and dealers have remained disciplined, keeping dealer field inventories lean, positioning our markets for a sustained recovery. Our diverse end market exposure and deep and broad brand-forward product portfolio remain a compelling advantage, enabling us to deliver more complete full solution-oriented offerings to our customers across the good, better, best framework while deepening our partnerships with OEMs. We remain focused on empowering our brands to lead with innovation while engineering new products and experiences for our customers. The nimble scalability of the Patrick platform enabled us to deliver quality with speed, depth and consistency across every end market we serve, driving content expansion, deeper OEM integration and continued opportunity for aftermarket growth. Our Advanced Product group is driving meaningful progress on multiple product solutions, including our composite strategy and an entry-level tower audio solution to help drive better affordability. We are increasingly collaborating with OEM customers to integrate solutions-based models into new and existing platforms, replacing legacy materials with higher-performing alternatives that offer durability, weight and design advantages. As a result of these benefits, coupled with OEMs placing greater emphasis on material sourcing, we believe our ability to procure, value-add value engineer and deliver full solutions will continue to position our value proposition as a true low-cost solution for our customers' ever-changing needs, representing durable long-term growth opportunity for Patrick. Additionally, our investments in technology and innovation continue to generate real measurable impact as the integration of automation and AI, which is in its infancy, are enhancing visibility, efficiency and responsiveness across our operations. These investments will help us manage costs, optimize production, navigate demand variability and better align and communicate with our customers, providing enhanced customer service. Regarding tariffs, our decentralized business structure, sourcing flexibility and close coordination with suppliers and customers have enabled us to mitigate impacts over time. Our team has expertly navigated changes to trade policy in the past, and we are confident that they will continue to operate with agility, maintaining our position of strength. We do not expect a material impact to our full year 2026 outlook from tariffs. From a financial standpoint, we used cash in operations during the quarter, consistent with normal seasonality and reflecting a proactive strategy to add inventory that supports anticipated growth in customer demand for composites and other materials. Importantly, we continue to expect strong free cash flow generation for the full year, supported by disciplined working capital management and the underlying earnings power of our business. While 2025 presented a more challenging valuation environment on the M&A front, largely related to macroeconomic uncertainty, we continue to be excited about the deals we did execute and the ones in the pipeline currently being cultivated. Our teams are well equipped to advance our proven playbook, targeting well-run companies with durable value creation while prioritizing leadership, talent and cultures that align with Patrick's long-term objectives. Long term, we are confident in our ability to outperform as a result of our organic growth initiatives, structural advantages and financial strength, including end market diversification, strong balance sheet, robust free cash flow generation and operational agility. Patrick is well positioned to continue generating value across a range of market conditions. And as demand in our markets recovers, we believe we will capitalize meaningfully. Now turning to our recent announcement regarding discussions about a potential merger of equals with LCI Industries. While we cannot discuss or confirm specific details at this time, we believe the potential combination of our two companies could provide additional opportunity to drive value and better partnerships with our customers and in the form of innovation, value-add value engineering, cost-effective full solutions and an overall low-cost model to help partner in driving better affordability. Together, the two companies could further enhance our overall value proposition by obtaining substantial cost savings through synergies, operating efficiencies and deployment of best practices as well as continued development of our bench strength for long-term shareholder value. We will communicate appropriately and alignment with regulatory guidelines as appropriate and in accordance with regulatory requirements as we continue to evaluate this opportunity. I'll now turn the call over to Jeff, who will highlight the quarter and provide more detail on our end markets. Jeffrey Rodino: Thanks, Andy, and good morning, everyone. Our first quarter RV revenue was $446 million, up 7% from the same period in 2025, representing 45% of consolidated revenue. We outperformed a 12% reduction in RV industry wholesale unit shipments during the first quarter, which equated to nearly 12,000 fewer units being shipped. Our team drove RV CPU on a TTM basis, up 8% to $5,277 through ongoing adoption of our composite products and solutions, coupled with market share gains during the period. On a quarterly basis, CPU increased 6% year-over-year. Based on the data published by Statistical Surveys or SSI, we estimate RV retail unit shipments were approximately 63,200 -- and according to the RVIA, wholesale unit shipments were approximately 86,100 in the first quarter. This implies a seasonal dealer field inventory restock of approximately 22,900 units during the period, resulting in an estimated dealer inventory weeks on hand of approximately 19 weeks to 21 weeks. This is up from the 16 weeks to 18 weeks at the end of the fourth quarter of 2025, but remains well below historical averages of 26 weeks to 30 weeks. We remain encouraged by the level of discipline shown by our RV industry and believe OEMs and dealers are committed to the long-term health of the industry. First quarter marine revenues increased 14% to $170 million, representing 17% of consolidated net sales and outperforming an estimated 7% reduction in wholesale Powerboat unit shipments. On a TTM basis, our estimated marine content per wholesale Powerboat unit increased 17% to $4,657. On a quarterly basis, estimated marine CPU increased 23% year-over-year. Our above-market revenue performance and strong content per unit growth primarily reflect sustained benefits from our market share gains related to the latest model year changeover and the impact of acquisitions last year that expanded our marine electrical solution set and aftermarket presence. Based on data from SSI and NMMA, we estimate marine retail and wholesale Powerboat unit shipments were 28,300 and 34,200 units, respectively, in the quarter. This implies a seasonal dealer field inventory restock of approximately 5,900 units. Dealer inventory in the field remains lean at an estimated 22 to 24 weeks on hand, up slightly from 20 to 22 weeks in the fourth quarter of 2025, remaining well below the historical averages of 36 to 40 weeks. Similar to RV, we believe disciplined inventory levels and improved alignment between retail and wholesale trends position the marine market favorably for a future rebound in demand. Our powersports revenue increased 28% to $104 million in the first quarter versus the prior year period, representing 10% of our first quarter 2026 consolidated sales. The continued strength in our powersports revenue was driven by the further OEM adoption of our cabin closures we provide through Sportech and other integrated solutions. Team's ability to drive increased attachment rates and expand content across platforms has further solidified our position as a key supplier in the space. As noted before, Patrick primarily serves the utility side of the powersports market, which continues to demonstrate resilience relative to other categories, partially due to the adoption of innovative features, which have improved customer utility. We remain incredibly confident about the opportunity ahead for Patrick in powersports space with enhanced focus on innovation and expanding the existing cabin closure solution and growing our aftermarket presence. On the housing side of our business, first quarter revenue was $277 million, up 6% when compared to the prior year period, representing 28% of consolidated sales. Manufactured housing represented approximately 56% of our housing revenue in the quarter. Estimated content per MH unit on a TTM basis was $6,636, flat when compared to the prior year period as we focused on maintaining solid content in a softer demand environment. On a quarterly basis, estimated content per MH unit was flat year-over-year. We estimate MH wholesale unit shipments were lower by 11% in the first quarter, while total housing starts increased 1% as macroeconomic pressures, including interest rates and affordability constraints continue to impact demand. We believe underlying demand for affordable housing remains intact, which we expect will be favorable for us over the long term, and we are positioned accordingly. Moving to the aftermarket side of our business. Our platform continues to grow traction, and we are aligning talent and infrastructure to support long-term profitable growth. Our investments are aimed at improving visibility into key metrics that can help us uncover incremental opportunities at existing business units and identifying appropriate candidates in the M&A pipeline. Many of the targets we seek to acquire have existing presence in the aftermarket, supporting Patrick's broader diversification strategy while offering important margin accretion benefits. Finally, I want to reiterate our excitement for the experience and provide an update on our first-of-its-kind digital design studio. The new technology is elevating how we engage with our OEM customers, and they appear energized by the ability to iterate in real time, enable faster and more collaborative decision-making. Our studio team continues to host a number of demos showcasing the capabilities of the space and collaborating with product leaders to make the experience a part of their design and engineering process. As we approach the next model year changeover, we have hosted more than 25 working sessions and have already eliminated dozens of prototypes through this process. We believe the experience further embeds Patrick as an indispensable partner in the OEM product life cycle and represents a meaningful durable competitive advantage as we drive greater operating efficiencies and more profitable growth over time. I will now turn the call over to Matt Filer, who will provide additional comments on our financial performance. Matthew Filer: Thanks, Jeff, and good morning, everyone. Consolidated net sales for the quarter were $997 million, up 1% from the first quarter of 2025. Our team delivered higher CPU on a trailing 12-month basis in each of our Outdoor Enthusiast markets, as Jeff highlighted, which helped drive revenue increases of 14% and 28% in our marine and powersports end markets, respectively, helping offset lower revenue in our RV and housing markets attributable to reduced wholesale shipment levels in the quarter. The year-over-year change in our revenue was comprised of 2% acquisition growth, 8% organic growth and negative 10% industry. Gross margin was 22.8%, unchanged versus the first quarter of 2025. Operating margin of 6.5% was flat when compared to the prior year period. Our stable margins reflect our team's ability to flex our operations in response to lower-than-expected RV and housing demand in the first quarter. Our overall effective tax rate was 14.8% for the first quarter compared to 17.7% in the prior year. Net income was up 3% to $39 million or $1.10 per diluted share compared to net income of $38 million or $1.11 per diluted share in the prior year quarter. Our diluted earnings per share for the first quarter of 2026 included approximately $0.10 in additional accounting-related dilution as a result of the increase in our stock price above the convertible option strike price for our 2028 convertible notes and related warrants. The prior year's diluted EPS included just $0.05 per share. Adjusted EBITDA was $113 million compared to $116 million last year, while adjusted EBITDA margin was 11.4%, lower by 10 basis points from the first quarter of 2025. Cash used in operations for the first 3 months of 2026 was $14 million compared to cash provided by operations of $40 million in the prior year period. This reflects an increase in working capital, partially related to our strategic decision to increase composite material inventory in anticipation of customer demand. Purchases of property, plant and equipment were $19 million during the quarter. Total net liquidity at the end of the first quarter was $734 million, comprised of cash on hand and unused capacity on our revolving credit facility of approximately $696 million. With no major debt maturities until 2028, we have the financial strength and capital necessary to capture long-term organic and inorganic growth opportunities. At the end of the first quarter, our net leverage was 2.8x. In the first quarter, we returned a total of $31 million to shareholders, including quarterly dividends of $16 million and $15 million for the repurchase of approximately 127,700 shares. We remain opportunistic towards share repurchases and had approximately $153 million left on our existing repurchase authorization at the end of the first quarter. During the second quarter through April 29, 2026, we have repurchased approximately 153,100 shares for a total of approximately $15 million. I want to briefly frame our thoughts regarding the rest of the year. We recognize the broader macroeconomic environment remains uncertain, particularly with respect to consumer confidence, interest rates, conflict in the Middle East and thus, the timing of a more sustained recovery in our end markets. Against this backdrop, we remain focused on executing operationally, driving content and share gains, advancing our aftermarket initiatives and maintaining a disciplined approach to capital allocation, including M&A. We believe these actions, combined with the strength of our diversified platform, position us to deliver solid financial performance even if demand conditions remain soft. With that, our 2026 outlook is as follows: -- we now estimate RV retail will be down low to mid-single digits and RV wholesale will be 315,000 to 330,000 units in 2026. In Marine, we estimate retail shipments will be flat to down slightly and wholesale shipments will be up low single digits in 2026. In our powersports end market, we continue to expect both full year unit shipments and our organic content to be up low single digits, implying an overall mid- to high single-digit increase for our business. For housing, we now estimate MH wholesale unit shipments and total new housing starts will both be down low to mid-single digits for 2026. Moving to our financial outlook. Based on the revisions to our end market shipments, we now expect our 2026 adjusted operating margin will improve by 30 basis points to 50 basis points versus 2025. We have also updated our 2026 operating cash flow, which we now estimate will be between $370 million and $390 million, with capital expenditures totaling between $70 million to $80 million, implying free cash flow of approximately $300 million. For 2026, we continue to estimate that our effective tax rate will be between 24% and 25%. That completes my remarks. We are now ready for questions. Operator: [Operator Instructions] Our first question is from Scott Stember with ROTH Capital. Scott Stember: Can you talk about the state of retail, what you're hearing in RV Camping World this morning, it sounds as if things are getting incrementally better from the doldrum of the winter, at least in April. What are you hearing through your touchpoints? And also on the production side from OEMs, what are you hearing and seeing from a production standpoint and also a mix standpoint? Jeffrey Rodino: Yes, Scott, this is Jeff. From a retail standpoint, I think I agree with what you heard from Camping World this morning. It is getting incrementally better. Certainly, a slow start to the year in January with some of the weather and into February. Some of the macroeconomic things and consumer confidence is tamped it down a little bit. But I think it's incrementally getting better. From a production standpoint from the OEMs, they're still being very measured in what they're producing. They're not overproducing. They're kind of falling in line with where things are at with retail, down a little bit over -- year-over-year. But overall, keeping an eye on what retail is doing. So we feel really good about the patience and the discipline that's going on in that market. As far as the mix, we are seeing a little bit different mix than we have through '24 and into '25, we saw really heavy on the entry-level side. That mix is changing a little bit. We're seeing a little bit more on the fifth wheel side, but overall, not back to what we would call a normalized mix by any means. So overall, we feel good about where people are at and certainly hope to see the retail pick up even a little bit more. Scott Stember: Got it. And then looking at the aftermarket, it seems like there's some continued gains there. Can you talk about the ongoing cross-pollination efforts with the RecPro platform regarding powersports and marine and the existing RV products from Patrick? Jeffrey Rodino: Yes. So since we made the acquisition in September '24, we've added over 500 different parts to the RecPro site. I would tell you that within RV, I think we've added 6 brands or 7 brands in several offerings from those brands on the marine side and even some on the powersports. Certainly, it's been a little bit heavier on the RV side to start with, and we've really started to gain some traction in the marine and powersports parts that we're adding on to the system. Scott Stember: Got it. And just the last question on the margins. The lower growth outlook for this year. Is that just strictly based on the lower shipment forecast that you have? Andy L. Nemeth: It absolutely is volume related to shipments, Scott. And I think one of the things that Jeff mentioned related to just overall discipline remains very, very strong. I think everybody is working in partnership in [ Unison ] to keep things in check with flexibility to scale up when needed, but everybody is being very, very thoughtful about maintaining a balanced level of inventory to support the industry conditions today. But like I said, scalability. So for us, it's simply volume related. And I think what we're confident in is our continued development and delivery of innovative products. Our content growth is under our control, and our teams have done a fabulous job of connecting with customers on our full solution. So overall, again, volume related, we're offsetting the things with what we can control. Operator: Our next question is from Joe Altobello with Raymond James. Joseph Altobello: The first question on M&A, and I'm guessing you probably don't want to talk too much about the LCI or potential LCI transaction. But I guess my question there is while those discussions are ongoing, does that impact your M&A strategy? Is it on hold at this point? Andy L. Nemeth: It is not, Joe, and we're continuing to be very active. I think the strength of our balance sheet, the tremendous amount of liquidity that we have, the pipeline candidates, we're definitely active in the market right now cultivating deals regardless of an LCI transaction or not. And so we're we feel really good about our continued position to be on offense in this market and be able to take advantage of opportunities that are out there. So in no way are we impeded by any discussions at this point and certainly continuing to be aggressive on M&A. Joseph Altobello: Okay. And then just to shift gears a little bit over to Marine. I think you mentioned your content per unit there on a quarterly basis was up 23%. What's -- maybe talk a little bit more about what's driving that and how you see that over the balance of the year? Andy L. Nemeth: Yes. Our team has done a really good job with innovation. I think when you look at the content growth, not only in marine, but in RV as well and as well in powersports, the combination of our Advanced Products group really working with our annual prototyping work that the team does, just a tremendous amount of focus on innovation. And like I said, customer solutions are really what we're focused on today. And becoming more value-add for our customers, helping them bring costs down through those value-add solutions, but innovative solutions. And so just across the platform, our brands are continuing to work together to put solutions together in front of our customers that are compelling and exciting and help them differentiate their products. So just like I said, just tremendous effort and focus on collaborative brand-fronted, innovative solution-oriented products to customers is driving our content growth. Operator: Our next question is from Noah Zatzkin with KeyBanc Capital Markets. Noah Zatzkin: I guess maybe to drill down there a little bit more. TTM CPUs, I think, up 8% on the RV side, up 17% on the marine side. Could you just remind us, I guess, how you typically think about content growth as part of the kind of growth algorithm? And are you seeing or expecting kind of like a step change versus how you used to think about things? And if so, kind of what's driving that? Andy L. Nemeth: Yes. So typically, the algorithm on our model is centered around a target of 2% to 3% organic content growth net of industry on an annual basis. And so that's kind of the foundation for the model. As far as kind of ongoing step change, I'd say we're going to stay consistent with kind of expectations around that 2% to 3%. But I would also tell you, there's tremendous opportunity based on the continued innovative solution development that our team is working on to increase that number. And so I don't know that we're moving off of the algorithm, but certainly, expectations internally continue to be elevated as it relates to the opportunities that are out there in front of us today, especially on the solutions front. So I think there's upside potential to that algorithm. Noah Zatzkin: And then maybe just one on manufactured housing. Obviously, just to see the outlook down there. So kind of maybe just a quick update on what you're seeing in that end market? Andy L. Nemeth: Yes. Manufactured housing has been declining over the last several quarters, and it's fairly soft right now is what we would tell you. We're not seeing a lot of improvement at the moment. I think everything as it relates to consumer confidence right now is constrained. And so we're certainly seeing it on the MH side of the business for sure. So continued expectation right now is kind of standard. We're seeing declines in the MH industry. I think things are a little bit soft out there right now, hoping for some increase in consumer confidence. But overall, there hasn't been a lot of change. We've seen a decline, and it continues to decline. Operator: Our next question is from Craig Kennison with Baird. Craig Kennison: Yes, I wanted to start with tariffs and trade policy, which is impacting businesses in dramatically different ways this quarter. Could you just help us understand your supply chain and your production footprint and why that keeps Patrick insulated from some of these recent policy changes? Jeffrey Rodino: Yes, Craig, this is Jeff. So from some of the metal aspect of things on tariffs, a lot of what we're doing is domestic. Certainly, we're still seeing commodity prices move in an upward direction even if they are on the domestic side. But we've got a couple of different kind of ways that we go about our policies and some of it is direct importer of record -- we work through that through our business units. And then in other cases, we're using importers or distributors in the states that are actually doing the importing. So it's just a couple of different ways that we look at it. And then as far as how we are trying to mitigate those tariffs as we work right back to the manufacturers to try to understand what the tariff impact is going to be, figure out how we can best mitigate those costs at the starting point. And then we work directly with our customers to really communicate upfront what it means, what it will mean on a go-forward basis and really communicate with them to pass those along. I mean I think we've said in the past that our tariff I'm going to say, policy or how the way we handle it is that there's not an impact to our margins on the tariffs. But we're working very hard to mitigate those as best we can from the supplier all the way down through distribution. Craig Kennison: Are your powersports partners cutting any cab orders, for example, as they wait for more clarity on policy? Jeffrey Rodino: We've not seen that as of right now. We've had a really good first part of the year on powersports, and they schedule out their units a little bit further than some of our other industries and the scheduling that we're seeing right now is still showing stronger orders. Andy L. Nemeth: And our focus on and concentration on the utility side has been extremely positive for us on the powersports. We just continue to see strong take rates on cab upfit for utility units, and that's been, again, a nice organic contributor for us and for our powersports team for the first part of the year and really through kind of the starting in the back half of last year. So we continue to be encouraged by the utility sector in powersports. Craig Kennison: And then I guess, finally, to the extent you can comment on the proposed merger of equals, what would you share with respect to either shareholder or OEM reaction, any time lines or hurdles that you'd face? And maybe just comment on any potential portfolio overlaps that might be problematic as you discussed with [indiscernible]. Andy L. Nemeth: Yes. So what I can comment on, Craig, is that we've been very thoughtful about these discussions from the beginning. And the first and primary focus was on the customer and how can we be a better partner to the industry. And I look at the opportunity to enhance product solutions and really be able to positively impact our customers and partner with our customers, especially in this environment where things are uncertain and affordability remains in question. And so first and foremost, I would tell you that we were very thoughtful about that. And so we understand the risk, and we also understand the opportunity to be a true partner to our customers in this space. And so that's why -- that was kind of the overriding theme behind the discussions. And so that's what I can tell you at this moment, but customer first has been the priority and headline for us throughout the entire process. So we've been very thoughtful about that. Operator: [Operator Instructions] Our next question is from Daniel Moore with CJS Securities. Dan Moore: Operating -- just in terms of kind of the cadence, operating margin in Q1, essentially flat year-over-year. How should we think about the cadence of the 30 basis point to 50 basis point improvement that you expect? Is Q2 kind of similar to Q1 with most of the improvement in the back half? Or would you start to expect to start to see some of that improvement coming through this quarter in a dynamic environment? Matthew Filer: I think -- sorry, this is Matt. And I think we're definitely looking at the second half being a little bit stronger than the first half. As we saw in the first quarter, the markets were softer than what we were hoping for coming into the year, but we're going to control what we can control, and we still expect to see that 30 basis points to 50 basis points improvement over prior year. Andy L. Nemeth: Yes. Typical Q2, Q3 seasonality, Dan, we would expect to see an uptick in margins. Dan Moore: Okay. Free cash flow guidance, very little change despite the kind of lower EBITDA. Just are you seeing incremental opportunities in terms of working capital? And what's the offset there? Andy L. Nemeth: Yes, that's correct. So there's definitely some working capital benefit baked into that. Dan Moore: Okay. And then just housekeeping in terms of given where the stock is trading here, I know it was $0.10 dilution in Q2 -- Q1, what would that kind of quarterly dilution from the convert look like? Andy L. Nemeth: At this point, Dan, I mean, it's pretty dynamic. I can't really give specific guidance here. We would expect -- what we've seen, what, $0.05-ish kind of quarterly dilution is what I would continue to expect while we kind of move through this. Yes. Dan Moore: Sneak one more in. Aftermarket, just kind of -- you touched on this in some of the other questions, but where are you seeing the biggest opportunity in terms of cross-selling? Just kind of remind us what your margins are? And is that something -- would you consider breaking out aftermarket as a separate segment at some point? Andy L. Nemeth: At some point, we certainly will. And we've got a strategy as it relates to our aftermarket program, which includes M&A. And so as we continue to deepen our presence in the aftermarket, it's going to become more and more material as part of our vision and where we want to take that for the future. And so we will start to break that out and potentially break it out even further going forward. But the overall margin profile is accretive to Patrick's consolidated profile today. And as we look at the aftermarket, there's still tremendous opportunity organically with our existing product categories to get that on to our DTC sites and RecPro in particular, and that presence to become kind of our overall outdoor enthusiast direct-to-consumer site. So as we think about it, we're still early in the game on aftermarket and -- but it's absolutely a strategy, and we see not only, like I said, potential for organic growth, but M&A potential out there, too, today that we're focused on. Operator: Our final question is from Tristan Thomas-Martin with BMO Capital Markets. Tristan Thomas-Martin: Andy, you mentioned a couple of times kind of advanced integrated solution-based offerings as a benefit to the OEM, both from kind of like quality of life standpoint and also just improved affordability. Could you maybe give us a couple of examples of what those are? Andy L. Nemeth: Yes. I mean we talked about it in our release, but we've got a low-cost power audio solution that we're working on today. We're working on home solutions in the marine space. that integrate our products and can help our customers bring their overall build cost down because of those solutions and our ability to procure and bring these solutions together, I think on the RV side, our roofing solution is very exciting to us, but as well some flooring solution opportunities that are upcoming as we look forward into the future. And so we're really trying to -- and our brands have really opened up, again, the collaborative process with each other to start to really think about how we can get solution-oriented products to customers. And so there's just a wide variety of things that we can do based on the depth and breadth of our portfolio that we're very focused on. But those are some simple examples that I can give you that are really compelling today. Matthew Filer: And Tristan, one other thing I would add to that is our teams are really focused on the discussion of ASPs out there. we're working very diligently with customers with our good, better, best offering to figure out how we can kind of mix and match solutions to be able to drive some of those prices down and be a better partner as they look to try to drive down those ASPs, both on the RV and marine side. Tristan Thomas-Martin: Okay. That's a good segue into my next question. Where do you think ASPs for model year '27 shake out, both in terms of whether it's either your kind of incremental content gains and then also kind of what the industry is trying to do on a like-for-like basis? Andy L. Nemeth: Yes. I'll tell you, I mean, we're making a lot of strides on the composite side. So we'll see some gains on market share on the model change. So we feel really good about that on the RV side. The marine and powersports side, we've seen quite a bit of our CapEx that we've used so far this year go towards tooling on projects that we've been working on with customers leading into this upcoming model change. So we're really excited about what we're going to see on our model change in marine and powersports as well. As far as ASPs, really, what we're seeing is we're seeing some higher prices on commodities that we're being forced to pass along. Some of those are driven by the higher fuel prices, higher resins and some of the things that we've seen on the commodity side there. How that's going to equate in the ASPs, I really couldn't give you that answer right today. But it will have an impact. That's why, like I said, our teams are kind of focused on that. So we're trying to figure out in our good, better, best offering, where we can take money out where we see we have to add money back in with the commodities doing what they're doing. So it's a challenge, but our teams are really, like I said, laser-focused on that for the customer and ultimately for the end customer. Operator: Ladies and gentlemen, thank you. I will now turn the conference back over to Andy Nemeth for closing remarks. Andy L. Nemeth: Yes. I want to just once again thank our team for just incredible dedication and commitment to continuously serving our customers better in this environment, which is extremely dynamic. And I'm really confident in where the company is positioned today. We're sitting on a position of strength, especially as it relates to our balance sheet, our team, the strength of our bench to continue to really be aggressive in controlling what we can control and continue to drive our business forward in alignment with our strategic plan. And so I feel really good about where we're at, especially in this dynamic environment to be able to flex both up and down as well as deliver exceptional customer service. So I want to thank everybody for joining the call, and we look forward to talking to you on our next conference call. Operator: Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you for your participation. You may now disconnect.
Operator: Good day, and welcome to the Q1 2026 SunCoke Energy, Inc. Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Sharon Doyle, IR Manager. Please go ahead. Unknown Executive: Thanks, Nick. Good morning, and thank you for joining us to discuss SunCoke Energy's first quarter 2026 results. With me today are Katherine Gates, President and Chief Executive Officer, and Shantanu Agrawal, Senior Vice President and Chief Financial Officer. This conference call is being webcast live on the Investor Relations section of our website, and a replay will be available later today. Following management's prepared remarks, we will open the call for Q&A. If we do not get to your questions on the call today, please feel free to reach out to our Investor Relations team. Before I turn things over to Katherine, let me remind you that the various remarks we make on today's call regarding future expectations constitute forward-looking statements. The cautionary language regarding forward-looking statements in our SEC filings apply to the remarks we make today. These documents are available on our website as are reconciliations to non-GAAP financial measures discussed on today's call. With that, I'll now turn things over to Katherine. Katherine Gates: Thanks, Sharon. Good morning, and thank you for joining us on today's call. This morning, we announced SunCoke Energy's first quarter results. I want to share a few highlights before turning it over to Shantanu to discuss the results in detail. We're pleased with our performance in the first quarter, delivering consolidated adjusted EBITDA of $56.5 million, reflecting strong operational execution. Our Industrial Services business performed well during the quarter with sequential improvement in terminals handling volumes and with Phoenix performing to our expectations. As discussed on our fourth quarter 2025 earnings call, our coke plants were impacted by severe winter weather and the Middletown turbine failure. Earlier today, we also announced a quarterly dividend of $0.12 per share payable to shareholders on June 2, 2026. This is our 27th consecutive quarter announcing a dividend. While the dividend is evaluated on a quarterly basis by our Board, we expect the dividend to continue as part of our well-balanced capital allocation strategy. We had strong operating cash flow generation of $72.7 million and ended the quarter with ample liquidity of $262 million. As previously discussed, we are running at full capacity and sold out for the full year. With the continued seamless integration of Phoenix, the resumption of power production at Middletown and continued strong operational execution, we are confident we will achieve full year 2026 consolidated adjusted EBITDA within our guidance range of $230 million to $250 million. With that, I'll turn it over to Shantanu to review our first quarter earnings in detail. Shantanu? Shantanu Agrawal: Thanks, Katherine. Turning to Slide 4. Net loss attributable to SunCoke was $0.05 per share in the first quarter of 2026, down $0.25 versus the prior year period. The decrease was primarily driven by higher depreciation expense, the shutdown of our Haverhill 1 cokemaking facility, severe winter weather and the lower power sales due to Middletown turbine failure, partially offset by lower income tax expense. Consolidated adjusted EBITDA for the first quarter of 2026 was $56.5 million compared to $59.8 million in the prior year period. The decrease in adjusted EBITDA was primarily driven by the impact of severe winter weather on our coke operations, lower power sales from the Middletown turbine failure and the shutdown of Haverhill 1, mostly offset by the addition of Phoenix. Moving to Slide 5 to discuss our domestic coke business performance in detail. First quarter domestic coke adjusted EBITDA was $35.3 million and coke sales volumes were 842,000 tons compared to $49.9 million and 898,000 tons in the prior year period. The decrease in adjusted EBITDA was primarily driven by severe winter weather impacting our operations, lower power sales due to the turbine failure at Midtown and lower coke sales volume due to the Haverhill 1 shutdown. While we experienced a slow start to the year, we are already seeing improvement in our coke operations in the second quarter with more favorable weather conditions. We are confident we'll make up the lost production from the first quarter during the balance of the year. Additionally, we are expecting power production to resume at Middletown late in the second quarter. We are reaffirming our full year domestic coke adjusted EBITDA guidance of $162 million to $168 million. Now moving on to Slide 6 to discuss our Industrial Services results. Our Industrial Services segment generated $26.2 million of adjusted EBITDA in the first quarter of 2026 compared to $13.7 million in the prior year period. The increase in adjusted EBITDA was primarily driven by the addition of Phoenix results, partially offset by a change in mix of products handled at the terminals. First quarter total terminal handling volumes were 5.6 million tons, representing a substantial improvement versus the fourth quarter of 2025. Steel customer volumes serviced were 5.6 million tons in the first quarter. We expect our Industrial Services segment to continue delivering strong results throughout the balance of the year and are reaffirming our full year 2026 Industrial Services adjusted EBITDA guidance range of $90 million to $100. Now turning to Slide 7 to discuss our liquidity position for Q1. SunCoke ended the first quarter with a cash balance of $104.4 million and revolver availability of $158 million, representing ample liquidity of $262 million. We generated strong operating cash flow of $72.7 million during the quarter, mainly driven by a reduction in coal and coke inventory and used $26 million for debt paydown. We spent $17 million on CapEx and paid $10.7 million in dividends at the rate of $0.12 per share this quarter. SunCoke has a strong track record of generating steady free cash flow, and we expect the trend to continue throughout the year. As Katherine mentioned earlier, we intend to continue utilizing our free cash flow to pay down debt as well as to reward our long-term shareholders via dividends, which is reviewed and approved on a quarterly basis by our Board of Directors. With that, I will turn it back over to Katherine. Katherine Gates: Thanks, Shantanu. Wrapping up on Slide 8. As always, safety is our first priority. Our excellent safety performance in 2025 has continued into the beginning of 2026, and the team remains committed to maintaining strong safety and environmental performance throughout the year. Robust safety and environmental standards set SunCoke apart and are central to our reliable delivery of high-quality coke and industrial services. We continue to be confident in our operations for 2026 with our profitable long-term coke business underpinned by the 3 pillars of Indiana Harbor, Middletown and Jewel Foundry, which have consistently delivered excellent performance and results. With our Haverhill I and Granite City cokemaking contracts extended and all spot blast and foundry coke sales finalized, we're sold out for the full year. We also maintain a positive outlook for our Industrial Services segment. 2026 will benefit from a full year of Phoenix adjusted EBITDA contribution and improvement in market conditions at our terminals. Our efforts will continue on the seamless integration of Phoenix, maintaining the strength of our core businesses as well as assessing new growth opportunities across all of our businesses. As always, we take a balanced yet opportunistic approach to capital allocation. On the back of our steady and healthy cash flow generation, our focus will remain on utilizing our free cash flow to support our capital allocation priorities. We will use excess cash to continue paying down our revolver balance with the goal of gross leverage below 3x by the end of 2026 and beyond. We also plan to continue returning capital via the quarterly dividend as approved by our Board, which has always been well received by our long-term shareholders. We continuously evaluate the capital needs of the business, our capital structure and the need to reward our shareholders, and we'll make capital allocation decisions accordingly. We are committed to maximizing value for all of our stakeholders, which means operating and investing in our assets in the best and most efficient way possible. Overall, we see the strong fundamentals of our business and expect our 2026 results to be reflective of that. We are confident that we'll be able to deliver full year consolidated adjusted EBITDA within our guidance range of $230 million to $250 million. With that, let's go ahead and open up the call for Q&A. Operator: [Operator Instructions] The first question will come from Nathan Martin with the Benchmark Company. Nathan Martin: Thanks, operator. Good morning, everyone. Just to start out, within the Domestic Coke segment, adjusted EBITDA per ton, I guess, roughly $42, obviously below the $48 to $50 per ton full year guidance that you guys just reiterated. What was the main driver or drivers there? How much of that was lower power sales maybe at Middletown? And then can you guys help us bridge kind of that full year range as we move throughout the rest of the year? Shantanu Agrawal: Yes. Nate, I mean, as we mentioned, the two main factors of us performing lower versus kind of our full year guidance is the winter weather impact to our operations and the Middletown turbine impact, right? And they were both very comparable, right? And if you recall, when we gave out our -- when we were in the Q4 2025 earnings call, we talked about that this quarter is roughly $10 million off versus kind of the run rate. So I think that still holds true from that perspective. And then looking forward, as we mentioned, the Middletown turbine is expected to be back in late Q2. So you will see that impact through majority of Q2 with no power production there. But then we should be able to make that back up in Q3 and Q4. So you should see a much significant improvement in Q3 and Q4 as the power production comes back up. Nathan Martin: Appreciate that, Shantanu. Is it fair to consider the Middletown impact in 2Q could be roughly half of that $10 million to maybe $5 million headwind or so in the second quarter? Shantanu Agrawal: That's kind of in the ballpark, yes. Nathan Martin: Okay. Great. Appreciate that. And then maybe shifting to the Industrial segment. It looks like revenues were flat to actually slightly down quarter-over-quarter. However, adjusted EBITDA was actually up about, what, $3 million, $3.5 million. So are there any cost savings or efficiency gains there we should think about driving this? I know you guys previously called out potential opportunities to improve things within Phoenix or maybe it's related to the improvements on the terminal side. Just any additional color would be helpful there. Shantanu Agrawal: Yes. So on the terminal side, as we lined out, you're comparing Q4 '25 to Q1 '26, right? And we are seeing significant improvement in the volumes that we are handling at terminals. And we expect the kind of the market environment to continue and to continue to improve for the rest of the year. So we are much very hopeful and kind of that kind of our plan reflects that, that terminals will continue to improve and do well through the rest of the year. So there is improvement coming from that. And then on the Phoenix side, obviously, right, like kind of this is our second full quarter of running Phoenix under the SunCoke umbrella. And as we go through the remainder of the 2026, we expect to see some more of those synergies come through. There are some of the drag costs, right, like we are implementing kind of the software kind of merging them together. So there is some drag cost of that. But as you get through rest of the 2026, you should see some cost improvement in Phoenix, and that is built into our guidance for Industrial segment. Nathan Martin: Okay. Got it. And then those costs, just jumping to SG&A for a second. Was that kind of behind the increase there in the quarter? Was that the IT, I think bonus expense items that you previously mentioned as well? And how should we think about SG&A kind of going forward? Shantanu Agrawal: No. So in 2025, the accrual for the bonuses are different for '25 versus '26 given the performance of the company, and that is the main driver of the difference in SG&A. Nathan Martin: Should we expect it to kind of repeat at that level, Shantanu? Or will it kind of come back down a little bit from the first quarter? Shantanu Agrawal: Q1 2026 should be the run rate for the rest of the year. Operator: [Operator Instructions] The next question will come from Henry Hearle with B. Riley Securities. Henry Hearle: To start off, I wanted to ask, to what extent could your logistics terminals be a beneficiary of the Section 303 DPA determination on the coal supply chains and export terminals? And then could you guys pursue potential DoD funding as well? Katherine Gates: Yes. Thanks for your question. I think as we look ahead, we really -- we see the market, as Shantanu said, improving throughout the year, and we've already seen that quarter-over-quarter. I don't think that those are going to be drivers to additional throughput necessarily. I mean, I think we'll have to see. But when we give our guidance with respect to Industrial Services and with respect to the performance of the terminal specifically, we really are looking at market conditions. And as we look back in time, there's been various regulatory initiatives over time. But at the end of the day, it really seems driven by demand primarily internationally for coal. Henry Hearle: Got it. And then are you guys able to share specifically what percent or what share of the volumes at CMT are thermal export tons? Shantanu Agrawal: So Henry, going forward, we -- like since it's one segment, the Industrial Services, we are not kind of breaking out. We are giving one number for our terminals and one number for like the Phoenix business, the steel customer volume service. But if you go back and look at historical data where we used to break out, the ratio should remain the same. That should kind of give you a good guidance on what those numbers are. Henry Hearle: Got it. And given the conflict in the Middle East over the past couple of months, have you seen a kind of sizable increase in those export thermal tons? Would that be fair to say? Katherine Gates: We -- it's a good question. We are seeing certainly some higher pricing in the market, and that is leading to higher demand, and that is part of how we look at the market as getting stronger as we move forward throughout the year, we don't see any signs of that weakening. And so we've seen higher demand due to the higher prices. So yes, there's definitely sort of a flow-through from that conflict and the focus on coal in light of the challenges that we're seeing on the oil and gas side. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Katherine Gates for any closing remarks. Katherine Gates: Thank you all again for joining us this morning and for your continued interest in SunCoke. Let's continue to work safely today and every day. 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 Indivior Pharmaceuticals Q1 2026 Financial Results Conference Call and Webcast. [Operator Instructions] Please be advised that this conference is being recorded. I would now like to hand the conference over to our first speaker today, Jason Thompson. Please go ahead. Jason Thompson: Thanks, Nadia, and welcome to Indivior's First Quarter 2026 Results Conference Call. I'm joined today by Joe Ciaffoni, Chief Executive Officer; Pat Barry, Chief Commercial Officer; Ryan Preblick, Chief Financial Officer; and Christian Heidbreder, our Chief Scientific Officer. Before we begin, I need to remind everyone that on today's call, we may make forward-looking statements that are subject to risks and uncertainties, and that actual results may differ materially. We list the factors that may cause our results to be materially different here on Slide 2 of this presentation. We also may refer to non-GAAP measures, the reconciliations for which may also be found in the appendix of this presentation that is now posted on our website at indivior.com. I'll now turn the call over to Joe Ciaffoni, our CEO. Joseph Ciaffoni: Thanks, Jason. Good morning, and thank you for joining us on today's call to review our first quarter results. I will begin with an overview of our performance and summarize our progress against Phase II - Accelerate of the Indivior Action Agenda. Pat will discuss SUBLOCADE performance, Christian will provide an update on the pipeline, and Ryan will review the financials. In the first quarter, we made significant progress in Phase II of the Indivior Action Agenda and executed key elements of our capital deployment strategy. Specifically in the quarter, we grew total net revenue 19% year-over-year to $317 million, primarily driven by strong U.S. SUBLOCADE performance. We grew total SUBLOCADE net revenue 32% year-over-year to $232 million, reflecting strong year-over-year dispense unit growth of 20%. The acceleration in SUBLOCADE dispense unit growth was driven by improved commercial execution and the early impact that our new consumer campaign, Move Forward in Recovery, is having on patient activation. Importantly, SUBLOCADE category share was stable in the quarter, and we had record new patient starts. We delivered adjusted EBITDA of $164 million, up 112% year-over-year, and margin improvement of 23 percentage points. We successfully executed our capital deployment strategy, improving our debt profile through the issuance of $500 million of convertible notes and returned value to our shareholders by repurchasing $125 million of our shares at an average price of $31.45. Our strong first quarter performance and the underlying strength of SUBLOCADE across key metrics, along with a more favorable outlook for SUBOXONE, enabled us to meaningfully raise our 2026 financial guidance. I want to thank the Indivior team for their contributions to our progress against the Indivior Action Agenda and for their commitment to making a positive difference in the lives of people living with opioid use disorder and the communities we serve. In Phase II - Accelerate, we are focused on accelerating U.S. SUBLOCADE dispense unit growth and net revenue throughout 2026 and growing adjusted EBITDA and cash flow at an even faster rate. In the first quarter, we achieved a major milestone. Over 500,000 patients in the U.S. have been prescribed SUBLOCADE since its launch in 2018. Nearly 1/4 of those patients were added in the last 5 quarters, underscoring SUBLOCADE's strong growth trajectory. SUBLOCADE is the first and #1 prescribed long-acting injectable for the treatment of moderate-to-severe opioid use disorder. It is the only monthly long-acting injectable with an indication for rapid initiation. Looking forward, we believe continuous improvement in commercial execution and our commitment to significant and sustained investment in our new direct-to-consumer campaign will accelerate U.S. SUBLOCADE dispense unit growth to the mid-teens in 2026, up from 7% in 2025. We now expect total SUBLOCADE net revenue to grow 13% year-over-year to $970 million at the midpoint of our guidance. As expected, our new operating model established in Phase I - Generate Momentum of the Indivior Action Agenda is accelerating the growth of adjusted EBITDA and cash flow at a significantly faster rate than net revenue. We now expect to generate $640 million of adjusted EBITDA in 2026 at the midpoint of our guidance, up 50% versus the previous year, which equates to a 51% margin, up 16 percentage points versus 2025. Our increased cash flow and improved financial flexibility position us to strategically deploy capital to create value for our shareholders. With the completion of our debt refinancing, our capital deployment priorities are focused on opportunistically utilizing the remaining $270 million of our share repurchase program and evaluating commercial stage business development opportunities to enhance and diversify Indivior's growth profile. We are on track to enter Phase III of the Indivior Action Agenda - Breakout in the second half of this year. Next, I want to briefly touch on the decisions we made on the INDV-6001 and INDV-2000 programs. We do not intend to pursue Phase III development of INDV-6001 and have amended our license agreement with Alar Pharmaceuticals. Pursuant to these amendments, Alar will regain development rights to the asset and commercialization rights outside of the U.S. Indivior will maintain commercial rights in the U.S. Regarding INDV-2000, it did not meet the primary endpoint in the Phase II trial, and additional work is needed to further explore the initial signals we observed. We will not be progressing the program internally for opioid use disorder, and we will pursue external business development opportunities for this asset. Christian will provide more detail. I want to recognize and thank our R&D colleagues for leading with science and for the hard work they put into the INDV-6001 and INDV-2000 programs. Their efforts greatly advanced our understanding of these assets and their work was high quality and conducted with integrity. To conclude, we are encouraged by our progress so far in 2026. Our results strongly position us to achieve our financial and operational objectives in Phase II - Accelerate and to enter Phase III - Breakout in the second half of 2026. I'll now turn the call over to Pat. Patrick Barry: Thanks, Joe. Our commercial teams are executing well against Phase II of the Indivior Action Agenda - Accelerate. This acceleration is being driven by our commercial execution initiatives and our consumer activation investments, notably our successful DTC campaign, Move Forward in Recovery. We achieved record new patient starts in the first quarter of approximately 31,800, a year-over-year increase of 29%. This brought our total U.S. SUBLOCADE patients treated over the last 12 months to 191,600 at the end of the first quarter. Dispense unit growth in the first quarter was up 20% versus the prior year, reflecting acceleration in U.S. SUBLOCADE versus 2025. Total category share of LAIs in the U.S. for SUBLOCADE remained stable at 76%. We continued our track record of growing the number of SUBLOCADE prescribers, which is an important leading indicator for overall LAI category and SUBLOCADE growth. We exited the first quarter with a record number of active SUBLOCADE prescribers, and those treating 5 or more patients. Total active SUBLOCADE prescribers grew 19% year-over-year, and HCPs treating 5 or more patients grew 20% year-over-year. While we are encouraged by the progress in U.S. SUBLOCADE, we see continued opportunity to drive further acceleration through our commercial improvement, consumer activation, and public policy initiatives. First, SUBLOCADE is the only monthly long-acting injectable with an indication for rapid initiation on day 1 and a second dosing as early as day 8. Our focus on delivering the second dose as early as day 8 is driving increased adoption. Providers' recognition of SUBLOCADE's differentiated label continues to grow, particularly as synthetic opioids remain prevalent in the U.S. Approximately 9% of new patients are receiving the accelerated second dose and 23% of active HCPs have begun prescribing a second dose in line with the expanded SUBLOCADE label. Second, our commercial channel productivity initiative is generating results. We executed 5 enhanced service agreements with key specialty pharmacies and have started to see steady improvement in commercial dispense yields. Third, consumer activation remains strong. We continue to invest behind SUBLOCADE through our DTC campaign, Move Forward in Recovery. Patient engagement stayed elevated throughout the quarter, with more than 1,200 new CRM enrollments each month, bringing total engaged consumers to over 8,300 since launch. Paid search volumes remain above pre-campaign levels, with category-leading share of voice across core search terms. Additionally, over 30,000 people searched for a SUBLOCADE provider with the Find a SUBLOCADE Treatment Provider tool on the SUBLOCADE website in the first quarter. To close, we are encouraged by our start to 2026. We believe that our improved commercial execution focused on sharpened message delivery with higher utilization of SUBLOCADE's core promotional materials on every call, along with our efforts directed at improving specialty pharmacy performance and consumer activation, are having impact on new patient starts, mix, and acceleration in SUBLOCADE dispense units. We are confident that as we continue to get better, SUBLOCADE will do better, and that we are on track to achieve our raised 2026 guidance for SUBLOCADE. I will now turn the call over to Christian. Christian Heidbreder: Thank you, Pat. I will now provide an update on our R&D pipeline, starting with INDV-6001. INDV-6001 delivered meaningful scientific and regulatory progress during the year, achieving its principal Phase II objectives, including a supportive safety profile, predictable pharmacokinetics consistent with modeling, and constructive engagement with the FDA. As part of our portfolio review, we evaluated INDV-6001 in the context of the evolving long-acting injectable buprenorphine landscape. In our view, SUBLOCADE is the only once-monthly long-acting injectable buprenorphine with a rapid initiation pathway in the approved label, continues to set the clinical and commercial standard in this category. SUBLOCADE's ability to achieve and maintain differentiated plasma concentrations without a complex induction regimen represents an important benchmark for future products. While INDV-6001 successfully demonstrated extended dosing intervals, including exploration of dosing up to three months, further analysis identified challenges, specifically achieving clinically meaningful plasma concentration profiles, particularly in a treatment environment shaped by high potency synthetic opioids, was anticipated to require a more complex induction protocol relative to SUBLOCADE's established approach, introducing additional development and implementation considerations. In addition, a comprehensive review of late-stage development and commercialization factors highlighted some remaining challenges, including: one, manufacturing scalability; and two, limited anticipated clinical and commercial differentiation in the payer and prescriber landscape, and the resulting impact on pricing and reimbursement dynamics. As a result, we have decided not to advance INDV-6001 into Phase III clinical development and have amended our license agreement with Alar Pharmaceuticals. Pursuant to these amendments, Alar will regain development rights to the asset and commercialization rights outside of the U.S. Indivior will maintain commercial rights in the U.S. Turning to INDV-2000. In a Phase II proof-of-concept study, our selective orexin-1 receptor antagonist under evaluation as a novel nonopioid treatment for opioid use disorder did not meet the prespecified primary endpoint of no treatment failure over 12 weeks when evaluated across the full dose range, 100, 200, and 400 milligram versus placebo. Interpretation of the overall dose response was confounded by unanticipated underperformance at the 400 milligram dose and a higher-than-anticipated placebo response. While this Phase II study does not support advancing INDV-2000 internally in opioid use disorder, we are encouraged by the broader body of data that emerged from the trial. Importantly, prospectively planned sensitivity analysis, together with converging supportive findings, identified a credible and biologically coherent signal at the 200 milligram dose. At that dose, we observed a higher abstinence rates over time versus placebo across cocaine and broader polysubstance use, including cocaine, methamphetamine, amphetamine, benzodiazepine, and opioid in combination. While these findings are exploratory, they are directionally consistent with the underlying orexin-1 mechanism and its potential role in cue-driven drug seeking, stress reactivity, and relapse vulnerability. We also saw supportive directional improvements in anxiety symptoms as well as exploratory functional MRI findings that aligned with the clinical observations and further supported the biological activity of INDV-2000. Taken together, these results strengthen our confidence that the molecule is engaging relevant relapse-related pathways. Importantly, INDV-2000 demonstrated a favorable safety and tolerability profile with no major drug-related safety signal identified. So while we do not plan to pursue development internally in opioid use disorder, we believe these findings support continued evaluation of 200 milligrams as the lead dose and position INDV-2000 as a credible business development opportunity while we continue to strengthen the data package through additional analysis, including exposure response work and further evaluation of supportive clinical and mechanistic findings. These decisions are expected to have a significant impact on the R&D organization. However, it does not reflect the quality of the underlying science or the team's execution. We are grateful for the rigor, dedication, and high-quality work of our R&D team, whose efforts advanced these programs and generated valuable scientific and regulatory insights that will inform future innovation. I will now turn the call over to Ryan. Ryan Preblick: Thanks, Christian. We are encouraged by our overall financial performance this quarter, which includes strong year-over-year total SUBLOCADE net revenue growth and even stronger adjusted EBITDA growth. Looking at our results in more detail, starting with the top line. Total net revenue of $317 million for the first quarter increased 19% versus the prior year period. The increase was driven by strong SUBLOCADE net revenue growth in the U.S. Total SUBLOCADE net revenue of $232 million for the quarter increased 32% versus the prior year period. U.S. SUBLOCADE net revenue increased 33% versus the prior year to $218 million. Q1 net revenue growth was primarily driven by dispense unit volume growth of 20% and favorable price/mix. The first quarter included a gross-to-net benefit of $14 million. Turning to SUBOXONE Film net revenue. In the first quarter, we benefited from continued generic price stability in the U.S., moderated share decline, and favorable gross-to-net adjustments. As we said in February, we expect gross-to-net adjustments to serve as a headwind in 2026 for both SUBLOCADE and SUBOXONE. Total non-GAAP operating expenses were $116 million for the first quarter, down 21% versus the prior year. The decrease was primarily driven by reductions in headcount, the restructuring of the R&D and medical affairs organizations, and footprint consolidations as part of Phase I of the Indivior Action Agenda -- Generate Momentum. Looking at the bottom line, we generated record adjusted EBITDA of $164 million, an increase of 112% year-over-year, representing margin improvement of 23 percentage points. Our strong first quarter results and performance trends year-to-date led us to raise our 2026 financial guidance. We now expect total net revenue in the range of $1.215 billion to $1.285 billion, an increase of 1% compared to 2025 at the midpoint of our guidance range. This is primarily driven by stronger SUBLOCADE net revenue, which we now expect to be in the range of $950 million to $990 million, up 13% year-over-year at the midpoint. The increase in SUBLOCADE guidance reflects an improved outlook from an acceleration in dispense units based on strong trends year-to-date and favorable mix related to our progress on increasing commercial dispense yields. Our total net revenue guidance also reflects higher U.S. SUBOXONE Film net revenue based on year-to-date results, where we saw stable pricing and moderation in share decline. Our outlook for operating expenses remains unchanged at $430 million to $450 million. We now expect adjusted EBITDA for 2026 to be in the range of $620 million to $660 million, a year-over-year increase of 50% at the midpoint. This would represent an improvement of 16 percentage points in our adjusted EBITDA margin to 51% compared to 2025. We ended the quarter with gross cash and investments of $201 million, and we are projecting forward leverage of 0.8x based on the midpoint of our 2026 adjusted EBITDA guidance. In 2026, we expect to generate approximately $340 million in cash flow from operations, enabling us to strategically deploy capital. Our capital deployment priorities include managing our debt, returning value to shareholders through opportunistic share repurchases, and evaluating business development opportunities as we earn our way to Phase III of the Indivior Action Agenda - Breakout. In the first quarter, we managed our debt by completing an upsized $500 million senior convertible notes offering due in 2031. Most of the proceeds were used to repay the remaining $333 million balance on the previous term loan. This both increases our financial flexibility and significantly reduces our interest rate to 0.625% from 9.5%. We also returned capital to our shareholders through opportunistic share repurchases in the first quarter. We repurchased 4 million shares at an average price of $31.45 for a total of $125 million. We have $275 million remaining on the $400 million program through mid-2027. In total, over the past 5 years, we have bought back $525 million of our shares at an average price of $16.74. As we earn our way to Phase III - Breakout, we will evaluate business development opportunities, specifically focused on commercial stage assets that have the potential to enhance and diversify our growth profile. I'll now turn the call back to Joe for concluding remarks. Joseph Ciaffoni: Thanks, Ryan. The first quarter reflects our significant progress against Phase II of the Indivior Action Agenda - Accelerate. We delivered strong top and bottom line growth driven by SUBLOCADE's performance in the U.S. and leverage from our simplified operating model, enabling us to meaningfully raise our 2026 financial guidance. We also executed on our capital deployment strategy by successfully managing our debt and opportunistically utilizing our share repurchase program. We are on track to accelerate SUBLOCADE throughout 2026 and adjusted EBITDA and cash flow at an even faster rate as we earn our way to Phase III of the Indivior Action - Breakout in the second half of 2026. We will now open the call for questions. Operator? Operator: [Operator Instructions] And now we're going to take our first question, and it comes from the line of David Amsellem, Piper Sandler. David Amsellem: So I have a few. First, on the gross margins, there's some improvement here. And with the manufacturing transition, should we take that to mean that you could see manufacturing at even better gross margins going forward? So help us just understand how to think about gross margins going forward. That's number one. Number two, business development and M&A, I know, Joe, you've talked about a beachhead in another therapeutic category. I was wondering if you could elaborate on that and what therapeutic categories, broadly speaking, are of interest. And then lastly, on the accelerated second dosing, can you talk about how getting patients to receive that accelerated second dose is correlated with this overall persistence and how important that is? And if you had color on that earlier in your prepared remarks, sorry, I missed that. But would love to get your thoughts on how that accelerated second dose plays a role in patient persistence. Joseph Ciaffoni: Thanks, David. We'll let Ryan kick it off with the gross margins. Ryan Preblick: Hey, David. Good morning. Thanks for the question. So for the gross margins, I would still guide you to the full mid-80% guide. Q1 did benefit from a couple of things. One, we had the prior year releases; and two, we had positive manufacturing variances built in there as well. And then in regards to the plant, the primary focus on the manufacturing facility is to secure product security. So again, I would guide you to the mid-80s for margins for the year. Joseph Ciaffoni: Okay. And Pat, on the accelerated second dose? Patrick Barry: Yes. Thank you for the question, David. On the accelerated second dose, that's an important differentiator for us because we are the only LAI with that accelerated second dose. The benefit there is, is that you're achieving peak plasma levels early, as early as day 8. And so that's an important component to be able to get the patient doing well in the very early treatment. And so peak plasma levels is particularly important in the era of synthetic opioids. And so if they're doing better early and they're stabilized early, we believe that over time, that could help with persistency. But that's certainly something we'll continue to look at. Joseph Ciaffoni: And then from a BD perspective, David, as we earn our way to the breakout phase, which we believe we're on track to do in the second half of this year, we're I would say, therapeutically agnostic, although there are certainly areas we don't think we would go into, for example, like oncology, and we're more focused on the fundamentals of what we would acquire. So we are focused on commercial stage only. We're looking for assets that have greater than $200 million peak sales potential. We think that's relevant relative to the size of our revenue base as we seek to enhance and diversify our growth profile. Differentiated assets are important from our perspective, both from a patient value perspective and importantly, from a reimbursement perspective, which we think is critical to commercial success. And then the final thing I would highlight, because I think it's one of the real strong parts of the Indivior story, is that with SUBLOCADE, we have a durable growth driver. And so the third thing that will be important in anything we acquire is that those assets also have runway. From there, post-integration of an acquisition, we then would be looking to identify individual products that could leverage the new commercial infrastructure that we have in place. Operator: Now we're going to take our next question, and it comes from the line of Chase Knickerbocker from Craig-Hallum. Chase Knickerbocker: Congrats on another nice quarter here. Maybe just first for Ryan. There's been some continued gross-to-net benefit on a year-over-year basis. Maybe just focusing on SUBLOCADE. Can you just give us a sense for how you -- can you characterize that gross-to-net benefit a little bit more and then give us a sense for how you expect it to kind of roll off through the year? Ryan Preblick: Yes, Chase, good morning. Thanks for the question. Yes, in Q1, we did book $14 million of a prior year release as we continue to true up our accruals. But as we mentioned earlier, in totality, we still expect the prior year releases to serve as a headwind for the balance of 2026. And the plan is to continue to provide you an update each quarter. Chase Knickerbocker: Could you just maybe give us a sense for the cadence of that headwind through the year? And if there's any benefit you expect in Q2 as well? And then just a second from me, guys, maybe just taking a step back for Joe. If you look at INDV-6001 here, again, maybe just taking a step back, with the potential for Brixadi generics before SUBLOCADE LOE, how do you see this market, I guess, developing? And how are you thinking about franchise expansion and life cycle management as you think about your long-acting buprenorphine franchise, and just how you see the market developing, Joe? Ryan Preblick: Sure. Chase, so at this point, there will be adjustments for the balance of the year. I don't know the phasing at this point, but I will continue to tell you, in the aggregate, the prior year releases will serve as a headwind in 2026. Joseph Ciaffoni: And Chase, with regards to your question around the evolution of the marketplace, look, we're very confident in SUBLOCADE's differentiated profile. Importantly, when you look at SUBLOCADE, the 300 milligram dose continues to grow. It's now 63% of overall SUBLOCADE utilization. So we're very confident that SUBLOCADE has a durable growth profile, and it's an asset that we're committed to for the long term. As it pertains to further opportunity within this space, we're obviously always looking and are aware of what's out there. There's nothing candidly that we're interested in that we don't have. And to the degree that Alar is successful in the development and manufacturing of INDV-6001 to a level that meets what we believe would make it commercially viable, we retain 100% of the commercial rights to that asset in the U.S. So we certainly wish them well in their pursuit. Operator: Now we're going to take our next question, and the question comes from the line of Dennis Ding from Jefferies. Yuchen Ding: Congrats on a very good quarter. So if I can ask on Lilly's brenipatide, they sound fairly excited about it and its potential in substance use disorders, and they started Phase II in OUD on a background of buprenorphine, which I'm assuming is SUBOXONE. But I'm curious how you're thinking about the design of that study, the read out in 2028. And importantly, if that impacts durability of SUBLOCADE's growth through the long term, which I'm assuming goes off patent in the 2035 to 2038 time frame. Joseph Ciaffoni: So Dennis, before I hand it off to Christian to comment, the one thing I want to emphasize is we very strongly believe that SUBLOCADE has a long and durable runway in front of it with 12 Orange Book-listed patents that go from 2031 to 2038. We also are in the process of trying to pull through additional patent applications that have the potential to extend out to 2044 to 2046. And Christian, any comments? Christian Heidbreder: Yes, certainly. So there are several trials that are currently ongoing using GLP-1 for substance use disorder. The one that you mentioned in opioid use disorder, this is actually as an add-on therapy to transmucosal buprenorphine. There are a couple of other trials in alcohol use disorder. I must say that so far, the evidence has been primarily anecdotal. So it's the first time that there will be more formal clinical trials, and we shall see what the outcome is. But please do remember that these trials so far for opioid use disorder have been designed as add-on therapy to buprenorphine. Yuchen Ding: And if I can ask a follow-up on DTC. So the campaign is, obviously driving increased category growth, which we're seeing in the numbers. But I'm also surprised that SUBLOCADE's share continues to be generally stable. So my question is, do you expect to pick up incremental share this year as DTC continues? And if there's any leading indicators that you can disclose around initial share capture? Joseph Ciaffoni: Yes. So Dennis, I'll take that one. I appreciate the question. As we've been clear, our focus is on net revenue, new patient starts, and driving long-acting injectable market growth. We're very proud of the fact that share is stable at 76%. Whether it goes up a little bit, down a little bit in terms of the overall performance of SUBLOCADE, both in this year and as we go forward, in our view, is really not material. It's more about just the competitiveness within the space. So we're very confident in our commercial team. We're very confident in the differentiated profile that SUBLOCADE brings to the market as the first and #1 prescribed long-acting injectable. Operator: Now we're going to take our next question, and the question comes from the line of Christian Glennie from Stifel. Christian Glennie: Just starting then, I guess, on the outlook for SUBLOCADE and particularly on the dispense growth. So you did 20% in the first quarter, but the guidance for the full year seems to be still around the mid-teens level. So just trying to understand initially around that. Is it just a prudence thing? Or is there some reason why that dispense growth might imply a slowdown through the rest of the year? That's my first question. Joseph Ciaffoni: Yes. So Christian, thanks for the question. Remember, in the first quarter of 2025, that serves as a really low bar from a comparable perspective. So what we're confident in is on a full-year basis that we're going to be able to achieve mid-teen dispense unit growth, which is double what it is that we achieved in 2025. Importantly, and what I would focus you to, is the 13% increase in revenue, which is driven by the strong dispense unit growth, but also now the favorable outlook that we have in terms of mix. And what I mean by that is the percent that commercial will account for versus what we planned. And realize even incremental movement on a brand of this size, one point improvement of commercial mix relative to what we had planned is worth about $8 million. And that's certainly a key driver of the positive outlook that we have moving forward. And we've put a lot of effort, which is a real tribute to Pat and his team, Susan Neff, who heads up trade and our work with specialty pharmacy in trying to improve the dispense yield, in particular, with the SPs that skew to commercial. Christian Glennie: Second would be just any comment around the overall growth in LAI category overall and the share of LAI as a percentage of the overall buprenorphine market? Patrick Barry: Yes, thanks for the question. We saw really nice growth, slightly above 20% -- approaching 23% on LAI category. So we feel like our efforts from a direct-to-consumer perspective are fueling that. And again, we continue to maintain that category share dominance at plus 76%. Joseph Ciaffoni: And Christian, the only thing that I would add, and I think it's another interesting thing that gets to the impact that we believe the consumer campaign is having, in the first quarter, the oral buprenorphine market grew significantly relative to the rate it had consistently been growing. And the reason that's important is the start point of long-acting injectable patients are predominantly people that transition from a transmucosal buprenorphine. So from a big picture, as a company that has a long-term commitment to this space that, first and foremost, is focused on patients getting treatment to improve the outcome and their recovery journey, we're very encouraged by that. And that also is a positive over time, in our view, to long-acting injectable utilization. Christian Glennie: Sorry, just on the percentage -- the rough percentage share of LAIs overall as a percentage of orals. Patrick Barry: Yes, we're right at about 8.5% from an overall LAI category share perspective. Sorry, I missed on that. Christian Glennie: No worries. And then, sorry, finally, just on guidance on OpEx, unchanged there, but at the same time, not progressing the 2 Phase II assets. I think previously you had implied that the guidance assumed those roll on. So just trying to understand on OpEx and whether there's something I'm missing there, why potentially the OpEx wouldn't be a bit lower given you implied a bit of restructuring of R&D and the impact that, that would have. Joseph Ciaffoni: Yes, so I'll take that one. I appreciate the question. Look, we're focused and have been clear on making every possible investment to maximize the SUBLOCADE opportunity in the U.S. market. The way to think of our guidance in 2026 is as we derive savings from the restructuring in R&D and as we continue to relentlessly focus on making sure we're only investing in things that are essential, if there are opportunities for us to invest in SUBLOCADE that would have impact this year or in 2027, we would make those investments and come in at the high end of the guidance range to the degree that there aren't areas for us to invest those resources, we would let them drop to the bottom line. The other point I want to emphasize is as you think about the exciting phase we're in of the acceleration of SUBLOCADE, we're also leveraging, not growing, our cost structure on a going-forward basis. So when you think about it moving forward, you should expect to see us staying under that $450 million level, which will result in additional margin improvement. Operator: Now we're going to take our next question, and the question comes from the line of Brandon Folkes from H.C. Wainwright. Brandon Folkes: Congrats on the quarter. Maybe just following up on business development. Can you just talk about the size of the transaction you would consider? Sharing your criteria earlier around minimum peak sales, that sets one end of the range. But just trying to think about how large of a transaction you feel comfortable with. Can you just talk about where you feel comfortable taking leverage up to? And then along the same lines, you talked about a commercial asset, but would you also consider a commercial-ready asset or company which also has a pipeline. Can you just talk about your willingness to bring in or minimize development risk altogether here in business development? Joseph Ciaffoni: Thanks, Brandon. I'll let Ryan take the first question, and I'll take the second. Ryan Preblick: Yes, thanks for the question. So when it comes to the amount of leverage that we would feel comfortable with, with our strong balance sheet, we would be okay going up to 3x, but that is assuming that we are going after a commercial stage asset. Joseph Ciaffoni: And then, Brandon, when you think about our focus from an M&A perspective, we're clearly focused on commercial stage. We want to enhance and diversify the growth profile of the company. We are not anti-pipeline. In fact, we believe the financial strength of the company would enable us -- if we acquire a company that has pipeline that we believe is worth investing in, we would be positioned to do so. But that is not the primary focus as we're assessing opportunities. And then when we ultimately get to Phase III - Breakout and start to try to action around them. Operator: Thank you. Dear speakers, there are no further questions for today. I would now like to hand the conference over to your speaker, Joe Ciaffoni, for any closing remarks. Joseph Ciaffoni: Thank you, operator. And thank you to everyone for joining the call today. We look forward to updating you on our progress as we execute the Indivior Action Agenda. Have a great day. Operator: This concludes today's conference call. Thank you for participating. You may now all disconnect.
Operator: Good day, and thank you for standing by. Welcome to the CCC Intelligent Solutions First Quarter Fiscal 2026 Earnings Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bill Warmington, Vice President of Investor Relations. Please go ahead. William Warmington: Thank you, operator. Good morning, and thank you all for joining us today to review CCC's first quarter 2026 financial results, which we announced in the press release issued earlier this morning. Joining me on the call are Githesh Ramamurthy, CCC's Chairman and CEO; Brian Herb, CCC's CFO; and Tim Welsh, CCC's President. The forward-looking statements that we make today about the company's results and plans are subject to risks and uncertainties that may cause the actual results and the implementation of the company's plans to vary materially. These risks are discussed in the earnings releases available on our Investor Relations website and under the heading Risk Factors in our 2025 annual report on Form 10-K filed with the SEC. Further, these comments and the Q&A that follows are copyrighted today by CCC Intelligent Solutions Holdings Inc. Any recording, retransmission or reproduction or other use of the same for profit or otherwise without prior consent of CCC is prohibited and a violation of the United States copyright and other laws. Additionally, while we will provide a transcript of portions of this call, and we've approved the publishing of a transcript of this call by a third party, we take no responsibility for inaccuracies that may appear in the transcripts. Please note that the discussion on today's call includes certain non-GAAP financial measures as defined by the SEC. The company believes these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends relating to the company's financial condition and the results of operations. A reconciliation of GAAP to non-GAAP measures is available in our earnings release that is available on our Investor Relations website. Thank you. And now I'll turn the call over to Githesh. Githesh Ramamurthy: Thank you, Bill, and thanks to all of you for joining us today. We had a strong start to 2026 driven by continued customer demand and adoption. The first quarter total revenue grew 12% to $281 million, above the high end of our guidance. Adjusted EBITDA was $120 million, also above the high end of our guidance and adjusted EBITDA margin expanded approximately 300 basis points year-over-year to 43%. We are now more than a year past the acquisition of EvolutionIQ, and we continue to see strong momentum across the combined business. Today, I want to focus on 3 themes that frame both our near-term momentum and our long-term opportunity. First, why CCC is positioned to thrive in an AI-driven world; second, how the positioning is translating into strong tangible revenue momentum with several of the biggest companies in the world increasing their commitments to both our core and AI solutions; and third, while solving the problems caused by rising complexity for our customers, in the insurance economy is a durable long-term growth driver for CCC. Let me start with why CCC's position to thrive in an AI-driven world, we can do this by first understanding the work our customers need to get done. The insurance economy spans many thousands of companies conducting hundreds of billions of dollars in commerce across tens of millions of unique claim events every year. They operate in a complex, highly regulated industry and may interact with dozens of other companies for any given claim. And the work they need CCC to help them get done are the things that directly drive the operating performance of their business. Take auto insurers, for example, who, on average, pay out about 75% of their revenues on claims. They use the decision engines built into our solutions uniquely configured for their specific needs to help them pay what they owe. They use the CCC network to activate the tens of thousands of companies they need to integrate with to get consumers back to their lives and they use the CCC platform to manage that work end to end. And in fact, they rely on CCC to manage the most complex mission-critical and consequential work they do. This is true not only across our auto insurance customers, but also each of the more than 35,000 businesses we work with. That translates to CCC's economic model. We price our products on the measurable value we provide typically on a 5:1 ROI basis. We have cumulatively invested billions of dollars in our platform and have deep industry-leading functionality, but customers buy our technology because of the real-world outcomes they're able to achieve only by using our solutions to impact the hundreds of billions of dollars we help them process annually. CCC's data is unique in its combination of scale, depth and recency. We have over $2 trillion of historical data that simply does not exist anywhere else. The data is broad, deep and continuously updated in real-time, allowing us to provide benchmarks customers use to assess their operations and to provide hyper-local up to the minute inputs that inform hundreds of billions of dollars in individual payouts and repairs. We also take special pride in the trust our customers, placing us as partners in their business. Our role connecting the ecosystem has been built on decades of consistent, high-quality execution where each participant can feel confident in being able to deliver the best outcome for them and the consumer. Importantly, the outputs generated using our solutions are already accepted and embedded in the core operations of their trading partners. It is, therefore, no surprise that customers are increasingly looking to accelerate their AI ambitions by leveraging the CCC Intelligent Experience Cloud. Our AI solutions have been the fastest-growing part of our portfolio for some time, with the scale that has few equals in vertical software. In Q1, our AI-based solutions drove approximately 1/3 of our overall year-over-year growth, growing at roughly 3.5x the total company growth rate. AI solutions are now approximately 10% of revenue or about $120 million in run rate. These solutions are entirely incremental to our core products with discrete value propositions and ROI that customers validate through intense piloting and testing, demonstrating both the durability of our core solutions and the rapid adoption of our AI tools. While we are tremendously excited about the growth in our AI products, the benefits of marrying AI with deterministic software are becoming increasingly evident to customers. It's not an either/or. It is an end. Governance and trust, our bedrock principles in our industry and the efficiency of the CCC platform is particularly well suited to helping customers manage AI at scale. Our systems efficiently process almost 6 billion transactions per day, giving customers a battle-tested platform that flexibly handles volume spikes and constant adjustments to their operating rules. To summarize our first theme, CCC is positioned to thrive in an AI-driven world because we combine unique, real-time data, embedded workflows and a trusted scale platform that allows customers to deploy AI safely, govern it effectively and realize measurable economic value. My second theme is the strong tangible revenue momentum across the business as several of the biggest companies in the world increased their commitments to both our traditional and AI products. CCC's customer base includes 27 of the top 30 auto insurers in the U.S. by 2024 Direct Written Premium as well as multibillion-dollar repair facility chains. These are some of the largest and most discerning companies in the world with incredible access to leading-edge technology capabilities. We are thrilled that 1 of the top 5 auto insurers in the U.S. by Direct Written Premium renewed and extended its partnership with CCC through a new multiyear enterprise agreement. This agreement covers our entire auto physical damage suite as well as our entire portfolio of AI solutions related to auto physical damage following an extensive 2-year test of those capabilities. The insurer consolidated its APD business on to CCC several years ago, and this new agreement, both renews the core software relationship and adds the full AI layer, resulting in a meaningful step-up in the value of the partnership. Our largest and most sophisticated customers are also deepening their commitment to the CCC platform by expanding the scope of their relationship into casualty. Casualty remains one of the largest growth opportunities for CCC. Our acquisition of EvolutionIQ expanded our capabilities in this area through the creation of MedHub for auto casualty and AI documents insight solution now embedded within the CCC platform. MedHub adds meaningful new functionality that is helping customers manage complex casualty workflows and is helping to advance our pipeline. Last quarter, we announced that Liberty Mutual, the sixth largest auto insurer in the United States and one of the largest P&C insurers globally selected us. They have since begun deploying a significant portion of their casualty business on the CCC platform. In April, we signed a multiyear agreement with Allstate for their third-party casualty business. All of these wins are validation of large customers increasingly recognizing that CCC's platform and comprehensive suite of solutions represent their best path to embracing an AI-driven future. This dynamic is playing out across our entire business, including on the repair facility side. Adoption of our core and AI solutions in the market continues to grow with more than 6,500 repair facilities now using our AI estimating capability. At our industry conference next month, we plan to introduce even more exciting innovations for the repair facilities. In summary, we are seeing this differentiated positioning translate into tangible revenue momentum as some of the largest insurers and repair organizations in the world, deepen and expand their relationships with CCC across both our core software and AI solutions. My third theme is how solving for rising complexity is expanding CCC's value proposition and driving long-term growth. The most important structural trend in the insurance economy is rising complexity. Vehicles are most sophisticated; medical and casualty claims are more involved. Regulatory requirements continue to increase. Every claim requires more decisions, more coordination and more judgment all the time. We see advancing vehicle technology as a significant tailwind for CCC over time with many new product possibilities on the horizon. The multi-decade trend in advancing vehicle safety technology has shown a repeated pattern of frequency reductions being more than offset by increases in severity to fix these systems when they're damaged. That causes claim dollars and complexity to rise, which grows the industry and creates additional growth opportunities for CCC. Over the past decade, personal auto claim counts declined by less than 1% annually while average dollars per claim grew approximately 6% per year, driving about 5% annual growth in total claims dollars paid. We believe that going forward, claims cost growth is going to outpace claim frequency moderation, and our insurance customers will be managing an increasing level of total claims spent. That means our software and AI capabilities remain mission-critical as customers manage growing claim complexity and spend over time. The rising complexity inherent in our industry, combined with the growing appetite across our customer base to adopt both our core and AI solutions, gives us confidence in our long-term growth outlook. Stepping back, the common trend across all 3 themes is rising complexity. As claims become more complex, and customer appetite for AI increases, CCC's platform data and workflows become even more essential giving us confidence in our long-term growth opportunity. To help us navigate towards that future, we have added another experienced technology leader to our Board of Directors, John Schweitzer. John brings more than 3 decades of leadership experience across enterprise technology and global go-to-market organizations, including senior roles at Salesforce, Informatica, SAP and Oracle. With the addition of John, Neil de Crescenzo and Barak Eilam over the last 18 months, we have deliberately strengthened our Board to support platform strength, AI innovation and durable value creation while preserving neutrality across the ecosystem we serve. We are pleased with our strong start to the year and continue to be incredibly excited by our near-term momentum and the long-term opportunity in front of us. With that, I'll turn the call over to Brian, who will walk you through our results in more detail. Brian Herb: Thanks, Githesh. As Githesh outlined, Q1 was a strong start to the year with revenue growth and profitability ahead of expectations, increasing adoption of our AI solutions across our largest and most sophisticated clients and continued execution on our capital allocation priorities, including return of capital to shareholders. Now let's turn to the numbers. I'll review our first quarter 2026 results and then provide guidance for the second quarter and the full year. Total revenue in the first quarter was $281 million, up 12% from the prior year period and above the high end of our revenue range. Please note that all of this growth is organic. Of the 12% growth, 9% was driven by cross-sell, upsell and the adoption of solutions across our existing client base, approximately 3 points of growth came from new logos. Within this position, we did see more than 1 point of impact from a combination of timing and onetime items, including true-ups on subscription contracts and transactional strength in casualty. In the quarter, emerging solutions contributed about 4 points of growth, primarily driven by EvolutionIQ, our AI-based APD solutions, diagnostics and build sheets. Emerging solutions continue to represent an important and expanding part of the portfolio, accounting for approximately 11% of the total revenue in the first quarter of 2026 and growing approximately 50% year-over-year with the largest contribution from our AI solutions. Turning to our key metrics of software gross dollar retention, or GDR, and software net dollar retention or NDR. GDR captures the amount of revenue retained from our client base compared to the prior year period. In Q1 2026, our GDR was 98%, down from 99% last quarter. Please note that since we started reporting this metric, GDR has been between 98% and 99% and is either rounded up or down primarily by repair shop industry churn. We believe the consistency is evidence of the value we deliver and the benefit of participating in the CCC network. Our strong GDR is a core tenet of our predictable and resilient revenue model. Net dollar retention captures the amount of cross-sell and upsell from our existing client base compared to the prior year period as well as volume movements in our auto physical damage client base. In Q1 2026, our NDR was 107%, up compared to our full year NDR in 2025 of 106%. Now I'd like to turn to the income statement in more detail. As a reminder, unless otherwise noted, all metrics are non-GAAP. We provide a reconciliation of GAAP to non-GAAP metrics in our press release. Adjusted gross profit was $216 million for the quarter with an adjusted gross profit margin of 77%, which is up sequentially from 76% and flat year-over-year. The underlying economics of the business continue to demonstrate leverage and scalability, and we remain confident in our ability to progress towards our long-term target of approximately 80% as our newer solutions revenue scale and offsets the impact of higher depreciation from recent investments. In terms of expenses, adjusted operating expense in Q1 2026 was $109 million, which is up 2% year-over-year, reflecting strong cost discipline, nearly flat year-over-year headcount and some phasing benefits of costs that moved into Q2. Adjusted EBITDA for the quarter was $120 million, up 20% year-over-year with an adjusted EBITDA margin of 43%. This was above the high end of the range, reflecting cost efficiencies, some phasing benefits and the flow-through from revenue overperformance in the quarter. Q1 adjusted EBITDA margin expanded over 300 basis points year-over-year. Stock-based compensation as a percent of revenue was 11% in Q1 of 2026. That's consistent with Q4 2025. We expect full-year stock-based compensation in 2026 to be approximately 13% of revenue with a path to single digits as we move into 2027. Now let's turn to the balance sheet and cash flow. We ended the quarter with $37 million in cash and cash equivalents and $1.3 billion of debt. At the end of the quarter, net leverage was 2.7x adjusted EBITDA. We continue to deliver strong free cash flow generation and return the capital to shareholders through share repurchases. Free cash flow in Q1 was $42 million compared to $44 million in the prior year period. Free cash flow on a trailing 12-month basis was $252 million, which is up 7% year-over-year and a trailing 12-month free cash flow margin as of Q1 2026 was 23%, down modestly from 24% as of Q1 2025. We are committed to a disciplined capital allocation framework, which balances investment in the business and capital return to shareholders to deliver long-term shareholder value. In December 2025, we announced a $500 million share repurchase authorization and a $300 million accelerated share repurchase program under that authorization. During Q1, we completed the ASR under which we purchased a total of approximately 43 million shares. Following the completion of the ASR, we repurchased an additional $100 million of stock in the open market during Q1. At the end of Q1, we have returned more than $1 billion to shareholders through repurchases over the last 2.5 years and have $100 million remaining available under the current $500 million Board authorization. I'll now turn to guidance. For Q2 2026, we expect revenue between $283 million to $285 million, representing 9% year-over-year growth at the midpoint. We expect adjusted EBITDA of $111 million to $113 million, a 39% adjusted EBITDA margin at the midpoint. For the full year 2026, we expect total revenue of $1.155 billion to $1.163 billion, which represents approximately 10% year-over-year growth at the midpoint. For adjusted EBITDA, we expect between $484 million to $490 million, which implies a 42% adjusted EBITDA margin at the midpoint. So 3 points to keep in mind as you think about the Q2 and full year guide. First, we have raised the full year revenue guidance from $8.5 million to $9.5 million to now 9% to 10% growth on the back of Q1 strong results and the momentum that we're seeing across the business. Second, in terms of the cascade of revenue growth through 2026, Q1 included more than 1 point of impact from a combination of onetime items and transactional strength in casualty. In addition, in the second half, we're expecting approximately a 1 point revenue headwind as an insurance carrier transitions away their legacy first-party casualty business from us. Third, we remain confident in our ability to drive margin expansion in 2026, consistent with our demonstrated track record. As we've stated on our Q4 call, we expected adjusted EBITDA margin to decline sequentially in Q2 due to phasing of spend and then resume year-over-year margin expansion in the second half of the year. We manage our adjusted EBITDA margin on an annual basis, and the progression is driven by continued cost discipline and the operating leverage in the business. The high end of the guide reflects approximately 100 basis points of margin expansion in both the first and second half of the year. In closing, we feel very good about the financial position of the business and the durability of our operating model. We delivered strong revenue growth, margin expansion and free cash flow, enabling meaningful capital return to shareholders through repurchases, while maintaining a prudent leverage profile. Our capital allocation framework remains disciplined, prioritizing organic investment, balance sheet strength and return of excess capital to shareholders, while remaining highly selective on M&A. Taken together, our predictable operating model, strong cash generation and margin discipline positions us well as we move through 2026. I'll now turn the call back over to Githesh for some additional comments before we begin with Q&A. Thanks. Githesh Ramamurthy: Before we move into Q&A, I'd like to share one update. As you saw this morning from our announcement, Brian Herb, after more than 6 years with the company, has decided to pursue another opportunity outside of CCC and will be stepping down as our CFO at the end of May. We will certainly miss Brian. And as you know, during his tenure, Brian played a critical role in our evolution, including helping take the company public and serving as a key leader through a period of significant growth and transformation. His leadership helped scale our organization and especially as we advance the commercialization of our AI capabilities, positioning us really well for the future. So on behalf of our Board and the entire CCC team, I want to thank Brian for his many contributions and wish him continued success. I know I speak for Brian as well when I say that he remains a strong believer in the business, a shareholder and a close friend. Rod Christo, Senior Vice President of Finance and Chief Accounting Officer and a 30-year veteran of CCC will become Interim CFO upon Brian's departure. To ensure a smooth transition, Brian will also continue to support the company as an adviser following his departure. And on today's Q&A, we are joined by our President, Tim Welsh. As you will remember, Tim joined about a year ago and his positive impact on our go-to-market execution is evident in the momentum we're seeing across the business today. Operator, we are now ready to take questions. Thank you. Operator: [Operator Instructions] Our first question comes from Saket Kalia with Barclays. Alyssa Lee: This is Alyssa on for Saket. Great start to the year and congratulations, Brian. We'll miss working with you. Githesh, maybe for you. You called out some nice casualty wins. Can you dig into that business a little bit and talk about who you're replacing here? Githesh Ramamurthy: Yes. I would say the thing that I can talk about is what we do exceptionally well, which is that our third-party solution replaced an incumbent that they had -- that the customer was using. And we have been working very deeply and closely with the customer and the impact and the investments that we've been talking about for the last several years are truly coming through on the differentiation of our product and our solutions. And after a fair amount of testing, the customer has moved forward with us, and we're truly excited about it. Tim, I don't know if you wanted to add anything to that. Timothy Welsh: Yes. I would just add a couple of things. First of all, this is an area of long-term strategic focus for us. As Githesh just alluded to, we've been making investments in the casualty business broadly and specifically the third-party business for some time. And we've been paying very close attention to customer needs. And so we've just -- given that strategic focus over a long period, the combination of our tools with the EIQ tools and the consistent listening to customers and adopting our products accordingly has really helped us have this continued success. We're excited about what we've seen so far and look forward to more continued momentum. Alyssa Lee: Very helpful. And maybe, Brian, my follow-up for you. Just to stay on the theme of casualty here. You mentioned there was some element of volume-based benefit. Can you remind us how the pricing there works and maybe refresh us on how big that business is as a percentage of total? Brian Herb: Yes, happy to. So casualty represents about 10% of total revenue. It's important to note, it is one of the fastest-growing parts of the portfolio as we've talked about the investment that we've put in that product and also just the momentum that's building. As far as the revenue mix, it is a combination of subscription deals, but we also have some deals that are transactional and some deals will have true-ups as well. So what we saw in Q1 on some parts of the transactional business, we saw strength that we highlighted. From a pricing perspective, it's similar to our other products that we do price on an ROI basis and show the value of the client -- show value to clients as we roll those products out. Operator: Our next question comes from Dylan Becker with William Blair. Dylan Becker: Appreciated really nice job here. Maybe, Githesh, I appreciate all the color on kind of the industry drivers and the secular drivers supporting kind of the long-term growth outlook. But I was wondering if you could maybe delineate a little bit further. I mean, what's driving kind of the outsized adoption from the larger carriers relative to maybe their preference and need and seeing everything that's going on with AI and needing a viable solution, maybe paired with your maturity of the platform and kind of conviction in your solution delivering value and resonating alongside maybe even the final factor of the industry not being able to lean in the price and the lever of kind of claims efficiency and supporting profitability. Maybe all 3 kind of coming together as one, but would love your take there as well. Githesh Ramamurthy: Sure, Dylan. Thank you. I would say, first and foremost, as you know, we have been working on building our AI capabilities for well over a decade. And what this has done is allowed us to really deeply build highly accurate models, which are only possible when you have $2 trillion of historical data. And the other thing, as you know, our customers -- the customers that we've announced today are some of the largest and the most sophisticated customers in the world, and they are the largest buyers of technology in the world. And so in other words, they've also had access to all of the LLMs and all of the tools. And what they are seeing is that over the last few years, they've also worked very closely with us in seeing the accuracy, the performance and specifically the ROI of our solutions. And the differentiation we have is that not only are these highly accurate AI solutions, but they're deeply embedded into the existing workflows where literally thousands of decisions are made by thousands of people, and then those workflows extend across the network. So this combination of world-class AI that works with very sophisticated data and also think about the feedback loop, right? On a daily basis, we're able to manage drift and the accuracy based on the feedback that we get on a real-time basis as we touch 20 million cars a year. And then connecting that into embedded workflows in a very regulatory -- regulated environment. And also, a lot of this has to be hyperlocal decisions. That means a national average number or a solution is not going to work. It's got to be very specific to ZIP codes and geography. So I would say the combination of all of these things has helped. But the single most important thing I would say is after 2, 3 years, in some instances, of work, after people have tested, evaluated and then made the decisions to go forward on a multiyear basis. So I would say that is the single most important thing is the testing, the evaluations. It has taken a little longer than we thought, but that's why we saw the momentum in Q4, and then we saw increased momentum in Q1. Dylan Becker: That's very helpful. And then maybe, Brian, one for you, too. I think you kind of called it out at the end, but it's very clear that momentum, to Githesh's point, is resonating. On the casualty side, I know we saw some kind of true-ups in the first quarter, but I think you also called out a first-party 1-point headwind throughout the balance of the year. So maybe the core slightly being masked by that. But can you kind of dive into the segmentation between kind of third-party, first party, maybe a little bit of kind of the puts and takes there as well? Brian Herb: Yes. We haven't broken out the -- from a revenue mix perspective, third-party and first party. I think as Githesh has highlighted, we've talked about third party where we put a lot of investment in. We're seeing a lot of momentum, not only the Allstate win that we had in the quarter. Last time, we talked about Liberty Mutual coming on board. So we're seeing really good momentum. We continue to invest in first-party as well and feel good about that product position. So yes, we're feeling really good overall on the momentum we're seeing in casualty and the growth, not only in the quarter, but how it's setting up for the balance of the year and going forward from there. Dylan Becker: Very helpful. Congrats, Brian. Brian Herb: Appreciate it. Operator: Our next question comes from Tyler Radke with Citi. Tyler Radke: Brian. It's been a pleasure working with you. Best of luck going forward. I wanted to just dive in a little bit on some of the true-ups dynamics that you saw in Q1, and I appreciate the clarification on the financial impact. But can you just remind us like the sort of contracting dynamics that drive that? Was it sort of outsized renewals? And did customers kind of undercommit on volumes or products that drove that? And just help us understand if there's anything to read through in terms of folks signing up and expanding post that true-up event? Brian Herb: Yes. Thanks for the kind words, Tyler, as well. So just as a reminder, 85% of our revenue is subscription, so largely subscription-based. In some of our subscriptions, and again, they will vary the deals. But in some subscriptions, they will commit to a certain level of volume. And if they trip that level of volume, we will true them up and take that true-up in the period. And so what we saw in the dynamic that played through in Q1 is they exceeded the minimum of the contract. They had some additional volumes and we trued that up. That doesn't necessarily mean it's a new contract as they go into the next part of their year or they go to the next year, that level of commitment will reset. So we highlighted the phasing and the impact in the quarter because it played through the 12%, but it is kind of a natural point of how the deals are structured. And as I said, this is kind of a specific deal. We have other flavors of subscription deals, but this one led to the true-up in the quarter. Tyler Radke: Got it. And Githesh, I believe you talked about a pretty large top 5 insurer renewal that took a step-up kind of adding -- I don't know if it was a full suite of AI, but it sounds like they took on a lot of the AI capabilities. Can you just talk about sort of what that did to that contract in terms of the expansion? And is that something that you think you can replicate as you look across your other major renewals coming up? Githesh Ramamurthy: Yes. The short answer to the last part of your question is we absolutely believe we will see this going forward, this approach. Again, as a reminder, this customer not only renewed all of our core suite, which is all our traditional core products, but they've also been deeply testing over the last couple of years in all our different AI solutions. And what was really unique about this was that they felt that getting an enterprise license across the board for a full suite of AI that then sits in addition to the core was really important because there was an ROI for the core solutions, and there was an incremental significant additional ROI for the AI solutions. And both of these work really well together. And that's what they saw and tested. And we believe this is an indication of how we are starting to see customers move forward. And then... Timothy Welsh: Yes. Just to build on, Githesh, your comments there that this -- what we're seeing across the organizations, our customers is that they are trying to adopt AI as quickly as possible in lots of different venues. And as Githesh alluded to, they have been working closely with us for years to help develop and test these solutions. And so we are certainly optimistic that the enthusiasm we're seeing in this particular case that you highlighted will continue across because we've been working with many of our customers in a similar kind of manner. Tyler Radke: And sorry, just to clarify, like can you frame just what type of expansion that drove in the APD as they adopted the AI solutions? Brian Herb: Yes, Tyler, it's back to Brian. We don't talk about specific deal dynamics, but we have said in the past as a rule of thumb to think about our AI solutions within APD that it would add on about 50% of what they're paying us incrementally for the core software. So think about it as a 50% uplift on pricing. Operator: Our next question comes from Kirk Materne with Evercore ISI. S. Kirk Materne: I was wondering, actually, if I could just build on that last question from Tyler. Tim, in your comments, I'm sure every single one of your customers is getting inundated by new call -- phone calls from AI native companies and maybe the large labs. Has any of just the groundswell of interest in AI slowed any of the pilots down? Or are they getting distracted at all? Or do you feel like things are moving ahead at a cadence? I mean, it seems like at least in that case, it is. But I was just kind of curious on a more holistic basis, if any of just sort of the AI noise and frankly, the progression of the labs has sort of slowed things down or helped. I would just love just a broader view on that, too. Timothy Welsh: Yes, Kirk, thanks so much for the question. And what we're seeing is that customers are, in fact, the news about AI, the AI native companies, all of that sort of thing is just creating lots and lots of questions and enthusiasm and interest, as you alluded to, right? So that's what's happening in the market. What we have, and I just want to go back to something Githesh hit on, we have years of relationships and trust built up with these folks. So while everybody is interested in new innovations, you also want new innovations from someone that you've worked with for decades that is deeply embedded in your workflow, has helped you achieve all of your regulatory and compliance requirements. That really -- that years of credibility really helps us in this. So the fact that we have terrific AI solutions, coupled with a long period of working closely with these carriers, building enormous trust, that positions us really, really well. I hope that's helpful, Kirk. S. Kirk Materne: That is. And then just, Brian, maybe on the -- one for you. Just on the new casualty wins, when you guys announced sort of a new win with some of these bigger carriers, what's the phasing of sort of bringing on or starting the revenue? I assume these projects take a little while to get ramped up. So how should we think about sort of an announcement relative to when that announcement or win starts to impact you guys from a top line perspective? Brian Herb: Yes. No, it's a really good point, and you picked it up right. I mean this will phase in as we go through the year. So once we sign it and close it, it doesn't just turn into run rate out of the gate. It will -- they'll transition into it and they'll build up on volume as well. So it will build as we go through the year and get to full run rate kind of in the second half of the year. S. Kirk Materne: And Brian, congrats on the new endeavor. Brian Herb: Yes, Kirk. Thanks. It's been great working with you. Operator: Our next question comes from Josh Baer with Morgan Stanley. Josh Baer: And Brian, congrats on the opportunity. I wanted to ask one on the pricing model and sort of this idea of it tied to value that you deliver. I mean, with increasing complexity, higher cost of claims, you're in a position to provide more value to your customers. So I'm wondering how this plays out in reality? Like how do you capture the value? Is it -- are we talking about your ability to sell new products and monetize additional products? Or is it even like in the time of a contract renewal that you can actually renegotiate pricing and capture pricing at renewal, if you could walk through how that plays out? Githesh Ramamurthy: Josh, let me just start out with structurally how to think about the business, and then Brian will actually go into the math a little bit more. So when you look at it on a structural basis, over the years, we have an auto physical damage suite. We keep adding enhancements, functionality to the auto physical damage suite. So that has an ongoing ROI that people are managing, renewing. Then on top of that, there is a full layer of AI solutions that range from the front end of the claim where we are starting with our photo AI capabilities and along all the way through different steps in the claims process. That's true both for the insurance market. It's also true for the repair market, where we have a broad suite of AI solutions that go across on top of the core. That has its own ROI, which is incremental to the core, and that is another structural component. Then independent of that, we have solutions like subrogation, which apply even more broadly, and those are new products and completely separate from auto fiscal damage and the AI on top. And then casualty is yet another component. So does that structurally -- and same thing on the automotive side as we add solutions like Diagnostics, Build Sheets and others, those go into additional packages. So that's how to think about it on a structural basis. And then, Brian, if you want to add. Brian Herb: Yes. The only thing incrementally I'd add to what Githesh said is you're right, we sell on ROI. Typically, we think about a 5:1 ROI, and that's kind of how the products are priced. Your question on does that happen through new solutions being embedded into the bundle, it absolutely does. So as we bring new solutions out, prove the ROI with those new solutions, we're selling them on an ROI basis. Your other part of the question, does it allow opportunities through renewals? It can as well. We provide a tremendous amount of value as clients scale and roll out our software, the AI, but also our core solutions. So it does allow opportunities through renewal depending on where that client is priced at to have price impact through renewals. Operator: Our next question comes from Adam Hotchkiss with Goldman Sachs. Adam Hotchkiss: Githesh, you've alluded quite a bit to the evaluation customers do ahead of taking on the emerging solutions. And I'm sure you've learned a lot based on the path by which some of these deals have converted recently. How should we think about from a magnitude perspective, what portion of your base are testing with high intent today, especially across AI? Is that the entire base? Or is that segmented to a certain portion of your base? Any color there would be helpful. Githesh Ramamurthy: Sure. So first, I would start off with that our most complex and our largest and most sophisticated customers, they have a lot of edge cases, right? They're operating in every jurisdiction, every area, and they have a lot of edge cases. So there's a lot more complexity. And so there is a fair amount of testing. And the beauty for us is that we benefit from having just amazing customers who have this level of complexity, and it allows us to really tune, hone, get all the edge cases right, get the AI right, get all the nuances, the drift, the accuracy, all of that right. And this is also -- and I know I've had the benefit of seeing this over the last 2, 3 decades that once these solutions are truly working at that scale, then for the entire industry, this becomes easier and easier and easier to adopt and scale. And so that is really how this thing really starts to move through. And we've learned an awful lot in this process. But the references we get are phenomenal out of this. And Tim, if you want to add to this? Timothy Welsh: Yes. I just would build on Githesh, what you said, which is we really do work very intensively, as Githesh alluded to, with those largest clients. And what we're now seeing is that because the solutions are well tested in many different places, we're seeing a rapid interest in lots of discussions about these across the board from a whole range of clients. And so while you can never exactly predict how fast adoption will occur, we're certainly seeing a very wide range of discussions because of the long testing that we've been doing with these products. Adam Hotchkiss: Okay. Great. That's really helpful. And then, Brian, echoing well wishes to you going forward. I think you mentioned emerging solutions generated 4 points of growth. How did that contribution come in versus your expectations? I think the beat was a bit of a surprise in the quarter, and I understand there's some onetime dynamics, but even backing those out, it does feel like things were better than you had expected. How should we think about that 4% through the rest of the year and going forward? Brian Herb: Yes. Thanks, Adam, for the kind words. Yes, we were really happy in the quarter overall. We're happy with the 12% growth. We are happy with the beat. Emerging delivered 4 points of growth, and we're seeing a lot of momentum as we've been highlighting in the call. About 1 point in the emerging solutions was the impact of EvolutionIQ. So that was in there. We continue to see emerging as a category as one of our biggest areas of growth opportunities. So we do continue to expect that to grow in line and potentially have further opportunities as we go forward, both in this year and over the long term. So we're feeling really good on the momentum as we talked about the AI solutions and the pace that they're growing as well. Operator: [Operator Instructions] Our next question comes from Alexei Gogolev with JPMorgan. Alexei Gogolev: Githesh, if I may ask about the recent strong appointments that you made to Chief Product Officer. If you think about some of the road map targets that Josh will focus on, can you maybe talk about those? Is it going to be helping customers deploy more AI at scale or more like expanding into adjacent markets of casualty? Githesh Ramamurthy: Yes. Let's say, first and foremost, we're really excited to have Josh on board. He has come up to speed very quickly, which is fantastic. And so we are really looking at the work we're doing in really 2 dimensions. So dimension #1 is that as we've AI-enabled every part of our product segment, like all the different flows within our insurance solutions, the solutions that we deliver to repair facilities to parts providers, OEMs. So there's a deepening of the product suite and additional components of the area that we can address. So that is one area. And that's -- and in that same -- think of that as a 1A, a 1B would be the additional expansions like a subrogation, and there are several other products and things that are in the road map that we'll be sharing with our customers at the upcoming NX customer conference. The second dimension, which is extraordinarily important that we are focused on and Josh, in particular, is focused on, is that we have an incredibly unique ecosystem of customers where the decisions and information flowing out of insurance going into a repair facility, going into a parts provider, going to a tower, going to a salvage yard, the ability to connect IX Cloud and the AI capabilities with an event management framework that goes across all of these things where the AI really drives the decision engines across all of the ecosystem. Our customers are coming back and telling us that is like -- that is super exciting. And so those are the 2 dimensions in which we are very focused. Alexei Gogolev: Brian, thank you very much for all the years. I appreciate and I enjoyed working with you. If I may ask a quick question about international demand. Very often in vertical SaaS, we see international expansion being driven by customers themselves. Is this something that you're seeing among your clients? How does that inform your international expansion appetite maybe in Europe? Githesh Ramamurthy: Yes. I'll take the first part of that, and then I will have Tim jump in for the second part because, as you know, Tim has served this industry on a global basis for many decades. And so I would say, first and foremost, we're seeing tremendous opportunity in terms of the TAM expansion that we have seen. So the TAM expansion in our core, our AI solutions, solutions like subrogation, casualty, disability, workers' comp, where -- even in workers' compensation through the acquisition of EIQ, we've landed some of the largest private employers in the country for some of the EIQ solutions. So we are not seeing any shortage of opportunity across the country, and many of our customers tend to be here. But the opportunity internationally is substantial, and we will get to it at some point. And Tim, maybe you could share some perspective. Tim has a global perspective. Timothy Welsh: A couple of thoughts on this. First, I would just highlight, Githesh, or underscore what you just said, which is there's enormous TAM expansion in the U.S. So that's a huge opportunity. And second, Alexei, as you're aware, many are -- many of the companies we serve, the insurers and the repair facilities are primarily U.S. companies. They may have small operations outside the U.S., but that is primarily our U.S. companies. And so as we think about international, it would be thinking about what is the TAM and then where would be companies that may be interested in our solutions, but don't necessarily have a domestic U.S. presence just given that that's the nature of the industry. So you want to think about the industry structure as well as the total TAM. I hope that helps a little bit. Operator: And I'm not showing any further questions at this time. I'd like to turn the call back over to Githesh for any further remarks. Githesh Ramamurthy: Well, thanks, everybody, and really appreciate the thoughtful questions. I would say that we are truly encouraged by the strong operating momentum across the business, and we saw this first at the end of 2025. And what we're really excited about is that this momentum continues to carry into the first quarter of 2026 and beyond. And as complexity continues to increase in the insurance economy, we are truly, truly grateful that our customers are truly turning to CCC to manage mission-critical workflows, apply AI that are trusted and scalable. And we think our unique data, the embedded workflows we have, the depth and breadth of our network really positions us well to support our customers and continue -- and we believe that will translate into sustained growth at some of the largest insurers, repairs and other parts of our customer base. And we're excited to deepen those relationships. And again, very focused on very disciplined execution. And I'd like to take this opportunity to thank our employees, our customers and our shareholders for the deep trust everybody places in us. And we'll wrap up by saying a huge thank you, Brian, to you for all the years and the amazing partner that you've been. Brian Herb: Thanks, Githesh. It's been a true pleasure. Operator: Thank you. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.
Operator: Hello. My name is Cindy, and I will be your operator this morning. I would like to welcome everyone to the Garrett Motion First Quarter 2026 Financial Results Conference Call. This call is being recorded, and a replay will be available later today. As per the company's presentation there will be a Q&A session. I would now like to hand over the call to Cyril Grandjean, Garrett's Vice President, Investor Relations and Treasurer. Cyril Grandjean: Thank you, Cindy, and good day, everyone. We appreciate you joining us to review Garrett Motion's first quarter 2026 financial results. Our presentation and press release are available on the Investor Relations section of our website. Today's discussion includes forward-looking statements that involve risks and uncertainties. Please refer to our SEC filings, including our most recent annual report on Form 10-K for a discussion of factors that could cause our results to differ materially from these forward-looking statements. Today's presentation also includes certain non-GAAP metrics, which we use to help describe how we manage and operate our business. Please review the disclaimers on Slide 2 of our presentation as the content of our call will be governed by this language. With me today are Olivier Rabiller, our President and Chief Executive Officer; and Sean Deason, our Senior Vice President and Chief Financial Officer. Olivier will begin by sharing highlights from a very strong quarter, both in terms of financial performance and strategic wins. Sean will then review our first quarter financial results and updated 2026 outlook. With that, I'll turn the call over to Olivier. Olivier Rabiller: Thank you, Cyril, and thank you all for joining the call today. We started the year by delivering another very strong set of financial results in the first quarter, driven by growth in a muted industry and disciplined operational execution. Net sales for the first quarter were $985 million, up 6% at constant currency. We delivered growth across all verticals, including commercial vehicles and industrial. Considering that light vehicle production was down in Q1, Garrett's growth reflects share of demand gains in passenger vehicles as well as continued strong performance in commercial, off-highway and industrial. Through continued productivity actions and disciplined execution, we have been able to convert this growth into a very solid operating performance. Adjusted EBIT was $151 million, and our adjusted EBIT margin was 15.3%. In addition, we generated an adjusted free cash flow of $49 million in the quarter. Together, the strong results support our decision to increase the upper range of our 2026 full year outlook. Lastly, we continue to allocate capital in line with our stated framework and our commitment to return capital to shareholders. During the first quarter, we maintained our share repurchase activity, buying back $87 million of common stock, and we also paid $16 million in quarterly dividends. With that, let me now turn to Slide 4 to share more on Garrett's continued success across our differentiated technologies. Indeed, we continue to win across our turbo portfolio with multiple gasoline awards, including VNT turbo for hybrids and range extended electric vehicle applications. At the same time, we kept on the successful trend we have seen in industrial as we secured additional wins, including for large power generation applications. Turning now to our zero-emission technologies. We have made solid progress in Q1 2026 as we secured our second commercial vehicle E-Powertrain production award in China with start-up production planned again for 2027. We also won a major production award for our industrial cooling compressor with TONFY in China, a leading supplier for battery energy storage system cooling solutions. Overall, I'm very pleased with our progress. These wins demonstrate customer adoption of our differentiated technologies across a broad range of applications, supporting both portfolio expansion and growth while continuing to deliver strong financial results. I will now hand it over to Sean, who will talk you through our financial results and outlook Sean Deason: Thanks, Olivier, and good morning, everyone. I will begin my remarks on Slide 5. As Olivier highlighted, we delivered strong financial performance in the first quarter. Our net sales were $985 million, driven by sequential growth across all verticals. This was driven by share of demand gains in diesel and gasoline applications, recovery of commercial vehicle volumes and continued demand for industrial applications. We delivered $151 million of adjusted EBIT in the quarter, equating to a 15.3% margin. This represents both a year-over-year and a sequential improvement driven by strong volume conversion and favorable foreign exchange. Finally, adjusted free cash flow was $49 million as the business continues to convert earnings into cash in line with expectations. Now moving to Slide 6. We show our Q1 net sales bridge by product category as compared with the same period last year. In the quarter, net sales increased by $107 million versus the prior year or 12% on a reported basis and 6% on a constant currency basis. Double-digit growth in commercial vehicle, industrial and aftermarket contributed significantly to the strong performance. We also benefited from continued gasoline share of demand gains and new launches in diesel. This sales growth occurred across all key regions. In North America, the key drivers of sales growth were off-highway, industrial and aftermarket. In Europe, we saw share of demand gains in light vehicle gasoline and diesel as well as a recovery in off-highway applications. And in China, growth was driven primarily by industrial and on-highway applications. Turning to Slide 7. During the quarter, we generated $151 million in adjusted EBIT, representing a $20 million increase over the same period last year. Our margin rate of 15.3% reflects a 40 basis point improvement year-over-year, 20 basis points of which are due to favorable foreign exchange currency impacts, partially offset by tariff pass-throughs. The increase in adjusted EBIT was primarily driven by volume and favorable mix from our strong growth in commercial vehicle, industrial and aftermarket. In the quarter, year-over-year operating performance was slightly negative, largely as a result of timing and in line with our expectations as we begin to execute on our productivity measures. We expect to generate positive operating performance through the balance of this year, continuing to benefit from sustained fixed cost actions and variable cost productivity. Turning now to Slide 8. I'll walk you through the adjusted EBIT to adjusted free cash flow bridge for the quarter. We delivered positive adjusted free cash flow of $49 million, aligned with our full year expectations. The working capital used in the quarter was primarily driven by our strong sales and is expected to be recovered throughout the year. All other bridging items were also in line with expectations. Now moving to Slide 9. We ended the quarter with a liquidity position of $772 million, consisting of $630 million in undrawn capacity from our revolving credit facility and $142 million in unrestricted cash. We have ample liquidity with no near-term debt maturities, and our net leverage ratio remains unchanged versus the prior quarter at 1.92x. Moving to Slide 10. During the first quarter, we repurchased $87 million of common stock under our $250 million share repurchase program, further reducing our outstanding share count to approximately 188 million. We continue to target returning approximately 75% of our adjusted free cash flow to shareholders over time through dividends and share repurchases, the latter of which will vary over time and depend on various factors, including macroeconomic and industry conditions. As mentioned by Olivier earlier, the Board declared our quarterly dividend for the second quarter of $0.08 per share, which will be payable in June. I will now transition to Slide 11 to discuss our 2026 outlook. Following our first quarter performance, we anticipate demand across all verticals to be strong through the first half of the year. Although our industry assumptions remain unchanged versus our initial outlook, we expect to continue to benefit from share demand gains in light vehicle, continued recovery in commercial vehicle and growth of industrial applications, particularly for stationary power generation. As a result, we've increased our high end and midpoint outlook across all metrics to reflect the stronger performance to date. Given macroeconomic uncertainties and geopolitical events, we are maintaining the low end of our outlook range at this time. Our updated outlook implies the following midpoints: net sales of $3.75 billion or 2% growth at constant currency, adjusted EBIT of $560 million, implying a 14.9% margin and adjusted free cash flow of $415 million. With that, I will now turn back the call to Olivier for closing remarks. Olivier Rabiller: Thanks, Sean. Let's now turn to Slide 12. As we announced during our Q4 earnings call and in our subsequent press release, we will host our 2026 Technology and Investor Day in person in New York City on May 20. We will outline the next phase of the company's strategic evolution, including progress across turbo, zero-emission vehicle and industrial technologies. Beyond the presentation, it is a fantastic opportunity to interact with management, see and touch new hardware and better understand the way Garrett is expanding its technology differentiated portfolio, both in auto, commercial vehicle and industrial. Let me wrap this up on our final slide. We delivered a strong first quarter, driven by share of demand gains in gasoline turbo and growth in commercial vehicle, off-highway and industrial. Adjusted EBIT reached $151 million, and we generated $49 million of adjusted free cash flow. In zero-emission technologies, specifically, we secured our second series production award for commercial vehicle high-speed E-Powertrain, further validating the long-term potential of this technology. In parallel, progress continues with our new industrial compressor offering as we secured a production award in battery energy storage systems. Alongside this operational and technology execution during the quarter, we returned more than $100 million to shareholders through share repurchases and dividends, reaffirming our commitment to disciplined capital allocation and shareholder return. Lastly, based on the strong start of the year, we also raised our full year 2026 outlook, reflecting the strength of our execution and confidence in our trajectory. So thank you for your time. And now operator, we are ready to take on questions. Operator: [Operator Instructions] Our first question comes from Nathan Jones of Stifel. Nathan Jones: I guess I'll start with some questions on the oil-free compressor side. I don't know how much of that you want to answer today and how much you want to say for the Analyst Day next month, but I'll ask them. Any updates that you can give us on the progress with shipping the first units to train? Any updates you can give us on -- I guess I'll just ask a broad question, the interest levels that you're seeing from other potential customers and how that's progressing? Olivier Rabiller: Yes, indeed. I think we alluded to it a little bit last time because we are fresh from the big congress that's happening every year in Vegas about air conditioning systems. And since then, we've confirmed a lot of inbounds from a lot of people in the industry. To your point about shipping units, I mean shipping the first unit for testing and everything will happen in the coming weeks already. And then what we said is that we would be in production from 2027. So it's on a fast pace. The win we just report, which is in a different system, which is a battery energy storage system. So you have -- you need a lot of cooling to cool these batteries. And these batteries are supplied by the way, this module are supplied by the biggest battery makers in the world. It's a very important one as well because it validates that our technology is not only for the scope that we expressed last time and the discussion we had about our agreement with Trane, but it's ranging beyond that into some other applications. So we'll share indeed more during the Investor Day, but a lot is happening, and you may have seen a lot of points, a lot of communications already from us, whether it's on the BSS, whether it's on our exhibition that we had in China at the leading show for air conditioning. And all of that validates the interest that we see from the industry, the broad industry that's all involved into cooling. Nathan Jones: Is there any update you can give us on -- I know there's some exclusivity with Trane on some products in some markets for some period of time. Is there any update you can give us on what that is. It's certainly been a focus area from investors that we've spoken to. Olivier Rabiller: I've told you that we are having discussions. And by the way, we are announcing a new project with a new customer. So that shows that we are talking to a broad industry scope with a broad industry applications. More to come when we present all of that with real hardware and you can feel and touch it because it's not PowerPoint, clearly not, when we are all in New York. But clearly, the interest goes beyond what we've announced with Trane, although we are working extremely well with Trane and we are cooperating very well. It goes beyond that. XXX Nathan Jones: And then could you say another E-Powertrain win? Is there any details you can give us on that? Talking about the size of it, potential revenue out of it. I think you said start of production in '27, but just any color you can give us on the scale and scope of this award? Olivier Rabiller: The first point, I would say it's not exactly for the same application. The first application was heavy duty. So we are talking about trucks that are more on the medium-duty side. But we are extremely proud because it really reflects that even in the most competitive market in the world, that is China when it comes to electric, our technology is really validated by customers as being a way to differentiate for themselves. We've announced the first partnership with HanDe. HanDe is the biggest player of the industry when it comes to transmissions in China and E-Axle. So that gives you a little bit of a scale. So we'll not share numbers today, but it's a very significant win for the company [indiscernible]. Operator: Our next question comes from James Mulholland of Deutsche Bank. James Mulholland: So I just want to double-click on your industrial sales for the year. Last year, you had guided to about $100 million in sales related to power gen with double-digit growth for this year. Could you give us an update on that progress? And since double digits is a pretty wide range, would you be able to put a bit of a finer point on that? Sean Deason: Yes. So with industrial, we entered -- sequentially, we saw it flat, but we expect that it is going to grow significantly. And I believe we said low double-digits, and so we -- and so that's where we would remain, low double digits. That is very significant anyway. And you see that when you look at the revenue growth bridge that we have into the financials that we published today, it is clear that there is a significant growth on commercial vehicle. Not everything is with industrial indeed, but a significant portion of it. So yes, it will keep on growing. James Mulholland: And then-- Sean Deason: And we are -- James Mulholland: Go ahead. Olivier Rabiller: No, I'm just saying and we are very happy with it. James Mulholland: Great. And then since you brought a broader commercial vehicle, recognizing that North America is more off-highway and Europe is more indexed to Class 8. We've seen some trucking manufacturers come out with pretty good numbers on orders. So could you maybe unpack a bit of what you're seeing in both of those geographies? And is there maybe a little bit of conservatism in that 1% to 2% growth for the year? Olivier Rabiller: Today, I will not relate -- today, commercial vehicle is, as you said, it's a little bit of a mixed bag of several things. So we have off-highway, and you've seen that the off-highway industry is starting to recover. There are some other people publishing results today that our customers that can give you hints about that recovery coming up. But I would say beyond that -- and we think that the recovery is probably, once it starts, it will be for -- if there is no crisis, it will be for a longer period because today, when you look at on-highway and off-highway, we are pretty much on the low point that we reach in 2024, and the industry has not yet recovered that much from that. So we are optimistic that this trend will continue. And I would say the growth that we are seeing is not only driven by Europe on-highway, it's also driven by a recovery that we are seeing on on-highway in China, which is probably more linked to share of demand gains and a significant introduction of new products that we have on that -- in that region. So your analysis is good. I'm just adding China in the mix on top of the rest. Operator: The next question comes from Jake Scholl of BNP. Thomas Scholl: First, profitability in the quarter finished towards the high end of your guidance range for the year. Could you just discuss some of the puts and takes that you see going forward? Olivier Rabiller: The puts and takes for the full year outlook? Thomas Scholl: Yes. Olivier Rabiller: Quite frankly, we are very pleased with what we see in Q1. And quite frankly, at this point in time, we have not seen a material impact of the consequences of the war in the Middle East on what we see in the company. But we are very mindful that on the one hand, we have a very nice trajectory with organic growth that we highlighted in Q1, and on the other hand, we are having a world out there that everybody is looking at and trying to understand where it goes. So one more time, we have not seen anything specific. But it would be, in my view, a little bit too bullish just to give you an outlook that is disconnected from what's happening around us. Thomas Scholl: And then could you talk a little bit more about what's driving some of your success in China? You guys have obviously seen some pretty significant wins, both through e-powertrain and e-compressor in the last few quarters. And then specifically within the e-compressor, can you talk about if there's any difference from your perspective for a liquid-cooled application like this battery storage system with HanDe or air cooling like a traditional HVAC? Olivier Rabiller: So a few dynamics. The first point is to say that when it comes to specific applications that are linked to commercial vehicle electric mobility, so think about e-powertrain for trucks and think about the announcement that we did last quarter about cooling compressor for buses. China is indeed the biggest place in the world that committed with a very high number -- that committed to a very high number of electric trucks, and that drives a lot of development and a lot of demand from customers. When it comes to the specific point of battery energy storage system, you know that the 2 biggest battery makers in the world are in China. So indeed, they are relying not only on global suppliers, but also on local fast-growing company to help them supply what they need in order to develop that battery business and battery energy system storage that we have, the battery cooling that goes on that is clearly linked to that growth. And indeed, it's happening in China, I would say, a little bit faster than anywhere else in the world as a consequence of the 2 major players being in China. But we should not think that all of that comes from China. It's just that China usually works faster and is currently into another -- technology adoption pace that is higher than what we see in the rest of the world. But remember, the first award that we presented for cooling system was coming with Trane. And then we are indeed working with many more customers around the world than Chinese when it comes to e-powertrain, whether it's for passenger vehicle and commercial vehicle. It's just that we -- the speed in China is just faster. Operator: Our next question comes from Hamed Khorsand of BWS Financial. Hamed Khorsand: So first off, these design wins that sparked this increase in sales, when did you win them? And how are you positioned in design wins now for future quarters? Olivier Rabiller: For the wins, we usually win businesses that are translating into volume, that's before we start production. So I would say, when you look at the trend we had, and we've been very consistent with that, where we say that on average, every year, we win about 50% of what's available. We know that the math between the business win rate to the share of demand doesn't go exactly 1:1. But we know that when we win constantly at that level, the share of demand of the company is increasing. And this is exactly what's happening. It was a little bit hidden 3, 4 years ago because we were having some other points that were affecting the top line at the same time when it comes to diesel going down. And you know that we've been doing a massive rebalancing and transformation in this company, moving from revenue at the time of the spin-off that was about 42%, 43% diesel to what it is today, where it's about the same amount on the gasoline side and a significant portion of that into variable geometry. So that rebalancing has probably dampened a little bit the top line. But now you see that coming, and it's all driven by the success of the wins and the programs that we are on with customers. And the trend continues. Hamed Khorsand: And my other question is on 0 emissions. Is it still too early to break it out as to what the composition of that is to total sales? Olivier Rabiller: If you are a little bit patient for a few weeks, you will know much more about it. Hamed Khorsand: Very good. Olivier Rabiller: But we will indeed disclose more information in 3 weeks. Operator: The conference has now concluded. The question-and-answer session has concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Q1 2026 Laureate Education, Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Adam Morse, Senior Vice President of Finance. Please go ahead. Adam Morse: Good morning, and thank you for joining us on today's call to discuss Laureate Education's First Quarter 2026 Results. Joining me on the call today are Eilif Serck-Hanssen, President and Chief Executive Officer; and Rick Buskirk, Chief Financial Officer. Our earnings press release is available on the Investor Relations section of our website at laureate.net. We have also posted a supplementary presentation to the website, which we will be referring to during today's call. The call is being webcast, and a complete recording will be available after the call. I'd like to remind you that some of the information we are providing today, including, but not limited to, our financial and operational guidance constitutes forward-looking statements within the meaning of applicable U.S. securities laws. Forward-looking statements are subject to risks and uncertainties that may change at any time, and therefore, our actual results may differ materially from those we expected. Important factors that could cause actual results to differ materially from our expectations are disclosed in our annual report on Form 10-K filed with the U.S. Securities and Exchange Commission, our 10-Q filed earlier this morning as well as other filings made with the SEC. In addition, all forward-looking statements are based on current expectations as of the date of this conference call, and we undertake no obligation to update any forward-looking statements. Additionally, non-GAAP measures that we discuss, including and among others, adjusted EBITDA and its related margin, adjusted net income, adjusted earnings per share, total debt net of cash and cash equivalents and free cash flow are also detailed and reconciled to their GAAP counterparts in our press release or supplementary presentation. Let me now turn the call over to Eilif. Eilif Serck-Hanssen: Thank you, Adam, and good morning, everyone. 2026 is off to a good start, and we are encouraged by the results from our recently completed enrollment intake cycles, which included Peru's primary intake and a smaller secondary intake for Mexico. Enrollment results came in line with our expectations for both markets with year-over-year new enrollment growth of 13% in Peru and 4% in Mexico through completion of the intake cycles by the middle of April. With the intakes now finalized, we have good visibility into the remainder of the year, and we are reaffirming our full year guidance for enrollments, revenue and adjusted EBITDA. We are increasing our guidance for adjusted earnings per share to reflect the $105 million in share buybacks completed during the first quarter, and we anticipate further share buybacks through the remainder of 2026 as return of excess capital remains a priority for the company. The enrollment intake results for the first cycle were in line with the macroeconomic trends we discussed during our last call for both Mexico and Peru. In addition, Peru is benefiting from continued strong penetration for our online offerings for working adult students. As a reminder, our business model is loosely correlated with economic cycles. In periods of robust GDP growth, such as the current environment in Peru, we have historically benefited from strong enrollment momentum. During a softer macroeconomic backdrop, as we are currently experiencing in Mexico, our growth tends to moderate a bit, but we are still doing well as families continue to prioritize spending on higher education due to the strong value proposition. In Mexico, GDP growth for 2026 is expected to remain relatively modest, albeit slightly better than 2025. President Sheinbaum's pragmatic leadership has helped preserve stability in the U.S.-Mexico relationship, providing for a constructive backdrop for the upcoming USMCA trade negotiations. Many economists are projecting an increase in economic activity for Mexico starting in the second half of 2026, setting the stage for a more robust GDP growth in 2027. In Peru, the economy continues to perform solidly, bolstered by robust domestic demand, new mining projects and strong commodity prices. The Peruvians just elected a new Congress, which reaffirmed a business-friendly center right majority and their presidential run-off election is set for June. Regardless of the outcome of the presidential election, Peru has historically demonstrated economic strength and stability, underpinned by strong underlying governmental institutions, a representative Congress, an independent Central Bank and a history of strong fiscal discipline. The foundation of our strong track record of performance is our mission, a mission to deliver affordable, high-quality education to prepare students for successful career and lifelong achievement while building pride, trust and respect within the communities we serve. We remain committed to transparency and accountability, measuring the outcomes that matter most and continuously improving how we track and report these results to all of our stakeholders. Earlier this month, we published our 2025 impact report. I encourage you to visit our website and download a copy to learn more about the impact of the outstanding work of our students, faculty and institutions are currently doing in their communities throughout Mexico and Peru. Let me briefly highlight some of the most important measurable outcomes we delivered. Half of our newly enrolled students are first-generation university attendees for whom a degree leads to their first professional role and a long-term economic upward mobility for their families. 9 out of 10 of our job seeking graduates secure employment within 12 months of graduation, underscoring the relevance of our programs, strong alignment with industry needs and the expertise and commitment of our faculty and staff to prepare students for successful careers. And graduates of Laureate Universities in on-campus programs recover the nominal cost of their education in approximately 3 years through increased earnings compared to high school graduates of the same age and the payback period is even shorter for working adults in our fully online programs. These measurable outcomes align perfectly with our mission, which is focused on quality, affordability and lifelong achievement. This concludes my prepared remarks, and I will now turn the call over to Rick Buskirk for a more detailed financial overview of our first quarter performance as well as further details on our 2026 full year outlook. Rick? Richard Buskirk: Thank you, Eilif. Before I discuss our financial performance for the quarter, let me provide a few important reminders on seasonality. First, campus-based higher education is a seasonal business. The first and third quarters represent our 2 largest intake periods, which traditionally account for approximately 80% of our total new enrollment activity for the year. From a P&L perspective, both are seasonally low periods as classes are out of session for most of those months. In contrast, the second and fourth quarters are not large enrollment intake periods, but generate higher revenue and adjusted EBITDA for the year. In addition, in terms of seasonality for 2026, we will have some intra-year calendar timing as outlined on Slide 22 in our presentation. For the first quarter specifically, approximately $9 million of revenue and related profitability is expected to shift out of the first quarter to the second half of the year. As I review our operating results for the first quarter, I will provide some additional color on these and other timing-related impacts and discuss enrollments in context of the cycle completion through mid-April. Let me now move to the operating and financial performance for the first quarter, starting on Page 11. Enrollment results for the cycle were in line with our expectations in both markets. New and total enrollment volumes increased 9% and 6%, respectively, through completion of the intake cycle in April as compared to the corresponding intake period in the prior year. Revenue in the seasonally low first quarter was $273 million with adjusted EBITDA of negative $2 million. Both metrics were ahead of the guidance provided 3 months ago due to favorable FX rates as well as some timing of expenses, which benefited adjusted EBITDA. On a constant currency basis and adjusted for the academic calendar shift discussed earlier, revenue for the first quarter was up 5% year-over-year and adjusted EBITDA was essentially flat, with a slight $2 million decrease from prior year due to timing of expenses and investments for new campuses in a low seasonal quarter. First quarter net loss was $22 million, resulting in a loss per share of $0.15. First quarter adjusted net loss was $24 million and adjusted loss per share was $0.17. Given some timing items affecting both revenue and adjusted EBITDA for the quarter, we are providing an outlook for both the first half and second half of 2026 to help investors better understand the trend line in the business. I'll discuss that a bit further when we review guidance in a few minutes. Let me now provide some additional color on the performance of Mexico and Peru, starting with Page 13. Please note that all comparisons versus the prior year quarter are on a constant currency basis. Let's start with Mexico. The first quarter reflects a smaller secondary intake as Mexico's primary enrollment cycle occurs in September, aligned with the Northern Hemisphere calendar. Mexico's new and total enrollments increased 4% versus the comparable intake cycle period through April in the prior year. These results are a continuation of the performance we saw during the primary intake last September and are aligned with the softer macroeconomic conditions we are currently experiencing in that market. Overall, pricing for the intake was in line with inflation for our traditional face-to-face programs. We were a little less aggressive with pricing for online, but still with an increase year-over-year as we continue to focus on driving strong volume growth in those programs. Adjusted for academic calendar timing, Mexico's first quarter revenue increased 2% versus the prior year period, with volume growth offset by timing of other revenue items. Revenue growth in Mexico for the first half of the year is expected to be fairly consistent with guided total company growth rate expectations for the year as those timing items will wash out in the second quarter. Adjusted EBITDA was down 16% year-over-year in the first quarter, largely reflecting the out-of-session period, investments in new campuses and other timing items. Let's now transition to Peru on Slide 14. The first quarter represents the primary intake for Peru as they are a Southern Hemisphere institution. Peru's new enrollments increased 13% versus last year's comparable intake led by strong growth in working adult-focused fully online programs. Total enrollments were up 8% for the cycle. The rapid scaling of fully online offerings will drive the majority of our enrollment growth in Peru this year as our series of planned new campus launches for face-to-face students won't start to ramp until 2027 and beyond. As discussed in our prior call, this will create a price mix impact on average revenue per student in 2026, resulting in similar revenue and volume growth rates this year in that market. Pricing during the intake was largely in line with inflation for traditional face-to-face programs. For online programs, given that we are still in an early-stage market, we are keeping prices relatively flat for the time being as we continue to focus on scaling that business and further enhancing our market-leading position. Adjusted for timing of the academic calendar, Peru's revenue for the seasonally low first quarter increased by 13% versus the prior year period and was aided by timing of other revenue during the seasonally low quarter. Adjusted EBITDA for the quarter was negative $35 million as Peru is out of session for most of the quarter as it is in their summer period. Adjusted for timing of the academic calendar, this represents $5 million improvement versus the prior year period. Let me now briefly discuss our balance sheet position. Laureate ended March with $217 million in gross debt and $157 million in cash for a net debt position of $60 million. Our balance sheet remains strong. During the first quarter, we repurchased $105 million of stock and at quarter end had $76 million remaining under our stock repurchase authorization. Supported by a strong balance sheet and our cash accretive business model, we remain committed to continuing to return excess capital to shareholders. Moving on to our outlook for 2026, starting on Page 18. We remain excited about the growth opportunities in Mexico and Peru and expect continued operating momentum in both markets during 2026. Following the results from our recently completed intake, today, we are reaffirming our guidance for total enrollments, revenue and adjusted EBITDA and are increasing our adjusted earnings per share guidance by $0.05 per share to reflect the impact of share repurchases during the first quarter. We did recognize a slight foreign currency translation benefit versus expectations in the first quarter, but are maintaining our existing FX rate assumptions for the year given some of the recent volatility in currency rates caused by global events. With that context, let me now move to our guidance ranges. Based on our assumed FX rates, we expect full year 2026 results to be as follows: total enrollments to still be in the range of 516,000 to 521,000 students, reflecting growth of 4% to 5% versus 2025. Revenues to be in the range of $1.890 billion to $1.905 billion, reflecting growth of 11% to 12% on an as-reported basis and 6% to 7% on a constant currency basis versus 2025. Adjusted EBITDA to be in the range of $583 million to $593 million, reflecting growth of 12% to 14% on an as-reported basis and 7% to 9% on a constant currency basis versus 2025. This would result in an increase in adjusted EBITDA margins of approximately 50 basis points at the midpoint of guidance on a reported basis. For 2026, we expect adjusted EBITDA to unlevered free cash flow conversion of approximately 50% on a reported basis, supporting our continued emphasis on return of capital to shareholders. Adjusted earnings per share guidance for 2026 is now expected at $2 to $2.08 per share, reflecting growth of 16% to 21% versus 2025 on a reported basis. This guidance reflects a diluted weighted average share count of approximately 141 million shares, incorporating the impact of share repurchases completed during the first quarter. Now moving to guidance for the second quarter implied first and second half of the year. For the second quarter of 2026, we expect revenue between $597 million and $601 million, adjusted EBITDA between $239 million to $243 million. This would result in first and second half of 2026 trends as shown on Slide #26. Let me just highlight a few points. Constant currency revenue growth rate expectations for the first and second half of the year are pretty similar with a slight uptick in the second half as we expect to start to see some macro recovery in Mexico. From an EBITDA perspective, you will note that our margin accretion is weighted towards the second half of the year. That is resulting from timing of investments as well as the new campus for Mexico that will open starting in September. That concludes my remarks. Eilif, I'm handing it back to you for closing comments. Eilif Serck-Hanssen: Thank you, Rick. The key points of promotable differentiation for Laureate are our leading brands, strong culture of innovation and student centricity and track record of delivering quality education at scale. These assets drive our long-term value creation for all our stakeholders. I'm honored to be part of an organization so deeply committed to expanding the middle class in Mexico and Peru through high-quality, affordable higher education. I extend my sincere gratitude to the faculty and staff, past and present, whose dedication has been essential to our success. Operator, that concludes our prepared remarks, and we are now happy to take any questions from the participants. Operator: [Operator Instructions] Our first question comes from the line of Jeff Silber of BMO Capital Markets. Ryan Griffin: This is Ryan on for Jeff. The new enrollment in Peru was really solid this quarter. I understand it was within your expectation, but certainly a lot better than ours. Wondering if it gives you a little bit more tension towards the upper end of the enrollment range. Eilif Serck-Hanssen: This is Eilif. Yes, we are very pleased with the performance in Peru. It's driven by our focused effort to penetrate the fully online working adult market as well as benefiting from robust macro conditions in Peru. But we have really -- over the last 18 months -- 18, 24 months, we have launched a broad suite of fully online products. We have done a great job in executing operationally to deliver quality experience for our students. And our commercial efforts has also really resonated with the consumers given the convenient product and the strong value proposition. Ryan Griffin: And then just for a follow-up, has your view on the macro changed at all since last quarter? And has the recent geopolitical volatility in the U.S. dampened the consumer in Mexico and Peru at all? Eilif Serck-Hanssen: No, not really. I mean the Peruvian economy is really driven by natural resources, mining, farming, fishing, tourism and a very broad set of trading partners, both the Americas, Asia, China and Europe. So that has benefited from really stable macro conditions. And Mexico is more closely tied to the U.S. The U.S. has also been fairly resilient given some of the geopolitical challenges. And we are seeing improvements in GDP. We are seeing improvements in consumer confidence, and we are seeing improvement in employment, albeit all at relatively small marginal magnitudes, but the trend lines are encouraging. Operator: Our next question comes from the line of Marcelo Santos of JP Morgan. Marcelo Santos: I have two. The first is the expansion of online education in Peru, how is that going through the market? I mean it's a new -- recently new development? And how is market discipline around it? Like where you see your competitors? You commented on what you're doing, but I just want to know how the market is behaving. The second question is like your student enrollment outlook is ahead of what you posted in the -- is below what you posted in the first quarter, right, and what you're promising. Is that because you expect kind of a slowdown in Mexico? [Technical Difficulty] That would be my questions. Eilif Serck-Hanssen: This is Eilif. Marcelo, I'll start with the Peru online market and then Rick will take the guidance and the enrollment outlook. In terms of the online performance in Peru, very consistent with what I shared with Ryan in the prior question. The market is responding very favorable to our product offering. Of course, we are seeing competitors launching similar products, following our lead. But the market is very disciplined. This is fully online offering is really dedicated for the working adult 25 to 50-year-old students. It's largely driven by degree completion. There is no meaningful cannibalization between the working adult students that want a fully online experience versus young students who want and need a campus experience where they are supervised by faculty and staff and collaborating and getting durable life skills in addition to the academic experience on the ground. So I view the fishing pond, so to speak, between the young students in the campus setting, very distinct and separate from the fully online offering which are providing enormous convenience and flexibility for the working adult students. Richard Buskirk: Yes. And Marcelo, just -- this is Rick. Just to comment on -- we still feel on the enrollment expectations for the year and the full year. We still feel comfortable with the guidance on the full year of 4% to 5% revenue growth. Yes, on a weighted basis, we were higher in the first intake this year, but that is driven by Peru, and we still have the secondary impact or the impact from the primary intake of Mexico in the second half. So when you weigh those together, we're still looking at the enrollment volume growth of 4% to 5%. The only other data point that I would add to you is the growth, we're very pleased, as Eilif said, with the trend rate of expanding and fully online. Fully online does come with a higher attrition rate as expected and will create a bit of a difference between our new enrollment and our total enrollment growth for the full year relative to some of our historical trends. But overall, very positive, and we feel very comfortable about our enrollment outlook for the year. Operator: [Operator Instructions] Our next question comes from Lucas Nagano of Morgan Stanley. Lucas Nagano: First question is about the intake in Mexico. If it's fully comparable in terms of campuses. How much of the 2% intake growth was due to the UNITEC campus launch and how much was dragged by the closure of UPN campuses? Eilif Serck-Hanssen: Lucas, at C1 in Mexico, the intake -- the first quarter intake in Mexico is a secondary intake. So it is primarily non-traditional students, so largely working adults. So a big portion of it is online. So the growth really is -- you can view it essentially all as organic. Lucas Nagano: Got it. And about the 50 basis point increase in margin outlook, is it more concentrated in Mexico, Peru or both? Because Mexico may have some more opportunity to raise margins as the new campus matures, but Peru may -- we think it may experience some benefit from online. Richard Buskirk: This is Rick. We expect -- in short, we expect margin expansion in both markets. We expect margin expansion in Peru. Peru ended the year last year right at about 40%. So you will see some margin accretion happen in that market as well as Mexico, we do expect to continue to expand our operating leverage, as we've talked about in the past and see margin expansion in Mexico. That's despite the fact that we are investing in new campuses that do have a drag -- slight drag of 50 basis points in Mexico, we're still able to beat that drag and expand margins. So we feel very good that we'll get expansion in both markets. What you will see, as we called out in the script, is you will see on top of what I just mentioned on a segment level, that margin expansion will largely come in the second half as we are making investments in some of these new campuses, including Puebla that will launch in the second half, and we're not generating revenue off. So you'll see more revenue expansion come in the second half of the year versus the first half. Eilif Serck-Hanssen: So I would just supplement that by saying, had it not been for the new campus investments largely in Mexico that we are launching this year, the campus -- the EBITDA margin expansion instead of being 50 basis points would have been 75 basis points. And that delta of 25 basis points is largely attributable to Mexico. So we're seeing continued margin expansion opportunity in Peru from scale, and we are seeing significant margin opportunity in Mexico, both from scale and continued operational efficiencies. Operator: Thank you. I'm showing no further questions at this time. I'd like to thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Hello, everyone, and thank you for joining the Butterfly Network's Inc. Q1 2026 Earnings Call. My name is Gabrielle, and I will be coordinating your call today. [Operator Instructions]. I will now hand over to your host, John Doherty. Please go ahead. John Doherty: Good morning, and thanks to all of you for joining our call today. Earlier, Butterfly released financial results for the first quarter ended March 31, 2026. We also provided a business update. The release, which includes a reconciliation of management's use of non-GAAP financial measures compared to the most applicable GAAP measures is currently available on the Investors section of the company's website at ir.butterflynetwork.com. I, John Doherty, Chief Financial Officer of Butterfly, along with Joseph DeVivo, Butterfly's Chairman and Chief Executive Officer, will host the call this morning. During today's call, we will be making certain forward-looking statements. These statements may include, among other things, expectations with respect to financial results, future performance, development and commercialization of products and services, potential regulatory approvals, revenue attributable to embedded partnerships through revenue share, ship purchases or otherwise and the size and potential growth of current or future markets for our products and services. These forward-looking statements are based on current information, assumptions and expectations that are subject to change and involve a number of known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those contained in the forward-looking statements. These and other risks are described in our filings made with the Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, and the company disclaims any obligation to update such statements. As a reminder, this call is being webcast live and recorded. To access the webcast, please visit the Events section of our investor website. A replay of the event will also be available on this page following the call. I would now like to turn the call over to Joe. Joseph DeVivo: Thanks, John. So before I begin, I want to take a moment to congratulate our Board member, Dr. Erica Schwartz on her nomination to serve as this country's CDC Director. The entire Butterfly family is proud of her and we remain grateful to have her as a valued member of our Board. We've been so fortunate to benefit from her insight, leadership and friendship for the past 5 years. She has certainly contributed to where Butterfly is today. So with that, I'm pleased to welcome you to our first quarter call this year and to share that we've been making real progress across every facet of our business. Our plan to become the leader in point-of-care ultrasound is firmly established. And the market is moving towards a system-wide understanding of the power Butterfly can bring. Butterfly opened 2026 with another strong financial performance, 25% revenue growth, 69% gross margin and the lowest first quarter net loss since going public, all while maintaining a very strong balance sheet to support future growth. This performance shows our momentum regardless of the environmental noise. And it's an indicator of what's ahead as we continue to make meaningful progress across every phase of our business and I'm excited to walk you through our updates. Butterfly is in the middle of the digital transformation of imaging, driven by the power of semiconductors and ultrasound. We are beginning to experience the convergence of massive computational power, artificial intelligence and the incredibly customizable digital visualization, which can disrupt not only imaging and health care, but far beyond. We are living through a profound moment of technological acceleration, one that health care has been waiting for, the merge of intelligence with the human body through smart ultrasound form factors that can live with every person everywhere. It starts with our core POCUS business, empowering every doctor and nurse with a powerful digital imaging device, connected to an ecosystem of AI applications, education and data to deliver immediate clinical care wherever the patient is in the world. We are excited to be the first company ever to earn FDA clearance of a blind sweep AI tool, which in 2 minutes can determine the age of a fetus. You may have seen this circulating on either LinkedIn or X. But we were very proud that the FDA itself highlighted our clearance publicly on social media as a meaningful demonstration of their increased focus on AI-enabled technologies and how to do it correctly in partnership with them. I have reposted it if you want to go to my account and find it. The GA tool is a true reflection of our mission. Each year, millions of women around the globe enter pregnancy without a reliable way to determine gestational age. In global, rural or emergency settings, patients often enter care not knowing key dates due to lack of prior prenatal care or are unable to verbalize them due to their condition. Without accurate gestational age, clinical decision-making becomes more complex as each stage of pregnancy requires different treatment pathways. Now, clinicians can determine gestational age quickly and with a high degree of accuracy using our GA tool that's built on deep learning models from Dr. Jeffrey Stringer's team at the University of North Carolina and trained on over 21 million images. Butterfly is now in the process of launching this tool to those who need it most in the U.S. and many global health settings that rely on FDA regulatory pathways. Moments like this demonstrate the strength of Butterfly's architecture. With a single cloud-based software update similar to how a smartphone is updated, we can push this capability to existing users anywhere cleared in the world. The GA tool is expected to unlock new relationships with ministries of health across developing countries, moving beyond the idea of democratizing health care to actually delivering on it. AI applications that give local caregivers access to advanced diagnostics will be the most powerful accelerator of handheld point-of-care ultrasound. Whether developed internally or through our partners in the Butterfly Garden, these applications can make the complex simple and expand access to patients in highly scalable and cost-effective ways. This quarter, 2 new partners joined to develop in the Butterfly Garden, bringing the portfolio total to 30. Four of our existing partners have received FDA clearance for versions of their software. Most recently, Deepecho received breakthrough designation from the FDA and expects clearance of a robust prenatal AI application potentially by the end of this year. We anticipate iCardio going live with an FDA-cleared model this year, beginning of next year as well. And we are very pleased with the progress HeartFocus is making following its launch of a clinical app late last year. We believe all of these applications, combined with Butterfly's internally developed capabilities will become the largest, most powerful AI-powered ultrasound library in the industry. Over the next 3 years, we expect this to drive a meaningful inflection in probe utilization and overall system adoption. So continuing with POCUS, our Compass AI launched last quarter is showing early success. Our pipeline of software deals measured in total contract value is up sharply from the first quarter of 2025, serving as an early indicator of meaningful enterprise adoption in 2026. We have already closed our first enterprise deal this quarter and are seeing strong momentum, including a 7-figure software TCV deal with a customer committing to the long-term Compass AI road map. In addition, medical schools are accelerating one-to-one adoption with nearly 1,000 probes sold so far this year across 6 institutions and more programs coming online. These efforts are supported by continued advancement of our already robust enterprise security posture with recent milestones, including HITRUST r2 certification and entry into the FedRAMP marketplace as in process with VA sponsorship, further enhancing our ability to support large health systems and expand into federal opportunities. Over the next few quarters, we expect to further the global scale of our POCUS business continuing to open multiple new markets across the Americas and Asia, including some of the largest and fastest-growing POCUS markets like Brazil. At the same time, we've been working to expand iQ3 availability to over a dozen additional countries already in our regulatory pipeline. So moving to Home. Now officially named Butterfly Home and Community Care, we are making important progress. We expect now our first commercial agreement to be signed in the first half of this year and begin training nurses to support patient scanning across our full state in the third quarter. We believe this model can expand significantly across the United States in 2027 and represents a foundational shift in how care is delivered. It enables at-risk providers to take control of patient outcomes with AI-powered diagnostics, reducing unnecessary hospital visits and improving system efficiency. I'm very proud of our team for maintaining their focus and skilled execution in building this business. So lastly, I'd like to briefly update you on our efforts regarding the RoHS Lead Exemption for handheld ultrasound. We filed an application to revoke this exemption last year, which currently allows the continued use and disposal of toxic materials in lead-based piezoelectric crystal handheld ultrasound in the EU. The commission engaged a third party named OKYO to review the exemption request and make a recommendation. And through this process, they confirmed CMA to be a technically viable alternative, meaning they have met or exceeded the capability of incumbent technologies. OKYO ultimately recommended reapproval of the exemption, but only for 2 years. This is important because exemptions can typically span anywhere from 2 to 7 years. And therefore, OKYO opted to recommend the lowest possible term for an exemption following its review of our request. We believe that during these 2 years, the EU will gain the understanding they need to revoke the lead exemption for handhelds, including greater awareness, viable alternatives to piezoelectric crystals and handheld ultrasound devices and clarity that replacing piezo handhelds will not present an impediment to health care delivery, but rather introduce a more digital and more effective delivery of medicine. We understand the complexity of disrupting established industry practices, but believe the EU has gained significant insights into the existing of a viable alternative and meaningful progress is being made. So I'll save our embedded update after John's comments. I would now like to turn it over to John. John? John Doherty: Thanks, Joe. Butterfly continued its solid and focused execution in the first quarter of 2026 with an increase in revenue driven by double-digit growth in both our core and embedded businesses, an increase in gross margin and continued improvement in operating performance with further reallocation of resources towards higher ROI opportunities and markets. Let me touch on a few highlights in the quarter that demonstrate this, including revenue attainment that was above consensus, continued gross margin improvement, adjusted EBITDA that was above consensus and our guidance range with improvement driven by our revenue performance, higher gross margin and continued financial discipline. Growth in probe sales of 5% and an increase in the mix of iQ3 devices driving an 11% improvement in ASP year-over-year. The expansion of the Butterfly Garden platform as well as the inclusion of the GA tool in our latest software update, execution of a large 7-figure TCV Compass AI contract with a growing pipeline in this area that Joe mentioned upfront and the expected commercial launch in an initial state with a major U.S. direct care provider to support in-person, virtual and in-home health care services. With that, let me move on to our results. We started the year strong with revenue of $26.5 million, an increase of 25% year-over-year. Our growth was primarily driven by strength in our U.S. health, international and vet channels, a higher mix of sales of the iQ3 year-over-year, driving a higher ASP and from Butterfly Embedded. Breaking things down between the U.S. and international channels, during the first quarter, U.S. revenue was $21.4 million, which was 25% higher year-over-year, driven by revenue from Embedded as well as solid demand in the core business with unit sales up 5% in what is typically a slower quarter due to seasonality. Total international revenue increased by 23% year-over-year to $5.2 million in the quarter. While sales of the iQ3 in the quarter were up 39% year-over-year, sales of the lower-priced iQ+ were down 43%, driving the increase in ASP. With the increasing contribution from Embedded today and going forward, I'm going to provide you with a revenue split between our core business and Butterfly Embedded. We have also included this split in our 10-Q. The core business includes probe sales and related software, Compass AI, other services and in the future Home. Embedded revenue currently includes onetime NRE payments, annual license fees, revenue from SOW-driven development work and chip sales to Embedded partners. With that, core revenue for the first quarter was $20.8 million, an increase of 10% versus the first quarter of 2025. This increase was driven by growth in volume and price with a higher mix of iQ3 sales, which strength in U.S. health, international, e-com and vet. Butterfly Embedded revenue was $5.7 million, an increase of 147% versus the first quarter of 2025. This increase was primarily driven by the Midjourney partnership. Moving on to gross profit. Gross profit was $18.3 million in the first quarter, a 37% increase as compared to the prior year gross profit of $13.4 million. Gross profit margin percentage increased to 69% from 63% in the prior year period, an increase of 9%. Gross margin percentage was positively impacted by the higher-margin Butterfly Embedded revenue and the higher mix of iQ3 and its higher selling price, along with lower software amortization. Moving to EBITDA and cash. For the first quarter of 2026, adjusted EBITDA loss was $6.1 million compared with a loss of $9.1 million for the same period in 2025, an improvement of 32%. The improvement in adjusted EBITDA loss in the first quarter was driven by contribution from higher-margin revenue and continued financial discipline. Our cash and cash equivalent balance, excluding restricted cash at the end of the first quarter was $138 million and the use of cash in the quarter was $12.5 million. This compares to a use of cash of $14.7 million in the prior year quarter, an improvement of $2.2 million or 15%. These results continue to demonstrate that we are very well positioned as we move forward to continue to invest in the business in areas where we see significant opportunities for additional growth and disruption, including expanding our POCUS business and penetration of Compass AI as a core operating system for health systems, empowering third-party development through Butterfly Garden to accelerate adoption of our platform, expanding our Home and Community Care business into its commercial phase. Enabling a new wave of ultrasound-on-chip technologies through Butterfly Embedded and continuing AI and semiconductor innovation with the development of our fourth-generation chip. Before turning to guidance, I want to update you on the global macroeconomic environment relative to Butterfly. We continue to monitor the war in the Middle East and the ripple effects on the global economy as well as tariffs in certain markets. While there are some impacts to our business, they have been minor. And we continue to manage through it and make the appropriate adjustments. Our first quarter 2026 results are indicative of this. And our second quarter and full year 2026 guidance include any expected impacts. I would now like to turn to our outlook for the second quarter of 2026 and for the calendar year ending December 31, 2026. In the second quarter, we expect revenue in the range of $27 million to $31 million or a year-over-year increase of 24% at the midpoint. We expect an adjusted EBITDA loss in the range of $6 million to $8 million. For the full year 2026, we are reaffirming our guidance for both revenue and adjusted EBITDA. We expect revenue to be between $117 million and $121 million, an increase of approximately 20% to 24% over 2025. We expect our adjusted EBITDA loss to be between $21 million and $25 million. As I mentioned previously, our guidance for adjusted EBITDA in the second quarter and full year includes increased investment in key areas to support continued innovation and revenue growth in our core business and our emerging Embedded business for 2026 and beyond. In summary, we had a strong start to 2026. We came in above the midpoint of our revenue guidance and we beat our adjusted EBITDA guidance. We believe we are very well positioned for the balance of 2026. As our 2026 full year guidance indicates, we look forward to continued growth this year and beyond. Our overall outlook on the business is positive with the first quarter reinforcing our view. We continue to be focused on gaining share in 2026 through deeper penetration of existing customers, new customers and applications. We also continue to be focused on enhancing our existing and developing new partnerships, leveraging our ultrasound on-chip platform. We continue to be excited about the potential of Butterfly Embedded and our licensing and related revenue opportunities. The business is getting stronger, with core focus generating new revenue opportunities in addition to probe sales through Compass, Garden and Home and the potential of Butterfly Embedded. This is happening while we continue our intense focus on driving operating efficiency across the business and return on investment. I continue to be excited about what is ahead for the company in 2026 and beyond. Now, let me hand it back to Joe for some closing comments. Joseph DeVivo: Thanks, John. Ultrasound has many use cases, which are growing rapidly in both scientific and clinical importance. As I mentioned last quarter, if you scan publications in nature over the past year, you'll find a body of literature growing around functional ultrasound. These applications are ranging from neuro imaging and brain computer interfaces, biosensing and targeted drug delivery to wearable monitoring and autonomous robotic procedures, just to name a few. Who was once a diagnostic modality is aspiring to become something far more powerful. It's becoming a dynamic interface with biology itself. As I mentioned at the start, what is driving this shift now is the convergence of massive computational power, artificial intelligence and a new class of digital imaging systems. For the first time, imaging is no longer static. It's becoming adaptive. It's becoming intelligent. It's beginning to learn. There is only one company in the world that has commercialized ultrasound at scale through a fully digital semiconductor-based system that is infinitely programmable. That's Butterfly. Our traditional piezoelectric crystal, well, they're fixed. They transmit and receive in a fixed way. But our digital ultrasound is fundamentally different. It can transmit and receive signal, interpret what it sees through powerful compute and AI and immediately adjust how it transmits and receives again. It creates a closed-loop system where sensing, thinking and acting are happening continuously in real time. This is the beginning of imaging systems that do not just observe the human body, but will integrate into it. Over time, these systems will move from episodic use into continuous presence, embedded into workflows, into devices and eventually into everyday life. This is where imaging, computation and biology converge into something entirely new. Butterfly is at the center of this convergence, which is becoming increasingly evident in the brain computer interface space. Our chip is uniquely well suited for this application given their programmable architecture, ability to both transmit and sense with precision and tight integration with software compute and AI. This is exactly where our Apollo platform is headed. By extending this foundation, we are building a platform that combines the ability to image and stimulate through software and enable new classes of applications beyond traditional handheld imaging. We are investing strategically in the talent, the partnerships and the platform to lead in this new category through Butterfly Embedded, which we introduced last quarter as a rebrand of Optiv. Embedded is being led by Dr. David Horsley, a proven innovator in MEMS and semiconductor systems. And we are furthering our engineering and commercial capabilities required to engage with the most important technology platforms in the world. Establishing the Embedded business with intentions of building a team in San Francisco is a critical step in extending our platform into the broader technology ecosystem. The early traction in Embedded is very promising. We signed our ninth partner this month and expect to add at least 2 more mid-year. And these are not just incremental relationships. They represent the early formation of a new market where ultrasound becomes a native capability inside other systems and we are just getting started. Speaking of transformative platforms, we are very excited about the progress we are making with Midjourney and look forward to them unveiling their solution when they are ready. It is clear to us today that the Apollo chip will be a major catalyst of revenue growth for Butterfly. Not only will it usher in the next wave of AI in image processing and enhancement as well as on-device AI compute for POCUS. Our partners want the processing speed it will provide given the massive amount of data they intend to generate. As I mentioned, not only will Apollo have the more powerful MEMS elements that enable harmonic imaging, it will be able to process 20x the data of the chip that we will launch next year to 5.1. This new architecture is being designed into very sophisticated future systems that stream real-time ultrasound data straight into the GPU memory, providing the ability to process a massive amount of image data far exceeding today's standards. We also have identified versions of the Apollo architecture, which can be modified to meet some of the largest future use cases known today. When you step back and look at Butterfly today, you see 3 engines of growth that are beginning to reinforce each other. Point-of-care ultrasound is scaling across health systems globally. Home and Community Care is expected to extend that capability directly into the patient environment, changing how care is delivered and paid for. And Embedded extends Butterfly beyond stand-alone devices by integrating ultrasound as an AI-enabled sensing platform into entirely new applications across health care and adjacent markets. Together, these are not separate businesses. They are all playing a key role in leveraging our unique ultrasound-on-chip ecosystem. Over the next 3 years, we are not just expecting growth. We are entering a period of transformation. As these systems mature and converge, they will unlock new behaviors, new standards of care in entirely new markets that do not exist today. What has historically been episodic, expensive and limited will become continuous, intelligent and broadly accessible. We believe this shift will fundamentally change how the world interacts with imaging with health care and ultimately with the human body itself. Over the next 3 years, we expect this convergence to materially expand our addressable market and drive a step change in utilization, which we believe will be reflected directly in revenue growth and operating leverage. This is the moment where decades of scientific progress meet the scale of modern compute and the power of artificial intelligence. And when that happens, change does not move linearly. It moves exponentially. We believe Butterfly can become the default imaging and sensing layer for the human body. Butterfly is positioned at the center of this shift. Importantly, we are building this with discipline, maintaining the strength of our balance sheet. So our investors can fully participate in the value creation ahead. So this call marks my third anniversary with Butterfly. The last 3 years, we were focused on building a framework for success and the foundation to execute. The next 3 years are about running fast, scaling revenue into the future and being the company to enjoy the full potential of what we've built. We are in a new era where imaging becomes intelligent, adaptive and ever present, where it moves closer to the patient becomes part of everyday care and ultimately becomes part of everyday life. We are incredibly excited about what lies ahead. This is only the beginning. With that, operator, please open it up for questions. Operator: [Operator Instructions] Our first question is from Chase Knickerbocker from Craig-Hallum Capital. Jacob Soucheray: This is Jake Soucheray on for Chase. It seems like the one-to-one partnerships are going well. Can you speak to any progress made with the med schools so far in the second quarter and how that compares to prior years? Joseph DeVivo: Well, the second quarter is happening right now. Usually, the second quarter is our biggest medical school quarter given that their fiscal year ends on June 30. And so yes, I mean, this is -- we had a good first quarter with medical schools. We'll have a very good quarter in the second quarter with medical schools. And the key for us is continuing the momentum to convince them that every student when they come in, should have their own probe. There are 100,000 medical students in the United States, 25,000 enroll every year. And that is an opportunity if it extended to every school of doubling the amount of probes we sell every year. So we are -- we have very good relationships. We just had weeks ago, the e-com meeting with a lot of people participating in our Lunch & Learn and or AACOM, meeting. And the relationships, the momentum is all growing. So I'd expect our medical school activity to be very positive in the second quarter. Jacob Soucheray: And then I'd like to hear some more color on the Compass AI enterprise deal. How did that process go? Can we expect more of these partnerships materially contributing to revenue in the rest of the year? Joseph DeVivo: Yes. As I said in the prepared remarks, we -- our pipeline has like clicked up. It's -- I think the word in the script was it was up a sharp increase. We're seeing a lot of activity, a lot of receptivity in the innovation that we brought to the platform plus just the general market building. So our pipeline is up pretty big. And if the pipeline is up pretty big, then that's an indicator, the enterprise sales will follow. So I'd expect this to be a very good enterprise year. I'd expect this to be a very good Compass AI year. I think we hit the mark with making this easier for clinicians, faster to document. There's a lot of other tools that we're building. So very, very good start. Operator: Our next question is from Josh Jennings from TD Cowen. Joshua Jennings: Congratulations on the strong start to the year. Exciting times. I appreciate the download and Joe, you're sharing your enthusiasm on all the progress in the future. I wanted to ask about Butterfly Embedded as 9 companies in the portfolio. It sounds like there may be other partnerships on tap. I don't know if there's any way to help us think about the pipeline and any qualitative or quantitative help thinking about it just in terms of -- I mean, should we be thinking that there are more Midjourney type deals on tap, a mix? Any more color on that Embedded partnership portfolio and pipeline would be great to hear. Joseph DeVivo: That's a great question, Josh. It's good to hear from you. Thank you. So I guess the way I'd put it is every time we add a partner, we're adding the opportunity of developing an entirely new market segment, an entirely new market segment where we are embedding our technology and their technology and they have a vision to be able to grow and grow and invest. And so each new partner is an opportunity to create significant leverage for Butterfly. And it really depends upon where the stage of the idea is and where the stage of the company is. These companies are developing these new technologies. And they also want to keep it secret. They're not looking to give breadcrumbs to their competitors. And they're looking to do their development. So it is a very delicate balance for us where we're a public company. We need to be able to communicate our progress. And we try to do the best we can to frame the progress to give you the understanding of what's happening without getting any trust from our partners. I mean even the Midjourney deal, as we discussed, was never announced, just a press release. We had to do an 8-K because it was a material deal. But they want to be able to announce and communicate when they're ready. What I will say, because I know what you're getting at is you're asking if any one of these deals that we are working on could potentially have the financial impact in the near term that a Midjourney deal could have? And I would say yes. We are working on opportunities that could present similar type of near term. I think each one of these are different. Each of them are different companies, different markets and different phases. But sometimes a company comes in and they don't want to invest this type of work unless they have the opportunity to be exclusive in their area. And the exclusivity is what they're paying for. And I would say, yes, there are conversations that we are having that could replicate a Midjourney type of transaction. Joshua Jennings: Appreciate that. And maybe a follow-up just on the update on the Home and Community Care channel, commercial agreement first half, initial statewide deployment in 3Q. I was hoping to better understand your vision of -- or how you envision this playing out? I mean, is the initial statewide deployment of a commercial pilot and then build from there? Or how do you -- how should we be thinking about the contributions from that Home and Community Care channel state by state over the next 6, 12, 24 months? Joseph DeVivo: No problem. It's a very good question again. So as we had communicated in the past, we had conducted a pilot and it was, let's call it, more of a feasibility pilot where our partner wanted to see if this would work. And as we communicated in the past, I think there's about 100 patients that went through the protocol. And we saw a meaningful reduction of admissions and readmissions into the hospital. And so we were able to, in that feasibility work show that this conceptually could be very valuable. And so now we're on to the next phase, which is our first commercial agreement. And if we get everything done, which we expect will now with the activity in place, be done by the first half of the year. That will then have us now operating with the teams commercially. And instead of just into a controlled pilot, it would be into a real-world setting where there would be education, there would be daily interaction through our platform. And then there would be the ability to measure outcomes. And if that commercial -- the initial commercial stage continues to show the type of economic benefit that the initial pilot stage and it's only logical to believe that we would expand through more states. And we would expand throughout the entire country. And so that's what our goal is for 2027. So for 2026, we want to get the first state up and running. We want to show this is operational. We want to show this is incremental. We want to show this is profitable. We want to show it's better for patients. And the overlying narrative here by teaching nurses who are at the bedside, caring for these patients every day, how to use AI to help do a scan that they were not classically trained to do, but to do a scan that now allows for a specialist to give expert opinion to that patient where they are is a completely disruptive new model. The alternative is just simply waiting until they get sick enough where you have to send an ambulance to the skilled nursing facility, transport them to the hospital. We will care them up to radiology, do a cardiac echo, get them into the hospital, give them diuretics, monitor them and then send them back home. So we send them back to the facility via that same ambulance that's up in there. That is not an inexpensive. That is not efficient. And that is not welcoming to our health care system or what is best patient care. Being able to have that expert cardiology cardiologist opinion to happen real time, to have the data extracted real time to allow a lower cost health care professional to capture that image and be able to get that opinion within 24 hours and change the care for that patient and dial them in better, faster is a significant reduction in the overall cost of health care. And it's just the beginning because we're talking now about managing congestive heart failure patients. But what about patients with bladder infections or we can do 3D bladder scans, wake in and there. They can do one after the other while they're with the patient. With all these new AI tools we're talking about, there's a flywheel here. There could be -- now, for example, they can test for a deep vein thrombosis. They can test for a pleural effusion. There's all different types of things. Now this is not just about creating a single revenue line in these facilities. It's about accelerating the evolution of handheld ultrasound at the patient bedside by not just selling a probe, but by teaching them how to perform the application and being there with them and creating the linkages between them and expert clinical care and then being there to also measure those outcomes. This is a very, very big deal because what this will do is help accelerate the flywheel of adoption and in its core. So I'd expect to see some revenue contribution in the second half of 2026. And then I'd expect us to be successful. And I expect us to go more and more states and to start to build revenue, very positive growth in 2027. Operator: Our next question is from Andrew Brackmann from William Blair. Andrew Brackmann: Maybe just a follow-up to Josh's first question. I just want to follow up to Josh's first question. So can you maybe just sort of talk to us about the life cycle for the Embedded partnerships? Just how do these typically start? When is that aha moment? And I guess from your vantage point, what's your visibility look like throughout all these phases, visibility into sort of their ultimate use case and how big these could potentially be for you longer term? Joseph DeVivo: I'll do the best I can for that one. So right now, up until 3 months ago, we have been simply getting inbounds. We have people who are looking for solutions. They understand that we have a chip. They bumped into our intellectual property. They call us and they asked us consider working with them. And I think I mentioned before, we have over 40 companies that we are actively speaking to. And they're in a bunch of different markets. It's in pharma. It's in DCI and neuromodulation. It's in robotics, in surgical robotics. It's in HIFU. It's in organ preservation. It's in these different markets where they're already working with some level of ultrasound, but kind of have a closed-loop system. They want a system that can learn. And also wearables and monitoring in a lot of different clinical variations are being investigated. Some of these are start-up companies who just got their funding. Some of them are larger companies who are looking to add this into their product portfolio. And so each of them have their different time lines. And so they come to us and then they want to understand, integrate with computational systems, how fast can they get the data, how fast can they process the data, where could they process the AI because a lot of this has to do with pulling data out of the body, processing that data and then making clinical decisions or even using the ultrasound to continue to get data to continue to refine it and then even provide therapy through the ultrasound or additional diagnostics. This is very, very complicated systems. And it's unbelievably exciting. It's all being based upon this new mass computation and also the intelligence of AI. Classic ultrasound systems cannot modify and modulate in real time. If you have a lens that is cut to see near on a camera, say, no matter what you do with your digital, no matter what you do with your energy. When you push it through that glass lens, it's going to only see near. With Butterfly, you can look, you can learn and then it's almost like you're asking another question through ultrasound. And you can change how you ask that question. You can change how you modulate it. You can change the array. You can toggle from 2D to 3D. You can scan, you can slice. And so what we do is when partners come to us and say, well, we're really interested. The first thing they do is they give us a set of parameters. They say, look, we're trying to get this frequency, this array or in this location. Can you do it? And we say, depending upon those parameters, we will answer that question. And if the question is favorable, we then go into a laboratory setting. And we show them how we can tune the ultrasound. We show them how we can get close to their use case or get to their use case with tuning the chip. It's kind of like just putting a program on a TV screen. It just reprogram it and then it goes. And then when we prove to them that we're either there or close to there, then that determines the next phase, which is what does it take to get the product and the software to be exactly the way they want it and what would the integration be in their systems. And then we map out a road map. And it's -- here's the work that they would do, here's the work that we would do. That turns into depending upon the stage of the business, a development agreement. That development agreement would mean that they pay us a licensing fee for our software, just like with NVIDIA, you're paying for a license for their CUDA. And then they'll buy chips and they'll do labs and they'll do development. And if they ask us to help them refine certain things, then they'll pay us engineering fees to be able to help them do that. And then there's some point in time where they realize, well, okay, I have a line of sight to what this means to us commercially. And they will either who like with NVIDIA will just purchase their product and use it or they will be someone to say, well, gosh, if I can be the only one in the world to use it for this use case, would you be willing to license it specifically? And that's where those conversations go. So these are multiple steps. But what this means is Butterfly shareholders are now tapping into entirely new markets that are well beyond point-of-care ultrasound with opportunities to have very vibrant and profitable recurring revenue streams without having to do the market development that we're doing in point-of-care ultrasound, without having to hire the sales force and supporting a public company and back-office costs. It's simply we get license fees. And we are able to sell our chips. And we now have an option to grow revenue in entirely new markets that would take us a lot more capital than we've had to deploy so far in order to build. So it is an exponential flywheel. And so we've been developing. And fortunately, for Butterfly, from day 1, we've built our architecture to support this. We are cloud-based. We are app-based, iOS, Android. We integrate with SaaS. We have our hardware. And so, a lot of these components turn into the application that our partners are looking for. So they're not just licensing our chip, but some of them want to use our cloud. Some of them want to use our SaaS-based Compass platform for data aggregation. And so these partnerships are very viable, but it does take time to onboard. There is diligence, there is lab work. But -- and so when we say a new partner comes on, that's a big check because that is a wonderful opportunity for us to increase the TAM of Butterfly and to bring more revenue and market opportunity for our investors. Andrew Brackmann: Great. Appreciate all that color. John, maybe one for you just on guidance here. It seems like there's a lot of tailwinds here between the Garden expansion, the Compass AI contract moving into Home Care in the second half of the year. Can you maybe just sort of unpack for us the underlying assumptions? What's in guidance now from a revenue perspective? And what's the potential upside lever? John Doherty: What's in guidance now is everything that we have a line of sight of, including across our core business with probe sales. Joe talked to Home. We have some of that in there as well in the second half of the year. We talked about Compass AI. So the things that we have a very good line of sight on are in our guidance. Other things that we might be in the process of negotiating, for example, like if you look at that could be potential upside down the road. It's early in the year. As you know, we just printed the first quarter. So ultimately, I'd say our posture is going to be a little bit more on the conservative side. But we reaffirm guidance. We're very confident in where we're going for 2026. And in addition, if you look at adjusted EBITDA, obviously, we had a beat in the quarter. But ultimately, we are investing in certain areas of the business. So with the launch of Home, it does require some investment to get it off the ground. And ultimately, it will be a positive. It has a very strong ROI for us, but that takes time. We're not in this to just have a really, really solid 2026. We're also in this to continue to grow at the rates we're growing at for the foreseeable future. We're talking about years here, not just quarters. Operator: Our next question is from Ben Haynor from Lake Street Capital Markets. Benjamin Haynor: First off for me, obviously, great to hear the FDA enthusiasm on the gestational age AI tool. Presumably, this derisks kind of the future blind sweep AI like tools from you guys. But I would imagine that it also does so for folks that might be looking to develop something similar for Butterfly Garden or Butterfly Embedded. Any more color you can kind of share there? Has it peaked more interest? What has that done for you guys? Joseph DeVivo: Well, I think what is important, and I think what the FDA is pointing to is there are a lot of people can imagine right now and I don't have access to the data. But I would imagine there are thousands of applications in the FDA for clearances of AI tools. And I would imagine that a very high percentage of those are probably not doing it in the manner of treating it like a device or treating it like something with consequence because people at times just think software is software. But when you have to -- when you're going to inform a patient and that information is going to change the clinical pathway, right. And so we have taken a longer path with the gestational AI tool. We have done, is we've done a lot of clinical work. We've done a lot of work with the University of North Carolina and Jeff Stringer, we've done a lot of work making sure that the -- because remember, this blind sweep, there's no image that anyone is looking at. Blind sweep the pregnant abdomen and it spits out an age. And so it's got to be right. And you're not doing it based upon looking at an image. So I think what the FDA saw was that here's a company who took this seriously, understood the consequence. The incredible upside value proposition and did the work to validate the AI just like you would do the work to evaluate any type of device that was going to intervene into the body. And so I'm proud of our regulatory and quality teams for holding such a high standard. I'm proud of our management team for not being short-minded. A lot of times, people get in and they argue with FDA. They try to convince them that it shouldn't be this way, it shouldn't be that way. And sometimes FDA is wrong. They're not perfect. And sometimes they need persuading or educating and whatnot. So I'm certainly on that front. But after my 30 years of putting products through FDA, I have -- I think the world is better because we have FDA. FDA keeps us safe. I think FDA keeps us on our toes. And there's always someone who's wrong or someone who might overdo it or underdo it. But the process, I think, leads the world in making sure that this technology works. And when you get through that gauntlet, then you now have -- you have a moat and you have -- because you've earned that moat. And we have that over every ultrasound company in the world. So we are now actively working with partners and ministries of health that have been waiting for this for years. If you've heard of some of the visionary statements from the Gates Foundation, they've always believed that AI and ultrasound is probably the biggest catalyst to improvement of overall care for these developing countries because of the power of these diagnostics in these remote areas. And I think this is a tool that is going to now translate into revenue by there being large deployments of probes and systems in all these different places. We accomplished something 1.5 years ago, 2 years ago that was extraordinary. We trained 1,000 midwives in Africa who are managing over 80,000 women who are having childbirth and they're doing, I think, about 80,000 scans a month to make sure that they identify the fetal position of a baby because 20,000 women a year die in childbirth just because they were not able to get the baby out, which is horrible. Like you can't even imagine that. But with the Gates Foundation, we've trained those 1,000 midwives. And they're now improving care every single day. With the architecture that Butterfly has, we can just push this new tool to all thousands of their probes and get them now being able to identify the age earlier. These are significant flywheels in the acceleration of patient care and that's being done on the architecture of Butterfly. So we're proud and for the FDA to go to their social media and their social media part to specifically call out Butterfly. I think it makes us proud. And it makes us feel like we're doing something right. And that we're a real company who really cares with terrific technology, who has profound respect regulators. And I think they've returned that respect. Benjamin Haynor: FDA communicated is definitely feather in your cap. Overall, just a fantastic update here this morning. The one thing that maybe I missed and I apologize if I did. Any updates on kind of additional form factors? I know historically, you talked about the IQ station and things like that. Anything else on that front? That's it from me. Joseph DeVivo: Yes. So thank you, Ben. We appreciate the questions. So we didn't call it out in this particular call. But as an update, early next year, we will have a new probe. And we will detail the capabilities and the branding and the cost and everything. I think probably closer to the end of this year, beginning of next. So that is online. And that will bring to market not only the -- bring our ultrasound on-chip technology. But it will be the first ultrasound on chip that has harmonics with CMA. So we're thrilled with that innovation. And we are actively working on our station. And that is also in early to mid-2027 time frame. So we didn't chronicle it, but it is very much still in our work. And also, we've talked about wearables for a very long time. And we have a wearable today. But if we went and launch that wearable, I don't know what that market would be for it yet. What we are doing is building out applications in Home. And then quite frankly, several of the Embedded partners are wearable partners where they not only want the ultrasound chip. But they're developing a wearable form factor around what we've created. And then they are developing applications for clinical application of that wearable. So I would think that the first wearable that comes to market would be through one of our Embedded partners into some extraordinary use cases that they're developing. So we are -- we do have a lot of resource focused on new technology development and software and AI and hardware. But we are able to accelerate our market opportunity as we partner with other companies with visions and novel ideas for them to be able to create whole new markets. And so those are probably the devices that you'll be seeing from us over the next several years. Operator: We currently have no further questions. So I will hand back to Joe for closing remarks. Joseph DeVivo: So everyone, thank you so much for the interest. I know that the macro environment has a bunch of ups and downs, but I think we're going to be swimming upstream of those. We have a lot of tailwinds. We had tremendous growth last year, tremendous probe growth. We have tremendous new product launches. We are coiling up opportunities for Garden and Embedded. We are coiling up opportunities for more one-to-one medical schools and enterprise. This is the time when we are -- our foots on the accelerator. We're stretching our legs and we're making things happen. And we appreciate your support and the unbelievable energy of all of the employees of Butterfly who are actively changing the world. So thank you all. Operator: Thank you. This concludes today's Butterfly Network, Inc. Q1 2026 Earnings Call. Thank you for joining. You may now disconnect your lines.
Operator: Hello. Good day, and welcome to Diebold Nixdorf's First Quarter 2026 Earnings Call. My name is Carly, and I will be coordinating today's call. [Operator Instructions] I'd now like to turn the call over to our host, Maynard Um, Vice President of Investor Relations. Maynard, please go ahead. Maynard Um: Hello, and welcome to our first quarter 2026 earnings call. To accompany our prepared remarks, we posted our slide presentation to the Investor Relations section of our website. Before we start, I'll remind all participants that you will hear forward-looking statements during this call. These statements reflect the expectations and beliefs of our management team at the time of the call, but they are subject to risks that could cause actual results to differ materially from these statements. You can find additional information on these factors in the company's periodic and annual filings with the SEC. Participants should be mindful that subsequent events may render this information to be out of date. We will also discuss certain non-GAAP financial measures on today's call. As noted on Slide 3, reconciliations between GAAP and non-GAAP financial measures can be found in the supplemental schedules of the presentation. With that, I'll turn the call over to Octavio, who will begin on Slide 4. Octavio Marquez: Good morning, everyone, and thank you for joining us. The first quarter was a strong start to the year and another quarter of delivering on our commitments, continuing the operating momentum we have built. We grew revenues 6% year-over-year to $888 million and adjusted EBITDA increased 14% to $99 million. At the same time, backlog grew sequentially to approximately $790 million, reinforcing the underlying demand we're seeing across both banking and retail. In banking, we continue to build on the strength of our core ATM franchise while expanding our role inside the branch. We are seeing good momentum in teller cash recyclers and broader branch automation, which are increasing our relevance with customers and expanding our opportunity set. In retail, we're seeing growth accelerate as we expected, with revenue up double digits. In North America, we're gaining critical mass with a large and growing pipeline of deals and had important wins in electronic point of sale in the fuel and convenience space and with the regional grocer. And in self-checkout, we delivered initial deployments with a large pharmacy chain. In Europe, we have a large number of electronic point-of-sale wins that drove growth. Free cash flow continues to be a clear point of strength. We generated $21 million in Q1, more than tripling year-over-year. This marks our sixth consecutive quarter of positive free cash flow, and we expect to remain consistently positive each quarter going forward. We maintained our fortress balance sheet, ending the first quarter with a net debt leverage ratio of 1.2x, while remaining fully committed to returning the majority of our free cash flow generation to shareholders through our $200 million share repurchase program. We had a strong quarter. We did what we said we would do. And importantly, this performance reflects the continued compounding of the strategic and operational improvements we have implemented. Let's now turn to Slide 5 to review our banking strategy. In banking, we continue to see supportive secular tailwinds. Financial institutions are investing in their branch networks to improve efficiency and enhance the customer experience, while at the same time, remaining under pressure to lower the cost to serve. Importantly, in the U.S., we're seeing a shift from prior years with leading financial institutions actively expanding their branch footprints. That is creating a clear need for solutions that both improve the customer experience and structurally reduce the operating cost. Our strategy is built for that environment. We go beyond the ATM to help banks automate and run the entire branch ecosystem, combining hardware, software and services to improve customer experience, employee efficiency and overall branch economics. The objective is straightforward: take cost out while improving service levels. Our integrated ecosystem optimizes how cash moves through the branch, reducing the need for cash in transit activity and the expense that comes with it because the best cost is no cost. This is a key differentiator in how we approach the market. We use technology to eliminate cost and improve the customer experience, not just to manage or reallocate it. We're seeing that the strategy translates into results across 3 areas. First, in our core self-service business, recycling ATMs continue to gain momentum across customer segments and geographies. In the U.S., we won a full network upgrade with a major credit union based in the Southeast with more than 1 million members, deploying over 200 DN Series cash recyclers across their footprint. This is a strong proof point that recyclers are gaining traction across a broad range of institutions. Second, inside the branch, we're expanding our footprint with teller cash recyclers and branch automation solutions. During the quarter, we secured a significant competitive displacement with one of the largest financial institutions in the U.S., winning 100% of their teller cash recycler install base. In addition, we were selected by FOREX as the single trusted partner to manage and optimize their ATM network end-to-end, reinforcing our ability to deliver both operational efficiency and service performance at scale. At the same time, we've grown our pipeline and backlog in India for our fit-for-purpose devices, and we have plans to expand this product family into additional markets across Asia. We also plan to extend our teller cash recycler footprint into international markets, further broadening our addressable opportunity. Third, we are increasingly orchestrating how transactions are processed and routed across multiple customer touch points. During the quarter, we won a major engagement with a leading U.S. financial institution to modernize transaction processing across thousands of branches. Our platform supports transactions not only at the ATM, but also at the teller and across digital channels, enabling banks to manage and optimize transaction flow across both physical and digital environments. And importantly, these are not stand-alone wins. They are part of a broader strategy to increase our integration and wallet share within the branch and transaction ecosystem. When customers deploy across ATMs, teller cash recyclers and software, it creates a natural path to broader branch automation, building our relationships and expanding our role over time. Stepping back, we're executing well. We're strengthening our core, expanding inside the branch and using technology to structurally improve cost and performance for our customers, while also extending our reach into new geographies. Now moving to Slide 6. Turning to retail. We delivered a very strong Q1 with revenue growth north of 25% year-over-year, and we continue to see strong momentum building across the business as we move through the year. In North America, the traction we're building continues to strengthen. About a year ago, we identified our top 40 target accounts. And today, we have active projects with the vast majority of them. Our pipeline has grown approximately threefold over that period, and that momentum is converting into wins. During the quarter, we secured a major deployment with a top 10 fuel and convenience retailer for thousands of point-of-sale units. In addition, we won an initial self-checkout deployment with a leading pharmacy chain and scored an electronic point-of-sale win with a regional grocer in the U.S. Both of those opportunities create pathways for much larger rollouts over time. We're encouraged by the quality of the opportunities in front of us and increasingly confident in our ability to convert that pipeline into meaningful growth as the year progresses. In Europe, we continue to see strong execution with solid point-of-sale performance and wins across multiple markets. Now turning to Smart Vision AI. We are positioning Smart Vision as a platform that supports multiple use cases across the store. It delivers strong ROI by reducing shrink, improving operational efficiency and enhancing the checkout experience. What started as a self-checkout has now expanded across additional parts of the store from the aisle to the manned checkout, demonstrating the flexibility and scalability of the platform. We are already seeing early adoption. One of the largest retailers globally has deployed Smart Vision in several stores to address shrink across both the aisle and the point-of-sale. And strategically, this platform is opening doors. It allows us to engage earlier with customers, often starting with a targeted use case and then expanding into broader discussions around self-checkout, point-of-sale and software. That creates a natural path to larger, more strategic programs over time. This also aligns well with where the market is going. Retailers, particularly in North America, are increasingly prioritizing open modular solutions. That's the model we've already proven in Europe. We're pleased with the strong momentum we're seeing across retail. Our focused account strategy is working. Our pipeline is building, and our platform approach is positioning us to continue expanding share. Turning to Slide 7. In services, we're making solid progress. As we previously indicated, margins are modestly down year-over-year as we continue to invest in the business to strengthen execution and service quality. However, these investments are progressing as planned and positioning us for sequential margin expansion as we move through the year. These investments are delivering results. We are now achieving some of the highest service levels in our history in North America with meaningful improvements in SLAs and overall availability. That level of performance is critical as it drives customer satisfaction, supports product growth and increases service attach rate over time. At the same time, as we expand our installed base across banking and retail, we're increasing service density, which drives incremental highly recurring revenue without a proportional increase in costs. We're also entering the next phase of our efficiency journey. With the rollout of our field technician software, we now have much more granular visibility into operations, allowing us to optimize dispatch, routing and parts management. For example, in Chicago, a cross-functional team used these tools to redesign service zones, improving first-time fix rates, reducing drive time and lowering dispatcher requirements. We're now scaling those learnings across additional markets. So overall, we're seeing the right progression, stronger execution, a growing installed base and increasing opportunities to drive efficiency and margin expansion. Now let's turn to Slide 8. Our approach to continuous improvement is now a core part of how we operate the business and has become a meaningful competitive advantage in how we execute. This is not just a set of initiatives. It is an operating rhythm and cultural shift across the organization. We're focused on identifying incremental improvements, scaling them across the enterprise and compounding those things over time to drive margin expansion and reduce complexity. We are seeing that translate into tangible results. During the quarter, we held Kaizen events across our Asia Pacific service and logistics operations, focused on improving repair cycles, dispatch efficiency and billing capture. These efforts are generating both cost savings and incremental revenue. And more importantly, they are repeatable and scalable across our network. In manufacturing, we're also driving meaningful improvements. In North Canton, we reduced our subassembly footprint by about 40%, freeing up space for additional future production capacity. Similarly, in Brazil, we redesigned our manufacturing process, reducing footprint by approximately 50% while increasing capacity and reinforcing our local-for-local strategy. These are good examples on how we're simplifying the business, improving productivity and structurally strengthening margins. To put that in context, remember, when I first took over as CEO and prior to launching Lean, product banking margins were in the low teens. This quarter, they were above 30%. Lean has been a key driver of the margin profile you are seeing today. During the quarter, we received multiple global banking and finance awards, recognizing innovation and the strength of our end-to-end banking solutions. And we were added to the S&P SmallCap 600 Index earlier this month. That inclusion reflects the consistency of our execution, the discipline we've built into the business and the credibility we've gained with the investment community. So overall, this is about building a better company with solid financials, one that is more efficient, has a fortress balance sheet and continues to deliver sustainable value for our shareholders and customers. With that, I'll turn it over to Tom to walk through our financial results. Thomas Timko: Thank you, Octavio, -- beginning on Slide 9. Q1 was a strong start to the year and reinforces that our strategy is working. Our products and solutions solve real problems for our customers and the foundation we've laid out for our growth initiatives is seeing momentum across the portfolio. Non-GAAP revenue was $888 million, up 6% year-over-year, driven by strength in retail, currency and solid execution across services. Backlog increased sequentially, reflecting healthy demand across both segments and giving us stronger visibility as we progress through the year. Non-GAAP gross margin in Q1 expanded 10 basis points year-over-year to 25.4%. Product gross margin increased 60 basis points to 26.3%, driven primarily by disciplined pricing, favorable mix in our banking portfolio and continuing manufacturing cost and productivity improvements. Non-GAAP service margins were 24.8%, down 30 basis points as we continue planned investments into people and technology. And we're on track and starting to realize the early benefits and already seeing tangible improvements in service levels and fleet efficiency. While you will see us continue these investments in North America and expand the rollout of our field technician software internationally, we expect service margins to increase both sequentially and year-over-year moving forward in 2026. Non-GAAP operating profit rose 27% year-over-year to $61 million, and operating margin expanded 120 basis points to 6.9%, reflecting higher volume, better product margin and continued operating expense discipline. In Q1, we held operating expenses flat year-over-year while continuing to invest in areas that support service performance and growth. That's a strong signal of the operating rigor we're building into the company. Operating expense discipline continues to be a major focus across the enterprise, and we're seeing real progress. We have a broad pipeline of over 200 actions that are well underway as part of our $50 million cost reduction program, and we're beginning to see some of the green shoots from that work, both from the traditional cost actions and from lean and technology-enabled simplification that removes work altogether. In 2026, we expect these run rate savings to result in approximately a 1% to 2% reduction in operating expense with benefits building as we move through the year and additional opportunities are identified. Continuing on to Slide 10. We continue to see strong trends across our profitability and cash flow metrics. In Q1, adjusted EBITDA grew 14% year-over-year to $99 million, with margins expanding 80 basis points to 11.2%, demonstrating strong operational execution. We're also making significant progress on non-GAAP EPS, which grew about 81% year-over-year to $0.67, driven by strong operating profit. Turning to cash flow, which is an important measure of earnings quality and supports our capital return priorities. Our free cash flow in Q1 more than tripled versus a year ago to approximately $21 million. We drove strong working capital performance with days inventory outstanding improving by 6 days and day sales outstanding improving by 4 days. Moving to Slide 11. We delivered a solid quarter with gross profit dollars and margins growing year-over-year. Octavio spoke about some of the secular tailwinds in the banking space and our portfolio of solutions for ATMs, teller cash recyclers and our branch automation solutions align very well to help banks transform their branches, enhance the customer experience and achieve their goals of reducing costs and increasing efficiency. Revenue was down slightly year-over-year, primarily reflecting the timing of product deliveries, but our solid order entry and sequential backlog growth, along with encouraging momentum in Latin America gives us very good visibility. Banking services revenue was up slightly year-over-year, and our continued delivery of improved SLAs gives us the opportunity for further wins, both in our product and service businesses. Gross margins in our Banking segment increased 90 basis points year-over-year to 26.6%. Within that, product margins expanded meaningfully to 31.4%, up 370 basis points versus last year, driven by product and geographical mix as well as continued cost control in manufacturing. Service margin was 23.7%, down 80 basis points compared to last year, reflecting the investments in field technicians, our field technician software and the ongoing consolidation of our repair and service centers. Looking ahead, we expect to continue to see steady global ATM shipments with refresh activity in all geographies, and we're encouraged by the momentum in our teller cash recycler adoption, fit-for-purpose rollout and overall branch automation solutions. Turning to Slide 12. Retail delivered strong results with revenue up 26% year-over-year, driven by double-digit growth in both product and services as the recovery in Europe continues as well as revenue growth of nearly 70% in North America. While this is off a small base, these results demonstrate that our growth initiatives are gaining traction and meaningfully advancing us towards the sizable opportunities that we see ahead. Retail customers remain focused on automation, efficiency and lower total cost of ownership, and our platform aligns well with these priorities, supported by complementary software and services that can be layered to fit each store's specific needs. In product, point-of-sale continued to perform well across our markets as customer deployments accelerated, reinforcing our #1 position in Europe. And as Octavio mentioned earlier, we're seeing important early wins across retail verticals in the North American market. This is another example of our multiple ways to win as the strength in retail gave us the flexibility across our portfolio. We would expect the shape of retail product revenue to be more balanced across the year versus prior years. Service revenue benefited from higher installation volumes, which grew year-over-year. Gross profit dollars increased 17% year-over-year to $61 million. Total gross margin was 22.6%, down 180 basis points year-over-year. Product margins declined 330 basis points, primarily driven by mix as point-of-sale devices carry a lower gross margin within our portfolio. We also saw some impact from higher DRAM and memory costs but are taking appropriate pricing actions and adjusting our quoting cadence. This does not change our confidence in our full year guidance. Retail service margin improved 80 basis points year-over-year to 27.7%, driven by higher revenues and benefits from the investments we're making in our service operations. Looking ahead, we expect more favorable product mix in the second half of the year, which will improve product margins and a steady performance in services for the remainder of 2026. Moving to Slide 13. Let's review our 2026 guidance. We had a great start to the year with a very strong Q1, and we're seeing very good momentum in our key growth initiatives. Despite a dynamic macro environment, we feel good about where we are and the diversity of our business that provides us multiple ways to win, both of which give us the confidence in our outlook for 2026. For revenue, we expect a range of $3.86 billion to $3.94 billion. Again, this outlook is supported by our $790 million of product backlog as well as the strong structural work we've implemented to reduce product lead times. We continue to expect total gross margin to increase 25 to 50 basis points year-over-year and service margin to improve up to 50 basis points for the full year as our service initiatives translate into better productivity and performance. As a reminder, after a very strong 2025, with product margins increasing 300 basis points, we expect product margins to remain comparable. In service gross margin, we expect both sequential and year-over-year improvement through the remainder of 2026 as our scale increases and our investments continue to deliver further returns. For adjusted EBITDA, we project a range of $510 million to $535 million, representing growth of approximately 8% at the midpoint. Turning to free cash flow. We forecast free cash flow in the range of $255 million to $270 million, representing roughly 10% growth at the midpoint, supported by continued working capital improvements and disciplined capital allocation. We currently expect to generate positive free cash flow in every quarter of this year. We expect adjusted EPS to be in the range of $5.25 to $5.75, assuming an effective full year tax rate in the range of 35% to 40%. From a shareholder value perspective, we view free cash flow as a more direct measure of the value we're generating as it reflects the cash available to return to shareholders and to strengthen the balance sheet while preserving flexibility for disciplined capital allocation. On that basis, we expect our free cash flow per share for 2026 of approximately mid-$7 would be meaningfully higher than our 2026 adjusted EPS guidance, reflecting strong cash flow generation and working capital performance. As we think about the quarterly cadence, let me give you a little color on how we think about Q2. We expect Q2 revenue to represent approximately 24% of the full year, consistent with 2025. We expect gross margin to be at almost similar levels to prior year, driven more by services, which we said we expect will be up both quarter-over-quarter and year-over-year. Turning to adjusted EBITDA. Though we continue to expect a stronger second half weighted contribution, we now see the first half of the year contributing just above 40% of this year's total adjusted EBITDA. We expect operating expenses to be up slightly quarter-over-quarter, but down on a year-over-year basis. The tax rate in Q2, we expect to rate more in line with our full year rate. And with regard to free cash flow, we expect positive free cash flow comparable to the prior year second quarter in '25 amount. Unlike some of our direct peers in this market, we've been able to generate positive free cash flow every quarter for 6 consecutive quarters, which is a testament to the durability and consistency of our operating model. For adjusted earnings per share, we expect Q2 to compare favorably versus the prior year quarter. Turning to Slide 14. We continue to operate with a fortress balance sheet with approximately $680 million of liquidity at the end of Q1, comprised of $374 million in cash and cash equivalents and a fully undrawn $310 million revolving credit facility. The net debt leverage ratio stood at only 1.2x. And our progress continues to be recognized. Fitch Ratings recently initiated a BB- with a stable outlook, our highest credit rating yet and a notch higher than our other current credit ratings. We view this as a meaningful third-party validation of the progress we've made in strengthening our credit profile, supported by our continued focus on free cash flow generation. During the quarter, we repurchased approximately 747,000 shares at an average price of $73.66 per share. In total, we returned $55 million to shareholders in Q1 under our existing $200 million share repurchase program and have $117 million remaining. In 2026, we're targeting 50% plus free cash flow conversion, and we remain committed to returning the vast majority of our free cash flow to shareholders in the form of share repurchases. We continue to believe that our shares are undervalued and our ability to consistently generate cash flow is underappreciated. Our fortress balance sheet and strengthened financial profile have increased confidence in our ability to achieve our target of $800 million of cumulative free cash flow from 2025 through 2027, while still providing us flexibility for disciplined M&A. With that, I'll turn it back to Octavio for closing remarks. Octavio Marquez: Thank you, Tom. To wrap up, we delivered a strong start to 2026. And importantly, we delivered another quarter of doing what we said we would do. Momentum continues to build across the business. We're seeing consistent execution across the businesses. Our core franchise in banking remains solid, while we continue to expand our role inside the branch through automation, software and services. In retail, momentum continues to build, particularly in North America, with a growing pipeline that is starting to convert into meaningful wins. At the same time, we're continuing to improve the quality of the business. Our operating discipline is driving better margins, stronger cash flow and more consistency quarter-to-quarter. That consistency matters. It is what gives us confidence in our outlook for the year even in a dynamic environment. We're also maintaining a clear and disciplined approach to our capital allocation, supporting a strong balance sheet while returning the majority of our free cash flow to shareholders. Our story is straightforward. We have strong positions in attractive markets, a strategy that is working and an operating model that continues to improve. That combination gives us confidence in our ability to deliver sustainable value over time. With that, operator, please open the line for questions. Operator: [Operator Instructions] Our first question will come from the line of Matt Summerville with D.A. Davidson. Matt Summerville: Can you maybe just talk a little bit about the cadencing of EBITDA? Just doing very quick rudimentary math. It sort of seems like in Q2, your adjusted EBITDA would be roughly flattish relative to the prior year, yet I'm hearing quite a bit of goodness overall on the call across the businesses and with profitability. So can you help me kind of connect the dots there? And then I have a couple of follow-ups. Thomas Timko: Yes. We would -- so for Q2, we would expect slight growth in adjusted EBITDA, whereas if we landed last year at $111 million, we do expect it to be north of that number. Does that answer your question, Matt, directionally? Matt Summerville: YYes. I guess I'm curious, when I look at the EBITDA growth in Q1, and I kind of listen to all of the positivity you guys are talking about, I guess I'm a little surprised that we wouldn't see more adjusted EBITDA growth in Q2. Having said that, I also think it's important to you guys could give maybe a little bit more color on some of the goodness you're seeing in North American retail. If there's a way to quantify the funnel and maybe how we should be thinking about your conversion rate on that funnel as you look out over the next 12 to 24 months or so? And then I have one more. Thomas Timko: Yes. Look, I would -- just to follow up on the adjusted EBITDA, right? If our adjusted EBITDA margins in Q2 of '25 were closer to 12.2%, right? We would expect Q2 to be closer to 13% or just under that as well. So you are seeing that increased growth sequentially and over prior year. And again, that's going to be driven by some of the margins and disciplined CapEx that we have or OpEx that we have. Octavio Marquez: Matt, this is Octavio. To give you a little bit of color on retail. So this quarter, I think it's important to realize we have 3 very significant wins. One of the largest fuel and convenience retailers decided for our electronic point of sale to replace their entire estate. It's literally thousands of point-of-sale devices. A regional grocer, again, a very important win with them, replacing the electronic point-of-sale systems across their footprint as well. And a very large pharmacy chain out our initial orders for our self-checkout products. As you know, these are literally thousands of units that need to be deployed across large geographic regions. So you'll start seeing as we -- every quarter, we keep adding more wins to that, we'll start building even more critical mass that will continue to support the growth that we see in North America. We're very excited. As I mentioned in the prepared remarks, we have a very targeted account strategy on the accounts that are in that process of upgrading their self-checkout, software or point-of-sale. And we see that we're achieving very favorable success rates. If you couple that with all the investments that we've made in our Smart Vision technology, it's really opening doors to more meaningful conversations with retailers on how we truly improve store operations for them. Remember, the opportunity in North America is large. Matt Summerville: Understood. And just last thing for me. Can you maybe, Octavio, talk through the geographic kind of walk around for your ATM business? Octavio Marquez: Sure. I'll throw a little bit of retail as well, Matt, so that the retail side of the house doesn't feel bad as we walk through the geographies. But North America, very -- again, we've been very successful deploying recyclers at large financial institutions. I used the example today, and you'll see a press release from that customer, I think, coming up in the coming days. Recyclers are now finding their way into large credit unions, community banks. So you will start seeing that technology permeate even more into the market. So North America continues to be a strong market. And I would say the most exciting thing about North America is this is where we launched the teller cash recycler for initially. This quarter, we won the complete replacement of a large bank at state for teller cash recyclers. So again, in North America, we're very focused on continue the deployment of recyclers downstream and also expanding the teller cash recycler market. This will start adding to our service density and really improving the profile of our service business. So very, very happy about that. Clearly, we talked a lot about retail in the prior question that you asked. But again, the opportunity is very vast for us in North America retail. Remember, it's still a very small part of our overall revenue portfolio, but one that is growing at a very fast pace. So we continue to be very encouraged by the pipeline, the types of customers that we're talking to and just the overall recognition that we're now getting in the market, where before we had to be knocking on many doors. Today, many retailers are actually calling us to participate in different projects with us. So we're excited about that. Latin America, we moving on Latin America, as you know, very cash-intensive market. We continue to see now a recovery in many of the markets that last year had been a little bit slow due to economic or political things. So Latin America, we're very excited that it's now returning to the type of growth that we've seen in the past. We're still pending some of the large RFPs from Brazil to be concluded, but we're very optimistic that we will win them and that they'll form part of our revenues in the second half of the year. I would say in Europe, when we talk about banking, we're really benefiting from this trend in Europe of pooling ATMs across customer bases. I had the opportunity this past week to be in Europe with 150 of our customers in one of our customer events. And to be honest, I left very energized as we see projects in France from large banks pooling their ATMs together that really creates an opportunity for us to really refresh and modernize their estate. So we're very excited about what's going on in Europe. Also our branch automation solutions, the example I gave about FOREX. FOREX runs all these different exchange stores all over the -- you'll probably see them in airports. They run ATMs, physical stores. We're now managing the entirety of their operation, outsourcing all the parts that they need to run their ATM network. So that is also opening new doors for us in this market that remains very attractive for us. And I would say when we move to Asia Pacific, our fit-for-purpose strategy is gaining momentum. I don't know if I should say this, but we're ahead of our plan on how many devices we plan for the year, strong adoption in India, some of the large tenders we've been able to win. So we're very excited about our fit-for-purpose strategy, and we're actually going to expand our fit-for-purpose strategy, not just to deploy those devices in India, but in other APAC markets where we think that, that product will also be a very good fit. So excited about how that is going, Matt. I hope that helps. Thomas Timko: Hey Matt, just a quick follow-up. As it relates to EBITDA, we -- similar to last year and the linearity, we expect to see a stronger second half weighted contribution. And that mix that we talked about is usually 40, 60, what we see now for the first half of the year is contributing just above 40% of this year's total adjusted EBITDA with the remainder flowing out in the second half of the year. That's kind of what I said on the call. Hopefully, that adds some more clarity to your question. Matt Summerville: Yes, it does. I must have missed that nuance that totally checks out. Operator: Our next question comes from the line of Justin Ages with CJS Securities. Justin Ages: Can we get a little more color on the strong retail growth in the first quarter, 25% plus real. So I wanted to know if we could parse that between growth in Europe versus North America. Octavio Marquez: Yes. So Justin, we mentioned in the call, North America grew 70%. It's a small base still, but very, very fast growth. And in Europe, we had an extraordinary quarter. As we've been saying, we've been seeing the momentum and the recovery in retail in Europe. It started last year, Q2, Q3, Q4, where we kept growing sequentially. Now you can see that this first quarter, again, a very strong quarter for Europe, driven by strength, I would say, across all product lines, whether it was the software, the self-checkout or the EPOS, which was particularly strong, all of them growing. And North America, again, very targeted wins, 3 very strategic ones this first quarter just because of the magnitude and size of the footprint that we will be covering now with point-of-sale and the opportunity in self-checkout. So we're excited. And again, probably one of the areas that I love talking about is our Smart Vision. We continue in the -- with one of the largest retailers globally deploying Smart Vision to test shrink in the aisle, shrink at demand checkout and obtaining really outstanding results with these initial rollouts that will undoubtedly lead to expanding that footprint across the retailer. So we're very excited. Retail is a huge opportunity. Europe is our core -- has been our core franchise. It's stable and growing now. And the opportunity in North America is huge in front of us, and we're very excited on how we can capitalize against it. Justin Ages: And then in some of the disclosures you noted shutting down non-core operations in the APMEA region. Just wanted to get a little more color on the thinking behind that as well as more broadly, any impact to deployments around the Middle East region to some of these fit-for-purpose or cash recyclers just due to the conflict? Thomas Timko: Well, I'll answer the second part of your question first. No, we haven't seen any real logistical problems that we haven't been able to overcome in the quarter, and we don't anticipate any going forward given the situation there. Look, as it relates to what I refer to as the exiting of a non-core business, it's part of our normal sort of portfolio review to streamline the business. We want revenue, but it's got to be good profitable revenue. The business overall is not material to our position in the region, and we don't have any other current plans or any other actions like that, that we're going to be taking. Operator: Our next question comes from the line of Antoine Legault with Wedbush Securities. Antoine Legault: Congrats on the good results and momentum here. I wanted to ask about 2 key input costs, which you briefly touched on earlier, but specifically memory and fuel prices. There's been a lot of chatter around rising memory costs. And I appreciate that memory may not represent a significant part of your hardware bill of materials. But given the sharp increase in memory costs, can you tell us a bit more about how you're managing that? And similarly, we've seen oil prices surpass $100 a barrel, diesel, gas, both up pretty meaningfully over the past few months. How is that impacting you? And how are you managing that? Octavio Marquez: Yes. Thank you, Antoine. And Tom and me are arguing who should answer, but if I jump in, I'll answer first and let Tom elaborate a little bit more. I think when you think about the memory pricing and in general, hard drives and other components, in the ATM side of the house, it's a very small portion of our total bill of materials. So there, I'd say we're well covered. On the retail side, particularly in electronic point of sale, clearly, that is one of the cost drivers there. What we've done, and we are adjusting pricing with our customers. That's why Tom mentioned how you will see our margins continue to improve as we go through the year. So we're working with our customers. We Luckily, we have secured the supply that we need for the year. Now it's just a matter of renegotiating with some customers on existing orders. And in some cases, all new orders are being quoted with the appropriate cost structure now. So I think we're well covered on that side. Thomas Timko: So I will add to that, that the impact of the quarter of that higher cost from memory was probably $3 million to $5 million. So we think that between repricing and the supply chain impact that we'll be able to mitigate the majority of that headwind in Q2. As it relates to the fuel costs, we're managing that. We have a new fleet rollout that's been going on. Our fleet was aging. So think about much higher miles per gallon vehicles that are out there. And then when you couple that with our field technology software rollout, and the routing and the options that it gives and making sure that we're doing one-time visits and being able to repair the machine with the right people and the right parts, we've reduced the overall amount of miles that our fleet is traveling. So the combination of more highly efficient fuel vehicles and better routing technology, our consumption of fuel is actually down year-over-year, and we would expect that to continue on a comparable basis quarterly going forward. So no real impact from the fuel costs in Q1. And depending on where prices remain, we really don't see it as much of a headwind for us and still very confident in our guidance. Antoine Legault: Understood. That's very helpful. And Tom, can you give us an update maybe on your 200 action points to reduce OpEx. How is that going? And how much of the expected $15 million in run rate OpEx improvements exiting 2026? How much of that is reflected in your Q1 results? Is it still early days on that front? Thomas Timko: It's still kind of early days. But look, I think when you're able to grow revenue at 6% in any given quarter year-over-year and hold OpEx flat, that's a win for us. We do have 200 actions that are underway, and we're starting to be able to offset some of the wage inflation that we're seeing in general overall cost inflation. So we're going to take Q1 as a win with the flat OpEx, and we expect to be able to continue to sort of see that throughout the remainder of the year, flat to comparable. Overall, we expect it to be down 1% or 2% as we exit 2026. So we feel like we're in really good shape. We're continuing to execute against it. And it's like anything you do when you start to dive deeper, you have other opportunities that come up, not necessarily all in OpEx, some are in cost of goods sold. But I would say the entire team is very focused on cost takeout, and it's being done through deploying the lean methodology, which allows us to either improve the way we process workflow or altogether just take that work out. So we remain encouraged on those savings. Operator: [Operator Instructions] At this time, we have no further questions. I'll now turn the call over to Maynard Um for his closing remarks. Maynard Um: So thanks, everyone, for joining us and for your interest in Diebold Nixdorf. If you have any follow-up questions, please feel free to reach out to any of us on the Investor Relations team. Thanks again, and have a great day. Operator: Ladies and gentlemen, this concludes today's call. Thank you for participating. You may now disconnect.
Lena Petersen: Good morning, and welcome to Stagwell's First Quarter 2026 Earnings Webcast. I'm Lena Petersen, Stagwell's Chief Brand and Communications Officer, filling in for Director of Investor Relations, Ben Allanson today. With me are Mark Penn, Stagwell's Chairman and Chief Executive Officer; and Ryan Greene, Stagwell's Chief Financial Officer. Mark will provide a business update before Ryan shares a financial review. After the prepared remarks, we will open the floor for Q&A. [Operator Instructions] Before we begin, I'd like to remind you that the following remarks include forward-looking statements and non-GAAP financial data. Forward-looking statements about the company, including those related to earnings guidance, are subject to uncertainties and risk factors addressed in our earnings release, slide presentation and the company's SEC filings. Please refer to our website, stagwellglobal.com/investors for an investor presentation and additional resources. This morning's press release and slide deck provide definitions, explanations and reconciliations of non-GAAP financial data. And with that, I'd like to turn the call over to our Chairman and CEO, Mark Penn. Mark Penn: Thank you, Lena. This is a pivotal moment in the Stagwell story as we continue to achieve our vision of extending in services from global full service to platform self-service AI applications. We're hitting major milestones on both ends of that vision while keeping costs under control and increasing our earnings per share. Together, these developments should produce an incredible 2026. First, our net new business is hitting records, and we are now regularly achieving large-scale wins. The first quarter was a record, and our wins are about $80 million ahead of wins last year at this time. We're closing in on 4 new major assignments under final negotiations and we just signed our first 5-year nearly $60 million government contract this week. Second, our new enterprise tech products and sales organization are on track towards hitting the first sales goal of $25 million with $12 million booked, and we are just getting our sales operation in place. Demand for the new products is strong with a growing pipeline. Our Digital Transformation segment continues to lead the way in growth. Third, this quarter is in line with expectations, as indicated on the last call, and we are building towards a record-breaking second half of the year with the combination of new business and the kickoff of an advocacy super cycle. We reiterate guidance and express even further confidence given this quarter's organic net revenue growth is actually the strongest in Q1 in at least 4 years. We expect growth to accelerate to double digits by Q3 and Q4. Revenue grew 8% to $704 million and net revenue grew 4% to $585 million. We saw growth across all 5 of our segments in the first quarter, led by a 9% jump in Digital Transformation. Digging into the Digital Transformation results, the 2-year organic net revenue stack for the segment tells a particularly impressive story with growth of more than 22% in Q1. This continues an improving trend in this metric that we have seen for the last 8 quarters. Given the strong start to the year, we expect the Digital Transformation segment to accelerate to mid-teens growth in the second half. AI and our understanding of how to apply it is a huge tailwind for us. Past weakness in Communications has reversed and the segment grew more than 6%, principally on the backs of new corporate assignments as the political season was not yet underway, but will be in full swing in the last 2 quarters. All advocacy work is now within the single Communications segment, and the companies are diversifying their work for more nonprofits, universities and localized retail marketing. By region, the U.S. led the way this quarter with over 8% organic revenue growth with over 3% organic net revenue growth and double-digit growth in adjusted EBITDA. International efforts outside the U.K. were muted by a strengthening dollar and slowdowns in the Middle East tourism and technology, which we expect to be temporary. Adjusted EBITDA grew 9% year-over-year to $90 million, representing a margin of 15.3%, an improvement of 75 basis points versus last year. This reflects prudent cost controls across the business. Our first quarter labor ratio declined to 63.9%, even as we invested in our go-to-market engine. We are reinvesting these efficiencies in growth to take advantage of the AI opportunities. In the first quarter, we bought back approximately 7.3 million shares. Our shares outstanding at the end of the quarter was down to about 246 million shares, down by about 19 million shares since last April and down about 50 million shares since August 2021. As a result, EPS for the quarter was $0.17, 31% higher than a year ago. Continued improvements in cash management means cash flow from operations improved by $34 million versus the first quarter of last year. This puts us on target to hit $250 million to $300 million in free cash flow with almost no deferred acquisition payments. Acquisitions have been dialed back as we are investing heavily in buybacks and in new technology, as I previously outlined last month. As I also predicted on the last call, we saw a surge in wins to start the year with record-breaking first quarter net new business coming in at $141 million, putting our last 12 months at $486 million. Our winning streak is continuing into this quarter as well with several important wins to be announced shortly. As I mentioned earlier, our government contract effort is also picking up steam and having success. This is adding hundreds of millions of dollars to our pipeline, and we have multiple large pitches coming up. When it makes sense, we are partnering with established players like Deloitte and Palantir on massive contracts. We continue to focus on driving organic growth through larger assignments, previously the domain of our 3 major competitors and reducing the high churn rate among our smaller customers. We have taken 2 major steps to execute that strategy, and we expect it to pay off in 2026 and in raising 2027 estimates. First, we have doubled the size of the new business team, announcing significant new hires, including Nicole Souza as Chief Growth Officer for North America, who brings with her 25 years of experience, most recently at Publicis. Second, to reduce client churn, we've instituted a client accountability program so that every client, no matter what its size has a person responsible for it. We're receiving frequent reports fed into an AI engine that monitors and reports on client needs and trends. We have seen our top 100 clients grow by 15% in size, and we've decreased client churn across the business by more than 10% versus 1Q 2025 as we roll out these programs. As to our emerging Enterprise Services and Software business, we are innovating with the products and driving early sales. In addition to the over $100 million of Marketing Cloud revenue, we are building an additional stream of software and service revenue housed in the Digital Transformation segment based on 3 key products: The Machine, an agentic marketing operating system, which brings together a company's entire marketing stack; SATs, the Stagwell Agentic Targeting system that brings together a secure mix of client and our proprietary data with the power of Palantir's targeting; and Stagwell Search+, a new set of tools for managing search in the world of AI answers. We announced the addition of Michael Twidell to lead our Enterprise AI Solutions team and organize our sales and go-to-market efforts. He is quickly building a team. We are building the most cutting-edge comprehensive agentic marketing system available today. We believe every company will need an agentic marketing operations operating system, or MOOS, as I like to call it, to unite their ever-burgeoning volume of enterprise applications and data. Since officially launching the machine, we have 3 active engagements that are part of the initial $12 million booked, including Con Edison, a well-known electric utility, a division at Microsoft and a soon-to-be announced global spirits brand. We also currently have 9 active opportunities with 2 deep into scoping, the rest spanning industries from public sector to financial services. SATs will be sold both with the machine and individually. It's also in testing with multiple client engagements, including a Fortune 500 client and a global lifestyle accessories brand. Working together with Palantir, we are adding key features that take users from audience identification through to media placement and assessment on an agentic basis. Stagwell Search+, our tool to help brands optimize in AI search and beyond was described by senior Google leaders as "genuinely differentiating," and we are now working regionally with Google industry heads to support client adoption. We're partnering with key leaders, including The Trade Desk, AppLovin and Adobe. Last week, we announced a joint initiative with Adobe called the Creative Intelligence System, which creates agentic personas to surface insights specifically for marketers in the financial sector who use Adobe as their system of record. This is a major pivot to the sales of AI application services and software, and we are now on the verge of bringing it all together, going to market with significant sales and installations this year and the ability to hockey stick it in 2027. Stagwell is on the verge of expanded growth that will carry through '26 into '27 and '28. Leg 1 of that growth is from the political super cycle, which will ramp starting in midyear and then with the presidential race starting the day after the midterms. Expenditures and political efforts have expanded fourfold since 2008, and we believe it can double again. Leg 2 is the unique combination of services and software we are now offering, which is at the sweet spot of what clients need to adopt AI and shift new models of marketing. And leg 3 is our expanded wins of new clients at scale, displacing long-term holdco relationships. We are coming into the CPG and health care spaces with superior talent offerings against hollowed out creative shops, and we are moving to disrupt their long-standing government contract relationships. While aged legacy companies are seeing shrinkage, we continue to grow year after year and have an unlimited growth runway ahead of us. We will continue to diversify the business into new high-touch areas as the business of marketing changes and into AI-based services and software that is a must-have for marketing today. We're growing our top and bottom lines. We're expanding our margins. We're delivering strong free cash flow. We continue to be significantly undervalued no matter how you look at the metrics for a healthy growing company like us at the forefront of its field. How many companies with this profile do you know are trading at 6x free cash flow. That's why we will continue to be aggressive with our buyback. We have hundreds of millions of dollars in our buyback runway. We will use it. With that, I'd like to hand it over to Ryan, who will walk you through some of the financials in more detail. Ryan Greene: Thank you. Good morning, and thank you for joining us. Today, I will share additional information about our first quarter's financial performance and how we are tracking towards our full year goals. Before beginning, I want to reiterate what we discussed on the fourth quarter call. Our first quarter is where we lay the foundation for growth throughout the year. And we go through a cycle of departing clients leaving January 1 and new clients coming on typically from April to June. Results in the quarter were firmly in line with our expectations across all metrics. We expect to deliver accelerating sequential growth in the second quarter and throughout the year. Starting with the top line. Revenue increased 8% year-over-year to $704 million, and net revenue increased 3.6% to $585 million. All 5 segments delivered revenue and net revenue growth during the quarter. Growth was led by Digital Transformation segment with net revenue rising 9% year-over-year to $96.5 million, driven by increasing demand for integrated technology solutions paired with services that deliver measurable ROI in a changing market. The Marketing Cloud grew 5.3% to $26.5 million, driven by demand for our AI-enabled communication technology platforms and research offerings that help clients track sentiment in real time, gain faster insight and more actionable insights into customer behaviors. Some of the other divisions are now selling Marketing Cloud products and retaining the revenue there. One product in the Middle East was pushed to Q2 due to regional conflicts, while BERA, our brand modeling product, grew 28% year-over-year and the Harris Quest family of products grew 19%. The new enterprise software products are not accounted for in the Marketing Cloud, but are in the Digital Transformation segment. Media and Commerce continued its rebound, delivering 2.3% net revenue growth to $149.5 million. Performance was driven by improving new business momentum and expanding relationships as clients increasingly lean into the segment's integrated media, creative and loyalty capabilities. Continued investment in media technology and AI-enabled platforms, combined with disciplined cost management supports stronger operating leverage across the segment. Marketing Services maintained its momentum despite elevated prior year comparables, growing 1.1% to $217.6 million. Performance was led by our creative and research agencies and our centralized production group nearly doubled net revenue as we continue to bring more production in-house. And finally, Communications grew 6.4% year-over-year to $96.8 million, largely driven by new corporate assignments as our communication firms deliver their product lines to undertake more localized marketing for retailers and other outlets. We expect election-related revenues to ramp up in the second quarter and to continue to grow each quarter thereafter. As we grew to our top line, we continue to take steps to manage our costs. Payroll as a percent of net revenue declined by 110 basis points year-over-year to 63.9%, while G&A as a percent of net revenue declined by approximately 50 basis points to 19.6%. In the first quarter, we expanded the rollout of tech deployment through our businesses in anticipation of actions, actioning the balance of the cost savings we announced last year. The total action savings since April last year amount to $54 million, firmly on track to achieve the $80 million to $100 million that we previously outlined with these savings flowing through the P&L during 2026 and fully reflected in 2027. These improvements were partially offset by purposeful actions to strengthen our go-to-market expertise through expanding our new business team, which we aim to double in 2026 and Marketing Cloud sales force. Additionally, we increased our investment in our AI and technology capabilities. This includes OpEx investments into our tech products, including the machine and our Palantir partnership as well as bringing in further experts to strengthen our technical expertise in AI and data. Adjusted EBITDA in the first quarter was $89.7 million, representing a margin of 15.3%. This reflects year-over-year growth of 9% and margin expansion of 75 basis points. This improvement in adjusted EBITDA, together with the impact of share repurchases I will discuss shortly, drove adjusted EPS of $0.17, a 31% increase versus the first quarter last year. Cash management continues to be a core focus for Stagwell, and we delivered further progress early in the year. Cash flow from operations improved by $34 million versus first quarter last year, driven primarily by stronger working capital execution. That improvement translated into an $18 million year-over-year increase in free cash flow within the quarter, keeping us firmly on track to achieve our full year free cash flow conversion target of 50% to 60% of adjusted EBITDA. These improvements in cash flow reduced our revolver balance at quarter end to $350 million, a $25 million or approximately 7% reduction versus the first quarter of 2025. Lower net debt and year-over-year growth in adjusted EBITDA drove a 0.17 turn improvement in our net leverage, bringing leverage down to 3.11x. Our continued progress on leverage and cash has been reflected in recent ratings actions with Moody's reaffirming our B1 rating and revising our outlook to positive in late March. We remain on track to exit 2026 with net leverage in the mid-2s, reflecting the combination of our growing adjusted EBITDA, disciplined cost allocation and improving free cash flow generation. Turning to capital allocation. We repurchased approximately 7.3 million shares during the quarter at an average price of $6.16 representing approximately $45 million of deployment. We continue to invest in our technology platforms, including the machine, our partnership with Palantir and the Marketing Cloud offerings. Capital expenditures and capitalized software totaled $33 million in the first quarter, and we continue to expect full year investment levels to be consistent with 2025. As Mark noted, the momentum behind these products supports this level of investment, and we expect them to begin driving growth across the segment in the second half of the year. Deferred acquisition consideration totaled approximately $50 million at quarter end, down roughly $43 million versus prior year period. As previously noted, we expect deferred acquisition consideration to be negligible by year-end. First quarter results, coupled with excellent new business trends that Mark highlighted, give us confidence in our full year guidance of total net revenue growth of 8% to 12%, adjusted EBITDA of $475 million to $525 million and free cash flow conversion of 50% to 60% and adjusted earnings per share of $0.98 to $1.12. Thank you, and I will turn it back over to Lena for questions. Lena Petersen: [Operator Instructions] Let's start with a question from Steve at Wells Fargo. Digital Transformation continues to track well. Can you talk about the underlying trends here in terms of new customers, expansion with existing customers and also speak to what kinds of projects we're working on in a world with far more AI adoption in marketing services? Ryan Greene: I think we're finding that there is tremendous demand out there. Now we've come from the stage of what's AI; "Oh my God, what's legal say about AI"; to "I better have AI." And I think that we're seeing with the machine, like lots of pitches, same thing with the SaaS product. You see that we're getting big name customers. We're going first, obviously, to existing customers and offering this. But we just went to the Adobe Summit, and we got over 600 leads, right, and that kind of tremendous interest in the product. So I think the answer to your question is really, people want to put AI into their marketing. We've got a full suite of agentic tools here. We're going to existing customers first, but we're really out -- we've just organized our sales force. We just went to Adobe Summit, picked up 600 leads. And I think that's how this thing is going really about as well as I could expect. And we've gotten 50% of our first year quota really in the first couple of months. Lena Petersen: Great. So Steve has one more question, which is, I think last year, you cycled off of a client loss that dragged Media segment down. As we look into 2026, what's your outlook for media? And how should we expect it to trend throughout the year? Mark Penn: Yes. I mean we're still in the Media burning off from the Q1 H&R Block client that was there. So that kind of is fully out. And so that means our -- we don't have somebody else with a big Q1. So we think that the media stuff comes later in the year. I think right now, we run really strong. If you look, particularly GALE has been out there winning really significant contract after contracts. I think that, that's going to be probably the biggest area of kind of Media growth that we -- that I see coming down the pike. We, of course, have given now -- we have a new head of the entire division, and he's been reorganizing the media. We're adding the technology. So our media is going to be more holiday pattern. Our political is going to be more holiday -- more or less holiday season pattern as well. And I think I see us growing across the year. And I think you're going to particularly see that pattern, both in the whole company and with media. Lena Petersen: Okay. We've got a question from Mark at Benchmark. Your guidance implies an acceleration in the second half of the year. Could you discuss how much the second half acceleration is dependent on AI product scaling versus advocacy tailwinds and existing client expansion? Mark Penn: I think it's not dependent as much on AI scaling as it is on -- number one, we know that a number of large-scale creative contracts are closing. We know that our pipeline for general digital transformation work is really about as strong as we've ever seen that pipeline. And it is also -- and the third element is the political season, which really, again, promises to be another record political season. I think people -- I've never heard of people talking about midterms 6 months out like they were tomorrow. So I think those 3 elements when we started out, say, what gives us increased confidence? Well, we just won the biggest government contract. We know that we're closing on 3 or 4 other assignments now that are in final contracting and signing stage, which are mixed across Creative and Media. We know the political super cycle is coming, and we already have the clients in the bank. Lena Petersen: So a question came in asking for you to elaborate on the comments about advocacy agencies and specifically seeing how they're seeing more work from corporate rather than political clients? Mark Penn: Yes. I think that in the long term here, I ran originally where you recall an advocacy, and we were always diversifying by the end of it, Microsoft was my biggest client. And so I think we're seeing those -- all of those companies now taking more public affairs, more particularly suited to local work around retail establishments in communities. We're seeing those kinds of assignments. We're seeing more nonprofits, universities, hospitals, those kinds of clients that really work well as they begin to really diversify. Remember, we've taken the whole Communications segment now and put it together into a single unit under a single manager. Lena Petersen: Excellent. So turning to new business. Laura at Needham was asking, could you dig a little deeper into the record net new business quarter? Can you talk about the areas where Stagwell is seeing strength? Or what verticals are driving the improvement in pipeline? And is the mix of your new clients changing? What are the margins on new clients versus historical client base? Mark Penn: Okay. So I think the -- in terms of new clients, I think digital transformation and creative are the 2 spots where we are seeing really strong flood of new business. I think that we're also -- as you can see, we're getting out there with the new products. But in terms of what I call the regular pitch flow, when I look at that and I look at the wins and the wins are significantly ahead of what we've ever seen, and so I think that's kind of where the new ones. I think in terms of margin for the new clients, I think those margins are at or better than the previous. I think that as we scale up to bigger clients, we are not finding that we have -- that the margin is going to be reduced on those clients. It's really quite the opposite. We have a lot of smaller, lower-margin clients that are sort of cycling out of the system. And just in terms of the fact that our longevity with larger clients is 5x our longevity with smaller clients, just what you spend on marketing and remarketing and getting those smaller clients, just taking that overhead out gives them a higher margin. Lena Petersen: So we have a number of questions coming in about the improvements in churn we're seeing in the business. Could you discuss what improvements in churn might look like through the rest of the year? And what impact we might -- that might have on our top line? Mark Penn: Yes. Look, our goal is to cut the churn by about 25% right? We've seen -- we've seen a change already as we've told kind of everybody to focus on it. We're putting in place the system, what I call the accountability system where every single client, no matter how small, we'll have someone responsible for it, has to report on it. Look, many of these are small projects. We don't count small projects, by the way, under $500,000 in net new business. But -- so we'll separate out the small projects from the clients that should grow, and we're really focused. But our goal, if we're successful, we could get 2 or 3 points of organic growth out of that system. I think we are trying a dual-track approach, double where we've been successful, obviously, in the net new business, put a real focus on trying to mitigate what's been taking us down, which is small client churn. And those 2 together, I think, are key factors here in improving organic growth over the next -- over this year and permanently. Lena Petersen: Okay. A question for Ryan. Could you talk about the key drivers of the 30% plus improvement in adjusted EPS this quarter? Ryan Greene: Yes, sure. So it's really a function of 2 things. We have seen significant growth in our adjusted EBITDA, which has increased our numerator, but we also have been aggressive with our share buyback, purchasing 7.3 million shares in the quarter for about $45 million. And so we lowered the denominator with us realizing the stock has been undervalued. We've got aggressive, and we're seeing the reflect of that in our adjusted EPS growing 31%. Lena Petersen: Great. I think we have time for one more question from Jeff at B. Riley. He's asking a question about the macro. What are you hearing from your client base regarding if and how they might alter their marketing plans as a result of the Middle East conflict, oil prices or headwinds and the macroeconomic impact that could materialize if the conflict is prolonged? And what assumptions are you making about potential macro impact included in your guidance for 2026? Mark Penn: Well, look, I think the only direct impact on us is Mid East tourism is not exactly the flourishing at the moment. We expect, though, when this is over, it will bounce back quickly and that a lot of these clients will then -- they will be like post pandemic, but that is -- but really only about 3% of our business is out there, but it is -- but that is some impact on us. We are not right now, as you can see, as the stock market continues, we don't see clients making contingency plans about this. We don't see clients pulling back about this. We don't see clients altering their plans right now. I think for those in America right now, remember, gasoline prices or oil prices were above $100 a barrel for 3.5 years of the Obama administration, parts of the Biden administration. This is not what we're -- this is not like a pandemic, massive pullback. We're just not seeing that right now. And we're -- remember, people are going to pretty much lock their holiday plans in the next 2 or 3 months. So there's not a lot of time here for change. We're seeing, in fact, tremendous investment in AI, tremendous focus on the fact that every company needs to redo its connection with AI. And we don't see any pullback from that whatsoever. And that and the political sphere, which is going to be, I think, again, a very strong season, no matter what happens in the Mid East, I think those 2 basic trends, which are the most important for us as a company are really strong and intact for this year. Lena Petersen: Okay. Our final question is a question from Jason. And what have you learned about the opportunities in the government sector over the past year? And how do you think the opportunity for Stagwell has changed as you've been engaged in these contract discussions? Mark Penn: Well, I set that out as an initiative that I knew would take time. I think that we've moved a long way in the initiative. As I say, you should see in the next 2 weeks, a formal announcement of the contract I alluded to, which is a real breakthrough. We've picked up 2 or 3 other smaller government-related contracts and assignments. But now we're really ready with the team, the accounting, the structure in order to bid on the largest contracts like the post office and the Navy to bring in good partners to, because these are massive contracts and to really to compete. And for the first time, I think, for some of these agencies to have a brand-new competitor. And so far, I can say from the ones that we've won or just about to win, that has played out pretty well for us. Lena Petersen: On that note, that was our last question. Thank you to everyone for joining us. We'll see you next quarter.
Operator: Good day. My name is Ali, and I will be your conference operator today. I would like to welcome everyone to the Insperity First Quarter 2026 Earnings Conference Call. [Operator Instructions] And please note, this conference call is being recorded. At this time, I would like to introduce today's speakers. Joining us are Paul Sarvadi, Chairman of the Board and Chief Executive Officer; and Jim Allison, Executive Vice President of Finance, Chief Financial Officer and Treasurer. At this time, I'd like to turn the call over to Jim Allison. Mr. Allison, please go ahead. James Allison: Thank you. We appreciate you joining us today. Let me begin by outlining our plan for this afternoon's call. First, I'm going to discuss the details behind our first quarter 2026 financial results. Paul will then comment on 3 strategic initiatives in 2026: Our margin recovery plan, our efforts to rebuild growth momentum, including the HRScale rollout and our AI initiatives. I will return to provide financial guidance for the second quarter and full year 2026. We will then end the call with a question-and-answer session. Before we begin, I would like to remind you that Paul or I may make forward-looking statements during today's call, which are subject to risks, uncertainties and assumptions. In addition, some of our discussion may include non-GAAP financial measures. For a more detailed discussion of the risks and uncertainties that could cause actual results to differ materially from any such forward-looking statements and reconciliations of non-GAAP financial measures to their comparable GAAP measures, please see the company's public filings, including the Form 8-K filed today, which are available on our website. Today, we reported adjusted EPS for the first quarter of $1.31 and adjusted EBITDA of $103 million. Each of these results exceeded the midpoint of our expected range. Our quarterly results included outperformance in gross profit and operating expense management, partially offset by slightly lower-than-expected unit growth. The average number of paid worksite employees came in at the low end of our forecasted range at 303,049, a 1.0% decrease versus Q1 2025. As you may recall from last quarter's call, our fall campaign sales and year-end client retention were both impacted by our margin recovery efforts, which we included in our paid worksite employee guidance. Worksite employees paid from new client sales declined by 7% compared to Q1 2025. Client attrition totaled 11% in Q1 2026, within our historical range of 9% to 12%. Net hiring within the client base was in line with our forecast and slightly higher than Q1 2025, but the hiring occurred later in the quarter than we had expected, which impacted the average worksite employees paid for the quarter. Paul will discuss our worksite employee results in more detail in a few minutes. Total gross profit in Q1 2026 decreased by 3% to $302 million. This represents a significant improvement compared to the 21% decline that we experienced in Q4 2025 and demonstrates the progress of our margin recovery plan. Gross profit per worksite employee in Q1 2026 was $332 per month, which is slightly above our forecast and within our range of expectations. The favorability was primarily driven by lower-than-expected benefit costs, partially offset by the lower worksite employee volume. Benefit cost per covered employee increased 5% over Q1 2025, which is a solid improvement compared to the 9% level we encountered throughout last year. Much of this improvement was expected, driven by the positive impacts of a favorable client mix change during our year-end client transition that was influenced by our pricing and client retention strategy, our plan design changes and our new contract terms with UnitedHealthcare. It is important to note that the new UnitedHealthcare contract is anticipated to have a positive impact of helping to flatten our quarterly earnings pattern starting this year with less expected earnings early in the year and more expected earnings later in the year. This is primarily the result of the pooling level change from $1 million per member per year down to $500,000. The new pooling limit includes a higher fixed premium that is charged evenly on a PEPM basis throughout the year, while the claims reimbursements are likely to be significantly weighted towards the latter quarters of the year. While it is still early in the year, we are pleased with the progress of our margin recovery plan and the lower-than-expected Q1 benefits cost. We have seen several positive signs contributing to these results, including slightly favorable runoff of prior period claims, reduced large claim activity and lower-than-expected pharmacy claims. At the same time, we remain cautious about the range of potential outcomes for the remainder of the year, which I will discuss later in the call. Total operating expenses decreased by 1% to $240 million in Q1 2026, which includes a $9 million restructuring charge primarily related to severance costs associated with the recent workforce realignment. Excluding the impact of the restructuring charge, our operating expenses decreased by 5%. During Q1 2026, we invested a total of $13 million in HRScale, including $8 million in operating expenses and $5 million in capitalized costs. This compares with $13 million in Q1 of 2025, all of which was expensed. For Q1 2026, the effective income tax rate for purposes of adjusted EPS was 41% versus 29% in Q1 2025. This significant change was the result of our lower stock price, which reduces our tax reduction related to the vesting of stock compensation. Since the vast majority of our stock compensation vests in Q1 of each year, our effective tax rate is expected to normalize for the remainder of the year. The higher effective tax rate for Q1 2026 had a negative impact on adjusted EPS. Our adjusted EPS of $1.31 was 17% lower than the $1.57 we reported in Q1 2025, while our adjusted EBITDA of $103 million was 1% higher than the $102 million we reported in Q1 2025. During the first quarter, we continued to return capital to our shareholders through our regular dividend program, paying $23 million in dividends, along with the repurchase of 171,000 shares of stock at a cost of $4 million. We ended the quarter with $36 million of adjusted cash. The decrease in adjusted cash was primarily the result of various seasonal working capital fluctuations including the timing of certain corporate payroll, health care and software maintenance contract funding. As of March 31, 2026, we had $380 million in unused capacity under our credit facility, of which approximately $330 million is available to borrow. At this time, I'd like to turn the call over to Paul. Paul Sarvadi: Thank you, Jim. Thank you all for joining our call. Today, I plan to cover 3 main areas. First, I'll share insights on our strong earnings results in Q1 and how we're executing our strategy for margin recovery this year. Next, I'll talk about our actions to regain growth momentum throughout the remainder of the year, especially as we navigate macroeconomic challenges in the SMB sector. Lastly, I'll provide our perspective on the evolving AI landscape and highlight the opportunities ahead for Insperity's strategic HR services, technology and expertise. We are pleased with our Q1 earnings results, which reflect the effectiveness of our efforts to overcome the health care claims margin pressure experienced in 2025. As we discussed last quarter, our 3-year plan prioritizes margin recovery in year 1. The main drivers behind our successful margin recovery are our new agreement with UnitedHealthcare, our benefit plan design changes, our strategic pricing and client selection and our improvements in operating efficiency. We believe these strategies and tactics provided the desired step-up in margin to begin the year, and we continued these actions throughout Q1. We plan to continue this emphasis throughout the balance of the year with the objective of achieving a substantially full recovery as we move into 2027. Our second priority for this year after margin recovery is regaining our growth momentum as we work to build the foundation for balanced growth and profitability in year 2 of our 3-year plan. Worksite employee growth is driven by our client sales and retention and the net change in employment within the client base. So let's look at each one of these to understand our outlook for the timing of regaining growth momentum coming out of Q1. I mentioned last quarter as we focused on margin recovery, we expanded our tools, processes and client-sponsored benefit options to support client selection and pricing for new and renewing accounts. While we can clearly see these steps supported our gross profit recovery, they also contributed to lower-than-expected booked sales and client retention. The effect on sales continued in Q1 as booked sales came in below our internal targets, except for our 3 HR360 mid-market sales. We have evaluated the processes and the outcomes and have recently implemented key learnings we believe will improve our booked sales results over the balance of the year. Our ongoing efforts to improve HR360 and HRCore sales, combined with our new growth catalyst, HRScale, are expected to contribute to our growth momentum. I'm very pleased to report today our initial HRScale beta clients were effectively onboarded in March and payrolls and invoices were processed in April as scheduled. We are off and running and the pipeline for HRScale clients is building. We believe HRScale is an unparalleled comprehensive solution that combines Insperity's flagship HR services and compliance expertise with Workday client-facing technology. We believe it's a growth catalyst for 2 reasons. First, it addresses our historical success penalty where clients we have helped grow and mature decide to leave Insperity for technology built for larger firms. Second, we believe we will sell many more new larger accounts since this combination of technology and services are a hand-in-glove fit for the mid-market space of businesses with 150 to 5,000 employees. Our early sales effort indicates that we are right on track. We currently have signed commitments for nearly 6,000 worksite employees to be on board within the next 6 months. We also have sales activity ramping up significantly, including meetings, demos, bids and closing negotiations for both current clients planning to upgrade and new clients attracted to our unique comprehensive HRScale service and technology solution. Our sales and marketing efforts for HRScale have also been refined based on the specific advantages that have resonated with business leaders. In particular, they view HRScale as a lower-risk decision due to the lower upfront investment, reduced time to value and lower ongoing costs compared to typical HCM and HR service vendor combination in the mid-market space. We are actively engaged in the HRScale sales process with new and renewing accounts, targeting start dates of January 1 and each quarter of next year. We believe our HRScale ramp-up could play a significant role in regaining growth momentum as we move into 2027. On the client retention side, while our strategy resulted in persistent attrition at the higher end of historical levels, we are seeing the desired impact as a greater percentage of departed clients were less profitable accounts, resulting in overall improvement in client profitability. We expect the slightly higher attrition to continue but moderate over the course of the year due to the smaller number of accounts renewing monthly and improvements we have put in place. The third contributor to our worksite employee growth metric is the net change in the existing clients' employee base. This continued to show volatility in Q1, turning negative in February and positive in March. We are cautious about the potential impact of the ongoing international conflicts and macroeconomic factors, including inflation fears and lingering uncertainty about tariffs, which could affect small business expansion or hiring. Consistent with recent NFIB surveys, results from our business outlook survey shows a notable shift in sentiment with small- and medium-sized businesses becoming more cautious since January, particularly regarding the wider economy. More clients now anticipate economic challenges in the coming year. Worries about the economy have grown significantly as 54% of respondents expect a negative impact on their businesses, an increase from 42% in January, while only 25% foresee positive effects, down from 37%. Optimism among clients has decreased compared to previous quarters. Nevertheless, most, 64% still believe they'll perform better in 2026 than 2025, although this figure has modestly dropped from 70% in January. Our survey reveals that clients are showing less confidence regarding increases in compensation, hiring, net earnings and sales volume. There's also a marked rise in expectations for higher capital asset costs compared to January, indicating greater sensitivity to cost and inflation awareness. The actual small- and medium-sized business data that we monitor as employment indicators align with this decline in business leader sentiment. Overtime, as a percentage of base payroll and commissions paid to the sales staff of our clients were both below historical thresholds that typically have preceded increases in hiring and pay raises. So in this environment, our paid worksite employee growth came in at the low end of our range. Based on the starting point for Q2, combined with our continued emphasis on margin recovery and the sentiment in the small- to medium-sized business community, we expect the low point of our previous worksite employee range to be closer to the midpoint of our new guidance. However, we expect continued progress on margin recovery to offset the shortfall from lower worksite employee volume. And as a result, we are reiterating our original adjusted EBITDA guidance for the year. Now I'd like to discuss how artificial intelligence is changing the landscape and could become a driving force for Insperity in the years ahead. First, we'll look at broad employment challenges and how AI might affect the workforce. While the labor market faces risk of displacement, there are also exciting growth opportunities as AI sparks the rise of new businesses. AI is actively transforming the workplace by automating various tasks, which is expected to impact many roles, although white collar and entry-level positions are widely expected to experience the most upheaval. AI is also boosting productivity and generating new roles. So far, this shift has only slightly affected overall employment. This shift has the potential to contribute to a decline in traditional employment, while significant disruption in other roles such as coding may drive changes that require employees to acquire new skill sets to leverage AI effectively. We believe disruption and a high rate of change in employment can possibly affect the overall level of employment growth and volatility in the SMB sector. However, it also potentially magnifies the need for sophisticated HR services, technology and insights, which could substantially increase demand for Insperity's comprehensive HR solutions. AI is driving new business formation in the U.S. with applications reaching nearly 500,000 a month in Q1, especially in AI-focused sectors. Growth remained strong at about 12% year-over-year for Q1. AI appears to be expanding opportunities and making starting a business easier, leading to record entrepreneurship among small and midsized companies. While past technology shifts like PCs and the Internet replaced jobs, they also boosted employment by fostering new businesses. Now as we drill down into our target of the SMB community, we see exciting possibilities for our HR solution offerings. As we roll out new AI agents alongside our AI-assisted HR experts, our strategy is to provide the flexibility to service our clients and worksite employees according to their preferences, while also streamlining our operations and accelerating our product development. SMB owners wear many hats and solution providers are increasingly becoming the principal avenue as channel partners for AI adoption among SMBs, utilizing established relationships to deliver secure and practical AI solutions that these businesses may find challenging to implement independently. Insperity is exceptionally well positioned as a premium HR channel partner to assist top-performing small- and medium-sized businesses in managing disruptions and personnel challenges resulting from AI-driven transformations. Our recent survey of our small and medium-sized business clients indicates that AI adoption is progressing. However, it does not appear to be driving widespread workforce changes yet. 62% of our clients are piloting or integrating AI primarily to support staff, facilitate routine operations and improve customer service. We're leveraging our service using AI with our proprietary agent strategy. We started by implementing this solution internally in HR and payroll, resulting in higher productivity and service quality. We will soon expand this HR360 agent to help HR360 clients navigate the platform, find answers they need and boost engagement. This tool acts as a copilot, removing barriers and increasing value for PEO customers. The next HR360 agent release will further improve client and employee experiences during major events, offering personalized support, faster onboarding and immediate access to expertise, while reducing our service workload and maintaining security. Our third HR360 agent version will include introduce conversational reporting using demographic and transaction data, shifting from static reports to real-time insights for better decision-making without the need for users to have advanced analytics skills. We're also applying AI across the software development cycle in an effort to accelerate product launches, improve developer productivity and enhance code quality through AI-enabled methodologies. As we look further ahead, we believe the nature of our business offers an exciting future for Insperity as the AI transformation continues to unfold. Despite technological advances, we believe human-to-human interaction remains essential and valuable in the human resource business. AI can deliver powerful data and insights, but when it's time to make the decision that affects the company and its people, there's no substitute for experienced human judgment and having Insperity standing shoulder to shoulder makes a profound difference. Our highest value for our SMB clients is the advice and support we provide through a lens of trust, judgment, care and protection of their company and their people, both employees and their families. We believe AI will likely add value to the strategic HR services, technology and expertise provided by Insperity. At this point, I'd like to pass the call back to Jim. James Allison: Thanks, Paul. Our updated outlook for the full year 2026 is comprised of 3 primary drivers. First, we are revising our unit growth down to reflect both the weakening in small business economic sentiment and a slightly larger impact of our margin recovery plan on new client sales and client retention. Second, we believe that our margin recovery plan is slightly ahead of schedule, and we expect some continued improvement from favorable client mix changes related to our pricing and client renewal strategy. Third, we expect some continuation of the operating expense savings that we experienced in Q1. As a result, we continue to forecast adjusted EBITDA in a range of $170 million to $230 million for the full year 2026. With regards to worksite employee growth, we are forecasting a range of 303,000 to 307,000 for the full year 2026, which represents a decrease of 1% to 2.3% from 2025. We have adjusted each of the drivers of our unit growth in our forecast. After being at the low end of our forecasted range in Q1, our starting point for the second quarter is a little lower than previously expected. In addition, as Paul discussed, our new client sales and client retention have been revised due to weakness in small business economic sentiment and the impact of our pricing and client renewal strategy. We continue to analyze and revise our strategies to achieve our margin recovery goals while also focusing on regaining our growth momentum, and we have implemented some changes that we believe can have a positive impact on our sales and retention results as we progress through the year. We continue to expect net hiring within the client base to be in the low single-digit range, similar to last year, with some positive benefit of summer help in Q2 that should revert in Q3. Moving to margin recovery. We are pleased with the progress we have made to date, and we are forecasting some continuing improvement as we continue executing the plan throughout 2026. Some of the sales and client retention results that are a headwind to worksite employee growth also create a potential tailwind for margin recovery. We continue to see that the profitability of terminating clients, including the client terminations we know about for Q2 and Q3, has been significantly lower than the profitability of those we are retaining, producing a favorable change in client mix. We are also cautiously optimistic regarding the pricing and risk profile of our new client sales. It's important to note that many of the factors that drive our pricing results have the potential to positively impact cost trends over time. As I mentioned earlier, our Q1 benefit cost results were slightly better than expected, including lower runoff of prior period claims, reduced large claim activity and lower-than-expected pharmacy claims. While those results are generally consistent with the plan design changes and client mix changes that we've made, we are forecasting somewhat less favorability than we experienced in Q1. With regards to operating expenses, we continue to expect year-over-year reductions in 2026, driven primarily by lower headcount and lower HRScale expenses, partially offset by some increase in marketing spend and growth in the number of Business Performance Advisors, along with other inflationary cost increases. At this point, we expect continuing favorability in the remaining quarters of the year, but at a slightly lower level than in Q1 due to a few timing-related items. HRScale operating expenses are expected to be generally in line with our budget. We expect our full year effective tax rate for adjusted EPS purposes to be 36%. The effective tax rate for GAAP purposes could fluctuate from that based on the level of nondeductible expenses as a proportion of pretax income. We expect our weighted average outstanding shares to be approximately 38.5 million for the remainder of the year, primarily reflecting the recent stock compensation vesting. As a result of the revised effective tax rate and number of outstanding shares, our full year 2026 adjusted EPS guidance range is now $1.60 to $2.60. As for Q2 2026, we expect the average number of paid worksite employees to be in a range of 302,500 to 304,500, a decline of 1.5% to 2.1% from Q2 2025. We are forecasting adjusted EBITDA in a range of $18 million to $46 million and adjusted EPS in a range of $0.02 to $0.50. As I mentioned earlier, our quarterly earnings pattern is expected to be somewhat flatter than our typical historical pattern for 2 primary reasons. First, our pooling level change with UnitedHealthcare from $1 million per covered member per year down to $500,000 resulted in significantly higher premium charged evenly on a PEPM basis throughout the year, whereas the expected claims reimbursements in that program will likely be significantly weighted towards the later quarters in the year. In addition, as we execute our margin recovery plan throughout 2026, the positive impacts are expected to be more pronounced as we move through the year. At this time, I'd like to open up the call for questions. Operator: [Operator Instructions] Our first question is coming from Andrew Nicholas with William Blair. Daniel Maxwell: This is Daniel on for Andrew today. Just to start off, there's obviously a lot of moving pieces in guidance. But taking it all together, do you have any change to your expectation for gross profit per WSE? I know last quarter, you said you don't expect a recovery to pre-2025 levels, but would you still anticipate a year-over-year improvement on that line or more so in line with 2025? James Allison: Yes. So our original guidance included an increase in gross profit per employee compared to 2025 levels. We had mentioned last time that we didn't expect it to get back fully to 2024 levels. As we look at kind of where we are now compared to where we were coming into the year, we do think we're a little bit ahead of schedule on the profit recovery efforts. So we do think the gross profit per employee is likely to be a little bit higher than what we had in our original guidance. And between that and some additional favorability on the operating expense side, we expect that to be an offset to the lower worksite employee levels that we've guided to this quarter. Daniel Maxwell: Okay. Very helpful. And then maybe switching to more specifically on the WSEE front and the lowered guidance. It seems to imply that we're likely looking at year-over-year contractions in all of the remaining quarters of the year. Is that fair to say? Or do you have any other insight on what the sequential cadence of WSE declines might look like over the course of the remaining quarters? Paul Sarvadi: I think the best is to look at the big picture. We were forecasting minus 1.5% to plus 1.5% when we started the year. But based on the sales and retention levels in Q1 and in addition, the sentiment change that was quite dramatic that we saw based on macroeconomic and international conflicts, et cetera, causing a pause in the small, midsized business community mindset. That's what's driving us down to the range that we have now, which is -- makes that low end of minus 1.5% to be more like the midpoint. But we have a fairly narrow range on that for the year in number of worksite employees is what's in the press release, the range. And that's because once you get to this point of the year, the sales and retention levels, the attrition is not like the year-end when you have so many that are attriting. And we're able to track that fairly well for what we are expecting. So there's not a lot of further reduction. It looks like the total year's midpoint of our range is around minus 1.5% growth. Daniel Maxwell: Okay. Understood. And if I could squeeze one more open-ended one in. I was wondering if you could just kind of frame any dynamics that you're seeing in the competitive environment, if there's anything worth calling out on the pricing front or any indication that competitors are being more aggressive on price or otherwise? Paul Sarvadi: Well, I think the competitive environment has had quite a bit of pressure over the last 1.5 years or so. And it's normal when you have the higher pricing that's going on, on benefit costs and other things to cause more shopping. And when that happens, that just causes more competitive pricing. But we are in a position where we continue to compare well and are able to give customers options for how to look at their future. And we have a significant competitive differentiation that is just launched in HRScale, which puts us in a completely different category. And that, we think, is going to be really significant as we go forward. Operator: Our next question is coming from Jeff Martin with ROTH Capital Partners. Jeff Martin: Paul, I wanted to dive into your sentiment survey results. Specifically, how are you seeing that affect, if you are seeing it affect the sales cycle for HRScale at all? Paul Sarvadi: On the HRScale front, it's kind of a little early for us to have a comparative -- to compare against some of the sentiment type issues. But no, we definitely have a significant pipeline building. There's quite a bit of enthusiasm around the uniqueness of this offering. And as I mentioned in my remarks, the part of our sales effort that actually hit budget was the mid-market area, where there's a lot of conversation, even though that area involves both HR360 for mid-market and HRScale. There's definitely tremendous energy around that, and we feel really good about that. The decision for HRScale and for mid-market HR360 customers is more of a longer-term decision. So generally not as affected by the immediate circumstances as the smaller companies. Jeff Martin: Great. And then for my follow-up, I wanted to dive into the sales productivity. If you could break that down between HR360 and HRCore? And then tied to that, how has the adoption of client-sponsored benefit programs been trending? Are you seeing that continue to be more commonplace than historically? Paul Sarvadi: Yes. Well, certainly, as we talked about on our last call in the fourth quarter, we really made a change in the sales process and some of the tools that we're using to identify customers and to look at how we wanted to offer components of what we do. We want to be more value-based talking about the full picture on the benefit side. We would determine whether being in our comprehensive plan is the right approach for that particular client. And these are new sales motions, new processes. So it took more in the first quarter to get these things working in a way and understood by the sales team and internally by those that are supporting the organization. So when you have a new sales motion, that takes some time to think things through and figure out exactly how to go about it. Now we did some real assessment of what worked, what didn't work, and we recently put in some new practices and tweaked, adjusted things, and we actually believe that's going to have some dramatic effect. But that's what you have to do when you are focused on margin recovery as the priority. Now having this very successful quarter where you can see what happened and see how that worked that is a breath of fresh air for everybody and immediately moves attitudes and activity back to positive direction. Operator: Our next question is coming from Mark Marcon with Baird. Mark Marcon: Paul, just with regards to HRScale, how many clients do you now have on it? And what are your expectations with regards to having it fully ramped and when the associated costs with that ramping will start falling off? How should we think about that? And then I've got a couple of follow-ups. Paul Sarvadi: Sure. Well, let me describe, first of all, the stage that we're at. Obviously, we just brought on. The first clients are on that new platform, that new entity on HRScale. And we are in that ramp-up phase of selling new accounts and selling current accounts to upgrade from HR360. So we have a significant pipeline already. And as I mentioned on my remarks, we have nearly 6,000 scheduled to be on board in the next 6 months on that program. We also, of course, are now beginning to sell accounts to be scheduled in because it's a 6-month period for us to do the deployment and enablement to bring them on board. So the way to look at it for now, of course, is that we are converting current accounts onto the platform. That doesn't add worksite employee count, but it adds retention for those customers for multiyear accounts and many were focused on the larger accounts. So it's a very positive foundational effect on retention going forward and pricing. Now in addition to that, we are now selling new accounts that are coming straight on to HRScale. And over the balance of this year, those accounts will largely be set to start January 1 or April 1 next year, July 1. There will be -- we will start literally filling the pipeline for those quarterly starts. And we'll, of course, start the deployment enablement as we sign those contracts. Now that will feed in directly into the growth momentum that we see for 2027 and beyond. So that should give you a picture of how to think about it. So in terms of how that offsets cost, obviously, we have the cost in here now for being able to do the deployment enablement. And as we ramp up this employee count, there's your revenue to offset those costs in addition to the actual deployment enablement fees, which is a new element that we have not had to offset those costs before. So it's -- again, it's a start-up of that business, but it's on a great track, and we really see it being a hand-in-glove fit for these target clients. The other point I wanted to make that I made in my remarks is that we have already seen a very clear picture in the business leadership evaluating this, they can readily see and feel that there's less risk to this decision than they've had to consider doing these things in a different way. Going through the traditional effort to have an HCM system and multi-vendors to provide the support services. There's a lot of risk around that because of the size of the investment, the length of time it takes to actually get to some realized value and ongoing ultimate cost. HRScale is very easy for them to understand how it has changed that equation. Mark Marcon: That's really encouraging. I was referring to just the implementation costs that you had outlined when you first announced the partnership and you talked about the incremental expense just on your end to implement it and to get the system up and running. I was just wondering if we could see some costs falling away either later this year or next year, just purely from your own systems development perspective now that you've got some clients on it and that you're getting ready to bring on more. James Allison: Yes. So we definitely expect that investment costs related to HRScale are going to decline in the second half of the year. We're kind of in a little bit of a stabilization period right now that we talked about in our last couple of quarters. But as we get through the second quarter, a lot of people and their time are going to be going to other things. I think that we'll still have a typical pipeline that you would have for any product from an investment standpoint going forward. One of the things that's happening is that people that have been involved in the investment side of this deal now transition to becoming the service providers, the onboarding resources, the service provider resources that actually go along with the revenue that is being generated. Other costs that are third-party costs, we expect to taper away. And then the third piece being some internal technology resources that get reprioritized on to other key initiatives that we're working on -- kind of working on next, if you will. So there's a variety of different places that those resources go. Mark Marcon: Got it. And then just on the health care costs and the benefit costs, if I heard you correctly, I think they were up like 5% year-over-year, which is a really good outcome given the level of inflation. Is that basically due to plan design changes that you were able to set through? And is it your expectation that over the balance of the year, that 5% will kind of hold in terms of benefit cost inflation on a per user basis? James Allison: Yes. I would say that the biggest impact is the client mix. So obviously, we've increased our pricing. And then you have the client mix change that comes from lower profitability, clients terminating higher profitability, clients staying, and that's kind of an embedded feature of the way we're playing out our strategy. I think that's a little bit bigger than of an impact on Q1 benefits cost and the plan design changes themselves. But the plan design changes also have an additive cost savings there. And then the third component being the new contract with UnitedHealthcare. And I think the one thing that we wanted to try to make sure we pointed out today is the impact of that is more back-end loaded than I think probably we have maybe clearly communicated in the past and are in some earnings estimates that are out there on the analyst side. We are paying a higher premium for the $500,000 coverage. The claim reimbursements and the exposure that we're not going to have on claims going forward is more back-end loaded in the year. So we are expecting there to be a little flatter impact to our quarterly earnings pattern. So that's a smaller impact on Q1, the new contract, and it will be significantly larger as we go through the year. Operator: Our next question is coming from Tobey Sommer with Truist. Tobey Sommer: I wanted to ask about your sales counselors and advisers, how you're thinking about growing those to drive growth beyond this year into '27 and '28. I'm sure you've been busy training, but trying to figure out how you can brute force some growth by getting more feet on the street. Paul Sarvadi: Thank you. We will be, over the balance of this year, modestly increasing the number of BPAs, BPCs, but we do not have to increase that as many to regain growth momentum substantially because of the average size of the HRScale accounts and how even have an HRScale available is increasing interest in HR360 mid-market accounts. So we believe there's a built-in factor that helps drive the growth based on the average size of clients where it doesn't take as many BPAs and BPCs. But we are expecting once we get into 2027 to have a more steady, continuous uptrend in the number of BPAs for the target small business market. James Allison: And I would add, we saw some solid growth in the BPA count even in Q1. So that process has already started underway, and we expect to add more as we go through the year. Tobey Sommer: And from a balance sheet and capital allocation standpoint, what are the priorities and expectations as you work your way through the balance of '26? Paul Sarvadi: So pretty much the same as it has been in terms of our prioritization, obviously, for investment. We've invested heavily the last couple of years in our new offering. And now we're at that breakpoint where the investment is tapering down, and we're about to see revenue start coming in. So that's the exciting part about that picture. But we also continue to have the same priorities with the Board on capital allocation and not seeing that change at this time. Operator: Our final question today is coming from Brendan Biles with JPMorgan. Brendan Biles: Appreciate you guys going through all the detail with us. Two questions for you guys. One probably more interesting and one boring one. So first of all, I'm curious, when you get a result back like you guys heard in the survey from your customers that everyone is a little bit more worried about the environment, people are concerned that their business might not do as well this year than it did last year, what levers are available to you to adjust your go-to-market to ensure that you're still kind of providing the most value possible to your clients and helping them through this time, so you can maybe maintain a little bit more share of wallet? And to what extent are you guys able to put that into place this year? And now my boring question, I'm sorry if I missed it. Just -- I know you called out the 2 things that led to the guidance revision? It was like macro and then also a little bit more churn from the pricing initiatives. To what extent are you able to attribute the revision between those? I know it might be tough and maybe just comes from some of both or is it coming from more one or the other? That would be great. Paul Sarvadi: Sure. No, we looked at -- on the 3 drivers for growth, remember, it's sales, retention and the net change in the client base. And all 3 of those are slightly lower than we were expecting when the year started. And so when you factor all those in, that's just going to affect you as the year goes on. We do change the messaging. We do emphasize different aspects of what we're doing to help client by client. We also, though, have on the sales and retention side, having this good quarter under our belt changes the dynamic for the environment for the selling and retention effort as the year progresses. And as I mentioned in the call, we have fewer to contend with on the renewal side because the heavy renewal period is behind us now. And so we see some optimism on moving forward. But it is affected. The lower starting point already makes the year -- you have to take down that projection for growth for the year like I said, so that means that, that low end of our previous range is now about the midpoint of our range for the year. So that kind of gives you a feel for that aspect. James Allison: And I think the one thing that I would add to that is if you look at the guidance range, obviously, we took a little bit more off the top side of that more than the bottom side of that. So the sentiment change has some impact on, I think, the top end, kind of where we are and what we've experienced so far changes the lower end a little bit more than the sentiment changes more at the top end. Paul Sarvadi: I think one more aspect on that, that's probably worth putting in there is that some of these things that affect that slightly lower growth on all 3 of those areas actually enhance the profit recovery mode that we're in. And actually, that's why there's a great offset between those 2 factors that were changing and still have very strong feelings about our recovery for the full year. Brendan Biles: Yes, absolutely right. No, great to hear that the retained clients are the ones you want to hold on to anyway. Paul Sarvadi: Absolutely. Operator: Ladies and gentlemen, we have reached the end of our question-and-answer session. So I would like to turn the call back over to Mr. Sarvadi for any closing remarks. Paul Sarvadi: We just want to thank everybody for participating today, and we're excited that we have reached that first milestone of our profit recovery, and we will be working to regain growth momentum as the year progresses. Thank you for your participation today, and we look forward to being in touch with you either out in the marketplace or on our next call. Thank you. Operator: Thank you, ladies and gentlemen. This does conclude today's call, and you may disconnect your lines at this time. And we thank you for your participation.
Operator: Good morning, and welcome to Bandwidth's First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ankit Hira of Investor Relations. Please go ahead. Unknown Executive: Good morning, and welcome to Bandwidth's First Quarter 2026 Earnings Call. I'm joined today by David Morken, our CEO, and Daryl Raiford, our CFO. They will begin with prepared remarks, and then we will open up the call for Q&A. Our earnings press release was issued earlier today. The press release and an earnings presentation with historical financial highlights and a reconciliation of GAAP to non-GAAP financial results can be found on the Investor Relations page at investors.bandwidth.com. During the call, we will make statements related to our business that may be considered forward-looking, including statements concerning our financial guidance for the full year 2026. We caution you not to put undue reliance on these forward-looking statements, as they may involve risks and uncertainties that could cause actual results to vary materially from any future results or outcomes expressed or implied by the forward-looking statements. Any forward-looking statements made on this call and in the presentation slides reflect our analysis as of today, and we have no plans or obligation to update them. For a discussion of material risks and other important factors that could affect our actual results, please refer to those contained in our latest 10-K filing, as updated by other SEC filings. With that, let me turn the call over to David. David Morken: Thank you, and welcome, everyone. Bandwidth has entered 2026 with historic momentum. In the first quarter, we exceeded our expectations with record revenue of $209 million, up 20% year-over-year, and record first-quarter adjusted EBITDA of $26 million. Based on this performance, we are raising our full-year outlook. These results represent far more than a quarterly beat. They are a definitive proof point of our structural advantage in a technology sector undergoing a profound transformation. Our global communications cloud and Maestro orchestration layer are essential infrastructure that make voice AI possible. Bandwidth is flourishing as the mission-critical foundation for the AI-driven enterprise. Thank you to our customers for growing and innovating with us and to our Bandmates for your amazing work. And I thank God for giving this team the opportunities to serve together. We are executing against a clear strategy to power mission-critical communications for the AI-driven enterprise. For voice AI to succeed in production, it requires ultra-low latency, carrier-grade reliability, and deep regulatory control capabilities that only a company that owns the underlying network can provide. This is our moat. It creates durable advantages in economics and performance that are impossible for virtual providers to replicate. We are no longer just enabling AI, we are orchestrating it. Through our Maestro platform, we participate in every interaction, allowing us to capture more value as customer usage grows. As AI increases the frequency and complexity of interactions, our model allows us to grow revenue per interaction, not just per minute. We are seeing this play out as customers deploy AI into their live workflows and rely upon our platform to support mission-critical interactions. A key example is our expanded partnership with Salesforce. We recently announced that Salesforce selected Bandwidth as its critical infrastructure partner to power voice and messaging for their groundbreaking new agent force contact center platform. Salesforce is fundamentally rearchitecting the contact center for the AI era, bringing together its customer data, digital engagement, and agentic AI capabilities into a single AI-first platform. In Salesforce's vision, Agentforce contact center becomes a native execution layer for CRM. This gives enterprises a single source of truth to achieve faster, more intelligent customer engagement. Salesforce is a long-time customer and to realize its bold vision for Agentforce, they turned to Bandwidth once again as their critical infrastructure partner. Only we are able to deliver the unique combination of network ownership, real-time orchestration, and global regulatory expertise required to support Agentforce's high-volume AI-driven interactions. This is the result of our years of powering hyperscalers and all the Gartner leaders in CCaaS and UCaaS. In our partnership, Salesforce has embedded Bandwidth's Communications Cloud directly into its governed workflows, enabling the control, observability, and integration depth required for agentic interactions at scale. This is significant for 2 reasons. First, it adds CRM as a new category of platforms we power. In addition to CCaaS, UCaaS, and conversational AI leaders, we are now partnered with the leading CRM platform as it becomes the system of execution for customer engagement. This expands our total addressable market and positions us to capture meaningful share as CRM platforms take on a larger role in customer interactions. Second, it reinforces our emerging role as critical infrastructure embedded inside governed workflows, where every interaction represents a unit of usage and value creation. This is a blueprint for how we expand value by embedding deeper into core enterprise systems and participating in more workflows on our platform. As agent force adoption grows, we believe revenue will build over time. With AI becoming the primary interface for customer engagement, the traditional contact center stack is being rearchitected around Agentic workflows. We have a long history of working closely with the leading CCaaS providers, and they continue to innovate and invest in exciting new AI capabilities. The evolution of the category will expand the range of platforms enterprises can choose from, and Bandwidth is positioned to support them all. Our open platform strategy ensures that, regardless of which application or AI provider an enterprise selects, Bandwidth remains the underlying communications infrastructure. We're seeing the same need for mission-critical infrastructure play out in highly regulated industries, particularly in financial services, where we've secured large wins over several consecutive quarters, including 2 new million-plus deals. The first is with a leading U.S. consumer financial services company that has over 70 million active accounts. This customer selected Bandwidth to replace its legacy telecom provider and migrate its contact center to the cloud through our Maestro integration with Genesys and our ultra-reliable Call Assure toll-free voice solution. Our solution delivers the reliability, control, and integration they needed while also enabling their transition to AI-driven customer engagement. We're now positioned for significant expansion as the customer integrates AI into the next phase of their customer experience transformation. Our second $1 million-plus deal during the quarter is with one of the largest mutual life insurance companies in the world. This customer selected Bandwidth to replace a long-standing legacy carrier. Like many enterprises in regulated industries, this customer required both performance and trust, areas where our owned network and integrated platform provide a clear advantage. Their comprehensive customer experience transformation leverages our Maestro integration with Genesys, our call assured toll-free voice, and our trust services, including call verification and number reputation management. Cost savings from modernization are being reinvested into new AI services, which could further increase usage on our platform, redirecting spend away from legacy systems and toward more intelligent, scalable customer engagement with bandwidth. These examples demonstrate our continued strong momentum in financial services, where scalability, compliance, and resiliency are nonnegotiable. Standardizing on bandwidth enables best-in-class integrations, intelligent call routing, built-in failover, and a clear path to deploying new AI services. This is a land-and-expand model where the initial platform wins immediately demonstrate Bandwidth's value proposition, leading to higher usage, increased software attachment, and long-term, durable revenue growth. We're seeing a similar dynamic play out in our messaging business, where enterprises need a robust, reliable platform partner to scale real-time customer engagement across digital channels. During the first quarter, we won an additional high-volume messaging customer with major consumer brands across the retail and restaurant verticals. This customer reached a level of throughput where their previous large provider could no longer meet their requirements and switched to Bandwidth for our proven delivery performance and ability to scale, particularly as they manage tens of millions of messages per month across short code, 10DLC, and toll-free channels. As they add new AI workflows to automate campaign management and customer interactions, Bandwidth's messaging platform and campaign registration tools ensure reliable execution. This example shows how we're extending the same land-and-expand model into messaging. As customers grow and scale their engagement, activity flows directly through our platform, driving revenue and margin performance over time. In addition to our customer acquisition success in voice and messaging, we are increasingly supporting a growing ecosystem of AI developers building vertical applications on top of our platform. We're seeing continued momentum in this space with developers building Agentic solutions across a wide variety of use cases from restaurants and hospitality to health care, home services, and customer support, where real-time voice and messaging are central to the customer experience. These AI app developers are choosing Bandwidth for the same reasons as our enterprise customers, the ultra-low latency, reliability, and scalability required to run AI applications in production, along with the orchestration capabilities of Maestro. As enterprises increasingly adopt verticalized applications built by third-party developers, Bandwidth becomes the essential communications layer powering additional usage on our platform. In summary, we are the mission-critical communications platform for AI-driven enterprises. First, we are executing against a clear and consistent strategy to power mission-critical communications for the AI-driven enterprise, and we are seeing this focus translate into large enterprise adoption across our platform. Second, we are expanding our role inside governed customer workflows as AI moves into production. And third, we are scaling a business model that drives increasing usage, expands revenue per customer, and delivers exceptional incremental gross profit growth. Taken together, we are positioned as the mission-critical communications platform for AI-driven enterprises. Now I'll turn it over to Daryl to walk through the financial details of the quarter. Daryl Raiford: Thank you, David, and good morning, everyone. Bandwidth's 2026 is off to a historic start. Our first quarter performance was exceptionally strong, with demand for both voice and messaging exceeding our projections and driving results above the top end of our guidance ranges. This robust momentum across all key financial metrics, including revenue, gross profit, adjusted EBITDA, non-GAAP earnings per share, and free cash flow, has given us the confidence to raise our financial guidance for the full year. Our market performance and execution underscore the depth of our competitive moat and the resilience of our business model as we continue to scale our cloud communications platform and drive long-term value for our shareholders. Now diving into our first quarter 2026 results. Total revenue was $209 million, an increase of 20% year-over-year. Cloud communications revenue, which is total revenue less messaging surcharge revenue of $59 million, reached $150 million, a 13% year-over-year increase, driven by growth across our core communications platform. Non-GAAP gross profit of $89 million increased 14% year-over-year and marked another quarter of improving gross profit yield on incremental cloud communications revenue. Non-GAAP gross margin improved 50 basis points to 59.5%, illustrating the structural margin advantage of our unique global owned and operated communications platform. Adjusted EBITDA grew by 17% to $26 million, driven by gross profit growth and the scale of higher revenue across our operating expense base. Non-GAAP earnings per share rose to $0.38, representing 6% growth, and operating cash flow grew significantly to yield essentially breakeven free cash flow, representing a marked year-over-year improvement despite the typical first quarter working capital cycle. Focusing on our first quarter cloud communications revenue growth, both voice and programmable messaging solutions exceeded our expectations. For our voice solutions, we reported revenue of $121 million, growing 12%. Both of our voice market categories contributed to the total voice growth. Within our global voice plans category, we saw broad-based demand-producing revenue growth of 12% year-over-year, underscoring both the strength and durability of our installed customer base and the tailwind of AI-influenced voice usage. For our enterprise voice category, revenue grew 14% year-over-year to $13 million. Growth was driven by both recent customer additions and increasing momentum as enterprises scale on our Maestro platform. In programmable messaging, revenue rose 15% year-over-year to approximately $30 million. This performance exceeded our projections, particularly given the typical first-quarter seasonal headwinds we often encounter. Turning to our operating metrics. Our reported net retention rate for the first quarter was 102%. Adjusted to normalize the cyclical political campaign revenue impact, our commercial net retention rate was a healthy 110%. We believe this adjusted view more accurately reflects underlying organic commercial demand and customer expansion. Customer name retention remained well above 99%, indicating near 0 customer churn, a remarkable and unique track record that we expect to continue. Average annual revenue per customer reached a new high of $244,000, reflecting the mission-critical nature of our platform and deep integration with our customers. Taken together, these metrics demonstrate continued expansion within our existing customer base as customers increase their usage, adopt more of our services, and deepen their reliance on our platform. In the first quarter, we progressed our balanced capital allocation strategy. We deployed approximately $11 million in cash to mitigate share dilution by 700,000 shares, while repurchasing $100 million in aggregate principal of our 2028 convertible notes at a discount to par. This resulted in a long-term debt leverage ratio of less than 1.25x. Shares acquired under our $80 million repurchase authorization were purchased at an average price of $15.93. Looking ahead, we intend to maintain this opportunistic approach, prioritizing debt reduction and dilution management while remaining steadfast in our commitment to prudent cash flow management and a strong, flexible balance sheet. Turning to our second quarter 2026 outlook. We expect revenue to be in the range of $214 million and $220 million, representing 20% growth year-over-year, adjusted EBITDA to be in the range of $24 million and $27 million, representing 20% growth year-over-year, and non-GAAP EPS to be in the range of $0.35 and $0.37. Turning to our improving full-year outlook. We are raising our full-year 2026 guidance to reflect the first quarter beat and continued demand strength. Our positive outlook for the remainder of the year is underpinned by 3 significant growth catalysts. First, the transition of AI-driven traffic into high-volume production. We are seeing a marked acceleration in our global voice category as AI voice agents move beyond the pilot phase into full-scale deployment. This organic growth is generating volume that leverages the carrier-grade reliability and ultra-low latency of our owned network, further expanding our competitive moat. Second, a robust enterprise pipeline is poised for a second-half inflection. We expect growth to accelerate as our record pipeline of large-scale deals completes onboarding. Our role as a mission-critical partner is validated by Salesforce selecting Bandwidth to power agent force alongside our significant $1 million-plus wins in financial services this quarter. These partnerships cement our position as the foundational infrastructure for next-generation engagement. Third, the continued expansion of high-margin software services. As enterprises integrate more deeply with our platform, they are increasingly adopting unique services within the Bandwidth Communications Cloud. During the quarter, software services revenue nearly doubled year-over-year, with its sequential ARR exit rate growing 67% to $25 million. This provides a powerful tailwind for both long-term business durability and incremental profitability as we scale. We now expect the full year 2026 total revenue to be in the range of $880 million and $900 million, representing 18% growth year-over-year at the midpoint compared to our prior range of $864 million and $884 million. Within total revenue, we expect Cloud Communications to be in the range of $616 million and $624 million, representing 10% growth year-over-year at the midpoint. The adjusted EBITDA outlook is in the range of $119 million and $125 million, representing 31% growth year-over-year at the midpoint compared to our prior range of $117 million and $123 million. Non-GAAP EPS to be in the range of $1.77 and $1.83, representing growth of 26% year-over-year at the midpoint. Compared to our prior range of $1.66 and $1.74. Additional modeling details underlying our full-year 2026 outlook are as follows: We expect net interest expense to be in the range of $1 million and $3 million, depreciation expense to be in the range of $38 million and $42 million, adjusted effective tax rate to be in the range of 20%, and 21%; weighted average diluted shares outstanding of approximately 35 million. And for capital expenditures, we expect these to be in the range of $24 million and $26 million. With that, I'll now turn the call over to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from?Erik Suppiger?from B. Riley Securities. Erik Suppiger: Congrats on a solid quarter there. Can you speak a little bit about some of the developments going on with some of the frontier model providers like Google and OpenAI in terms of their advances in their ability to support AI voice technologies, and is that making a difference to Bandwidth? David Morken: Yes, certainly, and thanks for joining, Erik. There are a number of these announcements just in the last 10 days, I think most recently, the voice model that Brock came out with for that Gemini OpenAI. These models are focused on improving the text-to-speech, speech-to-text legacy experience that has a number of different challenges associated with it. So we're excited about the voice focus that the frontier models have. It really does accelerate lots of the performance and quality for voice agents, and that is very favorable as a tailwind for our platform and our approach to serving voice agents globally on our platform. Erik Suppiger: Are they putting much behind marketing those services? And are you fully capable of integrating with those services? David Morken: So on the first point, they have been very forthright and expansive in talking about the new voice-focused models. In fact, one of them talked about it displacing one of their sister company's contact center legacy experience and resolving 70% of tickets in the contact center environment just with that voice model last week. So these things have just been announced. There's no reason that we shouldn't be able to support voice agents utilizing these models fully, and that they will complement the quality that we offer for PSTN delivery of voice agent experiences again across 80 countries plus. Operator: Our next question comes from Patrick Walravens from Citizens. Patrick Walravens: Dave, congratulations to you and all the Bandmates. Fantastic. So 2 questions. I guess one is a follow-up. So first of all, can you tell us a little bit more about the Salesforce partnership? In your remarks, you talked about how they're fundamentally rearchitecting the contact center. Tell us a little bit more about that and where you fit in? And also, are customers buying into the way they're fundamentally rearchitecting the contact center? David Morken: Pat, thanks. I appreciate the congrats. And I want to also congratulate our Chief Operating Officer, Navesh Agrawal, for delivering fantastic results with all of our Bandmates. To answer your question on Salesforce, I think the team at Salesforce, Mark Benioff, the long-time founder and CEO, and their whole team have a compelling vision for every sales call to be a conference call. And that vision of having an agent aware of all the context of your customer experience is powerful. And we believe in it as well. So when we say that they are absolutely challenging the legacy assumptions around contact center, it's more like a context center now, where an agent is fully aware of all your needs, wants, wishes, your sentiment, and can share, suggest, complement, or correct a sales rep or an operations representative of your company in real time. So it is a revolution, no question about it. Their headless approach just last week, saying that they're taking the face off the UI and allowing agents to directly engage with the system of execution within their CRM Salesforce platform, is powerful. I don't think that it's it can be overstated very easily. And in terms of the second part of your question, Pat, are companies embracing this? I don't think companies have a choice. The level of intelligence that is now going to be available to real-time customer interactions through an approach like Agentforce is differentiated. It is competitively ahead of its peer group and cohort, and I think everyone will follow. Patrick Walravens: And so for my follow-up, if someone does, if you have a big airline or a big bank or whatever that decides that they're going to move forward with Salesforce on their new approach, how does Bandwidth make money? What are the dynamics there? David Morken: You bet. Great question. So we make money on a usage-based model based on interactions. So we are powering an announcement already on every one of those calls. And so when every call becomes a conference call, there are multiple usage components to that that we benefit from. And they're obviously relying on us for high, high quality, resiliency, footprint, all kinds of our advantages that we've enjoyed for the last 15 years. But our usage-based model is the approach we take to powering these experiences, and there are multiple units of usage now with AI involved. Operator: [Operator Instructions] ?And our next question comes from Joshua Reilly from Needham. Joshua Reilly: Maybe just starting off, global voice plan revenue growth was really strong at 12% year-over-year. I guess what are you seeing from these customers in terms of their adoption of AI driving incremental growth relative to maybe some other factors like new customer ramps. We know there's been a lot of million-plus customers ramping up there. Maybe you can just give us a sense of what was the relative driver of that strong 12% growth there. David Morken: Josh, thanks, and thanks for your good question. I've got with me today, John Bell, our Chief Product Officer. Let me invite him to respond to your good question. Yes. So we see broad-based adoption of AI and integration of voice agent technologies by our customers. Our customers are making it very easy for enterprises to realize real economic value from voice agents, and we see that consistently across our customer base. And in addition to that, we do see new entrants as well coming into the market, AI-native companies that we are enabling. We also announced our bandwidth build program, which allows new entrants to easily onboard as customers, and we're really excited about that as well. So, both a mix of existing customers integrating voice agents and driving their business, as well as new entrants coming into the market. Joshua Reilly: And then maybe just a follow-up on the $1 million-plus customers. If you look at the $1 million-plus customers that you added in 2025, would you say that all of those now are in the run rate here of revenue as of this point in 2026? And then how are you thinking about the net new $1 million-plus customers that you've added year-to-date thus far in 2026 relative to 2025? Can you add a similar number, even more $1 million-plus customers this year versus last year? Daryl Raiford: This is Daryl. I'll take that question. It's nice to speak with you. The short answer is no. The 6 million, much larger than the $1 million deals we announced last year, are not fully in the run rate right now. In fact, 5 of them are less than 50% deployed. With one being fully deployed and now nearly exceeding 120% of our initial estimated contract value. So we're really excited about what's to come when I said the inflection in terms of enterprise and second-half acceleration. And we're really excited about the one that has fully deployed and more because, as I said in the prepared remarks, as soon as that occurs, the client immediately understands the value proposition that the communication Cloud brings, and it allows for our land and expand and cross-sell, upsell model. So we're really excited about that. In terms of your second point about the momentum of enterprise, much greater than $1 million deals. We did announce two this quarter. We have a view into our pipeline, and we think that we're very much on pace with last year or to exceed. Operator: And the next question comes from Arjun Bhatia from William Blair. Arjun Bhatia: Congrats on the solid quarter here, guys. Maybe I'll start on the messaging side because I think you called it out early, but usually, there's a Q1 seasonality dynamic where there's a dip down in Q1 from Q4. But it seems like the year-over-year growth rate is actually accelerating there. So I'm curious what's driving that? Is that AI volumes starting to layer in? And how do you expect that to sort of play out through the rest of the year, even with political layering into the back half? Daryl Raiford: We were pleasantly surprised with the strength in programmable messaging, as you said. Given the typical seasonal headwinds that occur in the first quarter, we saw pretty strong commercial and civic engagement messaging. And of course, we had announced a couple of messaging customers who won last year that began to deploy and onboard more fully as well. So we had a favorable comparison for that. But yes, the market dynamics plus our customer onboarding exceeded our expectations. David Morken: And Arjun, I'd only add to that. This is David. That performance wasn't due to politics in the quarter. It was largely commercial, and that squares with the announcement that we had about our messaging win. That was a commercial consumer brand messaging platform for both retail and restaurant verticals, and that was a major win and consistent with the success we're seeing, which has nothing to do with the seasonal civic traffic. Arjun Bhatia: And then just maybe a broader question, if I can. And I don't know, maybe this is for you, Dave. But just as AI becomes more prominent, like what is the change you expect in the business to play out, not just through 2026, but over the next couple of years, it seems like your product is there, but how does it impact the revenue model, your visibility into your revenue stream, and the customers, maybe that you even are going to serve. I'm just curious what this evolution might look like for Bandwidth over the next couple of years. David Morken: We believe the next billion users of the global PSTN are significantly going to be voice agents. And so we're building for those agents, as are many other broad AI infrastructure companies. We've launched ways like a command line interface for agents to be able to autonomously sign up and secure service. We obviously know how to comply with know your customer while we do that. But look, over the next 2 years, to your good question, we're going to do a terrific job in being understood broadly as the best place for voice agents to speak with people around the world over the PSTN. We think we'll do that with differentiation on our vertically integrated universal platform and our global footprint. And we're starting to see the beginning of that, I think, in these results. But let me pause and invite John Bell, our Chief Product Officer, to also opine on your question. John Bell: Yes. And I would just add that a big part of our role right now is helping our customers transition to this new world and helping both the human agents and the voice agents work together in a harmonized way. That creates a very big opportunity for us, and a lot of value for our customers to help them quickly realize the economic value of voice agents in their businesses. Operator: The next question comes from Jim Fish from Piper Sandler. James Fish: Congrats on the agent force side of things. Just wanted to circle back on the political side. Was there any political messaging impact this quarter? David Morken: There was no meaningful political impact this quarter. Again, for full transparency, we are really believing that, that impact will be exactly like we've seen in the last 2 cycles, which is very second-half weighted, just given the dynamic of how campaigns work. We're calling in our guide for right at $15 million of political campaign messaging benefit, and that's what we see right now. So we haven't really changed that. As we get into the 1st of July and then beyond, we're going to have a lot better sense with our customers of where this campaign dynamic is headed, but we're looking for about $15 million net effect in cloud communications revenue this year, second half. James Fish: And then look, your new business looked pretty strong here. Agent force isn't even kind of in the numbers at this point from your language here. But what are you guys seeing with cloud conversions across the core unified and CX market? Are we finally getting to a point where enterprises are really starting to shift over towards the cloud, especially the CCaaS side? And could the new SEC proposals of more human onshoring here change anything for you guys underneath? David Morken: I'll handle the second part of your question first and then invite John to talk to the first, if I could. So nothing about the regulatory change augurs negatively for us. The voice agent revolution will apply equally. And if anything, I think it bodes well for the partners we work with and the call volumes we support. We've got an extraordinary global and domestic network underneath all of these initiatives. So we're not deterred or concerned about that migration or change at all. John Bell: Yes, I'd add. So the move to the cloud certainly enables a lot of enterprises to easily adopt voice agents, which we're excited about. But I would also add that a core benefit of Maestro is that even for customers who still have a lot of their human agents and the software for the human agents on-prem, we are still able to voice agent enable them. And that is a tremendous benefit of our Maestro platform. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to David Morken for any closing remarks. David Morken: Thank you, operator. In closing, our first quarter performance underscores Bandwidth's expanding role as the mission-critical foundation for the AI-driven enterprise. By combining our unique global owned and operated network with the increasing velocity of the Maestro platform, we are capturing more value as customers deploy agentic AI into live production workflows. Compared to prior cycles, our growth today is increasingly complemented by embedded AI workflows and software attachment rather than episodic traffic alone. Our raised full-year guidance reflects this momentum and the scale of our record deal pipeline. We remain committed to a disciplined capital allocation strategy that balances strategic investment in our AI moat with opportunistic shareholder returns, ensuring long-term value creation. Thank you very much. Operator: This concludes our conference call today. You may disconnect your lines. Have a nice day.
Operator: Good day, and thank you for standing by. Welcome to Twilio Inc. First Quarter 2026 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Rodney Nelson, VP, Investor Relations. Please go ahead. Rodney Nelson: Good afternoon, everyone, and thank you for joining us for Twilio Inc.'s first quarter 2026 earnings conference call. Joining me today are Khozema Shipchandler, Chief Executive Officer, Aidan Viggiano, Chief Financial Officer, and Thomas Wyatt, Chief Revenue Officer. As a reminder, we will disclose non-GAAP financial measures on this call. Definitions and reconciliations between our GAAP and non-GAAP results can be found in our earnings presentation posted on our IR website at investors.twilio.com. We will also make forward-looking statements on this call, including statements about our future outlook and goals. Such statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described. Many of those risks and uncertainties are described in our SEC filings, including our most recent Form 10-Ks and our forthcoming Form 10-Q. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We disclaim any obligation to update any forward-looking statements except as required by law. With that, I will hand it over to Khozema and Aidan, who will discuss our Q1 results, and we will then open up the call for Q&A. Khozema Shipchandler: Thank you, Rodney. Good afternoon, everyone, and thank you for joining us today. Twilio Inc. had a terrific Q1, accelerating revenue and gross profit to their highest growth rates in more than three years. We delivered over $1.4 billion in revenue, up 20% year-over-year on a reported basis, and drove 16% growth in both organic revenue and non-GAAP gross profit. We also generated $279 million of non-GAAP income from operations and $132 million of free cash flow. Today's results are the outcome of a multiyear companywide evolution that has fundamentally transformed Twilio Inc.'s innovation velocity, go-to-market efficiency, and financial rigor. In Q1, we continued to see unprecedented demand for voice reimagined through the lens of AI, which is increasingly an entry point to the Twilio Inc. platform for AI natives and enterprises alike. Customers no longer view Twilio Inc. as just a provider of communications channels. Instead, they are relying on us to be a foundational infrastructure layer for the era of AI. I cannot wait to unveil the next evolution of Twilio Inc.'s platform at SIGNAL next week. Our voice channel revenue grew 20% year-over-year, marking its sixth consecutive quarter of accelerated growth, with AI being a catalyst. We expect voice AI use cases will continue to evolve to be more conversational and cross-channel over time. We have already begun to see evidence of this as our customers expand their footprint on Twilio Inc.'s platform. For example, software add-ons such as branded calling and conversational intelligence both grew revenue more than 100% year-over-year. Our platform strategy is delivering immediate measurable ROI for our customers. As an example, Scorpion, a leading digital marketing and technology partner for local businesses, developed an AI agent by integrating voice, messaging, and Conversation Relay. In just three months, the agent boosted its booking rates by 39%, capturing 6,500 appointments that otherwise would have been lost, and generated $8.4 million in revenue. That same performance is why AI-native leaders like Sierra and Bland.ai are also deepening their relationships with Twilio Inc. Sierra, a leading customer experience AI company, signed a significant cross-sell deal to fuel their global expansion, while Bland.ai committed to a multiyear partnership to use messaging, voice, and software add-ons such as recordings and branded calling to power their AI agent platform. Finally, Twilio Inc.'s reputation for reliability is what won over a historic professional sports league, which signed a seven-figure deal to use Verify as the high-trust authentication layer for millions of fans. Messaging revenue growth also accelerated in the quarter, aided by strong growth in WhatsApp and RCS. RCS volume more than doubled quarter-over-quarter, and we saw significant traction in our international markets, inking notable RCS deals with KPN Netherlands to power RCS across all major mobile operators in the Netherlands and with TeleVox to enable RCS for organizations in regulated industries. We are encouraged by the continued strength in messaging even as carriers have raised fees on our customers, particularly small businesses. This is exactly why our platform strategy is so important. Our priority is to ensure our customers understand the choice of channels available to them, including over-the-top channels, so they can deliver on their use cases and cost-effectively reach their customers while maintaining high ROI. Our go-to-market initiatives continue to perform, with our self-serve and ISV cohorts driving exceptional revenue growth again this quarter at 25%+ year-over-year. On the self-serve front, we have made significant investments to simplify our onboarding and upgrade process, which has driven higher conversion rates. I am excited to share more on how we have reimagined the Twilio Inc. Console experience next week at SIGNAL. In Q1, the team also signed customers including Aloware, Grupo ProTG, Posh, Sella AI, and Solace, and landed a key multiyear partnership with the PGA of America. The PGA of America will be expanding their usage of the Twilio Inc. platform to power personalized engagement for 30,000 PGA of America golf professionals and millions of golfers. Without giving too much away today, next week at SIGNAL, we will launch some of the most consequential innovations in our company's history, introducing new capabilities that orchestrate context-rich conversations with persistent memory across every channel for humans and AI agents. We will also unveil new partners and, most importantly, we will show how Twilio Inc. is becoming the foundation for how businesses engage their customers in the age of AI. This moment in time demands a new kind of infrastructure, and Twilio Inc. has been building just that. It has been amazing watching our marquee customers experience Twilio Inc.'s new platform and products during our private beta, and many of them will be speaking about their early experiences at the conference. We cannot wait to share more on the SIGNAL stage in San [inaudible] in May. Twilio Inc.'s innovations continue to get analyst recognition, as Twilio Inc. was positioned as a leader in the inaugural IDC Worldwide Communications Engagement Platforms 2026 MarketScape, scoring highest in both strategies and capabilities. Twilio Inc. was also named a leader for the fourth time by Omdia in its CEP Universe report. This validation, coupled with our strong execution this quarter, illustrates why we believe that Twilio Inc. is truly positioned to be a critical infrastructure leader in the age of AI. Before closing, I also wanted to officially welcome Doug Robinson to Twilio Inc.'s Board of Directors. Doug is known for growing teams and businesses, helping to scale Workday to the multibillion-dollar business that it is today. His expertise will be invaluable at Twilio Inc. as we drive operational excellence and continue to transform our go-to-market organization. Welcome, Doug. I will now turn the call over to Aidan. Aidan Viggiano: Thank you, Khozema, and good afternoon, everyone. Twilio Inc. had an outstanding Q1, delivering revenue of $1.4 billion, up 20% year-over-year on a reported basis and 16% year-over-year on an organic basis, along with non-GAAP gross profit growth of 16%. We also generated record non-GAAP income from operations of $279 million. Free cash flow was $132 million. Top-line performance was driven by strong volumes and solid execution, resulting in our fastest organic revenue growth rate since 2022. Our self-serve and ISV channels delivered revenue growth of 25%+ in the quarter, and we are seeing strength across the product portfolio. Voice growth accelerated once again, with revenue up 20% year-over-year. We continue to see strong growth from voice AI use cases as well as accelerating growth in voice software add-ons. Messaging revenue growth accelerated to 25%, driven by solid growth in SMS and aided by strength in WhatsApp and RCS. Incremental carrier fees contributed roughly seven points to messaging's growth. Finally, software add-on revenue growth exceeded 20% year-over-year, driven by Verify and newer products such as branded calling and conversational intelligence. Our Q1 dollar-based net expansion rate was 114%, reflecting the improving growth trends we have seen in our business over the last several quarters. Incremental carrier fees contributed roughly four points to DBNE. We delivered record non-GAAP gross profit of $697 million for the quarter, with growth accelerating to 16% year-over-year, up from 10% in Q4 2025, our best non-GAAP gross profit growth rate since 2022. This was driven by continued momentum in our higher-margin products in addition to meaningful cost efficiencies. Non-GAAP gross margin was 49.6%, down 180 basis points year-over-year and 40 basis points quarter-over-quarter. We incurred incremental carrier pass-through fees of $46 million associated with increased U.S. A2P fees, which drove the year-over-year and quarter-over-quarter declines. Without these incremental fees, non-GAAP gross margin would have been 50 basis points higher sequentially. Q1 non-GAAP income from operations came in ahead of expectations at a record $279 million, up 31% year-over-year, driven by strong gross profit growth and continued cost leverage. Non-GAAP operating margin was a record 19.8%, up 160 basis points year-over-year and 110 basis points quarter-over-quarter, despite a roughly 70 basis point headwind from incremental U.S. carrier fees. In addition, we generated $108 million in GAAP income from operations. Q1 stock-based compensation as a percentage of revenue was 9.7%, down 220 basis points year-over-year and 160 basis points quarter-over-quarter. This marks the first time since our IPO that stock-based compensation has fallen below 10% of revenue, and we reached this level well ahead of our prior target of 2027. We generated free cash flow of $132 million in the quarter, which includes a $141 million payment tied to our 2025 cash bonus program that we noted during our Q4 earnings call. Additionally, we completed $253 million in share repurchase in Q1 and have roughly $900 million remaining on our current authorization. Turning to guidance. For Q2, we are initiating a revenue target of $1.42 billion to $1.43 billion, representing 15.5% to 16.5% reported growth and 10% to 11% organic growth. In addition to previously announced U.S. carrier fee increases, Verizon has implemented an additional fee increase that will take effect on May 1. As a result, our Q2 reported revenue guidance assumes $71 million in incremental U.S. carrier fees. As a reminder, our organic revenue excludes the contribution from incremental increases to U.S. carrier fees. Moving to the full year. We are encouraged by the broad-based trends we saw in the first quarter. For the full year, we are raising our organic growth range to 9.5% to 10.5%, up from 8% to 9% previously. We are raising our reported revenue growth range to 14% to 15%, up from 11.5% to 12.5% previously. In addition, we continue to expect full-year non-GAAP gross profit dollar growth to be similar to our organic revenue growth rate. Our full-year revenue guidance assumes approximately $235 million in incremental pass-through revenue from U.S. carrier fees, up from $190 million previously. This reflects the U.S. carrier fee increases announced in the prior earnings cycle plus Verizon's most recent fee increase that takes effect on May 1. As a reminder, while the pass-through fees have no impact on our gross profit, income from operations, or free cash flow dollars, they do impact our margin rates. For modeling purposes, we would expect the incremental fees to reduce our full-year 2026 non-GAAP gross margin by roughly 200 basis points when compared to full-year 2025 non-GAAP gross margins, all else equal. Turning to our profit outlook. For Q2, we expect non-GAAP income from operations of $250 million to $260 million, reflecting incremental costs associated with our annual merit increases as well as expenses for our SIGNAL conference next week. Based on our Q1 performance and Q2 guidance, we are raising our full-year 2026 non-GAAP income from operations range to $1.08 billion to $1.1 billion, up from $1.04 billion to $1.06 billion previously. Similarly, we are raising our full-year free cash flow guidance to $1.08 billion to $1.1 billion. I am very pleased with the accelerated revenue and gross profit growth we delivered in the first quarter, as well as our ongoing cost leverage that is driving strong profitability and free cash flow. We remain focused on our key go-to-market initiatives and delivering the essential infrastructure that will help our customers win in the AI era. And finally, we are looking forward to seeing many of you at SIGNAL in San [inaudible] next week. We will now open the call for questions. Operator: 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. Our first question comes from the line of Alex Zukin of Wolfe Research. Your line is now open. Alex Zukin: Hey, guys. I cannot express my congratulations enough on a truly exceptional quarter in a truly difficult environment for software. So maybe first, I am going to make it really easy. I am going to ask about messaging, and I am going to ask about voice. Messaging, extremely strong growth again, almost surprising, I think, for Q1. So just maybe if you could unpack some of the meaningful drivers also between geographies, U.S. and international, how we think about that trajectory. And then on voice, it is continuing to accelerate, as you mentioned, Khozema. Maybe just stepping back, any unique experiences either on the consumer-facing side or B2B that you are seeing with some of these deals that you are announcing driving that growth rate? Aidan Viggiano: Hey, Alex. I will start, and then I will hand it over to Thomas and Khozema to chime in. So, yes, really strong quarter for both messaging and voice; both grew 20%+. On the messaging side, just to be clear, it grew about 25%, but about seven points of that was driven by the fees, so high teens on an apples-to-apples basis, but really strong growth, and we have seen that in the messaging business over the last several quarters. This is not a new dynamic. I would say it was pretty broad-based when you look at it geographically. The U.S. was strong. International was strong. It is pretty exciting to see RCS volumes ramping. It is still early there, but we are seeing some adopters on that product, which is great. I would say, increasingly, volume from AI natives on the messaging channel. Voice continues to accelerate, 20% growth in that product. That is the highest growth rate in that product in 19 quarters, so really excited about that, and it is a continuation of the acceleration we have seen on the back of the AI use cases as well as the adoption of software add-on products like conversational intelligence, branded calling, etc. So really strong performance in both products. I will hand it over to Thomas to give you more of the go-to-market perspective. Thomas Wyatt: Thanks, Alex. To dig in a little more on voice specifically, we saw real acceleration in voice in our self-serve business; it was up 45%. If you look at the voice add-on software, that was also really strong, in the mid-30s. More broadly, it was not just connectivity; it was the software layer on top of that. What is important is most of our customers are not going at it single channel; they are expanding. If they started in voice, they are adding messaging capability. We talked about some of that already with Sierra, Bland, and a handful of others. Think of use cases like customer support and services. We are seeing a lot more self-service agents that ISVs are rolling out to help small businesses when they cannot be attentive 24x7 with humans. AI assistants are helping with that. We are seeing a lot of AI Copilot being built for live agents and contact centers. We are seeing a lot of sales use cases as well where AI assistants engage inbound leads, help qualify, answer questions, and ultimately hand off to a sales representative once needed. It is a wide variety of use cases across a wide variety of verticals, and it is pretty broad-based strength. Operator: One moment for our next question. Our next question comes from the line of Taylor McGinnis of UBS. Your line is now open. Taylor McGinnis: Congrats on a great quarter. One question for me on messaging. If we look at the strong growth in Q1, I think you made two comments: one, you are seeing good adoption of RCS; and two, you mentioned that AI natives are starting to test more messaging volumes. Is there any way to quantify how much of that led to the acceleration in Q1? And then as we think about the durability of messaging channel growth from here, I know as you get into Q2 you are coming up against a tougher compare. With these emerging trends, how early are we in that and could messaging growth maintain similar levels through the year? Aidan Viggiano: I do not think RCS and AI natives are contributing super meaningfully. Remember, messaging is almost 60% of our business. It has a huge revenue base. RCS is very small. It is growing very quickly, but it is not contributing meaningfully. On the AI native side, maybe a little bit more, but nothing outsized. Operationally, it is up about 18% year-over-year, which is not too far off how we have been trending in messaging—a little bit higher—but that business has been growing mid- to high-teens for several quarters now. So strong operational growth in our biggest product, and we continue to perform well there. Khozema Shipchandler: I would just add on durability: we feel pretty good about how the business is performing. We obviously took up our guidance for the balance of the year, and that reflects it. The bigger opportunity going forward with messaging and AI is, as Thomas alluded to, voice customers are now going more cross-channel and doing much more conversational AI as we go forward. While everything has sort of started in voice, the opportunity is in other channels over time. We think that provides ongoing durability into the future. Operator: Great. Thank you so much. Our next question comes from the line of Oppenheimer. Your line is now open. Analyst: This is George Iwanek on for Ittai. Congrats on the strong results. Given how strongly the business is performing, can you give us perspective on whether macro is having any impact at all either on a regional basis or a vertical basis? And building on that, with the success you are seeing with the sales motion, can you give us some color on multiproduct adoption and how broadly across the customer base that is unfolding? Khozema Shipchandler: I do not think macro is really having any effect one way or the other. It is a super dynamic macro environment—consumer pressure, the Middle East, inflation—but it is not really playing into our results. Broadly, the business is performing very nicely. We are in a bit of an AI tailwind right now; it is certainly a catalyst, but not meaningfully contributing to the overall results. On balance, the business is having all-around good results. Thomas Wyatt: We are seeing acceleration of our multiproduct customer count; it was up 29% in Q1, which is really encouraging, and revenue from multiproduct customers is also accelerating. We think it will continue to accelerate throughout the year as customers roll out more software capabilities that sit on top of the channels. The use cases are naturally multiproduct because personalization and understanding the brand–consumer relationship require software orchestration and memory connected to the underlying communication channels—email, voice, or messaging—and having a consistent experience with observability and sentiment across channels. Customers see the value of the platform and consolidate spend across channels with Twilio Inc. The multiproduct motion is in the early stages of really accelerating because customers view Twilio Inc. as critical infrastructure for customer engagement in the agentic era, and we are helping them throughout that journey. Operator: One moment for our next question. Our next question comes from the line of Sitikantha Panigrahi of Mizuho. Your line is now open. Sitikantha Panigrahi: Great. Congrats on a great quarter. I want to ask about Voice AI. How would you characterize your largest Voice AI customer scale at this point? I know you talked a lot about experiments and testing last year moving toward full-scale production and use cases. Has that opened up in a meaningful way yet, or are you still seeing experiments? If so, what is the bottleneck there? Khozema Shipchandler: It depends on the company. With a lot of the AI natives we support, we are seeing a lot of takeoff velocity, but it is off a relatively small base, which is why it contributes to our results but is not meaningful in the way Aidan characterized earlier. You see higher adoption in nonregulated industries versus regulated. In e-commerce, retail, and food service, we are seeing pilots and heavy experimentation translate into production—human-to-agent interactions. On the regulated side, it is pretty slow. You are seeing very heavy experimentation, but given the high-stakes nature of many of those companies, it is going to take some time, which I think is good for us because it provides a longer-term tailwind and larger spend, but it is going to take time. Operator: One moment for our next question. Our next question comes from the line of Mark Murphy of JPMorgan. Your line is now open. Mark Murphy: Thank you so much, and congrats. Aidan, you have margins continually expanding—you grew operating income 31% year-over-year. Structurally, how are you thinking about headcount required to run the business, especially as AI tooling becomes more powerful to augment employees? Second, what are you budgeting for seat-based SaaS applications you use internally? Will that grow in line with headcount, or is there any motion to build some SaaS solutions in-house? Aidan Viggiano: On headcount and AI costs: as you would imagine, we have tested a variety of AI tools over the last couple of years. We have rolled out a select number to our employee base, including coding tools and tools for knowledge workers. Inference costs are manageable and embedded in our guidance. From a headcount perspective, we have been roughly flat for two to three years. For modeling, I would keep it around that level. We are not intending to add meaningful numbers of heads. We continue to focus on controlling OpEx; we have been flat from an OpEx perspective, and we continue to take down stock-based compensation. In terms of SaaS tooling, nothing meaningful to highlight. We regularly invest in different tools; I do not expect costs to grow meaningfully—maybe down a little. Again, it is all embedded in our guidance. On building tools in-house, nothing noteworthy to call out. Operator: Our next question comes from the line of Nick Altman of BTIG. Your line is now open. Nick Altman: Awesome, thank you. I wanted to stick on margins. The 8% GAAP operating margin this quarter is super impressive. Aidan, you talked about stock-based comp and how that is well ahead of targets, but were there any one-time items that helped GAAP margins this quarter? And going forward, any goalposts for how we should think about GAAP operating margins for the remainder of the year? Aidan Viggiano: Thanks, Nick. No, there is nothing unusual to call out. GAAP operating margins are driven by a few things: non-GAAP operating profit is growing—we saw margins expand there; we continue to take down stock-based compensation, now sub-10% of revenue, which we originally targeted for 2027 but achieved much earlier; and intangible amortization, which impacts GAAP (but not non-GAAP), has come down as well. Those are the three drivers resulting in the 8% GAAP operating margin and over $100 million of GAAP profit in the quarter. We will continue to focus on both non-GAAP OpEx as well as SBC. Operator: One moment for our next question. Our next question comes from the line of Derrick Wood of TD Cowen. Your line is now open. Derrick Wood: Great. Khozema, could you talk about how you see the next phase of Segment playing out over the next few years? You have completed the back-end rearchitecture and made the data interop much more native on a communications platform. Where do you see the most synergies with the comms product, and can we expect a revival in growth in Segment this year? Khozema Shipchandler: We are not as focused on Segment as a standalone. We are much more interested in using the data technology to enrich communications. In the AI era, if you do not have context, you are looking at much higher cost in AI workloads and you are not actually solving the customer's problem. Having a CDP in that respect is incredibly valuable; enriching every one of our communications with data is incredibly valuable. Some AI natives we cited are using tools such as conversational intelligence—the ability to use data to get smarter about the conversation in progress, get to problem resolution faster. That is the way I see it. We will talk more about it next week at SIGNAL, largely through the lens of having memory and persistency in interactions so that lifetime customer value is really possible. The business on a standalone basis is less the focus; it is more about how it fits into the overall picture. Operator: One moment for our next question. Our next question comes from the line of Arjun Bhatia of William Blair. Your line is now open. Arjun Bhatia: Congrats on a great quarter. Two questions. First, I am curious why AI and the benefit you are getting from it are different between voice and messaging. Would you expect messaging to see a similar tailwind from AI adoption, or is this more specific to voice? Second, in terms of go-to-market, how do you think about readiness and the Salesforce's ability to sell more software add-ons, given you have a lot of products like Verify, Conversation Relay, and others? Khozema Shipchandler: There is a longer-term opportunity with respect to messaging. Both are growing really well. As it relates to voice, most AI startups are starting in voice. It is our expectation that, similar to the historical shift of voice workloads to text, we will now see conversational AI enabling reaching the customer through the channel they want using context. That benefits not just messaging but also email. We are very excited about the longer-term prospects as a result of AI across all of our channels. Thomas Wyatt: On go-to-market readiness, we put a lot of energy into organizing the sales organization this year—compensation plans and enablement—to enable AEs, combined with a specialist motion, to optimize multiproduct selling and cross-sell. We are seeing acceleration of software add-ons like Verify, Conversation Relay, and Branded Calling. The percentage of deals with multiple products at close is increasing. We feel good about where we are after Q1 and expect it to get better every quarter as we get more repetitions in this motion. We feel good about the team's progression and skill set to continue to drive multiproduct selling at scale. Operator: One moment for our next question. Our next question comes from the line of Koji Ikeda at Bank of America. Your line is now open. Koji Ikeda: Hey, thanks for taking the question. Voice and Voice AI demand sounds really good, and the opportunity is big and just getting started. What is it about Twilio Inc.'s offering today—and what Twilio Inc. may offer in the coming years—that gives you confidence you will not get disrupted by the time the opportunity really starts to get going from here? Khozema Shipchandler: A couple things. We are the market leader by a mile. We have the best technology. We are priced higher than the competition, which reflects that we do have the best technology. Our multichannel ability is unprecedented relative to anybody in the marketplace. Having a great brand is also a really good place to be because as the average developer tries to figure out connectivity, our research indicates Twilio Inc. will be the first company requested. Longer term, being an infrastructure company for communications and data is hard to replicate. On the communications side, it is very challenging for any AI-related company to get 4,800 different kinds of interconnections across 180+ growing countries and go through all of the compliance checks and KYC hurdles. It is very complex, regulated, and operational. That creates a substantial moat. Going forward, our ability to migrate from voice—already a source of strength—to multichannel orchestration, where customers can reach their consumers exactly the way they want to be reached, is key. That is where the data asset really shines—using channels plus data to inform how and when engagement happens, the necessary context, and then using that data to solve the consumer's problem. That full wrapper is a real advantage for Twilio Inc. that no other company has. Operator: One moment for our next question. Our next question comes from the line of William Power of Baird. Your line is now open. William Power: Thanks. I am going to come back to the organic revenue growth improvement—really impressive, reaching 16%. It sounds broad-based across messaging, voice, software add-ons, etc., nicely above the prior trend line. Is there anything else you would call out as to why we are seeing this inflection now versus the past couple of quarters? And tied to that, Q2 guidance assumes a decent deceleration in growth from Q1. Any potential comps versus conservatism and other factors in there? Aidan Viggiano: It was a really good quarter, Will. As you said, 16% organic growth—our strongest growth rate in several years. From a product perspective, messaging and voice were key. From a sales channel perspective, ISVs and self-serve, both 25%+. It was partly driven by higher seasonal volumes earlier in the quarter, but mostly solid execution across the board. From an industry perspective, it was broad as well—financial services, tech, and health care were all very strong. Importantly, all of those factors contributed to revenue growth and accelerated gross profit growth at 16% as well. For Q2 guidance, trends are pretty strong: 10% to 11% organically, consistent with our Q1 guidance at the time we provided it, which was the highest in several years. It reflects the strong underlying trends we are seeing, but consistent with how we have guided over the last few years, we continue to plan prudently given the usage-based nature of the business. Operator: One moment for our next question. Our next question comes from the line of Jim Fish of Piper Sandler. Your line is now open. Jim Fish: Hey, guys. Great quarter. Not trying to take away from the deals you are landing—they are quite impressive. Obviously, one of your competitors won on the Agentforce side of things. How did you think about that opportunity, and how do you see alignment with CRMs in this space? How do you see the environment playing out between up-and-comers you are tracking well with as the underlying infrastructure versus the systems of record of the world? Khozema Shipchandler: That is not really what we are worried about. In the emerging AI landscape, what is important is being the single best integrator of all the tools and capabilities out there. Twilio Inc. has always occupied the space where, if you want to bring your own data warehouse or your own cloud, fantastic. Interoperability includes systems of record, with which we also integrate. Increasingly, we see customers bringing their own LLM and agent capabilities. Our bet is that AI will not develop like historical SaaS tool development tied to systems of record. We see a broader opportunity and will continue supporting AI companies, being the Switzerland of integrations with anyone to support customer needs. Thomas Wyatt: To add one point, last week we announced an embeddable version of our Flex product that can be integrated into CRMs or other systems of record. That allows customers to take advantage of Twilio Inc. inside of these systems and also consume usage-based pricing, including bring-your-own-voice. We are integrating where our customers are and making the tools available to them. Operator: One moment for our next question. The next question comes from the line of Needham. Please go ahead. Analyst: Great, thanks for taking my question. This builds off the last point. It seems like your competitive moat is being enhanced given the complexity of the evolving ecosystem around AI as a trusted neutral partner. You can orchestrate agents using OpenAI running on AWS and pulling data from a Snowflake warehouse. Is this neutrality helping accelerate your opportunity as the complexity of the broader AI ecosystem grows? Khozema Shipchandler: I would say it is a mild accelerant today. Going forward, it probably helps a lot more. Today, conventional developers are putting together a lot of this tooling. We all imagine a world in which both agents and developers really take off. As that happens and companies have built on their own stacks, they tend not to want to rip and replace. A company’s ability to use its existing technology—plus communications and data to create outcomes for their consumers—and to plug into all of these other choice points is key. The embeddable example Thomas mentioned is representative. It is necessary to have as many integration points as possible so customers always have choice and do not have to add cost to their existing tech stack. Going forward, I would say mild accelerant becomes larger as agent-based coding starts to take off. Operator: One moment for our next question. Our next question comes from the line of Jackson Ader of KeyBanc Capital Markets. Your line is now open. Jackson Edmund Ader: Hey, guys. It is really nice to see the self-serve improvements you have made so far. Is this a situation where the low-hanging fruit on the self-serve mechanism has been picked and now we might be entering a normalized phase in that channel? Or are you just laying the foundation that unlocks more actions you can take to optimize this channel over the next multiyear period? Thomas Wyatt: Hey, Jackson. We feel really good about the strength of our self-serve business. Some of it is work over the last 12 months to optimize onboarding and upgrade processes, but it is going beyond that. Next week, we will launch new Console capabilities to make it even easier for self-serve customers to get started with Twilio Inc. and adopt more than one product. Multiproduct adoption should continue to accelerate through that channel. We continue to see opportunities to improve conversion rates across the funnel and feel good about the strength and durability of that business, with new products coming over the next week or two to unlock more growth. Operator: One moment for our next question. Our next question comes from the line of Morgan Stanley. Your line is now open. James Reynolds: Great, thanks. This is Jamie on for Elizabeth Porter, and congrats on the strong results. For the ISV channel, there is really good traction. Is that primarily being driven by a handful of ISVs, or is the breadth widening in a material way? Thomas Wyatt: It is a wide range of ISVs across major verticals—beyond marketing, into service desk, education, hospitality, and more. Growth is coming from adoption of multiple channels. If an ISV grew up with us in one area, they are now expanding to a second or third area, which is helping accelerate growth in multimillion-dollar customers. Operator: One moment for our next question. Our next question comes from the line of Citizens. Your line is now open. Analyst: This is Nick Lee on for Pat. Congrats on the quarter, and thanks for taking the question. On Voice AI, I understand customer service is one of the most popular uses. As deployments mature, where do you see customers taking Voice AI next? Thomas Wyatt: Early Voice AI use cases were largely customer support, but now we are seeing much more outbound and inbound sales motions. Examples include live seller augmentation, next-best actions for sellers based on the live conversation, and compliance use cases. We are seeing increases in voice recording as a software layer on our stack. It is just the beginning. Classic use cases are rolling into production, and now customers are getting creative—introducing virtual agents combined with human-assisted agents through escalation paths. It depends on the vertical, but many use cases are being unlocked. Khozema Shipchandler: One of the more interesting ones is Main Street businesses. When they are closed at night, their ability to service customers during off-hours is super exciting and benefits the real economy and businesses that otherwise could not afford it. They will probably get served by an ISV in between, but still, it is really compelling technology for a Main Street business. Operator: One moment for our next question. Our next question comes from the line of Wells Fargo. Your line is now open. Analyst: This is Deshaun on for Ryan Mac. In your top customer wins, there was mention of a large customer consolidating their traffic onto Twilio Inc. How meaningful have competitive takeaways been for you over the past couple of quarters, and where might competitors be falling short and consequently ceding share? Thomas Wyatt: It starts with the platform capabilities Twilio Inc. offers and the value proposition of understanding sentiment, observability, and orchestration of how to work with a consumer across multiple channels. When customers understand that roadmap and see the power of the software on top of our traditional communication channels, they see the value in consolidating spend with Twilio Inc., which is leading us to take more market share globally. Our platform approach and unique ability to scale across channels provide confidence we are the right partner, especially for more complex use cases like Voice AI that require personalization, memory, and orchestration. You cannot do all of that using multiple providers across multiple channels. That has been an advantage for us. Operator: One moment for our next question. Our next question comes from the line of Rishi Jaluria of RBC. Your line is now open. Rishi Jaluria: Thanks for taking my questions. Nice to see continued strength and acceleration at scale. On momentum with AI leaders, particularly in Voice AI—without speaking to a particular customer—can you help us understand, as those companies grow and you grow with them on your usage-based model and expand your footprint, how we should think about that timeline? It is not all happening in real time, so help us temper expectations as we see exciting headline numbers out there. Khozema Shipchandler: It is still relatively early. Most startups in that space are relatively small. They are growing very fast, but at relatively low hundreds of millions revenue numbers. We will take a piece of that based on their work with us. The bigger opportunity is as this migrates to enterprises—whether AI startups act as ISVs on our behalf or we deploy directly. That is happening more slowly given enterprise buying cycles. Retail, e-commerce, and food service are adopting rapidly; regulated industries are adopting less rapidly. There is a lot of tailwind in how this plays out. There are a lot of Voice AI workloads still to deploy, and as we have said, voice work will move to other channels as well. As this becomes conversational AI, there is an even bigger opportunity. Pretty early days. Operator: One moment for our next question. Our next question comes from the line of Andrew King of Rosenblatt Securities. Your line is now open. Andrew King: Thanks for taking my question, and congrats. Can you provide any color on how much of an accelerator AI has been to cross-sell opportunities for you? And second, how are you viewing the balance between driving profitability and maintaining AI investments? Aidan Viggiano: We are definitely investing in AI tools; it is embedded in our guidance. It is moderate right now in terms of cost hitting the P&L. Profitability continues to be a big focus for us. We just increased guidance for the year on both cash and profitability, and that continues to be a focus on both the GAAP and non-GAAP lines. Thomas Wyatt: On AI as a cross-sell accelerator, there are two elements. First, direct acceleration: you see it in software add-ons because we use AI as part of that stack—for fraud detection, personalization via conversational insights, and Conversation Relay. Second, indirect acceleration: overall spend is consolidating with us across channels to take advantage of that software stack. It is hard to quantify financially, but we see it in deal cycles where customers want to go deeper into advanced areas of our portfolio, setting us up nicely from a pipeline perspective for the rest of the year. Operator: I am showing no further questions at this time. This does conclude the program. You may now disconnect. Goodbye.
Operator: Good day, and thank you for standing by. Welcome to the Vistance Networks First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jenny Thompson, VP of Investor Relations. Please go ahead. Jenny Thompson: Good morning, and thank you for joining us today to discuss Vistance Networks 2026 First Quarter Results. I'm Jenny Thompson, Vice President of Investor Relations for Vistance Networks. And with me on today's call are Chuck Treadway, President and CEO; and Kyle Lorentzen, Executive Vice President and CFO. You can find the slides that accompany this report on our Investor Relations website. Please note that some of our comments today will contain forward-looking statements based on the current view of our business, and actual future results may differ materially. Please see our recent SEC filings, which identify the principal risks and uncertainties that could affect future performance. Before I turn the call over to Chuck, I have a few housekeeping items to review. Today, we will discuss certain adjusted or non-GAAP financial measures, which are described in more detail in this morning's earnings materials. Reconciliations of our non-GAAP financial measures and other associated disclosures are contained in our earnings materials and posted on our website. All references during today's discussion will be to our adjusted results. All quarterly growth rates described during today's presentation are on a year-over-year basis unless otherwise noted. I'll now turn the call over to President and CEO, Chuck Treadway. Charles Treadway: Thank you, Jenny. Good morning, everyone. I'll begin on Slide 3. This morning, we announced that we have entered into a definitive agreement to sell our RUCKUS Networks business to Belden for $1.846 billion in an all-cash transaction. The deal is subject to customary closing conditions, including receipt of applicable regulatory approvals. We currently expect the deal to close in the second half of 2026. After a detailed evaluation of our remaining businesses after the CCS transaction, it became clear that the remaining 2 businesses needed to be separated. Our equity value continued to be impacted by the different business models and valuation profiles. The attractiveness of the RUCKUS business allowed us to achieve the separation in a transaction that we believe further unlocks shareholder equity value. Belden is a favorable buyer of the business for our customers and employees as they will continue to support the investment required to further grow RUCKUS innovative products and services. We expect to distribute a significant portion of the excess cash from this transaction to our shareholders as a special distribution within 60 days following the closing of the proposed transaction. The exact amount and timing of the dividend will be determined by the Board after closing, taking into account all relevant factors. The transaction will leave only our Aurora business in the portfolio. We expect to continue to run Aurora as a public company. As a player of scale in the DOCSIS market, we will evaluate growth opportunities, including potential acquisitions to broaden our technology portfolio and customer relationships. We are excited about the opportunity to dedicate our focus to the Aurora business. As we move through the year, we will provide updates on the pending transaction and positioning of Vistance Networks as appropriate. Now on to first quarter results on Slide 4. I'm pleased to announce that in the first quarter, Vistance Networks delivered net sales of $472 million, a year-over-year increase of 22% and core adjusted EBITDA of $87 million, a year-over-year increase of 38%. For clarification, Vistance Networks results include our 2 remaining businesses, Aurora and RUCKUS. The positive results were generated by stronger-than-expected performance in both segments. We are on track to achieve our 2026 adjusted EBITDA guidepost of $350 million to $400 million. With that, now I'd like to give you an update on each of our businesses. Starting with Aurora Networks. Net sales of $298 million were up 33% in the first quarter compared to the prior year, and adjusted EBITDA was up 32%. These increases were primarily driven by the continued deployment of our DOCSIS 4.0 amplifier and node products. Our FDX amplifier deployment with Comcast continues to go well, and this is reflected in our results. Since the beginning of 2025, we have shipped more than 500,000 FDX amplifiers. We continue to make headway with our suite of next-generation ESD DOCSIS 4.0 amplifiers and are now shipping to multiple large North American MSOs. We expect shipments to ramp up over the next couple of quarters, and these products will continue to ship over multiple years. We are also making progress on the unified products. We expect to start production on unified nodes in the second quarter and expect to start shipping in the second half of 2026. The unified node allows our customers to choose between either the 1.8 gigahertz ESD or FDX technology within a single device. The unified amplifiers have started lab testing, and we expect to start shipping at the beginning of 2027. During the quarter, we began the rollout of our vCCAP solution with Vodafone Germany. This is quite significant as we will be the go-forward solution displacing one of our competitors. The network upgrade includes Aurora Networks cloud-native vCCAP Evo, providing significant enhancements to the operator service offerings, paving the way to DOCSIS 4.0. This deployment demonstrates the flexibility of our standards-based solution to best meet the unique requirements of multiple operator environments. We have now successfully deployed our vCCAP solution with 2 of the largest EMA service providers. In the quarter, we continued development on our next-generation PON products. We are partnering with a Tier 1 CALA customer on their ongoing access and core network evolution through the deployment of our vBNG Evo and PON Evo Series 200 remote OLTs as they upgrade their broadband infrastructure road map. They are migrating to a fiber-to-the-home access architecture based on GPON and XGS-PON technologies with the Aurora PON Evo Series 200 remote OLT, which has been deployed in some of the largest CALA regions, offering both residential and business broadband services. The PON Evo Series 200 remote OLT is being deployed in an outside plant node as a stand-alone OLT, supporting up to 8 GPON ports per node and is designed to support up to 128 subscribers per port. The broadband service edge is being upgraded using the vBNG Evo that allows for both the control and user plane separation architecture, which enhances scalability, operation resilience and traffic management. As stated before, we believe Aurora Networks is well positioned with decades of knowledge of our customers' ecosystems and a broad array of new products for service providers to take advantage of the latest DOCSIS 4.0 upgrade cycle as well as expanding their current DOCSIS 3.1 networks. The new products position Aurora Networks to maintain performance as the market shifts away from our legacy products. With the announcement of the RUCKUS transaction, we're excited to focus our attention on maximizing the value of Aurora, including exploring acquisitions, mergers and investment in new technology that will take us well beyond the DOCSIS 4.0 upgrade cycle. Now moving on to RUCKUS Networks performance. Core RUCKUS Networks revenue was up 14% in the first quarter compared to prior year. Core RUCKUS adjusted EBITDA of $37 million was up 54% versus prior year. We are pleased with both our revenue and core adjusted EBITDA growth in the quarter. First quarter 2026 adjusted EBITDA as a percentage of revenue was 21.3%, which was an approximate 600 basis point improvement over prior year. This is a testament to the team's focus on profitability while growing the top line. We had many strong customer wins in the first quarter, including a collaboration with the Los Angeles Football Club for the deployment of a next-generation WiFi 7 network at BMO Stadium. The early industry installation for Major League Soccer establishes a new benchmark for high-density wireless connectivity and sports venues designed to elevate every facet of the fan journey. The deployment leverages a strategic mix of RUCKUS WiFi 7 Access Points, including the high-performance T670 for under-seat coverage and the T670sn with hyper directional antenna technology for precise high-density targeting in concourses and club spaces. This architecture provides blanket high-speed coverage capable of supporting tens of thousands of concurrent connections. In addition to customer wins, the subscription product, RUCKUS One, continues to be a key priority as we move towards a subscription license and support model. In the quarter, we won our largest ever RUCKUS One deal with a Tier 1 North American service provider. We experienced strong growth in RUCKUS One and our service offerings, driving revenue growth of 12% versus first quarter of 2025. During the quarter, we announced the expansion of our Pro AV ICX network switch portfolio and introduced an AV-enhanced update to its management platforms. These advancements support the global market shift away from legacy video transport solutions towards Ethernet-based systems. Before handing the call over to Kyle, I would like to provide an update on the DDR4 memory chip supply issue that continues to impact most companies in our industry. As you can see from our results, we were able to manage the tight supply and higher pricing on memory chips in the first quarter in both businesses. Our supplier relationships, inventory position, product redesign and pricing were key in our ability to manage the issue in the first quarter. As we move into the second quarter, we are continuing to use these levers. We have good visibility into the second quarter and any impact is included in our second quarter expectations. As we look beyond the second quarter, visibility is limited, both from a supply and pricing perspective. We will continue to use our levers to navigate the challenging memory chip market conditions. And with that, I'd like to turn things over to Kyle to talk more about our first quarter results. Kyle Lorentzen: Thank you, Chuck, and good morning, everyone. I'll start with an overview of our first quarter results on Slide 5. For Vistance Networks' continuing operations, net sales ended at $472 million, up $84 million or 22% year-over-year. Increase in revenue drove continuing operations adjusted EBITDA up $40 million or 85% to $87 million. Adjusted EPS for the first quarter was up 209% to $0.34 per share versus $0.11 per share in the first quarter of 2025. Vistance Networks core adjusted EBITDA for the first quarter was $87 million, up 38% versus prior year as a result of the increase in revenue. First quarter adjusted EBITDA as a percentage of revenue of 18.5% was 230 basis points better than prior year same quarter, driven by stronger leverage in RUCKUS, partially offset by lower margin product mix in Aurora and stranded costs. The first quarter ended stronger than we had expected in both businesses. Order rates were up 37% sequentially in the first quarter of 2026 and up 49% versus prior year. Vistance Networks backlog ended the quarter at $843 million, up $211 million or 33% versus the end of the fourth quarter 2025. Turning now to our first quarter segment highlights on Slide 6. Please refer to Slide 5 to view both the RUCKUS Networks and core RUCKUS Network results. Starting with our Aurora Networks segment. First quarter net sales of $298 million increased 33% from the prior year as shipments of our DOCSIS 4.0 products increased. Aurora Networks adjusted EBITDA of $50 million was up $12 million or 32% from the prior year, driven by higher amplifier revenue. EBITDA as a percentage of sales was essentially flat with last year at 16.9% as lower margins driven by product mix was offset by operating cost management. Sequentially, in the second quarter of 2026, we expect revenue and adjusted EBITDA to be in line with the first quarter. However, we would expect year-over-year 2026 second quarter adjusted EBITDA to be down due to strong legacy license revenue in the second quarter of 2025. We expect the second half Aurora adjusted EBITDA to be stronger than the first half. As we have discussed in the past, Aurora Networks is a project-driven business with timing of projects driving some volatility in quarterly results, both from a revenue and EBITDA perspective. The business remains well positioned to take advantage of upgrade cycles while offsetting declines in the legacy business. With the expected decline in legacy products and the impact of stranded costs, partially offset by improving DOCSIS 4.0 revenue, we continue to expect Aurora adjusted EBITDA to be down in 2026 versus 2025. Core RUCKUS net sales of $173 million increased by 14% versus the first quarter of 2025, driven by market demand as well as our go-to-market and vertical initiatives. Core RUCKUS adjusted EBITDA of $37 million increased 54% from the prior year as a result of higher revenue, improved margins driven by our new switch portfolio and leverage of our fixed costs. We continue to see strong market conditions driven by the WiFi 7 upgrade cycle. In addition to better market conditions, our investment in sales has positioned us to grow faster than the market. Core RUCKUS bookings were up 33% from fourth quarter 2025. We continue to drive our vertical market strategies and new product initiatives and are well positioned to grow faster than market as we move through 2026. Moving forward, the RUCKUS business will be presented as held for sale. Finally, early in the quarter, we completed the divestiture of the CCS segment to Amphenol. Note that the activity of the segment was reported as discontinued operations for the quarter. Turning to Slide 7 for an update on cash flow. As expected in the quarter, cash flow from operations was a use of $227 million and free cash flow, a use of $229 million due to working capital needs and timing of our annual cash incentive payout. As we look at cash for 2026, we expect to end the second quarter of 2026 with approximately $125 million of cash on hand. Our projection for year-end cash on hand, excluding proceeds from the RUCKUS transaction, is $150 million to $200 million. As Chuck mentioned earlier, we are excited about the RUCKUS transaction as it unlocks further shareholder value and provides an opportunity to return additional cash to shareholders. The net cash impact of the transaction after fees and taxes is expected to be approximately $1.7 billion. Turning to Slide 8 for an update on our liquidity and capital structure. During the first quarter, our cash and liquidity remained strong. We ended the quarter with $2.5 billion in cash on hand. During the quarter, our cash balance increased approximately $1.6 billion as we closed the CCS divestiture at the beginning of January and repaid all of our existing debt and redeemed the preferred equity. In the quarter, we did not purchase any equity on the open market. However, we will continue to evaluate opportunities to buy back stock, and the Board of Directors recently approved the buyback of up to $100 million. The company ended the quarter with no outstanding debt. In early April, the company entered into a new revolving credit agreement with Citibank in an aggregate amount up to $300 million, subject to borrowing base availability. Based on forecasted inputs, we expect the borrowing base to be approximately $175 million at the end of the second quarter. The revolving credit facility is scheduled to mature in 2031. Subsequent after the end of the first quarter, the Board approved a special distribution of $10 per share. The distribution was paid on April 27 and is expected to be treated as a return of capital for tax purposes. Although we considered putting modest leverage on the company ahead of the distribution, we decided not to proceed due to challenging debt market conditions and the desire for financial flexibility. This position allows us to evaluate investments in Aurora, including bolt-on accretive acquisitions. I will conclude my prepared remarks with commentary around our expectations for the remainder of 2026. We will continue to focus on completing the sale of RUCKUS and implementing the Aurora strategy. We expect Vistance's second quarter adjusted EBITDA to be essentially flat with the first quarter. Second quarter adjusted EBITDA will be down versus prior year due to favorable project timing in Aurora and some pull-ahead revenue in response to tariffs in the second quarter of 2025. In the first quarter, we began taking action to reduce the $30 million of stranded costs that were associated with the CCS transaction. As mentioned previously, the stranded costs are included in our Vistance Networks adjusted EBITDA guideposts. With the pending sale of RUCKUS, we are continuing to evaluate overall stranded costs. Similar to the CCS transaction, final stranded costs on the RUCKUS transaction will be minimal. However, it may take several quarters to reduce the G&A cost structure to the desired levels as we complete the separation of the RUCKUS business, including managing transition service requirements. As we think about the stand-alone Aurora business, our 2026 adjusted EBITDA guideposts are in the $225 million to $250 million range, excluding stranded costs from the RUCKUS transaction. We look forward to continuing to develop and implement the Aurora strategy focused on taking advantage of the DOCSIS 4.0 upgrade cycle, managing our legacy business and investing in future technologies. And with that, I'd like to give the floor back to Chuck for some closing remarks. Charles Treadway: Thank you, Kyle. In closing, we are very excited about the RUCKUS transaction as it unlocks equity value and returns cash to our shareholders. I want to thank the RUCKUS team for all they have done to make this deal possible and position the business for continued success. The transaction now allows us to focus on Aurora and taking advantage of the current DOCSIS 4.0 upgrade cycle while positioning the business with new technology for future growth. And with that, we'll now open the line for questions. Operator: [Operator Instructions] Our first question comes from Samik Chatterjee with JPMorgan. Samik Chatterjee: Maybe just a couple of questions. For the first one, I'm trying to think of the -- you're guiding Aurora Networks EBITDA to be down year-over-year. Trying to think of the bridge here because you do have the memory cost related headwinds. You do have -- it seems like you're assuming for the rest of the year, software doesn't repeat to be as much of a driver as last year. So maybe if you can help me bridge through the EBITDA decline, which at least in my numbers is more around sort of $15 million looks like in EBITDA. How to think about the moving pieces there? How much are you getting from growth in the business offset by these drivers in terms of memory and others? Kyle Lorentzen: Yes. So I think if we look at the sort of the drag from last year, you look at the stranded cost for the Aurora business, they take about half of the $30 million that we're talking about. So that's $15 million. We've had a decline in the legacy business that we've talked about. And then we have the memory chip issue, which in the latest forecast, we have it at about $30 million of drag versus last year. That essentially gets offset partially by the growth that we have in the business on the DOCSIS 4.0 upgrade products. So if you take the growth minus the drag with memory chips, the stranded cost and the legacy business decline, that's how you're getting the year-over-year decline overall. Samik Chatterjee: Great. And for my follow-up, I mean, you did mention the opportunities to then use the balance sheet for accretive acquisitions. How are you thinking about technology that would sort of bolster what you already have in the portfolio on the Aurora Network side? What would be sort of more of a target technology that you would look to acquire? And how much dry powder do you want to keep on the balance sheet for like what is the typical size and dry powder you would need to then pursue those ambitions in terms of acquisitions? Charles Treadway: Sure. Thanks, Samik. Look, we're not going to get into any specifics, but I would say that the DOCSIS market is an industry that continues to be fragmented with many small suppliers. And we've talked to our larger customers, and there's a desire for them to work with players of scale. And based on our size and strong balance sheet, we're well positioned to bring that stability. So I would say what we're looking at more for is bolt-on accretive acquisitions that can provide us, as you say, product or customer expansion, and we're going to be working with our large customers to really kind of define that. Operator: Our next question comes from Amit Daryanani with Evercore. Amit Daryanani: I have a couple as well. Maybe the first one, just to kind of get this sorted out. The RUCKUS transaction, it sounds like you want to do the distribution within 60 days of close. Can you just talk about what the tax treatment would be? Is it going to be like a return of capital the way the Amphenol was? Or could this be different? Kyle Lorentzen: Yes. At this point, we'd expect it to be a return of basis. Amit Daryanani: Got it. Perfect. And then Chuck, we really looked at sort of Aurora as kind of a key asset in the company right now. Could you maybe spend a little bit of time talking about what are the different assets within Aurora? I think you have like the DOCSIS 4.0 portfolio that's doing really well for you folks. I think amplifiers and PON does fairly well. But then you have these legacy assets that are sort of declining but higher margins. Can you just talk about what is the framework in terms of how to think about the different assets within the portfolio? How big they are? What is the EBITDA profile for each of them look like? It would be good to just be able to level set what's left in the asset right now. Kyle Lorentzen: Yes. I mean, maybe I can answer the question just as we think about the legacy business. So clearly, the legacy business has been in decline over the last few years. We talked about the decline that we've seen from '25 to '26 in our forecasting. So a lot of that decline is behind us. And when you think about the Aurora business, approximately 15% of our revenue and about 25% of our EBITDA is driven by that legacy previous DOCSIS version. So as we sort of move off of '26, and Chuck can provide some detail on the different products, you should think about it as we are getting strong growth in those DOCSIS 4.0 products, the new products, the amplifiers, the RPDs, the nodes, and we expect to see continued decline in the legacy business. But on a relative basis, as we've gone through the decline over the last few years, it is a smaller part of our business now. And we're actually seeing fairly strong growth in the DOCSIS products, particularly on the amplifier side, both from an FDX perspective and an ESD perspective. I don't know if... Charles Treadway: Yes. And related to technology, right, on the legacy, think about the E6000 family and the amplifiers there. But as you say, you know the DOCSIS 4.0 stuff. But besides that, I would say PON, specifically remote OLT technology is where we have a good position, and we're going to be looking more at chassis PON going forward. And then on the video side, we also have -- think about our video as software providing, helping cable operators provide ad-based revenue streams for them. Amit Daryanani: Perfect. The last one, I'll step away after this. The backlog, normally full scale, even $843 million. I apologize if I missed this, but is there a way to split that between RUCKUS and Aurora just so we understand what the base looks like? Kyle Lorentzen: Yes. I think the backlog in Aurora is about $400 million, if that's the question. Operator: Our next question comes from George Notter with Wolfe Research. George Notter: I guess, again, a few more questions on the Aurora business. I'm just curious about what customer concentration looks like there. Obviously, there's a couple of big customers, I presume, but I'm just curious what that would look like. And then also bigger picture, these customers are going through a really significant network upgrade. If you look at sort of the pacing of those upgrades, you've got a couple of years left, it feels like, maybe a bit longer, maybe a bit shorter. But how do you think about the business in the context of these upgrades? And then presumably behind that, there's a step down in those business lines. I'm just curious how you think about that? And does this turn into a maintenance business? How big could that maintenance revenue stream be? Like how do you see the long term? Kyle Lorentzen: Yes. So I'll deal with customer concentration, not unsimilar to the other players in the market. Customer concentration is relatively high. Our top 3 customers represent about 75% of our revenue. George Notter: And then the long-term picture? Charles Treadway: Yes, yes. I'll take the second part. When you think about where we are, you say 2 years, it depends really on which customer you are. I mean some customers are probably in that process where they have a couple of years left. Others may have 3 to 5 years left of just getting that ramped up. But then you have -- after that, you have the whole -- the PON story. Customers are either going to go DOCSIS 4.0, they're going to do remote OLT or they're going to do chassis PON going forward. And that's where we're investing in. Of course, video is really unrelated to those things. And then there's going to be a legacy business that continues. So when you think about the value going forward, I mean, there's going to be significant FDX amplifiers. We talked about putting out 500,000 of them already. There's multiple years left, let's say, 3 to 5 years left of that. Operator: [Operator Instructions] Our next question comes from Tal Liani with Bank of America. Kevin Niederpruem: This is Kevin Niederpruem on for Tal Liani with Bank of America. My first question is revolving around these nodes that you guys announced that you plan to ship in the second half of 2026. Can you help us think about the size of this opportunity? And maybe explain for us how you see these nodes coinciding with the purchasing plans of your customers that have already done their strong upgrades with these amplifiers. Is there a relationship and kind of a way to think about it, how these amplifiers that have seen strong growth coincide with the growth of these nodes that are now coming online? Charles Treadway: Yes. I'd start by saying the new product you're talking about is unified RPD nodes and RPDs and nodes, and that allows the customer to choose either ESD option or FDX option. So when you think about Comcast, they're an FDX path other players have chosen ESD. But as they go forward, as they move forward, they see the value of both, and they want to have that optionality. So it will really be a customer that might have already started ESD, they may decide to replace that with a unified product that allows them to have both options. If you're already with FDX and you're choosing that, you might not go that route. When you think about amplifiers in a relationship to the number of nodes, I mean, think about 6 to 8 amplifiers per node is kind of how to think about that. It could range from 4 to 8, depends on how you design your network. Kevin Niederpruem: Got it. Makes sense. And then my second question for you guys is, last quarter, you talked about how you have visibility into memory supply and you're almost kind of reengineering or reworking these products to help mitigate the impact of memory costs. Can you talk about where you stand today? How does your line of sight look to inventory now? And how is that reengineering or reworking progressed throughout the quarter? Charles Treadway: Right. I'd say with the RUCKUS business, we actually have all the volume we need for '26 right now. But as I want to mention, as we talked about in the last call, RUCKUS requires a different graded chip. It's not the high end -- the really -- heat since -- it's more -- it cannot -- it doesn't have to worry about the heat as much as it does in the Aurora product. On the Aurora side, we're like most companies that are dealing with the tight supply. But I'd say in the first quarter, we managed -- we managed through the challenges. We delivered the strong results. And then we're working with our suppliers and customers on availability and pricing. The good thing for us is we've had orders on the books for multiple years now. And the suppliers are looking at that very favorably because we're not raising the volume to make sure we get a larger allocation. We've been very consistent on that. And they've been very supportive in helping us up to this point. And I say that they're going to most likely continue to be able to do that for us. And we also -- as you say, we are working on designs. I'd say we're a couple of quarters away from having some additional options related to memory chips, but that's where we are there. But I feel good right now about how we've been treated. We've been supported and the fact that we're not AI is helping us in this case. Operator: Our next question comes from Tim Savageaux with Northland Capital Markets. Timothy Savageaux: Congrats on the RUCKUS sale. I want to take kind of the flip side of the legacy question. And that is, I don't know if you'd look at sort of a growth aspect of Aurora and call that vCCAP and PON or do I ask the same type of questions. As we look at that business now, how -- I imagine it's small, but I wonder if you could try and size that in a similar way or talk about growth potential and a target for that business over time? Can it become, say, as big as the legacy business in a few years? And I have a follow-up. Kyle Lorentzen: Yes. So let me -- I mean, I'll just talk a little bit about just the size of the PON and vCMTS business as it sits today in our Aurora business. Think about that as less than 10% of the revenue. And as Chuck mentioned, with the focus on the PON side and on the vCMTS side, where we've announced some wins, particularly in Europe, yes, we would expect that business to grow fairly substantially over the next 3 to 4 years. And we feel like there is some line of sight for us to be able to at least offset our legacy business with those 2 product lines. So I think we're not going to go roll out the detailed forecast by product line. But I think as we think about what I mentioned before on that 15% of our legacy business with PON and vCMTS being less than 10%, yes, we think over the next few years, we can get it to be that size. And when you think about our DOCSIS 4.0 products, the amplifiers and the RPDs in particular, I mean, we are seeing our projection within our forecast is to see those products year-over-year from '25 to '26 to grow in the 20% range. So I mean, there is strong growth on that side of the business. Charles Treadway: And the other thing I could add to that, Tal, is more in line with the inorganic opportunities. As I shared earlier in the call, with speaking to our large customers, there are opportunities for consolidators that could get us some additional product lines, that these customers may need that we don't have today as well as additional customers that we don't have today. And obviously, we'd be looking at not just products we could use right now, but products that we could use for the future. Timothy Savageaux: Great. And if I could follow up with that 20% growth in amplifiers and nodes and offset by legacy declines, does that translate into maybe double-digit revenue growth for Aurora in '26 despite the EBITDA decline? And that's it for me. Kyle Lorentzen: Yes, you're probably somewhere in the low double digits. Operator: Thank you. I'm showing no further questions at this time. I would now like to turn it back to Chuck Treadway for closing remarks. Charles Treadway: Yes. Thank you for your time today. And obviously, we appreciate the interest in our company, and have a great rest of your week. Thank you very much. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, and thank you for standing by. Welcome to Integer Holdings Corporation's First Quarter 2026 Earnings Call. My name is Kate, and I will be your conference operator today. [Operator Instructions] Please note, this call is being recorded. I would now like to turn the conference over to Kristen Stewart, Director of Investor Relations. Please go ahead. Kristen Stewart: Good morning, everyone. Thank you for joining us, and welcome to Integer's First Quarter 2026 Earnings Conference Call. With me today are Payman Khales, President and Chief Executive Officer; and Diron Smith, Executive Vice President and Chief Financial Officer. This morning, we issued a press release announcing our first quarter 2026 financial results. We have posted a presentation to accompany today's call on the Investor Relations page on our website at integer.net. On today's call, Payman will provide opening comments. Diron will then review our adjusted financial results for the first quarter of 2026 and our financial outlook. Payman will provide his closing remarks, and then we'll open the line for your questions. As a reminder, the results and data we discuss today reflect the consolidated results of Integer for the periods indicated. During our call, we will discuss some non-GAAP financial measures. For reconciliations of non-GAAP financial measures, please refer to the appendix of today's presentation, today's earnings press release and the trending schedules, which are available on our website at integer.net. Please note that today's presentation includes forward-looking statements. Please refer to the company's SEC filings for a discussion of the risk factors that could cause our actual results to differ materially. With that, I will turn the call over to Payman. Payman Khales: Thank you, Kristen, and thank you to everyone for joining the call today. This morning, we announced our first quarter financial results, which were in line with our February outlook. Sales were up 0.5% on a reported basis versus last year. As expected, our first quarter sales performance primarily reflected the decline associated with the 3 new products, which we first discussed last October as well as the exit of our portable medical business. On an organic basis, sales grew 1.3% versus the prior year. Our adjusted operating income declined 230 basis points, driven primarily by lower fixed cost absorption. This was at the midpoint of our prior outlook commentary. Adjusted earnings per share totaled $1.20, benefiting from lower interest expense, offset by the decline in adjusted operating income. We also announced this morning that we were updating our 2026 outlook ranges to reflect the recent customer forecast updates and further risk adjustments we have made. We now expect reported sales to be in the range of down 1% to 3% compared to the prior year. On an organic basis, we expect sales to be flat to down 1%. We continue to expect a 3% to 4% headwind from the 3 new products. The outlook for these 3 products has not changed. Customer purchase orders and forecast updates are tracking in line with this outlook. We now expect organic sales, excluding the 3 new products, to grow approximately 3% to 4%. This is compared to our prior outlook of 4% to 6% and driven by recent customer forecast updates and further risk adjustments across our portfolio. As a reminder, we received purchase orders from our customers, and those typically provide us with strong visibility for the next 1 to 2 quarters. In addition, we continuously communicate with our customers and most of them regularly share rolling 12-month forecast. Our customers adjust their forecast higher or lower based on their manufacturing plans. Therefore, we typically risk adjust the forecast with a balanced view of the risk and opportunities. The recent customer forecast updates primarily affect the second half outlook for a few products in electrophysiology. Given our recent experience of reductions outside the 3 new products, we further risk adjusted our outlook across our portfolio to minimize the risk of additional forecast erosion. With regards to electrophysiology, over the last couple of years, this market has been very dynamic with the rapid adoption of Pulsed Field Ablation or PFA technologies, which added complexity to forecasting. Understandably, OEMs wanted to ensure sufficient availability of various products used in EP procedures to be prepared for a wide range of potential adoption scenarios. This contributed to increased variability in forecast and ordering patterns. We appear to be entering a period of normalization in the market. We believe there is a clear view of the market dynamics and needs for various EP products. As a result, certain customers have adjusted their forecast for a few products. We expect the impact of these updates to be short term, primarily impacting the second half of 2026. These reductions are not due to in-sourcing or a shift to alternative suppliers. We continue to manufacture these products for our customers. The electrophysiology market continues to be an attractive high-growth market opportunity for us, and we believe we are well positioned. We have strong relationships with the leading players in the market, a broad product portfolio and a strong new product pipeline. Our focus and investments have enabled us to significantly grow our EP business over the past several years. While we are seeing some pressure in 2026, we expect our EP business to contribute to our above-market growth in 2027 and to our growth profile over the long term. And finally, I want to emphasize that we do not take the outlook change lightly. Our outlook reflects additional cost reduction actions underway to mitigate the impact on our bottom line results that do not compromise our ability to service our customers, deliver on our 2027 sales outlook commitments or affect our longer-term growth potential. I will now turn the call over to Diron to review the first quarter results and 2026 outlook in greater detail. Diron Smith: Thank you, Payman. Good morning, everyone, and thank you again for joining today's call. Our first quarter financial results were in line with the outlook commentary we shared in February. First quarter sales totaled $440 million, up 0.5% on a reported basis and up 1.3% on an organic basis. As a reminder, organic sales growth removes the impact of acquisitions, the strategic exit of the portable medical market and foreign currency fluctuations. We delivered $85 million of adjusted EBITDA, down $7 million compared to the prior year or a decrease of 7%. Adjusted operating income declined 14% versus last year, and our adjusted operating margin contracted 230 basis points to 13.9%, both in line with our February outlook. Adjusted net income was $41 million, down 10% year-over-year. Adjusted earnings per share totaled $1.20, down 8% versus the same period last year. Turning to our sales performance by product line. Cardio & Vascular sales increased 1% to $262 million in the first quarter of 2026, which primarily reflected lower electrophysiology sales from the 2 new products we have previously discussed. This was consistent with our expectations. On a trailing 4-quarter basis, C&V sales increased 13% to $1.110 billion, driven by growth in electrophysiology, contribution from acquisitions and strong demand in Neurovascular. Cardiac Rhythm Management Neuromodulation sales increased 5% to $168 million in the first quarter 2026. Cardiac Rhythm Management growth was partially offset by the previously communicated headwind in neuromodulation. This was consistent with our expectations. On a trailing 4-quarter basis, CRM&N sales increased 2% to $677 million. Cardiac Rhythm Management growth was partially offset by the planned decline related to an early spinal cord stimulation customer. Product line detail for other markets is included in the appendix of the presentation, which can be found on our website at integer.net. I'd now like to provide more color on the first quarter's profit performance compared to the prior year. In the first quarter 2026, adjusted net income decreased by $5 million and adjusted earnings per share decreased by $0.11. Consistent with our expectations, the primary driver of our operational decline was lower fixed cost absorption, which affected our gross margin performance. We remain focused on effective cost management, reducing variable costs given the lower sales level and being disciplined in our overhead and operating expense management. Operating expenses were flat versus the prior year, including a decline in selling, general, and administrative expenses and a slight increase in research, development and engineering expenses due to the timing of milestone achievements for customer-funded new product development. As a reminder, the first quarter of the year typically has fewer milestones as compared to later in the year. Interest expense was $4 million lower than the prior year, which contributed $0.10 per share, reflecting the savings from the convertible debt offering completed in March 2025. Our adjusted effective tax rate was 19% versus 17.4% in the first quarter of 2025. We continue to expect our full year tax rate to be in the range of 16% to 18%. The adjusted weighted average shares outstanding in the quarter decreased by 2%, reflecting our share repurchase activity. In the fourth quarter 2025, we completed a $50 million share repurchase of approximately 700,000 shares. And in the first quarter, we completed an additional $50 million share repurchase of approximately 600,000 shares. The lower weighted average share count contributed $0.02 to adjusted earnings per share. In the first quarter 2026, we generated $25 million of cash flow from operations, down $6 million from the prior year, primarily reflecting lower adjusted net income and reduced accounts receivable factoring. CapEx spend was $24 million, which resulted in free cash flow of $1 million. At the end of the first quarter 2026, net total debt was $1.264 billion, an increase of $74 million, primarily driven by the $50 million share repurchase executed in the quarter. Our net total debt leverage at the end of the first quarter was 3.2x trailing 4-quarter adjusted EBITDA within our strategic target range of 2.5 to 3.5x. As Payman noted, we are updating our 2026 financial outlook ranges to reflect recent customer forecast updates and further risk adjustments across our portfolio. For the full year 2026, we now expect reported sales to be in the range of $1.805 billion to $1.835 billion. On a year-over-year basis, we now expect sales to be down 1% to 3% on a reported basis and flat to down 1% on an organic basis. We have also adjusted our profitability outlook ranges. Given the lower sales outlook, we anticipate further margin pressure and are taking additional near-term cost actions to mitigate the profit impact, which are contemplated in our revised outlook. We now expect our adjusted EBITDA to be in the range of $375 million to $399 million, down 1% to 7% versus the prior year. We now expect adjusted operating income to be in the range of $285 million to $305 million, down 5% to 11% and adjusted net income to be in the range between $200 million and $220 million, down 3% to 11% versus the prior year. Lastly, we now expect adjusted earnings per share of between $5.83 and $6.40, flat to down 9% versus the prior year. Taking a closer look at our sales outlook. As I mentioned, we expect sales to be down 1% to 3% on a reported basis and flat to down 1% on an organic basis. As we previously shared, our organic outlook is being impacted by lower sales of the 3 new products. We continue to expect the headwind to be approximately 3% to 4% to our 2026 reported growth. We now expect organic growth, excluding the 3 new products, to be approximately 3% to 4%. This compares to our prior expectation of 4% to 6%, reflecting the impact of recent customer forecast changes and further risk adjustments we have incorporated across the portfolio. We expect an inorganic decline of approximately 1%, which reflects the now completed Portable Medical exit slightly offset by contribution from acquisitions and foreign exchange. We now expect C&V sales to be flat to down low single digits compared to the prior year. This compares to the prior outlook of flat to up low single-digit growth and is due to the recent customer forecast updates that primarily affect our second half outlook for electrophysiology. Regarding our CRM&N outlook, we continue to expect sales to be flat to up low single digits. This growth rate includes the previously communicated headwind from one new neuromodulation product, which is unchanged. In other markets, we now expect a decline of approximately $34 million to $36 million versus our prior range of $30 million to $35 million. The year-over-year decline is primarily due to the Portable Medical exit. As a reminder, other markets sales are primarily related to a manufacturing service agreement with the purchaser of our former Advanced Surgical and Orthopedics business and are outside our targeted markets. In the second quarter, we expect sales to increase sequentially versus the first quarter, resulting in a first half reported sales decline of approximately 2% to 3%, which is in line with our prior outlook. The first half decline in reported sales primarily reflects the significant reduction in sales related to the 3 new products as well as the exit of the Portable Medical business. We continue to expect nominal sales to ramp sequentially throughout 2026. We expect organic sales to return to market growth in the fourth quarter normalized for fiscal calendar production days. As we have previously shared, we have fewer production days in our fourth quarter as compared to the prior year, which represents an approximately 5% headwind to our sales growth rate. We expect our second quarter adjusted operating income margin to improve 80 to 140 basis points sequentially versus the first quarter, and we expect operating income margins to improve sequentially throughout 2026. Turning to our cash flow and debt outlook. We now expect cash flow from operations to be between $185 million to $205 million, a $15 million decrease at the midpoint of the outlook, consistent with the change in our profitability outlook. We continue to expect capital expenditures of between $95 million and $105 million or approximately 5% to 6% of sales. As a result, we expect to generate free cash flow between $85 million and $105 million. We expect our 2026 year-end net total debt to be between $1.185 billion and $1.205 billion. We expect our leverage ratio to be within the targeted range of 2.5 to 3.5x trailing 4-quarter adjusted EBITDA in 2026. I'll now turn it back to Payman for his closing remarks. Payman Khales: Thank you, Diron. In summary, we continue to view 2026 as a transition year. We expect the product headwinds we've discussed to be short term in duration. The long-term fundamentals of our markets and our business remain strong. The medical device markets we serve continue to present an attractive opportunity, and we are focused on high-growth markets such as electrophysiology, structural heart, neurovascular and neuromodulation. We are a trusted partner to the world's top medical device companies and emerging innovators. Our strategy includes engaging with our customers early in the design and development of new products, helping them to accelerate their timeline to market by solving complex engineering challenges and designing for scalable, high-quality manufacturing. We have significantly increased product development sales in recent years, and this has yielded a robust and diverse pipeline. This pipeline, when combined with our underlying business, supports our return to organic sales growth 200 basis points above the market in 2027. Before we transition to Q&A, I would like to address this morning's separate announcement that our Board has initiated a strategic review. Our Board is highly confident in our strategy and our long-term objectives to grow sales above market, expand margins and remain disciplined within a targeted leverage range. At the same time, the Board and the management team continuously evaluate opportunities to enhance shareholder value. As a respected and well-positioned CDMO serving the medical device industry, interest in Integer has historically been strong and has intensified in recent months. Given this recent heightened interest, the Board and the management team believe now is the right time to consider all opportunities to maximize shareholder value, which may include continuing to execute our stand-alone strategy. As is typical with this type of process, there is no deadline or definitive timeline set for the completion of the strategic review, and there is no assurance that the review will result in any transaction or other outcome. I want to emphasize that this review does not change our overall focus, which is being a strategic partner of choice to our customers and advancing their goals through our industry-leading engineering and manufacturing and with a relentless commitment to quality, service and innovation, nor does this change our focus on delivering on our financial commitments. We will now turn the call over to our moderator for the Q&A portion of the call. Operator: [Operator Instructions] Our first question comes from Matthew O'Brien with Piper Sandler. Matthew O'Brien: I guess, Payman, for the first one, the second cut on the EP side here announced this morning, can you just talk a little bit more about that? Is that more a function of a market slowdown or inventory work down? Or are there additional products that are not ramping as fast as expected now and the next new headwinds that you're seeing within EP? Payman Khales: Yes. Matt, thanks for the question. So let me expand on that a little bit. So let me clarify first that the adjustments that we're talking about are not related to the 2 products that we had talked about previously. The forecast, the purchase orders that we're tracking and the outlook for those products has remained unchanged. We also do not believe that there is an impact of the market. The market is normalizing. It is slowing down. If you listen to the leaders in the industry and through our own research, we expect the EP market to be in the range of mid-teens to high teens in 2026. This is slower than what it was last year, which was north of 20%, but it is still a very strong market, and we expect it to continue to be very strong in the future in the double digits in the coming years. The products that we're talking about are primarily used in electrophysiology procedures independent of the technology used, whether it's PFA, whether it's RF or other technologies. As we've mentioned before, we participate across the procedures in EP. And these are some of the products that we believe that as the market is normalizing, as our customers have a clear view of what their needs are and they're adjusting their production plans, they have adjusted their forecast on us, and that's what this reflects. As I highlighted in the prepared remarks, this is not a loss of contract in-sourcing or any other change in the supply arrangement, and we believe the impact to be temporary. Matthew O'Brien: Okay. Appreciate that. And just to put a finer point on that, you're saying basically this is not a new PFA catheter that's being impacted. It's maybe some of the accessory products like Crosser or mapping catheter or something along those lines that are kind of normalizing? Is that the right way to frame it? Payman Khales: Yes. I mean the way we had previously discussed it, we had not specified the 2 products, what they were. We had just talked about 2 PFA products. That outlook has not changed. These are products that are used -- primarily products that are used in ablation procedures. As you pointed out, there are different types of products that are used in the procedure. And that's the primary source of the impact. Operator: Our next question comes from Brett Fishbin with KeyBanc Capital Markets. Brett Fishbin: I was hoping you could expand a little bit more on the announcement of the strategic review. More specifically, just interested kind of what it was that led you to make this decision? And then how you're thinking about the tangible next steps regarding some of the outcomes that you mentioned in the press release? Payman Khales: Yes, of course. So we -- I would like to start with our Board and management continue to believe and have confidence in our strategy. We've demonstrated that our strategy is delivering results. We have built a very strong pipeline, a very strong set of capabilities that our customers depend on for their success. And we believe that we have an excellent strategy. And as a result, look, over the years, there has always been interest in Integer, and our Board believes that we can deliver the best shareholder value by continuing our stand-alone strategy. But in recent months, there has been a heightened level of interest in Integer. And our Board, of course, wants to make sure that we explore all options to see what can deliver the most value for shareholders, which is the reason why we're announcing this process now. In terms of the next steps, obviously, we will go through a process, and we will see what the outcome of that process is. As we mentioned, there is no guaranteed outcome with this, and we don't necessarily have a specific time line. Brett Fishbin: All right. Great. Then I just wanted to ask a little bit more about the long-term dynamic. I note that you reiterated the expectation that you expect to return to above-market growth in 2027. Just to put a finer point on that, are you still defining your market as 4% to 6%, even though the 2026 guide assumes 3% to 4%, excluding the new headwinds? And then kind of what gives you the confidence or visibility to reiterate that 2027 directional guidance, just given some of the changes in the last few quarters? Payman Khales: Yes, no problem. Yes, our markets continue to be 4% to 6%. And the reason that we are seeing 3% to 4% this year is because of some of the headwinds that we believe are temporary for the reasons that I mentioned that are primarily in the EP space. So in terms of our growth, our return to growth above market in 2027, as we mentioned, we expect to get back to market growth in the fourth quarter of this year. That will be our exit year into 2027, which is what we expect. And we -- our product -- new product launch schedules, that continues to be very strong. We've talked about that we expect to have new product launches in all of our growth markets in the second half of 2026 as well as 2027. So when you combine the underlying market growth, which we expect to continue to be at 4% to 6% with the addition of NPI, we have confidence that we can get to 200 basis points over market. So I do want to highlight this. The EP market continues to be a very strong market for us. In fact, in the first quarter, our EP business, excluding the 2 new products, had very strong performance. We believe that our performance in EP in 1Q was above market. When you exclude the 2 new products, which, of course, have had an impact. And we have a strong pipeline in electrophysiology, and we believe that this portfolio will continue to give us tailwinds and not only in 2027, but also beyond. Operator: Our next question comes from Richard Newitter with Truist. Richard Newitter: I have 2. Just maybe the first one, I think you gave some explanation for the forecast reduction. It was clearly some discrete EP areas that were not linked to the prior ones that led to the original reduction. So that's one. And then you also mentioned that you took the opportunity to further risk adjust some other areas that felt like as just in case. if you could elaborate on that, what is a discrete forecast reduction in your updated guidance versus what is an adjusted risk adjustment factor and for what? And is it because you think there's something there for that placeholder, if you will? Or is it just to be conservative? And then I have a follow-up. Payman Khales: Yes. Rich, the -- let me confirm the first part of your question that, yes, as you pointed out, the EP reduction, which was the primary source of the forecast adjustment was not related to the 2 other products that we had discussed. The risk adjustment is because we are seeing, as we mentioned, some variability within the EP market after a very dynamic period over the past couple of years and the normalization of the market, we are seeing some forecast adjustments that our customers have a better handle of the market and their needs. We wanted to be prudent. Our guidance philosophy is still to be to take a balanced view, but we have biased it more towards risk adjustment just to minimize the risk of further forecast adjustments as we navigate this period of variability. Richard Newitter: Okay. So just to follow up on that before I get to my second question, you're saying that the further risk adjustment above and beyond the forecast reduction you received was related to the EP areas that you're highlighting right now. Is that right? Payman Khales: It's across the portfolio. And I think part of the question that you had asked, Rich, was whether we have visibility to further potential reduction and erosion. The answer is no. We wanted to make sure that we further risk adjust as we see some variability. That is across the portfolio, not only in EP, just to minimize potential further reduction. Operator: Our next question comes from Nathan Treybeck with Wells Fargo. Nathan Treybeck: Can you share if your wallet share in EP is expanding? Is it stable? Is it declining? And then is your 2027 algorithm dependent on EP reaccelerating? And if so, what would drive that? Payman Khales: Nathan, we have a very strong portfolio in electrophysiology. In fact, that portfolio has expanded substantially in recent years. And that is because of the technologies that we've developed, the participation that we have in the EP portfolio with the major players in the industry. So that is a very strong portfolio for us. In terms of whether our share of wallet increasing or decreasing, we have a very strong portfolio. We believe that we are and expect to be a leader in the CDMO space in EP. We -- as I mentioned earlier, we believe that these headwinds are short term in nature. There are adjustments to a period of variability. And we expect contribution of the EP market -- our EP portfolio to our above-market performance in 2027 and beyond. I do want to highlight that the 2 products that we had previously discussed, we are not counting on any contribution of those 2 products for our growth in 2027. But we believe that our EP portfolio in general as a whole will be a contributor to our growth above market in 2027 and beyond. Nathan Treybeck: Great. And to your response to Rich's question, it seems like you risk-adjusted other parts of the C&V portfolio outside of EP. Can you just talk about the trends you're seeing in those markets? Is there anything specific you would call out? Payman Khales: Yes, nothing that I would call out specifically, Nathan. This is in recognition that we've gone this period of somewhat volatility. Obviously, in the third quarter, we had an event with 3 products that had an adoption challenge. These products that we're talking about is more, we believe, an adjustment to the normalization of the market. We wanted to make sure that we were prudent that we were more measured and further risk-adjusted our portfolio still within a balanced view to minimize further risk of erosion in the event as a normalization continues, there could be some other adjustments. Now I do want to continue to highlight that we believe that our markets continue to grow at 4% to 6%. We expect to get to 4% to 6% in the fourth quarter. And with the product launches that we have and the exit rate, we expect to get back to 200 basis points in 2027. Operator: Our next question comes from Andrew Cooper with Raymond James. Andrew Cooper: Maybe first, you talked about sort of a broader breadth of kind of challenged areas right now within EP. And yet you still talk about the end markets and the EP markets, in particular, still growing like you thought. So what's driving this mismatch? What gives you confidence that this is short term and not something that's a little bit more structural? And kind of how do you think about that at a higher level? Payman Khales: Sure. Andrew, the -- maybe to preface my answer, I would just highlight the fact that we are in the supply chain of our customers. So what that means is that what we sell to our customers are things that likely go into their production sometime 1 to 3 quarters ahead. So there's a little bit of a difference in terms of what our customers sell into market and how they forecast on us. And there's a little bit of a variability there. Our customers sell products on a regular basis, and they adjust, if you will, their forecast on us based on what they see happening in their business, how much product they have on hand, what is their production plans, et cetera, et cetera. So if there is a little bit of a variability, that is normal in normal times, I would call it. This is the reason why we typically point to a rolling 4-quarter look for our business because it takes away, it smooths out some of those potential lumpiness as customers adjust their production needs and then put it on us. This adjustment, we believe, is a little bit unprecedented because of the very rapid change in the EP market caused by the disruption of PFA. Our customers have tried to make sure over the past couple of years, understandably, that they have all products on hand to make sure that they can maximize their opportunities depending on what their customers and physicians use. Well, now the market is normalizing. The growth rates have normalized a little bit. The market itself has stabilized. So the visibility has become clear. And we believe this to be an adjustment to the order patterns, which we believe is onetime and short term. We don't expect it to be something that will continue in the long term. Andrew Cooper: Okay. So maybe just a quick follow-up on that and then tag on a second question. Sounds like maybe you're pointing to some of this might be inventory management at the customer level as they do sort of mature into that more stable environment. Is that a fair takeaway from what you just said? And then secondly, maybe for you and Diron as well. But last quarter, you talked about continuing to spend, continuing your plans sort of regardless of some of these near-term headwinds. Has any of that changed at all? How do you think about the spend and the development work, et cetera, that you have in mind moving forward? And what would have to happen to change that if the view hasn't changed yet? Payman Khales: Yes, sure. So let me -- on your first part of the question, whether there's inventory, yes, there's some. So I think that's likely some of that. I think maybe -- let me start the answer to your second question, and then I'll ask Diron to chime in a little bit. We have a strong pipeline. We continue to invest in our business. We continue to expect to get back to strong performance in 2027 and beyond. So we want to make sure that although we are very -- in a very disciplined fashion, managing our costs that we're not making large changes, if you will, in that to protect our future growth. But I'm going to have Diron chime in and add some more to that. Diron Smith: Yes. So Andrew, thank you for the follow-up call -- a follow-up question. Yes. As Payman mentioned, we're continuing to maintain our disciplined cost management. We shared previously that we were not going to make any structural changes to the business given the lower sales volume and the return to market growth and the 200 basis points above growth in 2027. I would say, philosophically, that is still aligned. But we are looking to be more aggressive on the cost actions and the disciplined cost management but still ensuring that we're not going to damage the ability to return to market growth and the above market. So we are looking to be more aggressive, and we have included that into our forecast and outlook that we have shared. Operator: Our next question comes from Travis Steed with Bank of America. Travis Steed: I wanted to go back on the EP market comments. You were talking about the market was north of 20%, now it's kind of mid- to high teens. But I think a lot of the slowdown has been kind of revenue per procedure, at least that's what we thought at least and would think you're more exposed to volume. And I don't know, like are customers expecting volume in the EP market to slow more from here? I'm curious what kind of volume growth does your 2027 guide assume at this point? Payman Khales: Travis, you are correct that in the past couple of years, a lot of the growth in the market has been because of the price as PFA products have kind of taken over a little bit at a higher price in the market at the OEM level, and it's a little bit less for us. You are correct there that price has been a big factor in the market growth. And the 15% to, I would say, the mid- to high teens that I talked about that our customers talk about. But obviously, that also takes into account their ASPs and their average sale prices. So there is an element of price there. Specific to your question about procedure volumes, yes, procedure volumes are a little less than that, but we still see them as being very strong. Somewhere in the -- close to the high single digits to low double digits, 10% to 12% is kind of what we see procedure volumes. So we consider that to be strong, and we expect it to continue to be strong. Travis Steed: And kind of the follow-up question on inflation kind of coming back to investors' minds again after 2022. I'm just curious if you could remind us how you guys have managed inflation, how you expect to manage inflation, expecting the impact from here, kind of what your -- what kind of things you're exposed to that we can watch from a macro perspective? Payman Khales: Sure. Some of the things that I can point to, obviously, the conflict in the Middle East is causing some inflation across the board. I mean I will start maybe with one of the obvious areas, which is fuel prices. It's relatively limited for us, Travis, in terms of impact. The majority of our customers, because they have strong logistics in place, they pick up product from our manufacturing facilities. So our exposure to fuel prices, if you will, is limited. We are very closely watching our supply chain for 2 things, obviously, for inflation, as you pointed out, but also for any potential disruptions. We believe that the potential disruption is minimal, and we don't see a risk of disruption at this point. And the inflation that we see is not something that is material for our outlook and that we believe it is manageable. So it is not a source of concern for us at this time. Operator: Our next question comes from Joanne Wuensch with Citi. Joanne Wuensch: Looks like a lot of attention has been paid to EP for good reason. But I'm curious what you're seeing in the CRM and neuromod side of the business and how you're seeing that progress? Payman Khales: Yes. No problem. Joanne, our CRM business is performing well. In fact, in the first quarter, our CRM came slightly ahead of expectations. So it continues to perform well. Our neuromod business, as you know, and as we've talked about, is affected in 2026, primarily by a reduction of the one product. So obviously, that has given us some headwinds in 2026. But -- so our neuromod business is expected to be softer in 2026. While we continue to expect neuromod to grow, for example, our emerging customers with PMA products, those products are primarily in the neuromod space. And although we've had a few quarters of softening, we still expect that portfolio to contribute -- to grow at 15% to 20% in that horizon of 3 to 5 years that we have provided previously. Operator: Our next question comes from Suraj Kalia with Oppenheimer. Suraj Kalia: So Payman, I just want to go back to the fundamental question at hand. In your comments, you talked about the attractiveness of med tech markets, normalization in second half, the Board's confidence in the company's strategy. So Payman, the timing of the strategic review seems a little bit hard to digest, especially given where the stock is. Can you help us thread the needle why now? What's driving this? I understand the outside interest, but just if you could just help us understand the different moving parts here. Payman Khales: Sure. Happy to do that, Suraj. So yes, I would like to reiterate that both the Board, management and myself have strong confidence in our strategy, in our pipeline and the future of the company. Our Board has a fiduciary responsibility to always make sure that we are maximizing shareholder value. And although we believe that the strategy that we have is we can do that. Given the heightened interest that we've had in recent months, we believe and our Board believes that now is a good time to explore those strategic alternatives to see whether there is an opportunity to maximize value for shareholders. The outcome of that exercise could be something, some sort of a transaction or could be a determination that our stand-alone strategy is the best way to generate value for shareholders. This is the reason for doing this now is because of the heightened interest that we have received in recent months. Suraj Kalia: Got it. Diron, one question for you. I'll hop back in queue. What percent of your costs would you say are fixed versus variable? And I mean company-wide. Part of the reason I ask is if the Iran war is prolonged and the economic uncertainty lingers, what switches can you turn off temporarily? And then by the same token, how long does it take to turn them on again? Just trying to understand how to model it given the macro level dynamics that are going on. Diron Smith: Yes. Thank you, Suraj. Yes. Look, when you look at our overall footprint as a manufacturer, certainly, we have an amount of fixed cost in our OpEx level, both in the structural elements of supporting the organization. There's a bit of discretionary costs in there, but I would say the OpEx is a highly fixed portion of the business. And then certainly, in gross margins, you're going to have a mix of variable costs between your direct material, your direct labor as well as in your fixed infrastructure for the manufacturing footprint. As an example, rent, repairs and maintenance, utilities, things of that sort. So I think you got to -- you kind of have to look at the fixed versus variable structure when you kind of look at those splits to do the modeling aspects of it. When it relates to dynamics such as conflict in the Middle East or other areas, we look to manage the variable costs very, very closely with our volumes, our sales volume, and that's how we've been managing through this dynamic as well. I think when you look at the sales profile, one of the key things is understanding whether you believe that to be a more longer-term impact or call it, 1 quarter. We've talked about some of the variability that we see at the CDMO on a quarter-to-quarter basis. Our products are not simple products, right? They're complex, which is why we bring great value to our customers. And so as a result, there's a training element for direct labor. So there's an element where that is not turned off and on, on a dime, right? You got to make sure you spend the right time to get the labor trained. And so as you look at the individual quarter variability, that's where we're able to leverage that workforce and look at that. So I think hopefully, that helps you understand a little bit of the nuances of as a complex manufacturer, some of the elements that we have. Operator: Thank you again for joining us today. You can access the replay of this call as well as the presentation on Integer's investor website at integer.net. This concludes today's conference call. You may now disconnect.
Operator: Greetings, and welcome to the Zeta Q1 '26 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Matt Pfau. You may begin. Matthew Pfau: Thank you, operator. Hello, everyone, and thank you for joining us for Zeta's First Quarter 2026 Conference Call. Today's presentation and earnings release are available on Zeta's Investor Relations website at investors.zetaglobal.com, where you will also find links to our SEC filings, along with other information about Zeta. Joining me on the call today are David Steinberg, Zeta's Co-Founder, Chairman and Chief Executive Officer; and Chris Greiner, Zeta's Chief Financial Officer. Before we begin, I'd like to remind everyone that statements made on this call as well as in the presentation and earnings release contain forward-looking statements regarding our financial outlook, business plans and objectives and other future events and developments, including statements about the market potential of our products, potential competition, revenues of our products and our goals and strategies. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. These risks and uncertainties include those described in the company's earnings release and other filings with the SEC and speak only as of today's date. In addition, our discussion today will include references to certain supplemental non-GAAP financial measures, which should be considered in addition to, and not as a substitute for, our GAAP results. We use these non-GAAP measures in managing our business and believe they provide useful information for our investors. Reconciliations of the non-GAAP measures to the corresponding GAAP measures, where appropriate, can be found in the earnings presentation available on our website as well as our earnings release and our other filings with the SEC. With that, I will now turn the call over to David. David Steinberg: Thank you, Matt. Good afternoon, everyone, and thank you for joining us today. We delivered our 19th consecutive beat and raise quarter. This consistency is not driven by a single product cycle or a short-term tailwind. It is the result of a structural shift in the market. AI is no longer a feature. It is driving a replacement cycle where enterprises are demanding fewer systems, measurable results and applied intelligence that works today. We are winning in this environment because of the system we have built, proprietary data that improves with every interaction, intelligence that compounds with every decision and a platform with AI at its core that allows customers to consolidate vendors into a single unified operating system. This differentiated approach has been recognized by Forrester, where Zeta was once again named a leader and also reflected in our customer advocacy with an NPS score in line with market leaders, up 23% from our assessment in the prior year. Both come on the heels of Forrester study showing Zeta returns an average of 600% on marketing spend for its customers. Athena by Zeta is an accelerant. It is the user interface that brings AI directly into marketing workflows and removes the barriers to enterprise-wide adoption and impact. Signs of this were evident in Q1 with beta customers plus strong early adoption of Athena contributing to the revenue beat. Our first quarter performance, once again, shows we are the disruptor in the AI-driven marketing ecosystem. First quarter revenue of $396 million, representing year-over-year growth of 50% and up 29% year-over-year ex Marigold, our fourth straight quarter of revenue growth acceleration, excluding acquisitions and political candidate revenue. And adjusted EBITDA was $66 million, up 42% year-over-year. 19 consecutive beat and raise quarters combined with a 4-year revenue CAGR of 30% reflect more than just consistency. They are evidence of sustained demand in a market consolidating around platforms that can deliver measurable outcomes at scale. And that visibility is reflected in our outlook. After raising the midpoint of our range for 2026 revenue guidance last quarter by $25 million, we are again raising it by $30 million, representing growth of 37%. These market share gains are evidence of a shift in the competitive landscape as AI moves from feature to a new way of doing business. Athena is designed to accelerate our share gains by bringing intelligence directly into workflows, turning answers into actions and ultimately changing how marketing is planned, executed and optimized. Athena is currently available to all of our enterprise customers, and its impact is already evident in sales pursuits and results. The number of Athena demos to potential new clients increased dramatically throughout the quarter. The promise of Athena is influencing decision-makers and helping Zeta win deals as customers want to invest in applied AI, not road map AI. One new customer we closed in the quarter commented, "Leapfrogging to the future requires thinking differently today and committing to execution. Interacting with Athena made it clear that Zeta has already made this leap, bringing its vision to life and positioning us to accelerate into a fully agentic marketing future." Athena was a driver in one of the largest deals we have ever closed. The customer is a leading global apparel retailer operating across multiple brands, each with unique customers and over 3,000 locations worldwide. Zeta's platform was purpose-built to handle the complexity required by the largest enterprise companies, and this customer was able to consolidate down from 4 vendors to 1, Zeta. As the legacy Marketing Cloud replacement cycle begins to accelerate, this particular client was a marquee win. We are also seeing rapid adoption among existing customers. Early feedback and usage shows that customers view Athena not as incremental functionality, but as transformational technology. As adoption increases, Athena learns from more data, outcomes improve and usage deepens, driving ARPU expansion and ultimately reinforcing the same flywheel that has powered our growth. That flywheel is powered by more than just Zeta's AI models. It's driven by the data and infrastructure behind them. Zeta SuperGraph, our proprietary identity and intelligence graph, unifies data across the enterprise and enables a complete deterministic view of the consumer that we believe is difficult to replicate at scale. This is translating directly into wins where access to our data is a key driver for customer decisions. For example, our SuperGraph was instrumental in a win with a leading online retailer of pet products in the United States that serves millions of active customers with a highly personalized e-commerce experience, a broad assortment of over 100,000 products and a rapidly expanding ecosystem that includes autoship subscriptions, pharmacy services and pet health offerings. In addition, our proprietary data and the intelligence it generates was a key component in the expansion of a Fortune 100 telco client, expected to drive an 18x increase in spend with Zeta in 2026 versus 2025. As Athena brings that intelligence to our customers in real time, the impact of this data advantage only grows. This foundation of data plus AI continues to power One Zeta. We are consistently seeing that the land, expand, extend model takes hold as customers begin with a single-use case and scale across the platform over time. That expansion is driven by the modern CMO mandate, do more with fewer partners, improve ROI and simplify execution across the organization. The result is larger commitments, deeper adoption and a growing role for Zeta as the marketing operating system and core infrastructure. That momentum is showing up in the data. Super-scaled customer ARPU was up 21% year-over-year, well ahead of our target range. Net retention rate remained above our target range of 110% to 115%. And the number of super-scaled customers using more than one use case was up over 50% year-over-year at scale. It also creates a reinforcing cycle. Consolidation drives adoption, adoption drives results and results drive further expansion. This is the One Zeta model, and it continues to be a powerful driver of durable growth. What stands out for me this quarter is the strength we are building across every part of the business. At the center of this is Athena, which is already beginning to change how our customers operate and how we compete. Together, our data, our platform and our leadership in AI are positioning Zeta not just to participate in this shift but to define it. As always, I want to sincerely thank our customers, our partners and our shareholders for your continued support of our vision. And to team Zeta, thank you for everything you do. It was an honor to be recognized as a Great Place to Work for the third year in a row. This is a reflection of your hard work and collaboration. Now let me turn it over to Chris to discuss our results in greater detail. Chris? Christopher Greiner: Thank you, David, and good afternoon, everyone. Our results, once again, demonstrated the durability, predictability and profitability of Zeta's growth. Revenue growth, excluding acquisitions and political candidate revenue accelerated for the fourth consecutive quarter to 29% in Q1, further cementing the durability of our growth and market share gains. Broad-based strength across the business is resulting in improved visibility, leading us to, once again, raise our 2026 outlook, underscoring the predictability of our growth. Even in doing so, we're maintaining our typical conservatism. And we also saw free cash flow conversion improved to 63%, generating $42 million in free cash flow, demonstrating the increasing profitability of our growth. These results surpassed even our internal stretch goals, coming in $26 million or 7 points above the midpoint of our revenue guidance for the quarter. As I analyzed the strength of our quarter, what stood out was how balanced the upside contribution was. It was not 1 or 2 isolated benefits. Instead, in baseball parlance, it was a lot of singles and doubles, which in my opinion, is healthier. Here are some examples. In terms of revenue growth, excluding Marigold's contribution, approximately 14 points of growth came from existing customers and 15 points from new customers. From an industry lens, 9 out of our top 10 industries grew faster than 20%, with more discretionary industries continuing to be at the upper end, demonstrating why in tougher macro times, data-driven, lower marketing funnel, high ROI attributable marketing is paramount. And finally, as it relates to how customers use our platform, e-mail, connected TV, mobile and social all grew double digits, all while each use case, acquire, grow and retain also grew double digits. Now let me dive deeper into our KPIs, income statement and balance sheet. Total super-scaled customer count grew to 189, up 19% year-over-year and an addition of 5 customers sequentially. This exceeds our Zeta 2028 model of 4% to 8% super-scaled customer count growth. Super-scaled customer additions were especially strong in advertising, marketing, travel and hospitality. Super-scaled customer ARPU was $1.7 million, up 21% year-over-year. This also exceeded our Zeta 2028 model of 12% to 16% ARPU growth. Strong ARPU growth in the quarter was driven by an increase in the number of customers using multiple use cases, which was up over 50% year-over-year, as well as customers using more than 3 channels, which increased 40% year-over-year. Both are great examples of the One Zeta sales motion working and how Athena can unlock more of the platform's capabilities for our customers to use. The forward-looking sales pipeline is also robust, going into a season when Athena will be front and center at multiple industry conferences. In fact, Athena demos were a crucial differentiator versus incumbents and RFP competitors in each of our marquee enterprise and agency wins in Q1. And we expect Athena to play an even bigger role in adding to the sales pipeline, which is already up 40% year-over-year with a subset of discretionary industries up even more, those like retail, advertising, travel, restaurants, furniture and resorts to name a few. This outsized sales pipeline growth in discretionary industries is consistent with what we've seen in previous periods of macro volatility and is another proof point that in times of uncertainty, customers consolidate onto fewer platforms that can drive measurable ROI with AI-driven efficiency. Now moving on to revenue mix. Direct revenue in the first quarter was 75%, above the 73% last year and in line with our target of 70% to 75%. Our GAAP cost of revenue in the quarter was 41%, a 190 basis point increase year-over-year and 50 basis points sequentially. The increase in cost of revenue was driven by new agency wins, driving a higher initial mix of social as a channel. This is consistent with the pattern of business we've seen and spoken to previously when new agencies platform on to Zeta. This is because we offer a substantially more efficient and effective solution for social and has become the first of many channels adopted by new agencies as they migrate. As new agencies scale over time, not only does their aggregate spend increase, but they do so by adding Zeta-owned channels like e-mail, display, video, mobile, CTV and others. It also bears repeating, while social has a higher cost of revenue, it is still accretive to both adjusted EBITDA and free cash flow margins. Further, social drives high customer stickiness as well. In the first quarter, adjusted EBITDA was $66.1 million at a margin of 16.7%, 100 basis points lower year-over-year and $5 million better than the midpoint of our guidance. Marigold integration is progressing rapidly and tracking ahead of our expectations. We took aggressive steps in the quarter to execute operating synergies, which should begin to benefit our adjusted EBITDA margin in Q2 and into the back half of the year. At the same time, Marigold's revenue came in better than we anticipated, and we're seeing encouraging traction from the One Zeta approach of cross-selling Marigold's loyalty product along with Zeta's grow-and-acquire use cases to the combined customer base. Another area we spoke about last quarter was becoming GAAP net income and EPS positive for the full year of 2026, specifically generating between $0.02 and $0.04 of GAAP earnings per share. Our first quarter results have us pacing towards the high end of that range. In Q1, our GAAP net loss was $13.2 million, an improvement from a net loss of $21.6 million in the first quarter of last year. GAAP loss per share was $0.06, coming in ahead of our expectations for the quarter with forecasted costs related to the integration of Marigold being the primary driver and not seen as recurring over the rest of the year. First quarter net cash provided by operating activities was $49.7 million, up 43% year-over-year, with free cash flow of $41.7 million, up 48% year-over-year and representing a margin of 10.5%. This represents a free cash flow conversion of 63%, a 270 basis point improvement from the first quarter of 2025. This also includes a roughly 13-point working capital headwind driven by longer agency payment cycles standard for their industry. During the first quarter, we repurchased 1.5 million shares for $25.7 million and have approximately $138 million remaining on our share repurchase authorization. We expect to remain active buyers of our stock, especially at these price levels, subject to market conditions and other priorities. And we continue to make significant progress in reducing dilution and stock-based compensation expense. Excluding Marigold, our dilution in the first quarter was 0.1%, and we remain on track to achieve our normal course net dilution target of 3% to 4% in 2026. Relatedly, with most of management's previously issued equity now fully vested post-IPO, Zeta's Board of Directors and Compensation Committee, in consultation with an independent compensation consultant, approved a new long-term equity incentive plan for management. This performance-based plan secures continuity of Zeta's named executive officers and management for 6 years and incentivizes management to achieve its long-term revenue and adjusted EBITDA margin objectives while adhering to its principles of lowering dilution, reducing stock-based compensation as a percentage of revenue and achieving GAAP positive earnings. Furthermore, named executive officers who received these incentives will not be rewarded any further equity for the next 6 years. Now on to our increased guidance. For the full year 2026, we're increasing the midpoint of our revenue guidance by $30 million to $1.785 billion, representing a 37% growth rate or 22% year-over-year growth when excluding Marigold and political candidate revenue. None of our guidance increase is related to political candidate revenue, which we continue to assume will be $15 million in 2026 with $7 million in the third quarter and $8 million in the fourth quarter. Additionally, we continue to take a conservative view of Marigold, contributing $47.5 million per quarter to 2026 revenue for the remainder of the year. Our revenue guidance also includes minimal contribution from Athena. And as shared earlier, we have taken into account our typical conservatism of 2% to 5% in setting our outlook. For the second quarter, we now expect revenue of $420 million at the midpoint, $4 million higher than our previous guidance and representing year-over-year growth of 36% or 21% when excluding political candidate and Marigold revenue. For adjusted EBITDA, we're increasing the midpoint of our 2026 guidance to $397 million, up $6 million from our prior guidance and representing a year-over-year increase of 43% at a margin of 22.3%, an improvement of 90 basis points over 2025. For the second quarter of 2026, we now expect adjusted EBITDA of $86.6 million at the midpoint, up from our previous expectation of $84.9 million and representing growth of 47% and a margin of 20.6%, up 155 basis points year-to-year. We are also increasing our 2026 free cash flow guidance to $235 million at the midpoint, up from $231 million, representing year-over-year growth of 43% and a conversion of 59% of adjusted EBITDA, which likely has upside. And here's the broader point. A 19-quarter beat-and-raise track record is obviously something we're proud of and continues to demonstrate our consistency and strong execution. We also recognize the times we're in, specifically the need to underwrite investments in companies with strong free cash flow generation, durable revenue growth and share gains and demonstratable moats. Q1 was an excellent jumping off point for these emerging investor frameworks. Not only did free cash flow set a record in the first quarter, but we are also tracking to the high end of our 2026 GAAP EPS range of $0.02 to $0.04 and long-term 2028 targets. As it relates to durable growth, this was the fourth quarter in a row we accelerated revenue growth, excluding acquisitions and political candidate revenue. And in terms of exhibiting our moats, our marquee wins with enterprises and agencies this quarter came at the expense of legacy marketing clouds and legacy DSPs, where Zeta's proprietary data and Athena operating system were capabilities our competition could not match. With that, I'll hand the call over to the operator for David and me to take your questions. Operator? Operator: [Operator Instructions] And the first question comes from the line of DJ Hynes with Canaccord Genuity. David Hynes: Congrats on a fantastic quarter. Nice start to the year. David, I want to ask you a competitive question. So obviously, there's been more public backlash against the Trade Desk and the agency ecosystem. But I think for those living in the marketing and ad tech world, like that's been going on for a while now, right? So two related questions here. Number one, like how much do you think Zeta has benefited from that dynamic? And then second, if the Trade Desk figures out how to get pricing right or at least make it more transparent, does this rebalance competitive dynamics at all? Or is the horse already out of the barn there? David Steinberg: Well, let's -- I mean, first of all, DJ, thank you. We appreciate it. Could not be happier with this quarter. And I think it really speaks to kicking off the year right and Athena really was a massive driver here. I want to separate the conversation about the agency and other technological platforms like the Trade Desk that are out there and struggling a bit because the agencies continue to thrive and they're not really having any issues from our vantage point. And I just got back from 3 days at the POSSIBLE Conference, where I did 54 meetings in 3 days, hosted 4 dinners and 3 cocktail parties, which is why I'm losing my voice going into this. I think that -- and I don't want to speak to any particular platform, but I think the horse is out of the barn. I think that organizations that have built workflow management tools that do not have proprietary data, they do not have proprietary native artificial intelligence are going to really struggle in this next evolution of where sort of marketing is going as it relates to intelligence. Because if you're not creating intelligence in today's world, you're not winning. And I think that we are a direct reason that a number of our competitors are either growing slower or shrinking as we take meaningful market share. Chris, in his prepared remarks, was very clear about the fact that we had a number of meaningful agency wins in the quarter that will continue to run out through the rest of this year and into future years that are starting with social. We're starting to see those move over to programmatic and connected TV as well. So I think if you separate the agencies, which are doing well and thriving from the technological platforms that have based their business on workflow management, I think they are going to struggle, and we are going to continue to beat them handily in the marketplace. David Hynes: Yes. Perfect and helpful color. Chris, I want to follow up with you. So David gave a bunch of great anecdotal data points around Athena and the early success there. The product is not explicitly monetized, right? So what are the signs that we all, as investors, should be paying attention to from a financial perspective that will signal to us that Athena is moving the needle for Zeta? Christopher Greiner: Great question, DJ. I'm glad you asked. There's a couple of leading indicator data points that I think you can already begin to look at. So as part of the press release, one of the data points that was called out was a 7x increase, and this is just in the first week of Athena's general availability. We saw a 7x increase in the type of -- in the amount of agentic interactions on the platform, coupled by 60% of the AI usage on our platform being driven by Athena. How that should ultimately translate to the usage part of our revenue can be seen through ARPU expansion, some of which you already started to see. So if you look at ARPU in the quarter for super-scaled customers, it was $1.7 million. It was up 21% year-over-year. But if you look underneath that, what drove it are exactly the dynamics that Athena was engineered to be able to do, which is to make more of the platform available and visible for the customers to be able to exploit. If you look at multiple use case customers, it was up over 50% year-over-year. If you look at the customers that are using 4 or more channels, that's up over 40% year-over-year, which again are not just great examples of Athena as an unlock, but also Zeta working well. David Steinberg: And by the way, she's just getting started, DJ. David Hynes: Yes, totally. Congrats, guys. Operator: And the next question comes from the line of Gabriela Borges with Goldman Sachs. Gabriela Borges: David, I want to ask you about the people and process part of Athena, meaning the technology you've demoed, it clearly is able to do a huge amount of knowledge work. My question for you is, how do you then change the end user behavior? What does the training and enablement look like? How do you encourage more people to use it once your customers have already decided to adopt it? David Steinberg: First of all, Gabriela, what a great question. First, let me say that we were incredibly proud that we were able to make the product not just generally available on time, but available to 100% of our enterprise clients, which was not a small task. At the same time, to your exact point, we have a learning and development group that is literally purpose-built to train our clients and get them up and running on this new product. And they've already done. Our top 30 clients have been onboarded through that group, and we're going to be adding all the other clients as we continue to expand out. The other thing that's really important is we're doing a weekly leaders -- I'm sorry, a weekly learning and training program to all of our clients that's virtual, recorded and they're able to then watch it at their convenience inside of the platform when they want to. But we're doing sort of a ask Athena question of the week. Every week, a new question that you could ask Athena goes out to all of our customers so that they can begin they process of using her. And I know I'm sure you've seen the demo, you know how incredibly intuitive she is to use. So what I would say is we're really focusing on it from a relationship management, learning, development, both in-person, virtually and weekly follow-ups. But the intuitive nature of her is, I think, one of the reasons you saw her so powerful. Just in the first week she was live, Athena drove 60% of all AI utilization across our platform. That is off the charts for a new product from an adoption perspective. Gabriela Borges: Very good. And Chris, the follow-up for you on inference cost. So Athena has pieces of Zeta proprietary technology. And then I believe you have some third-party technology in there, too. How do you think about managing those inference costs or optimizing those inference costs? And then same question for your R&D team, your engineering team. We're at the stage where we've been through more token usage is generally better, but also can sort of outrun budgets very quickly. How do you think about managing that internally? David Steinberg: So Gabriela, I'm going to take that one. Sorry, Chris. First and foremost, as the world moves from large language models to inference-based AI, our platform is purpose-built for that as the operating system and infrastructure for our clients. The vast majority of our queries, Gabriela, are done on our own platforms, on our own data. So we are not buying tokens as we roll this out to our customers. It's fully embedded, which is one of the reasons I think you're seeing us project substantially higher growth to profits and cash flow than we are even to revenue. We have put ourselves as sort of the perfect spot as the market moves to inference-based AI. As it relates to our internal consumption, we have built a platform called Spade. Don't ask me what it stands for. It is an acronym. But the reality is that Spade is a tool that we custom built inside of Zeta and is being utilized by a very large percentage of our engineering team, where effectively, an engineer would go into Spade, they would create the construct for the code they are trying to develop. Spade would then automatically choose the most efficient and best large language model to do the coding itself. So if it's security-based, we might choose Claude. If it's general coding based, Spade might choose ChatGPT. If it's complex publishing, Spade might choose Gemini. Now of course, Cursor is sort of at the center of this as we think about where that's expanding. The code is then auto generated by the LLM, which is the only time we utilize tokens. Everything else is sitting on our own platform, our own cloud. The LLM creates the code. It then goes to a program called Zippi because obviously, we have great nomenclature capabilities. And Zippi automatically QAs the code on our platform once again. Once it's done, it sends it to one of our senior architects. They review the code one more time, and they can make it generally available. To put it in perspective, Gabriela, at the end of the first quarter, Zeta was already driving 75% automated new code creation. I believe that puts us even above Google as it relates to that. And the pods working on Athena today, I know for a fact are up from a productivity perspective between 400% and 600% year-over-year from an output and productivity perspective, all the while, the vast, vast majority of the compute and of the tokenization is on our own platform. So as you look at our growth, we will not experience some of the constriction of margin or additional CapEx. We've already allowed for everything in the projections that we've got, and we're very, very comfortable with where we are externally and from an engineering perspective. Operator: And the next question comes from the line of Arjun Bhatia with William Blair. Arjun Bhatia: Congrats guys on a very strong quarter here. David, I have two questions, maybe I'll just do them one at a time. The first on awareness. It seems like the customers that are using it are getting great value out of it. It's early, but for this to have a material impact, for the company as a whole, you have a fairly large revenue base. Like how do you roll this out to all your large customers? Where is it right now in terms of customers having awareness and knowing what Athena can do? And how do you sort of plan to progress that? David Steinberg: Yes. So great question, Arjun. First of all, from an awareness perspective, I would say that our marketing team today is doing the greatest job it's ever done in the history of our company. I just came back from the POSSIBLE Conference where you couldn't walk 5 feet without seeing the brand Athena and without seeing Buy Zeta. And it was really exciting. We did an Athena Suite. We did a Zeta Cafe Powered by Athena. And we're starting to see that we're moving to that next evolution of our brand where it's sort of moved to it's getting the must-have Zeta in our industry. And I didn't think I would say that this early. As it relates to internal awareness, we have built an internal learning and development team, which is doing nothing but training and onboarding our clients. One of the things we're going to be rolling out in the next few months, which I'm super excited about, is an Athena certification. We're going to certify the individuals who work for our clients on Athena utilization. They'll get a full certification that they can put into their resume, and we're very excited about how that's going to be rolling out. So we're also doing sort of a hint of the week, tip of the week, question of the week. It's going out to all of our clients. I would tell you, in all of the years I've run this company, which is a long time now, I have never seen a faster uptake of a technological product that we've rolled out, and it's really been exciting, Arjun. Arjun Bhatia: Awesome. That's great to hear. And then maybe switching gears from Athena for a second. Marigold, that also looks like it was off to a strong start. I think you beat your sort of Q1 target on that front. But where are we on the cross-sell there? And what's the early traction you're seeing on, I guess, the 2-sided cross-sell, both into your base and into Marigold's base? Christopher Greiner: Arjun, I'll take that, and David will wrap it up also. So a couple of places where you can see where it's evident that the cross-selling is working. So we talked about the number of multi-use cases. It's nicely contributing to the growth that we've seen across the base of super-scaled customers. But I think more broadly, if you look at the areas that we talked about being purposely conservative around Marigold, it was around the potential for their SMB and mid-market customers that were on the enterprise platform we anticipated churn. We're not seeing as much as we thought, which is good. There were products that -- and geographies that we thought we would have less growth on and would also see churn. That hasn't happened yet. And then just more broad normal churn at the enterprise level, and it stayed healthy. And by the way, a lot of that is being driven by Zeta's interactions with those customers and partnering with Marigold's people. David Steinberg: So it's been really interesting, Arjun. We've seen a meaningful uptick from existing Marigold clients with us integrating the data cloud into the platform. So the first thing we did and we had it done within 90 days was a full data cloud integration into their platforms, which allowed clients to begin to access data sets that they've never had access to before. So we've seen meaningful growth there. As it relates to cross-selling, we're really -- we're making progress, but not a lot of that is in the numbers yet. These products are complicated, and they're very big. I think you'll see more of that as the year progresses. But I think -- I mean, to say we're very excited about how well we're performing with the asset would be an understatement. And a lot of that today is a result of the data cloud integration. Now whether you want to consider that a cross-sell because we're bundling the Data Cloud in to drive additional utilization or not, that's up to you. But to us, as we're rolling out loyalty to all of our global clients, and we're starting to take sell-through and roll it out to the LiveIntent clients and all of the different things we're doing, that's in the early stages, and I think will drive meaningful growth in the future. Operator: And the next question comes from the line of Jack Nichols with KeyBanc Capital Markets. Jackson Nichols: Maybe pivoting back to Athena. I was wondering if you could walk us through the early adoption trends among the enterprise customer base, specifically around how they're deepening engagement with the platform and then existing use cases today? And then I've got a quick follow-up. David Steinberg: Well, first of all, welcome, Jack. It's great to have you on coverage. We really appreciate you. Second, we have been really blown away by the early adoption of Athena. We made it generally available to 100% of our enterprise clients, and we saw a 7x increase in agentic interactions from our clients in the first week of Athena alone. So we think of that as pretty good. 7x is always something we aspire to. But our long-term goal is for Athena to be the operating system of our clients' businesses, and we're just getting started on that. But early adoption has been very, very exciting. Jackson Nichols: That makes sense. And then pivoting quickly to Marigold and thinking about the recurring revenue mix, as those customers adopt the Zeta platform, should we expect that mix to trend down or up over time or kind of remain in line with the 2025 60% expectation disclosure? Christopher Greiner: Jack, it's Chris. I'll take this. And as David said, welcome. It should go up is the short answer. And I think a really interesting proof point that you'll see in the queue tomorrow is just how substantially RPOs went up quarter-to-quarter. They went up $66 million just from fourth quarter to the first quarter. Obviously, part of that is Marigold, which then helps with visibility. But I think an interesting thing for the audience here to understand is another large piece of that was not only these marquee wins that we talked about with the apparel retailer and the e-commerce pet retailer, but it was also agencies beginning to now also sign long-term committed contracts. That is an exciting proof point for us. It adds to the recurring revenue, which then obviously adds to visibility, which both of those came into our confidence to be able to raise the guidance that we did on the top line by $30 million while continuing to keep to our 2% to 5% conservatism. Operator: And the next question comes from the line of Clark Wright with D.A. Davidson. Clark Wright: Awesome. I wanted to maybe quickly touch on the consolidation story. You noted on one of the marquee wins this quarter that you consolidated 4. And I recognize over the course of the last few quarters, you mentioned consolidation being a key piece. Can you talk about the use cases that beta continues to solve for and how you see that expanding over time? David Steinberg: Yes. Thank you, Clark. Listen, when John and I founded this company, I don't know, 18, 19 years ago at this point, our vision was to put everything a marketer needed into one user interface with one reporting infrastructure. And I would tell you that because of Athena, I think we are finally there. And our ability to consolidate anywhere from 8 to 12 different vendors into one user interface and one reporting infrastructure has never been stronger. In the case of this global company because it's a retailer and a manufacturer of their clothing, we displaced what I think many people think to be certainly the longest serving of the marketing clouds. They made, I think, their acquisition first in the space as they built their marketing cloud. And in fact, this particular client used that company for everything. They consider themselves a you know what shop, so to speak. So decoupling their marketing cloud from everything else they were doing, I think, was a very difficult decision. We also displaced another competitor of ours who tends to be more focused on mobile. They tend to be a little easier to displace because they're so singularly focused on mobile. And neither of those companies brought any data or any activation capabilities to task. When you're working with one of the large marketing clouds and you displace them, you're almost always also displacing a professional service provider, who they have to then spend millions of dollars on to customize their platform versus our platform is pretty much ready to go from a cloud perspective. So that would be a really good example of a -- and we see this as one of the most important wins in our company's history, and it goes back to not just our ability to consolidate other vendors, but to do everything that each one of those point solution does better than they do while simultaneously putting everything into one place. Clark Wright: Got it. That's helpful. And then if I could just add one more. Over the long term, you talked about increasing wallet share with customers. Do you think AI accelerates the rate of share capture, increases the total wallet share or both? David Steinberg: I think both. I mean, remember, the single greatest way, Clark, to get market share is drive meaningful return on investment to your clients. The Forrester study that came out that said we have a 600% return on marketing spend, we're seeing early adopters of Athena at a materially higher return on investment than even that. The higher we drive return on investment, the more wallet share we're naturally going to get. And as you know, our existing global super-scaled customers will spend well over $100 billion to $110 billion on marketing this year. And at the middle of our range, we'll have, call it, 150 to 170 basis points of wallet share. I believe we can get that to 700% to 1,000% of their wallet share in the years to come. The key will be driving better return on investment. Artificial intelligence, specifically Athena, plus our data as a moat into our business is going to drive return on marketing spend up meaningfully, which we think will then drive wallet share. Operator: Our next question comes from Jason Kreyer with Craig-Hallum. Jason Kreyer: Great job. So I wanted to stick with the point on wallet share because you announced some major wins and you've announced some major wins over recent quarters. But I'm curious, when you look at the aggregate data representing somewhere less than 2% of wallet share, how big of deals are you winning today? And how big a deal do you think you can win over time just in terms of the wallet share of those customers? David Steinberg: It's interesting, Jason. I would say the last few wins we've had have been at a comparable wallet share to our current wallet share, but the clients are spending 4 or 5x as much per year on marketing and CRM. So they represent some of the largest deals we've ever done right out of the gate. Does that make sense just mathematically? At the same time, what we're starting to see is some of our clients who have been on the platform for 2, 3, 4, 5 years are getting to that 7% to 10% of wallet share and higher. And we're using that as a road map for how do we take new clients there. So the wins are much bigger than they've ever been, but I'm not sure they're much bigger wallet share only because the companies are so big that we're winning. Now that will give us meaningful upside as they're on the platform, and Chris does a much better job than I do, talking about how ARPU grows the longer a client is with us, and these clients are starting at probably the highest ARPU we've ever seen clients starting. Christopher Greiner: That also drives, Jason, with our sales pipeline. So we talked about its growth. But if you look at deal sizes and particularly the annual contract value of deals are up pretty substantially year-over-year. Jason Kreyer: Perfect. Maybe one quick follow-up, David. You've been doing AI for a long time, but it seems like the release of Athena has certainly put you in a different conversation within the AI industry. I'm curious, how has that translated to conversations with customers? And like do you feel like Zeta is becoming more of an AI thought leader in the marketing ecosystem and that's driving that engagement? David Steinberg: It's interesting, Jason. In some ways, being a native AI company has been complex for us over the last few years because everybody is rolling out shiny new products, most of which are not real, but most of the people are rolling them out. And we've always been seen as sort of like AI is under the engine. Athena is the hood ornament to what we're doing as a company. She is now us announcing ourselves with authority that we are not just an AI company, we are the leader and the disruptor in the AI space. And with the launch of Athena as a marquee product, it has changed the game for the way people are seeing us. And I will tell you, the 2 client wins we talked about in the prepared remarks, there is 0 chance we would have been in the room if we had not launched Athena or started talking about her at Zeta Live. And there's -- I don't think a chance we would have won these accounts without Athena showing that we are the leader in artificial intelligence as it relates to marketing. From an internal perspective, we're also one of the best users of AI. I mean back to what I was saying around the Spade internal platform we've built. If you had told me a year ago, we'd be auto generating 75% of our own code while simultaneously driving the type of quality products we're driving, I would have said that's just not possible. Spade has made that possible. And it's really been very interesting how we've done that in an environment where we're still using a very de minimis percentage of tokens versus what many of our competitors are doing, which is going to allow us to continue expanding our operating margin as we've done over the years. Operator: Our next question is from Matt Swanson with RBC. Matthew Swanson: And my congratulations for the quarter. I think the metric that really jumped out to me was the increase in multi-use case. And I know that's something we had kind of talked about with Athena and its ability to kind of create this organic expansion motion. Given that, that 50% increase was for the full quarter, like is Athena a real part of that? Is there other parts of your go-to-market driving that? If you could just kind of touch a little more there. David Steinberg: The great news is Athena is just getting started. So we had a great trajectory going into our launch. Now I will tell you, every client that was on the beta became multi-use case. So it was -- but that was not a lot of clients, right? So as she rolled out to generally available, we saw an uptick there. But I think that's continued upside to growth in multi-use case. And the One Zeta team continues to just do an exceptional job. I'll remind you, Matt, we really started on the One Zeta mission just 18 months ago. So you've got a massive tailwind coming out of the work we've been doing there. And then I think Athena is going to supercharge that. Christopher Greiner: And Matt, I think the reason why you picked up on it, but for others, empirically, what we know is that when customers use more than one use case, their ARPU is 3 to 5x greater. So I think you're right on that being an exciting data point. Matthew Swanson: Yes. No, I appreciate that. And we'll make sure to take note that 100% of Athena users will become multiuse case. That's what I heard. David Steinberg: I wouldn't go quite there. I mean we -- obviously, that's the goal, Matt, but we certainly didn't say that just yet. Matthew Swanson: Yes. The other one I want to talk about is the independent agencies. I know you called out advertising as a key vertical for you guys. I think your willingness to kind of share the credit with agencies and allow them to white label some of your technology has been part of the reason you've been so successful there. I guess with Athena, how much more can that help you in those deal environments as a lot of these independent agencies are trying to compete with the big holdcos and so on? Christopher Greiner: One of the key wins we had, Matt, in the quarter was with a large independent. If you look at business done a year ago with them was 0. Business done within this quarter was 8 figures with Athena being, again, something that was visible to them as something they could also exploit for their benefit. The same was true with a very large new agency that began piloting Zeta in 2025. The spend was material, call it, a little less than $2 million, but that new agreement that was signed is more than 10x that size. So both the independent as well as the large agency continues to have a lot of runway. In fact, amongst the 5 large holdcos, the number of brands we're working with year-over-year grew by 50%. David Steinberg: And I just want to say, Matt, we're actually big fans of the agencies. They provide incredible services to their clients. And we've had clients approach us to go direct. And we always try to bring the agency back into it because we think it's a very healthy relationship when it's the three of us. And listen, we're good if the agencies make their money because they're providing meaningful services. But as it relates to our business, I'll remind you, none of the agencies really focus on the retain, which, as of last quarter, is about 60% of our business. So we have real greenfield opportunity there as it relates to the activation, which sort of create customers, monetize customers. We're very, very happy to partner and give the credit to the agencies because they've built incredible businesses, and we're very excited now to be working with pretty much all of the large holdcos. I think now it's all. And well, certainly the biggest ones. And then to be partnering with a select number of independent agencies. There's a lot of them out there, but we want to work with only the best. Operator: Our next question comes from Naved Khan with B. Riley. Ethan Widell: This is Ethan Widell calling in for Naved. To start, can we talk about the ideal customer profile for Athena. I'd imagine there are two kind of distinct value propositions there, a, where Athena can drive efficiency gains for your larger enterprises that already have sophisticated marketing teams and whatnot; b, more small and mid-market players where Athena creates access to capabilities that these customers don't necessarily have in-house. So like which of these is management really seeing more of early traction-wise? And what's kind of the ideal customer size that you're leaning into with your early sales motion? David Steinberg: Well, it's interesting you put it that way. I mean, today, to be honest, Ethan, we don't focus on midsize. We're really just focused on very large enterprise, although Athena opens up the midsized market to us at some point because you're very intuitive to understand that the cost of layering Athena out to midsized companies is so de minimis to us that would allow us to move into those -- that vertical -- or I'm sorry, into that sort of category without having to meaningfully hire people to do it. But today, we focus solely on very large enterprise. So I would tell you the two things very large enterprises have really focused on is, a, and you're totally right, efficiency. What they're finding is it takes 70% less labor to manage the Zeta marketing platform with Athena than it did with hands-on keyboard. So you're effectively able to take 70% of your marketing workforce and retask them into other functions where they can be more valuable to your organization. We're also seeing that because -- and this is something I talk about a lot, Ethan, but when you buy software, whether it's us or it's Bloomberg or somebody else, you're buying a stealth fighter, right? We're all spending to build a Stealth fighter of a platform. And most of our clients know how to fly Cessna with -- I mean think about a Bloomberg terminal, the vast majority of their customers only use 5% to 10% of the capabilities. As you look at our platform, being able to fly that Cessna, we're still delivering a 600% return on marketing spend. As clients are able to use Athena as their copilot, they can get right into the cockpit of that stealth fighter, and they can then fly the entire platform, which is driving meaningfully higher return on marketing spend than even that 600%. Ethan Widell: Got it. That makes a lot of sense. And then coming out of first quarter, I think you mentioned 9 out of 10 top industries grew more than 20%. I know you spoke to some customer consolidation being a benefit there. But are there any verticals that you see showing any signs of softening, particularly anything sensitive to the macro and geopolitical risk going on right now on the discretionary? Christopher Greiner: Yes. Short answer, no, Ethan. The 9 out of the 10 were effectively say 9 out of 10 that ended last year. The 1 out of 10 that wasn't growing over 20% is 4% of revenue. So it really gives you a sense for the vast, vast majority of revenues on all of the verticals we support are performing in a very healthy way. Operator: Our next question is from Terry Tillman with Truist. Terrell Tillman: I'll just keep it to one question because I know we're running over time. And maybe I'm getting too far ahead of myself, but I like hearing about 40% increase -- 40% plus increase in the sales pipeline. And I think you said your discretionary markets where you have a lot of activity is even higher. Is it too early to start to say because of the emphasis on agentic in AI in general that's in the market, plus you have Athena that's now credibly in the market and in production, could it start to tip the scales and move in some of this funnel activity faster and you actually close new deals quicker? Or is it just too early or I'm just way too optimistic? Christopher Greiner: I don't think you're too optimistic. But I do think it's -- from an expectation setting perspective and frankly, from a data-driven perspective, and this is a multi-quarter statement I'm about to make. Our deal cycles in good times and in less good times have stayed consistent. What we're seeing is more opportunities in RFPs, many more at-bats than we were given a year ago and certainly 2 years ago. Those by nature take longer. But again, our strategy many times is to work around those processes through pilots and proof of concepts. Those deals are getting bigger, as David said. So yesterday's $100,000 pilot is today is $1 million. But I wouldn't say right now, it's an accelerant, but it's in addition to the pipeline. David Steinberg: And I would concur. But I do want to be clear, Terry, we're getting at bats that we would have never gotten a few years ago. So it's sort of -- it's working really, really well. Operator: Thank you. This concludes the Q&A session and our call. You may disconnect your lines at this time, and have a wonderful day.