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Operator: Good day, and thank you for standing by. Welcome to the Symbotic Second Quarter 2026 Financial Results 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, Charlie Anderson, Vice President of Symbotic Investor Relations. Please go ahead. Charles Anderson: Hello, and welcome to Symbotic Second Quarter of Fiscal Year 2026 Financial Results Webcast. I'm Charlie Anderson, Symbotic's Vice President, Investor Relations. Some of the statements that we make today regarding our business operations and financial performance may be considered forward-looking. Such statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties. Actual results could differ materially. Please refer to our Form 10-K, including the risk factors. We undertake no obligation to update any forward-looking statements. In addition, during this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website located at ir.symbotic.com. On today's call, we're joined by Rick Cohen, Symbotic's Founder, Chairman and Chief Executive Officer; and Izzy Martins, Symbotic's Chief Financial Officer. These executives will discuss our second quarter of fiscal year 2026 results and our outlook, followed by Q&A. With that, I'll turn it over to Rick to begin. Rick? Richard Cohen: Thank you, Charlie. Good afternoon, and thank you for joining us to review our most recent results. In the second quarter, we continued to demonstrate strong execution against our objectives. We posted higher revenue growth and forecast with expanding margins, both on a sequential and year-over-year basis. Once again, this led to continued GAAP profitability and a strengthening balance sheet as we exited the second quarter with over $2 billion in cash and cash equivalents and no debt. Our momentum with customers continues to build. During the second quarter, we began our first system deployment with Associated Wholesale Grocers, or AWG, the nation's largest cooperative food wholesaler to independently owned supermarkets. We're excited about the potential at AWG, which operates over 9 million square feet of warehouse space and distributes to over 3,500 retail locations. To build upon this momentum, our teams met with many existing and prospective customers last month at the MODEX Trade Show in Atlanta. A clear theme emerged with our existing customers and that they would like us to do more for them as our system performance and product portfolio have improved since we originally established these relationships. Our goal is to take our core system architecture and layer on capabilities that allow customers to automate their supply chain fully end-to-end. The analogy I often use that it's like an operating system and we add apps. Examples of this include our expansion into e-commerce and dock management. Having this total solution is also driving strong interest from prospective customers. These customers span new geographies and new verticals such as consumer packaged goods, food service and apparel in addition to our existing verticals such as grocery, general merchandise, beverage and healthcare. Within several of these verticals, a capability that is drawing strong interest is our systems' ability to sequence goods for route optimization. On the technology front, we continue to make progress on our SyMicro product for e-commerce order fulfillment and remained on track to install our first prototypes this calendar year. We also continue to invest in technologies meant to generate greater performance from our system, notably next-generation battery technology with Nyobolt to enhance the operability and efficiency of our bot fleet. We are also now deploying a larger version of our SymBot to handle a larger variety of SKUs or retrieve multiple cases at once. We believe our continued investment in new bot technologies and enhancements will be a key enabler to handle a larger amount of goods across multiple new verticals and use cases. In summary, we are focused on execution and delivering brightly happy customers, sustainable growth and expanded profitability. As always, I want to thank our team for all their hard work, along with our customers and our investors for their continued support. I'll now turn it over to Izzy, who will discuss our financial results and outlook. Izzy? Izilda Martins: Thanks, Rick. Fiscal second quarter revenue reached $676 million, which was above the high end of our forecasted range. We again achieved GAAP profitability with $9 million in net income. Our adjusted EBITDA of $78 million was also above the top end of our forecasted range due to higher revenue and strong gross margin performance. Our revenue growth was driven by the continued expansion in the number of systems in deployment and the growth of operational systems that generate recurring revenue. We started 14 new system deployments in the second quarter, bringing us to a total of 70 systems in deployment at the end of the quarter. This expansion in the number of deployments drove systems revenue growth of 24% year-over-year and 8% sequentially to $634 million. We had one system go operational during the quarter, which is the Atlanta area site for XSLT. Notably, this project's install start to acceptance was accomplished in under 10 months, ahead of our historical performance for installation time lines. As our base of operational systems continues to expand, software revenue grew 93% year-over-year to $13 million in the fiscal second quarter, including approximately a $1 million from a non-recurring adjustment. Excluding this adjustment, software growth remained above 75% year-over-year. Operations services revenue of $29 million was slightly down year-over-year due to a tough comparable in training revenue, but up slightly sequentially due to the increase in operational systems. Turning to margins in the fiscal second quarter. Gross margin expanded both sequentially and year-over-year due to strong project execution, cost discipline and scale benefits. Operating expenses on a GAAP basis were $144 million in the fiscal second quarter and adjusted operating expenses totaled $88 million, both up sequentially in support of our growth initiatives. Net income for the fiscal second quarter was $9 million, an improvement from a net loss of $10 million in the second quarter of fiscal year 2025, thanks to expanding margins and operating leverage. Adjusted EBITDA of $78 million was more than double the $35 million in the second quarter of fiscal year 2025. Our backlog of $22.7 billion continues to remain strong. The increase from $22.3 billion last quarter primarily reflects final pricing adjustments on projects started in the quarter and the addition of one system for AWG, offset by revenue recognized in the quarter. We finished the quarter with cash and cash equivalents of $2 billion, up from $1.8 billion in the fiscal first quarter, driven by $218 million of free cash flow. Now turning to the outlook for the third quarter of fiscal 2026. We expect revenue between $700 million and $720 million and adjusted EBITDA between $80 million and $85 million. With that, we now welcome your questions. Operator, please begin the Q&A. Operator: [Operator Instructions]. Our first question comes from the line of Andy Kaplowitz of Citigroup. Andrew Kaplowitz: Obviously, is up a bit sequentially, and you did mention the first deployment with AWG. Would you say this new store structure that you have is starting to pay dividends with these kinds of new customers? Maybe what's the potential that you see with AWG? Izilda Martins: Andy, I heard that a little bit broken up. I think what your question was, first of all, thank you for your question, is what do we see coming forward from the AWG. I think like every customer at the start is always with one system, and so the potential there is really to build one system successfully will take us a couple of years for that and then do one system at a time. The importance there is unlike a larger customer that adds to our backlog, this backlog will come at one system at a time. Like we said, it's a monumental first step and also having another new customer earlier in our fiscal year, whereas the last new customer that we announced was at the tail end of fiscal year '25. Hopefully, that answered your question. Andrew Kaplowitz: Yes. No, it's good. Like maybe I just -- it's great to hear about the new XSLT site coming live. Of course, I have to ask, I know you've been talking about customers visiting the site. Now that it's live, would you expect to see sort of more movement there in terms of getting these customers on board? Richard Cohen: Yes. Andy, we do expect to get more movement. We've had a lot of interest at MODEX where basically everybody goes and XSLT was there. We're starting to give tours now in the Atlanta site. We would expect pretty quickly to announce our first customers there. Operator: Our next question comes from the line of Joe Giordiano. Joseph Giordano: The remaining performance obligation in the Q, it suggests upside over the forward 12 months versus Street revenue assumptions. I know you don't like to guide or give color more than 1 quarter forward, but just curious how you -- is there any update to the thought process of the ramp in the rest of the fiscal year? I think the midpoint of your guidance is like 5% sequential 2Q to 3Q. I think consensus is something like 9% from 3Q to 4Q. Just curious if there's any changes into the cadence that you see as the year goes. Izilda Martins: Joe, thanks for the question. I think, as you know, we guide 1 quarter at a time. You're spot on, on what we're guiding for the third quarter. I'm not going to get ahead and talk too much about the fourth, but here's what you can expect, right? I'll say that the fourth quarter should be on a sequential and a year-over-year show that growth. The other thing that I would point out, as you mentioned, the RPO in our 10-Q, you will see that disclosure of what we expect over the next 12 months. You kind of can back into what that fourth quarter is. As I said in the past, there would be maybe a little bit less of a sequential growth quarter-over-quarter. We did over exceed just slightly in the second quarter. I would stick to the guidance in the third and then give us a little bit of time, but you can back into where the RPO is in the next 12 months. We expect a strong fourth quarter with both sequential growth a little bit higher and year-over-year growth as well. Joseph Giordano: Then just as a follow-up, I noticed there's a fairly big jump in CapEx in the capitalized software in the quarter. It's up like double versus last year. Just if you can talk to that and the outlook there. Rick, you've talked about memory a bunch and input costs in the past. I know it has not been like an issue, but I mean, they continue to like skyrocket. Just curious if there's any updates there. Izilda Martins: Joe, I'll take the first half on the CapEx, and then I'll leave it for Rick to answer on the memory side of things. On the CapEx front, maybe what I should have made a little bit clearer in the last quarter where we only had a $2 million spend. What I mentioned the last quarter was that there was a little bit of a delay in payment, but really that we would catch up in the second quarter. The best way to think of it is that we are going to spend on average $20 million to $25 million a quarter. We just had that delay in the first. I think also what's more important is what are we spending it on? When we announced the next-gen structure, we also mentioned and we started in the fourth quarter that we would be investing in our suppliers for them to increase their capacity. That's where the bulk of the CapEx spend is. I think your next question was about potentially whether you're referring to sort of memory shortages or things of that nature. In short, I would say we don't have any impact on memory, any memory shortages. We don't consume a ton of memory on the bot. If we have any confirmation of memory, that would be more on the back-end IT infrastructure that stores the data, and that's really an immaterial amount. Not sure if that's what you were asking about. Operator: Our next question comes from the line of Nicole DeBlase of Deutsche Bank. Nicole DeBlase: Maybe just starting with system completions step down to 1 this quarter. I think it was 3 last quarter. Is the expectation that the number of system completions picks up as we move into the back half? I know this isn't a metric that you necessarily guide to, but just with the step down in completions that's happening this year relative to last, it would be good to get some color around that. Izilda Martins: Nicole, thank you for the question. You're right. It's not a metric we guide to, but let me give you a little bit of insight. When you see this quarter or really this year, we're really experiencing the impact from the low number of system starts about 2 years ago, right? Really, when you go back to '24, kind of in line, maybe just a tad under, but I think what's important is that we continue to execute well on the items within our control, which is really the installation period. I think really the way to think about it is that, yes, we expect completes or call it, system completes to grow sequentially from here with probably Q4 being the highest for the year, but I wouldn't expect them to be significantly higher. There just may be a little bit of movement between the second and third quarter. I can say today that there's always a little bit of timing in the quarter. We're still early on into the next quarter, and we've already achieved a couple of those system completes. Nicole DeBlase: I think you highlighted in the prepared remarks that you achieved less than 10 months of deployment time on the system, which is impressive. Was there anything special about that system that allowed you to do that? Could this potentially be like a new norm moving forward? Izilda Martins: I will let Rick answer if there's anything specific on the Atlanta installation time line. I don't believe so. I think that for the new norm. I think we've been talking about it quite a bit, what we're in control, which is post month 12 to, say, month 24. We continue to see improvements, which is really what's also driving some of the efficiencies that you already see. I think what we've also asked for is give us a little bit more time as the mix of the next-gen storage systems really becomes larger for us to truly have a good sense of what is driving that. Today, everything we're seeing, including the one in Atlanta that we continue to shrink what I'll call the installation time period, which is the second tranche of, call it, month 13 to 24. In this particular one, you're going only month 13 to 22. So we've set the new standard, and the key is to stay there, if not be it. Rick, anything further on the Atlanta site and installation? Richard Cohen: No. I mean the Atlanta site was an easier site because it was a greenfield. Some of the sites have been a little more complicated early on because we've been going into existing facilities. There's 2 things that I'll say is that was partly what was responsible with Atlanta, but we've also another -- we have 2 sites now where we're installing the new structure, and that will be faster. Operator: Our next question comes from the line of Matt Summerville of D.A. Davidson. Matt Summerville: I was wondering if you could give any sort of update on kind of where you're at with development on frozen/perishable as well as if there's an update on the APD and how you're feeling about hitting kind of the benchmarks you need to hit to trigger that additional backlog? Then I have a follow-up. Richard Cohen: In the APD, we have -- we're working to get our first 2 prototypes up and running in the next 6 months. If you were to visit us in the ITC, you could see a pretty small prototype that is actually working now. We're very excited. The hardware is pretty much done. We've got some software updates we're doing, but we feel very good about the APDs, and there's a lot of interest -- we into MODEX, a lot of interest in that particular product. The second part of your question. We've now -- as part of the APD expansion, when we took over Walmart Robotics, there were 19 sites that we had to upgrade, and we've done that. We actually now have a bot working in a freezer. We have another test series of boards that we're testing that are also working in a freezer with no showstoppers. Perishables is actually simpler, not a lot of changes. We've made some substantial upgrades in wiring harnesses and stuff like that coming from some of the car guys that we brought in to handle moisture. I would say we would expect to begin thinking about a frozen and perishable prototype sometime certainly within the next year. Matt Summerville: Then as a follow-up, can you maybe update us on your progress with respect to international expansion, particularly with respect to Europe and what the new buffering structure, how that ultimately could accelerate some of that opportunity for you? Richard Cohen: Yes. We have our first site in Mexico. We're installing Rack, and so that's our, I guess, our first international site with Walmart. We had an early on site with Giant Tiger in Canada, but we're also looking at other applications in Canada. I guess you call that international. We just came back from Europe, met with a bunch of retailers there just a couple of weeks ago. We're getting a lot more notoriety because Europe is very, very interested in brownfields. Most of the automation that's been built in Europe over the last 5 years is mostly greenfield. It's 70 to 90-foot to 100 -- actually 110-foot high buildings, very strict permitting processes. Europe is still a ways off, a lot of interest, but a lot of turmoil in Europe right now with Ukraine and the Middle East, but very good reception, and we'll continue to work on developing our first sites in Europe. Operator: Our next question comes from the line of Ken Newman of KeyBanc Capital Markets. Kenneth Newman: I maybe for the first question, just wanted to go back on the initiations. I know you don't really guide to it, but I'm just trying to make sure that we think about -- I think last quarter, you had mentioned maybe one of your larger customers with the advent of the new store structure, maybe transferring some of those deployments into 2-in-1s. So is it just safe to assume that the number of initiations probably steps down a significant amount starting in the third quarter? Or just any help on how to think about that numerically relative to ASPs? Izilda Martins: Okay. As you know, we had the 14 starts in the quarter coming off of 10 starts in the first quarter. Just as for the 14, it's a mix, right? It's a mix of those next phases. Yes, there are some larger systems, but there's still also BreakPack, plus the one system for AWG. I think how I would think about it is no different than what I mentioned in the last call. I think the middle will be pretty meaty as to the number of starts, and they will trail off in the fourth quarter. Being consistent to what we said last quarter. Kenneth Newman: Then maybe, Rick, can you tell us a little bit more about the investment you made in Nyobolt? As you think about the R&D pipeline for future product releases, where do you see the opportunities for maybe some incremental investments? Where do you think you can kind of build organically versus having to go out and maybe do some modest acquisitions? Richard Cohen: Yes. Nyobolt was -- we found Nyobolt very early on, and we invested in them very early on. I think, I don't know, maybe right after their seed round. Nyobolt has a unique chemistry where -- I don't know, we're one of the larger owners of the company right now. We believe that the battery technology is very applicable. Our bots use ultracapacitors. Nyobolt is more of an ultracapacitor battery. The energy that we can get out of a single charge is 5x as long as what we get from a charge today on a regular bot. What does that mean? It means our bots are going to be able to do longer trips, much more reliable and not be affected by brownouts and other things that are affecting sites today. Nyobolt, we're very excited about that investment, and we're using that technology in all our new bots. As an example, for investments, we have our regular SymBot, but we also have a mini bot. We'll have an APD bot, and we'll have a stretch bot. One of the things that makes us I think, special is that we can use the same software in 4 or 5 different bots. We're going to continue to invest in new robots and the 9-volt battery allows us much more flexibility for either longer trips or bigger bots because it just provides more power in the same space. In terms of other acquisitions, so we just acquired Fox and Fox is going to be a very interesting acquisition. They're using the same LiDAR that we're using on our bots, so we actually can buy these LiDAR considerably cheaper than they can. We have a lot more experience. Today, our bots are traveling 1 million miles a day. We may have the largest autonomous fleet traveling today in the world. I'm not sure. But we're traveling a lot of autonomous miles. The bots are all being retrofitted with LiDAR. They're all being retrofitted with a 9-volt battery. I think we're distancing ourselves between whatever the competition is and where the future goes. Then there's 2 other acquisitions that we're looking at as part of our trip to Europe. I can't really announce those, but there's -- what's happening is in our space is that as we become a clear winner and a sustainable business, there's a lot of start-ups that are approaching us now about can you help us expand, maybe take an ownership stake or maybe just buy us. A lot of incomings, and we're very excited about that technology. Operator: Our next question comes from the line of Mark Delaney of Goldman Sachs. Mark Delaney: I was hoping the company could give an update on BreakPack. I think, Izzy, you said one of the system starts this quarter was BreakPack. Can you share more on how that product has been doing in the field and your outlook for additional deployments of BreakPack from here? Richard Cohen: Yes, I'll take that one. We did the original BreakPack system in Brooksville, some of you have seen it. There's now right next to that is the new upgraded BreakPack. These are newly designed bots. These bots have -- will have Nyobolt batteries. They will have LiDAR. They're much faster. They can do twice as much work in the same amount of time as the old bots. Walmart has given us orders for 40 of these in every site. There's a lot of interest in terms of BreakPack is an application that allows us to do smaller versions of these systems. For instance, convenience stores, where they're doing itches. Also the BreakPack is an interim step between a big system and an e-commerce system. BreakPack is very exciting. We're on track. It's going well, no showstoppers. Software is in place, allows us to actually sequence, which is interesting for route drivers, sequence itches and packages, and so for gig drivers who are doing multiple deliveries, BreakPack is a very interesting application. Mark Delaney: My other question was on XSLT and now that you've got Atlanta complete, I was hoping to better understand the ramp from here. Maybe you could help with how many of the 14 system starts in the quarter were associated with XSLT and the trajectory going forward? Izilda Martins: I'll take the front half of that. I would say in the 14, there are any XSLT. As we said in the past, XSLT is in the, call it, the build mode still. We are very strategic in the 5 locations they picked throughout the country. Now we have the first one completed, and we're in the process of doing the other 4. No different than the last time and the current amount added to deployments does not include an XSLT. Operator: Our next question comes from the line of Jim Ricchiuti of Needham & Company. James Ricchiuti: I apologize if this was asked already, but you had a nice step-up in gross margins. Izzy, I'm wondering, is there anything you'd say about looking out into the -- I know you don't guide past the quarter, but how might we be thinking about gross margins over the year? Izilda Martins: I mean I think here's where I'd start, right? Starting with the -- what we guided to in the second -- in the third quarter. That's really what I would say a stabilization where we saw some really, really nice growth. I mean, I think first, we should just stop to think about where we were a year ago and where we're at now, definitely no small feat. I think as you think of it going further, as I've mentioned, it's really about stabilizing where we're at for at least the next quarter. Then it's really about not a couple of quarters later, about what we've always said is when we really have the mix of system installations being majority next-gen storage structure, that's where we really should be unlocking a path towards longer-term systems margin. As we said in the past, we expect those to be at 30-plus. Recap, great improvement from where we were a year ago. I would say in the next quarter, a bit of stabilization and give us a little bit of time to get through that journey of having a mix of more next-gen storage systems being installed. James Ricchiuti: Rick, I think you alluded to stretch bots. I'm wondering what can you say about the deployment of these? How do you see that ramping? Maybe walk us through locations at different customers that you could envision for this? Richard Cohen: Most of the products that we initially designed our systems for was a product that was about 8 cubic feet, 2 feet by 2 feet by 2 feet. As we got those machines running really, really well, and we understood how to do the software for the turns, we got requests for items that were about 50% bigger. That took us about 2 years to actually develop that. Now we have hundreds of those running around right in the same sites as the smaller bots. The customers are really excited because we've now kind of cracked the code that we could design a bot to handle pretty much anything, but the difference between we designed our bots to handle about 94%, 95% of the products. The stretch bot handles another 2% or 3%, which becomes very important to the customer. This is just a journey that we're on, but we can handle products that we could not handle 2 years ago and we couldn't sell against 2 years ago. There's some very technical details when you make a bot a little bit longer. It's the difference between driving a little mini and a suburban. Then the next thing, of course, is driving a pickup truck or a 53-footer, and so the handling on those is where the software imagine comes about and then mixing those together, and we've cracked that code. That's where we are right now. James Ricchiuti: You've had success penetrating a few different sectors. Would you be willing to share with us your expectations of when you might be in some other areas? You highlighted apparel. I think we in the past about opportunities even in the broader manufacturing sector with automotive. I'm just curious how you're thinking about some of these other areas of opportunity. Richard Cohen: Yes. We've done so much development in the last couple of years. Medline, for instance, is actually a version of kitting. What Medline liked about us is that they want these 10 products or these let's say, 5 eaches to go to the ophthalmology operating room or the surgical room or the oncology area. That's a combination between a big system and a BreakPack system, but then that could also be an each picking APD system. That is also applicable to auto parts. We talk to auto parts suppliers, some of the retailers. A couple of years ago, our systems were too big and too expensive, but now we're back talking to them again with a smaller, lower cost system that actually is very catered not to them, but it actually works very well for them because what we've done is develop system that's applicable across a lot of areas. We've also had a number of discussions with actually auto manufacturers because they also have kitting and parts. We're just on the journey. We're pretty busy because we're growing pretty fast. We have a lot more salespeople out there talking to a lot more people about future projects. I think we're very comfortable that we can adapt to most anything that these folks will throw at us. Operator: Our next question comes from the line of Guy Hardwick of Barclays. Guy Drummond Hardwick: I just a question on the backlog. It looks like the change in the backlog in the quarter was quite considerable. It probably implies the pricing adjustment was quite a big step up? Or are you willing to kind of reveal how much of the change was the pricing adjustment versus the AWG win? Izilda Martins: It's Izzy. I think I understand. Basically, here's how we think about it, no different than you've seen it in the past, right? Quarter-over-quarter, the backlog does have an increase. As you mentioned, right, the first thing that happens to the backlog is it's taken down by the amount of revenue that we generated in the quarter. As you also mentioned, we also have to do the final pricing of the system signed -- the systems that we signed in the quarter plus the AWG. As we've said in the past, the backlog has been quite conservative. Actually, coincidentally, if you look at our backlog at the end of this quarter, it's equal to the same amount that we had last year at the same time. It's a little bit of the fact that our systems are configurable, the fact that we do get to align pricing to the current market conditions. As we go through all that math, this quarter, we end up with really, call it, $1 billion of incremental backlog when you take out the amount of revenue that we've recorded in the actual quarter. I hope that helps. Guy Drummond Hardwick: Just as a follow-up, it looks like no matter how I look at it, whether it's 1-year trailing basis or 2-year trailing basis that system revenue per deployment is coming down sort of double-digit percent. I know you have a lot of new system starts and there's, I think, BreakPack would be in there as well, but should I just assume that going forward, the past averages of revenue per system don't really apply anymore that I kind of should step down my assumptions for revenue per system going forward? Izilda Martins: Yes. I would say you're spot on, on the numbers. The number does tend to vary though by quarter. Depending on what you said, the mix of systems in the installation versus the design, etc., including the mix, be it a large system versus a small system, a break pack, it's going to vary every quarter. Right now, what we see or where we find ourselves is that we have a very high percentage of recently signed systems, and those signed systems haven't entered the installation phase. The installation phase is really where it's going to be driving more of that revenue. I do see that decline. What I'm saying is it's going to vary quarter-by-quarter. I think it's also as you see where our growth trajectory is that we don't see a concern in the fact that you see that averaging coming down. Operator: Our next question comes from the line of Colin Rusch of Oppenheimer & Co. Colin Rusch: I'm curious about the evolution of the capabilities that you guys are thinking about as well as some of the increased integration with the supply chain. We're starting to see autonomous trucks hit the road in a little bit higher volume. I'm curious about some of the scheduling capabilities that you're thinking about and partnerships there as well as the potential to move into heavier objects or even into delivery into hospitals with robots that are integrating into a built environment already. Given the capabilities that you guys have and visibility and opportunities, just curious with the cash balance and the selective acquisitions you've made in the past, how you'd be approaching that or whether from an acquisition or partnership perspective? Richard Cohen: Yes. Good question. We spend a lot of time talking about this internally and externally. We want to connect the whole supply chain. We want to be able to coming from a manufacturer going on a truck, communicate to our system and a warehouse know what's going to show up in the yard, be able to schedule that into a door, have our robots, a Fox robot, unload that truck, put it away and then likewise, schedule through our system, integrated with somebody else's system probably, could be a Walmart system, could be a Manhattan system, could be our system. We're very focused on leveraging the end-to-end supply chain and having -- whether it's AI, some of this will be, but just knowing where everything is in the system and setting up our robots and our software to be able to handle it is really what we're focused on. We will be acquisitive. That's all I can tell you. I can't tell you who, when or where, but we're in a good space. There are a lot of people with a lot of names with a lot of high valuations that are talking about physical AI. We're the ones that are actually have the information and actually moving the products. We're going to go both upstream and downstream and may look at even more software acquisitions as part of how we connect our systems. Colin Rusch: Excellent. The second question is really around data management. We're seeing an escalation in kind of data transfer and management of management expenses. I'm just curious about how you guys are thinking about that if it's even registering at this point for you from a cost perspective and something you need to manage on a go-forward basis? Richard Cohen: How we manage -- the question is how do we manage the data management? Colin Rusch: We're just seeing data transfer becoming a more meaningful expense across the physical AI supply chain and thinking about localized decisions versus coming back to centralized compute to train things. Richard Cohen: Yes, absolutely. We've been -- I'm like maniacally focused on this for 3 years. You just have to be in our IT center here and hear me every day. We're very focused on the data that we need. The cloud per unit is going down, but in total, it's more expensive. It's not something that's going to become a major problem for us to disrupt it because we can control the data. There's some question about how long you store the data, how you process the data, what we do with the data, but we've been processing massive amounts of data for at least the last 5 years. We do spend a lot of time. We're out looking at all of the software packages, how to connect it. I think we're well ahead of everybody else because we've been doing this for so long, and we've been managing so much data on the physical AI side about what -- how we teach the bots to handle data locally as opposed to sending it up to the cloud and what we need to send up to the cloud. The answer to your question is we're actually very focused on managing this variation. Operator: Our next question comes from the line of Derek Soderberg of Cantor Fitzgerald. Derek Soderberg: Quick one on the AWG project. I'm curious if the deployment represents a standardized retrofit of the existing platform? Or will it require significant custom engineering for that customer? Richard Cohen: No, there's no custom engineering. I mean, from day 1, grocery is something that we -- is kind of our bread and butter. Nothing special about this. Derek Soderberg: Then as my follow-up, my understanding is that you have a few customers that just have a single pilot line, which they've had for a handful of years now. What's the update on those retailers? When might we see a larger agreement from that list of customers still sort of in that pilot stage? Izilda Martins: Yes. I would give you the example of, as you see in the amount of logos, some still are at one system. We expect at least 1 or 2 to be increasing that, but it's not really information that we disclosed as to where we are with it. As you said, there are customers who would say one system at a time, but I would continue to expect them to sign one system at a time. I think that for purposes of backlog with those logos or those customers, that's how I would think about it, but yet the potential is greater. I think there's opportunities for systems 2 and 3 in a couple of those, but it's -- sometimes we want to be discrete about our customers' business as well. Operator: Our next question comes from the line of Greg Palm of Craig-Hallum. Greg Palm: Izzy, I'm curious, the operating leverage has been really impressive. Like if I look at the incremental margins, they've stepped up quite a bit the last 2 quarters relative to what we've been accustomed to. Any reason why that shouldn't be an appropriate level going forward, especially as you see the sort of the further boost on the next-gen storage structures at least on the gross margin line? Izilda Martins: I don't want to get ahead of myself too much, but I am seeing what you're seeing, right? You see not only the sequential improvement in gross margins, but even a better improvement, call it, on the EBITDA margin. Where I said stable on gross margins, I see a little bit of an uptick on the EBITDA margins. I think it's really how we continue to exercise that discipline around the OpEx with one caveat. You've heard about all the things that Rick was talking about. So we do want to maintain that ultimate flexibility on the R&D line. If we see something that we should be investing in, given our cash balance and the ability to allocate cash, we would be doing it. Outside of that, it's I see what you see, whereas we continue to expand that bottom line and very proud to be profitable and plan on being profitable going forward. Greg Palm: Is there an incremental margin that you're managing the business to either in the near to medium term or longer term or not necessarily? Izilda Martins: I would say not necessarily, right? It's not as easy as you would suggest. I think what we manage to is the things that we talked about is really the efficiencies on the execution side and the cost discipline. That's what we're managing to, and you see those results come through in the P&L, but not per se. I think the bigger message is we do continue to drive for that longer-term margin being in the 30-plus. Operator: Our next question comes from the line of Robert Jameson of Vertical Research Partners. Robert Jamieson: Just actually one really. Rick, you've made some very interesting acquisitions. You mentioned Fox Robotics that was completed last quarter, quite a compelling acquisition when you think about how that helps further automate different processes, moving the pallets from the loading base, the info system and on the other end, loading the mixed case pallets for final delivery. Of course, the opportunity to sell those products to others as well. When you look ahead, what are some of the other parts that you might look to invest in to further automate other parts of either the Symbotic system itself, BreakPack or the micro fulfillment system? Should we expect like ecosystem partnerships on the MSC side like adding cobot arms to -- or picking solutions that take another human out of the loop on the back end of those systems. I mean I'm just trying to understand what types of technologies are interesting to you at this point that would help you accelerate some of those efforts as you move kind of towards a so-called dark warehouse with the Symbotic solution. Richard Cohen: Yes. You mentioned a bunch of things. I mean obviously, robotic arms are interesting to us. There's a couple of companies out there that are doing it. It's not -- it's -- so we're looking at it. There are a number of companies that are doing truck unloading. I mean we know everybody because everybody is talking to us and everybody is interested in partnering with us. I think , we're very focused on micro fulfillment because we think that's a huge opportunity. That would lead us to eventually look at robotic arms. We're also very focused on the -- how to say it, connecting all of the supply chain. There are very large import DCs that are just basic storage DCs. That was not interesting to us before, but it becomes more interesting as our customers want us to connect all of these DCs. Fox is probably the most important one because we basically build pallets and somebody has to take them to the truck, and so they sit on the dock. Managing the dock management is very important to us. That actually allows us to get customers -- introductory customers at a very low introductory price and then upsell them to, well, you could do this with the rest of our system or this part. Everybody needs pallet jacks. Having the best automated pallet jacks is something we're focused on. We will continue to look at opportunities and opportunities continue to present themselves to us. I don't think we have a specific road map right now. We really want to get the dock management working well. We want to understand the perishable world. Those are the things that we're really focused on right now. Operator: This concludes the question-and-answer session. I would now like to turn it back to Charlie Anderson for closing remarks. Richard Cohen: Yes. Thanks, everybody, for joining our call tonight. We really appreciate your interest in Symbotic and we look forward to seeing some of you in the coming weeks on the road. Goodbye. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Ladies and gentlemen, welcome to Sera Prognostics' First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please be advised that this call is being recorded today, Wednesday, May 6, 2026. I will now turn the call over to our first speaker today, Jennifer Zibuda, Investor Relations. Please go ahead. Jennifer Zibuda: Thank you, operator. Welcome to Sera Prognostics' First Quarter Fiscal Year 2026 Earnings Conference Call. At the close of market today, Sera Prognostics released its financial results for the quarter ended March 31, 2026. Presenting for the company today will be Zhenya Lindgardt, President and CEO; and Austin Aerts, our CFO. During the call, we will review the financial results we released today, after which we will host a question-and-answer session. If you've not had a chance to review our quarterly earnings release, it can be found on our website at sera.com. This call can be heard live via webcast at sera.com, and a recording will be archived in the Investors section of our website. Please note that some of the information presented today may contain projections or other forward-looking statements about events and circumstances that have not yet occurred, including plans and projections for our business, future financial results and market trends and opportunities. These statements are based on management's current expectations, and the actual events or results may differ materially and adversely from those expectations for a variety of reasons. We refer you to the documents the company files from time to time with the Securities and Exchange Commission, specifically the company's annual report on Form 10-K, its quarterly reports on Form 10-Q and its current reports on Form 8-K. These documents identify important risk factors that could cause the actual results to differ materially from those contained in our projections and other forward-looking statements. I will now turn the call over to Zhenya. Evguenia Lindgardt: Thank you, Jennifer, and thank you, everyone, for joining us today. Given that we reported full year results just over 6 weeks ago, I'll focus my remarks on several key developments that continue to advance our commercial strategy and expand access to PreTRM. Following the publication of the full PRIME study results in January, our primary focus in the first quarter was building awareness with both clinicians and broader stakeholders. Our education and outreach efforts were designed to broaden understanding of preterm birth risk and prevention, including among audiences that are difficult to reach through traditional health care channels. From a provider engagement standpoint, we maintained a strong presence across key clinical forums, including the SMSM Annual Meeting in February, and more recently, the ACOG Annual Clinical and Scientific Meeting. At SMSM, we highlighted key clinical evidence and engaged directly with maternal fetal medicine specialists on PreTRM's role in risk stratification and early intervention. We also engaged with SMSM leadership to discuss PRIME study outcomes. At ACOG, we built on that momentum with a targeted product theater that showcased both the PRIME data and practical implementation strategies, underscoring how PreTRM can be seamlessly integrated into routine clinical care. We have been featured in several targeted podcasts this year, which complements our presence at medical meetings and extends our reach. In March, the SHE MD podcast featured an interview with Hailey Bieber discussing her pregnancy and the PreTRM test, which she received under the care of Dr. Aliabadi, SHE MD co-host and Sera's customer. This generated a high level of awareness of PreTRM, given Hailey's global visibility and social following along with a subsequent People magazine exclusive interview. The episode surpassed 0.5 million views and continues to drive awareness. Following that, we engaged the SHE MD to record a new podcast episode releasing May 14 to coincide with National Women's Health Week. This interview will feature a conversation on the science behind Sera, the clinical evidence from PRIME and how the PreTRM test needs broad awareness and should be considered as future standard of care. The episode discusses Dr. Aliabadi's experience with PreTRM tests over the last few years and the value of prevention and evidence-based risk identification. We hope you will all tune in next week. As we look ahead, we will also be featured on Medscape Hear From Her, the Women in Healthcare Leadership podcast, engaging in conversation with the podcast host, Jelena Spyropoulos and Dr. Mollie McDonald, Maternal & Fetal Medicine Specialist at St. David's Women's Center in Austin, Texas. The episode dives into the realities of preterm birth, the need for proper intervention and what can be done to help patients. Together, these media efforts continue to drive awareness across patients and providers, policymakers and payers who play an important role in improving pregnancy outcomes. Turning to our commercial progress. Our efforts during the quarter remained focused on building sustainable access points and referral pathways that we expect to support our long-term volume and revenue. Adding to our 2 live programs, we launched our third partnership program during the quarter, further expanding education and access to PreTRM. This program is expected to reach over 350 providers across 3 states, expanding our clinical footprint and advancing earlier identification and intervention for at-risk pregnancies. Beyond these established programs, we are contracting with additional partners and expect to provide more detail as these initiatives transition from contracting into live implementation. In parallel, we are now engaged in active discussions with 13 payers across 15 states, reflecting our strategy to deepen relationships with a focused set of target markets. We believe this concentrated approach is more effective in driving meaningful implementation and adoption than pursuing broader but less integrated engagement. Across all of these efforts, our priorities remain execution, reimbursement, physician awareness, clinical integration and provider adoption. We view these steps as foundational to broader coverage and scale over time. In addition to reimbursement, we are making steady progress in our efforts to drive guideline inclusion while continuing to expand the evidence-based supporting PreTRM. As discussed in our year-end call, European expert commentary on the PRIME trial was published in the Journal of Maternal Fetal and Neonatal Medicine in March. The authors emphasized that current preterm birth prevention strategies failed to identify the majority of women who ultimately deliver preterm and highlighted the alignment of the PreTRM approach with existing European health care systems. Also in March, results from the PREPARE survey were accepted for publication in the Journal of Women's Health. This survey examined preterm birth awareness and risk perception among women across 5 European countries and identified a meaningful gap between perceived awareness and actionable understanding, reinforcing the need for earlier and more standardized risk communication. We look forward to the formal publication expected in May. Together, these publications support our stakeholder engagement efforts in Europe and underscore the global relevance of risk-based preterm birth prevention as health care systems increasingly emphasize prevention, education and cost-effective maternal care. Looking ahead, we remain on track to publish several additional PRIME sub-analyses in 2026, including a highly anticipated health economic study, Medicaid population outcomes of the PRIME study and a focused analysis of first-time moms, further strengthening the clinical and economic foundation for adoption. During the quarter, we also continued to advance our advocacy strategy. Preterm birth is not only a clinical challenge but a public health and policy issue. We're engaging with stakeholders across multiple states to monitor and, where appropriate, support legislative initiatives and policy discussions focused on earlier identification and prevention, particularly in Medicaid and value-based care settings. We also recently launched a targeted letter writing campaign designed to encourage physicians and patients to engage with state Medicaid programs on reimbursement for the PreTRM test. The initiative is intended to amplify at the local level, the existing clinical voice calling for access for its risk populations. To date, we've seen encouraging participation with multiple letters submitted across several states, reflecting growing physician advocacy and awareness. We believe these grassroots efforts will play an important role in advancing broader coverage discussions over time. Through these efforts, we continue to build awareness and alignment well in advance of formal coverage decisions and to help policymakers understand both the clinical and the economic burden of preterm birth. We view advocacy as an important complement to our commercial and scientific strategies. In Europe, we continue to make progress towards commercialization readiness. We remain on track for a midyear submission of our CE Marking dossier and have had constructive discussions with regulators and clinical stakeholders. Engagement with our European advisory group continues to reinforce alignment around clinical utility, evidence requirements and implementation considerations. On capital deployment, we have completed the next phase of our evolution from a clinical-stage company to a commercial organization driven to secure reimbursement and revenue. Following a comprehensive business review, we realigned resources, identified significant operational efficiencies and streamlined R&D and G&A functions. We are prioritizing investments in payer engagement, market access and clinical adoption of PR. As part of this realignment, we are intentionally shifting capital away from R&D and clinical operations towards commercial and medical activities that directly support access and adoption. Over time, this results in a meaningfully higher proportion of our operating spend focused on commercialization and medical engagement with R&D becoming a smaller share of our overall expense base as we move into 2027 and beyond. These actions are expected to reduce our base operating expenses by nearly $10 million annually while enhancing our ability to focus capital on commercialization efforts. At this new operating level, we expect that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements through 2029. By extending our runway by an additional year, we have positioned the company to capitalize on meaningful growth expected over the next 12 months and to achieve key access and commercialization milestones in the years to come. To wrap up, the first quarter was characterized by awareness building and intentional positioning, expanding access points, strengthening referral pathways, advancing advocacy efforts and continuing to build the scientific foundation necessary for long-term adoption. Everything we've discussed today reflects a consistent strategy focused on establishing the prerequisites for durable, scalable adoption. And while these adoption cycles take time, we remain encouraged by the level of engagement we are seeing and confident that the foundation we are laying will support meaningful long-term pull-through. With that, I'll turn the call over to Austin. Austin Aerts: Thanks, Zhenya, and good afternoon, everyone. Revenue for the quarter was $14,000 compared to $38,000 in the first quarter of 2025. As expected, revenue in the quarter remained modest, reflecting the timing and nature of our geographically targeted commercialization strategy and our ongoing effort to build advocacy and awareness following the PRIME publication. Operating expenses for the quarter were $9.4 million, up slightly from $9.3 million in the prior year period, consistent with our expectations and reflecting disciplined cost management alongside continued investment in evidence generation, regulatory preparation and advocacy activities. As discussed, following our business review, we expect to reduce our operating expense base by nearly $10 million on an annualized basis. The benefit in 2026 will be limited due to the phasing of activities and related charges with the majority of the savings expected to be realized in 2027 and beyond. Research and development expenses were $3.0 million compared to $3.3 million in 2025. With the PRIME study now published, R&D expenses will continue to decrease as we focus resources on activities that more directly drive commercialization and awareness building. Selling, general and administrative expenses were $6.3 million versus $5.9 million in the prior year, reflecting our transition from clinical stage investments toward targeted commercial initiatives and strategic headcount. Net loss for the quarter was $8.4 million compared to a net loss of $8.2 million in the first quarter of 2025. We ended March 31, 2026, with $86.8 million in cash, cash equivalents and available-for-sale securities. Based on our measured commercialization strategy and a more sustainable cost base resulting from the activities discussed earlier, we believe our capital resources will be sufficient to fund the company across significant adoption and commercial milestones through 2029. As Zhenya outlined, our strategy prioritizes building durable prerequisites for adoption. From a financial perspective, that means revenue in 2026 could remain modest and uneven as we continue pushing reimbursement, awareness and advocacy campaigns and as programs move from setup to implementation with increasing pull-through anticipated later in the year and into 2027. In summary, the first quarter reflects continued financial discipline alongside steady progress in laying the groundwork for broader adoption. We remain focused on execution as these initiatives mature. With that, let's open the line for questions. Operator? Operator: [Operator Instructions] Your question comes from Tycho Peterson from Jefferies. Unknown Analyst: This is [ Lauren ] on for Tycho. A few from me. First on the partner program. So could we get maybe a little bit of color on the kind of profile of the third partner and kind of how it compares to the first 2? And then in terms of kind of the required cadence throughout the rest of the year to hit the goal of 5 to 7 partner programs and what that's going to look like for the next couple of quarters? And then second, for the new reps, I think you've talked about before how it could take a couple of quarters to kind of see density of adoption and increased productivity. Are you measuring anything in terms of test per rep per month or other KPIs that you're targeting for the second half of the year for these reps? Evguenia Lindgardt: Lauren, thank you so much for the questions. On the programs, indeed, very exciting. The way we planned our pipeline of the potential programs is to launch roughly one a quarter to make sure that we swarm the organization and stand them up well. Each program typically is a combination of a payer and provider groups to ensure that the pull-through can happen on the ground in the offices quickly. We've learned over the last couple of years that it takes a few months to iron out how the patients who test for higher risk of preterm birth get cared for by the physician offices with the intervention bundle. So we make it as seamlessly integrated into the workflow of those offices as possible. So for us, each of these programs, that's why one a quarter roughly, and we're right on track with that with another launch this quarter. We first select how will the test get paid for, engage on reimbursement, then with the payers, figure out what is the set of providers that are going to partner with us to adopt the test and get them ready for seamless integration to their workflow and delivery of the intervention bundle. So that is critical for fast recruitment and delivery of the test to the participant, which, of course, in turn, gives the results to both payers and providers faster. So it's in all of the partners' interest in these programs to prepare well to get to -- for us to revenue, for them to impact faster. For many programs, we are engaged deeply with the state as well. So on a quarterly basis, we report out the progress of the programs to the state Medicaid agencies, and these are usually public quorums where other payers are present. And another reason why one a quarter is because there's a fair bit of follow-up with other payers in the state that have the Medicaid plans who are starting to also reach out and want to participate. So we're excited to report that our pipeline of payers that we're engaged with is growing steadily from 10 payers in 13 states, which we reported last quarter, to 13 payers in 15 states. We're still sticking to our target states. But what we're seeing happen is the payers that we're running the program with now for 6 to 9 months are introducing us to other parts of their organization that cover plans in other states, which is exactly what we were hoping for and expanding with these payers into other regions. So that's why we're pacing it one a quarter roughly, and you can certainly anticipate us announcing one per quarter. Of course, we'll go faster if we can go faster, but I described the activities so that you get a feel for what an undertaking it is to stand up these pretty substantial provider institutions who partner with us, obviously, of course, because we, with the payers, select large volume institutions so that we could get the density of test ordering after we get reimbursement to go faster and the pull-through to be clear for about once a quarter to give us 3 months to execute on the launch of the program. Does that answer the first part of your question? Unknown Analyst: Yes, that's helpful color. Evguenia Lindgardt: Perfect. And then the second question, of course, rep productivity is critical. Actually, our Chief Commercial Officer and our Head of Sales, that's exactly how they engage with Austin and me on our forecasting on the number of reps and the number of tests per month per rep that is anticipated so that we can go the reps and drive towards steady progress. And of course, we're cautiously optimistic, but we want to watch it for another few quarters. We are seeing these metrics move. Your -- the question behind the question probably is when are you guys going to report on some of these metrics? Let us see the steady progress on them internally first. And as soon as we see the steady up and up, we will start reporting on them. Operator: Your next question comes from Dan Brennan from TD Cowen. Daniel Brennan: Maybe first one, just on -- you both talked about the shift to a more direct commercial effort, maybe pulling back some resources on the R&D side, extend the cash runway. Just I guess, what prompted the shift? It kind of makes sense logically, but I'm just wondering kind of is there any feedback in the market about timing, how long it's going to take. Or was this in discussion with the Board? Just maybe a little color behind that. Evguenia Lindgardt: Dan, thank you for the question. That's a very logical one. There's actually 2 root causes that drove that happening now. First, of course, as you know, the R&D and clinical operations efforts, both of these groups were incredibly focused on PRIME. And that was a 7-year effort, if you can believe it, with very, very heavy resourcing devoted to that. As we're shifting towards now publishing as much as possible with a couple of dozen publications in the pipeline from our data, we realized that we need less capacity specifically for our PreTRM birth product, R&D and ClinOps capacity. Of course, we have a pipeline of other products that we're working on, but we had inbound interest from partners to collaborate on R&D and clinical operations efforts in developing new tests. So what you're really seeing as the first impetus is the less demand on R&D and ClinOps capacity internally and the second one is the demand externally. to continue developing the tests. And as soon as we lock in these partnerships, of course, we'll communicate all of those to you. And you can imagine our R&D proteomics platform is a great asset with a biobank of thousands and perhaps a couple of tens of thousands of samples, which will allow us to support other diagnostic and screening tests in pregnancy, perhaps also support therapeutics of screening in for eligibility for drug interventions in pregnancy. You can imagine it's a strategic move as well as just simply less demand internally for now until we pick up in this collaborative model on other assets. So that's the answer on the R&D side. Does that help? Daniel Brennan: Yes. Yes, that helps. Very logical. Maybe just a couple of other quick ones. Just on the -- I think previously, you talked about low single-digit thousand volumes this year. Is that still on track? Or just maybe kind of how should we think about that? Evguenia Lindgardt: Dan, I didn't hear you quite well. Low single-digit thousand... Daniel Brennan: Was talking about volumes for '26. Evguenia Lindgardt: I got you. That's not unreasonable. As you know, we don't report the volume of orders, but it's certainly not an unreasonable number to be thinking about. And given your question, Dan, and our conversations, of course, we'll -- as soon as we see steadiness, we'll start reporting on it. But yes, that assumption is not unreasonable. Daniel Brennan: Got it. And then maybe just on the first Medicaid program that began, I think, a little over a year ago, when can you see that program potentially turn into a positive coverage decision, do you think? Evguenia Lindgardt: Great question. And I think when we announced it, we -- I believe I even talked through the time line for that particular program. We believe it will take us -- it took us about 6 months to stand it up with EMR integration and all of the provider setup to provide care management for the patients. And actually, the set of collaborators are now piloting a digital tool with us that allows the providers to deliver care management a lot more efficiently with weekly symptom check tooling. And we're looking forward to reporting on how that goes because that is something that will remove a significant barrier in terms of taking the OB/GYN nursing capacity from the office for that care management. So it took us 6 months to do that. It will take us about 9 to 12 months to fully recruit the program; about 4 to 5 months for the patients to deliver, obviously, on a rolling basis; then a couple of months to collect data on the outcomes, NICU admissions, health of the baby, weight of the baby, all of the other outcomes we typically would monitor in these implementation studies. And then, of course, take it to the state. I will tell you the state is not waiting for it. The state already engaged with us on -- for that particular program on what would coverage mean, why is it needed. We are mobilizing our clinical advocates in that state, and that's what I meant when I said our letter writing campaign. We're asking every provider to write to the state Medicaid and advocate why this test needs to be paid for in the state for all of the pregnant moms there. So the tactical time line I laid out nets out to be about 2 years to decision time line for the state. I think that probably has plus or minus a quarter or 2 on each side of that 2-year estimate. It could go faster. It could go a little bit slower if data is messy, for example, because in some states, they assign the baby into a different Medicaid plan at birth. Don't ask me why that's done, but that's the case. And it requires us to do some data chasing to combine the mom and baby outcomes. So for that program, we expect probably beginning of 2027 to bring the decision and the results of the program to us. And of course, we'll report on that. Does that help? Daniel Brennan: Yes, that helps a lot. Operator: There are no further questions at this time. I will now turn the call over to Zhenya Lindgardt, President and CEO. Please continue. Evguenia Lindgardt: Thank you so much, operator. In summary, we're building the medical reimbursement and advocacy foundations necessary for commercialization and guideline inclusion efforts, and the engagement we're seeing across stakeholders reinforces our confidence in the opportunity ahead. Thank you so much, everyone, for your time today, and we look forward to continuing to share our progress steadily each quarter. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Eversource Energy First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Rima Hyder, vice president of investor relations. Please go ahead. Rima Hyder: Good morning, and thank you for joining us today on our first quarter 2026 earnings call. During this call, we will be referencing slides that are available on our website at investors.eversource.com. As you can see on Slide 1, some of the statements made during this investor call may be forward-looking. These statements are based on management’s current expectations and are subject to risks and uncertainty, which may cause the actual results to differ materially from forecasts and projections. We undertake no obligation to update or revise any of these. Additional information about the variables that may cause actual results to differ and our explanation of non-GAAP measures and how they reconcile to GAAP results is contained within our news release, the slides we posted last night, and on our most recent 10-Q and 10-K. Speaking today will be Joseph R. Nolan, our chairman, president, and chief executive officer, and John M. Moreira, our executive vice president, chief financial officer, and treasurer. Also joining us today is Jay Booth, our vice president, controller, and chief accounting officer. I will now turn the call over to Joseph. Joseph R. Nolan: Thank you, Rima, and good morning, everyone, and thank you for joining us today for our first quarter 2026 earnings call. Beginning on Slide 4, we are starting the year on strong operational footing and with a clear plan for disciplined execution of our key strategic objectives of safety and reliability, strengthening the balance sheet, and derisking our business profile. As you can see on Slide 5, our team delivered excellent operational performance, especially during the powerful blizzard we experienced in February. With over 40 inches of snow and wind gusts over 70 miles per hour, this nor’easter was one of the most severe blizzards to impact the Northeast, particularly Massachusetts, in recent years. We executed a large coordinated restoration effort, mobilizing thousands of line crews, leveraging mutual aid, and using remote switching and pre-staged materials to restore service quickly while keeping safety-critical facilities top of mind. Our team worked in tight coordination with local and state agencies to prioritize life safety, accelerate restorations, and support impacted communities. In total, we responded to over 2 thousand fire, police, and safety events and restored power to more than 500 thousand customers. These efforts and our successful restoration reflect the benefits of ongoing infrastructure investments for our electric grid and emergency preparedness. We are very grateful for the support and positive feedback from numerous state and local policymakers, first responders, and our customers. A majority of the customers surveyed after the blizzard said they greatly appreciated how quickly service was restored. Moving on to Slide 6. As we look to the current year, we recognize that there are some remaining items that we need to resolve to further strengthen our balance sheet and derisk our business profile. Joseph R. Nolan: First, on the sale of Aquarion, we received final approval from PURA in March 2026. PURA denied an appeal from certain parties. We are now waiting for an additional appeal period to end in mid-June 2026 before we can close the transaction. Second, on Revolution Wind, as Ørsted recently reported, the project is about 95% complete. The commercial operation date is still expected to be in the second half of this year, and we look forward to this much needed source of generation for the New England region. Given the latest construction updates and cost estimates, we believe that the current contingent liability balance due to GIP remains appropriate. Finally, the recent decisions from FERC on the New England transmission owners’ base ROE that was an attempt to address a 15-year-long complaint is flawed. We believe this decision by FERC departs from the statutory limitations imposed by the Federal Power Act and longstanding judicial precedent requiring FERC to set just and reasonable rates of return sufficient to attract the capital needed for essential utility investment. As priorities have changed over multiple administrations and commissioners at FERC, one thing has remained constant: New England’s need for new energy supply resources to address affordability, ensure reliability, and support economic development. Achieving these goals requires a modern, more resilient transmission system, regardless of the energy source powering it. Our investments in transmission have delivered billions of dollars in savings for customers over the years by eliminating significant congestion costs for the region while making the grid more resilient. Funding these investments requires a stable, predictable regulatory environment to attract long-term capital at the lowest possible cost. For more than a decade, uncertainties stemming from FERC’s lack of action after a U.S. Court of Appeals vacated FERC’s prior order in the case in April 2017 have challenged investor confidence. Unfortunately, this FERC decision further undermines utilities’ ability to secure the capital needed to support state and federal policies and mandates, to build and upgrade grid infrastructure, and maintain safe operations and top-tier reliability for customers. As you have seen from some of our recent actions, we have appealed this decision and filed a motion for stay in the courts. We have also submitted a section 205 filing following the exact FERC methodology used in their March 19, 2026 order, but with updated data. The data FERC used to derive the 9.57% ROE is over a decade old. By updating the data for current market conditions, the ROE comes to 11.39%. A key procedure of this filing is the potential for settlement. We are hopeful that all parties in this proceeding can come together to reach an outcome that benefits customers while also providing reasonable financial support for New England transmission owners to continue to upgrade and build the much needed transmission system for future load growth. On the back of the FERC ROE decision, which lowered our transmission base ROE to 9.57%, we did adjust our guidance for 2026, which John will reiterate in a few minutes. We are reaffirming our long-term earnings growth rate of 5% to 7% off the midpoint of our revised 2026 guidance. Let me now highlight a few key state policy developments across our territory. On Slide 7, in Massachusetts, in March 2026, Governor Healey signed an executive order to secure Massachusetts’ energy future, establishing a comprehensive strategy to strengthen the Commonwealth’s energy reliability, affordability, and independence. The order responds to extremely adverse shifts in federal policy, rising electricity demand, volatile fossil fuel prices, and global energy supply disruptions by directing state agencies to rapidly expand energy resources and modernize the distribution and transmission systems. The executive order recognizes that Massachusetts’ energy supply needs are growing. It cites ISO New England projections that electricity consumption could rise by nearly 15% by 2035 and by nearly 50% by 2045, with peak demand increasing even faster. The order also emphasizes the need for immediate action to maximize federal tax credits for clean energy projects before they expire under accelerated timelines established by recent federal law. We appreciate Governor Healey’s recognition that addressing regional supply constraints through an all-of-the-above approach is essential to achieving energy affordability. As an energy delivery company, we remain focused on maintaining and upgrading infrastructure to integrate new energy resources, enhance reliability, and control costs for customers. We look forward to continued collaboration with the administration, the legislature, and other stakeholders to advance solutions that deliver lasting reliability and affordability benefits. In Connecticut, as we mentioned last quarter, we are going to begin our first rate review for CL&P in about eight years. We see that as an incredible opportunity to show how we vastly improved reliability and that those investments are valuable to customers. We expect to file a letter of intent with PURA for the CL&P rate case later this month. We recognize that this will be a big ask, and as we do in other jurisdictions, we will collaborate with PURA and other key stakeholders to submit a rate case filing that is constructive, responsible, and designed to protect the interests of customers. Our filing will address customers’ need for reliable electric service, affordability, and stable, predictable rates. Another key item for us is the recovery of storm costs. We expect to receive a final decision from PURA on our Connecticut storm cost prudency review in July 2026, which would allow us to begin the legislative-backed securitization process. Importantly, securitization enables timely cash collection, improving our FFO-to-debt metrics while addressing affordability concerns for our customers. In New Hampshire, Governor Ayotte signed House Bill 1539, a bill allowing for the securitization of storm costs, which provides an affordable path for recovery of our outstanding storm costs, which are currently under review at the PUC. We are grateful for the support of the Governor and the General Assembly for passing this important legislation. As we have stated before, 2026 will be a truly transformational year for us. As we operate within a changing regulatory landscape and navigate affordability concerns, we will maintain transparent communication with all our stakeholders and take decisive actions to mitigate potential risk. I will now turn the call over to John to discuss our financial results. Thank you. John M. Moreira: Thank you, Joseph, and good morning, everyone. This morning, I will review our first quarter 2026 earnings results, provide a regulatory update including the recent FERC ROE, and also discuss our balance sheet progress and financing plan. I will start with our first quarter results on Slide 9. Our GAAP earnings per share for the first quarter were $1.61 compared with GAAP earnings of $1.50 per share in 2025. GAAP results for the quarter include an after-tax charge of $43.9 million, or $0.12 per share, related to the FERC ROE decision, representing the refund for the first 15-month complaint period. Excluding that charge, our non-GAAP earnings were $1.73 per share for the quarter as compared to GAAP as well as non-GAAP earnings of $1.50 per share in 2025. The $0.23 per share improvement over the prior year is primarily in the gas segment with a $0.18 per share improvement driven by rate base increases in Massachusetts and implementation of the Yankee Gas rate case in Connecticut. Electric transmission improved $0.06 per share, primarily driven by continued investment in the system. Electric and water distributions are both up as well, due primarily to rate increases and cost control. Offsetting these positive drivers were higher losses of $0.05 per share at Parent and Other, primarily due to a higher effective tax rate and higher interest costs. Overall, the first quarter was in line with our expectations. Moving to Slide 10. The FERC decision that was issued on March 19, 2026 arbitrarily reduced the base transmission ROE from 10.57% to 9.57%. As you can see on this slide, this case has been ongoing for nearly 15 years since the first complaint was filed on October 1, 2011. The 10.57% rate was established on October 16, 2014, and Eversource Energy and the other New England transmission owners have continued billing at this rate even though the U.S. Court of Appeals for the D.C. Circuit vacated FERC’s order in April 2017, which would have otherwise allowed us to bill customers using the original 11.14% rate. Since 2011, FERC has gone through 22 separate commissioners and 13 different chairs, each nominated by one of five separate presidential administrations, before issuing this arbitrary and capricious decision on March 19, 2026. The decision was based on a record of evidence over a decade old for a refund period far beyond what is allowed in the Federal Power Act. Since the decision was issued, Eversource Energy and the other transmission owners have taken several actions to protect the right to a fair rate of return on invested capital. On April 2, 2026, we filed a motion for a stay at FERC, seeking to pause the order refund obligations and ensure time for an appropriate legal review. This was followed by a similar filing at the U.S. Court of Appeals for the D.C. Circuit on April 14, 2026. Also on April 2, 2026, we filed a motion for an extension of the refund deadline. Without this extension, FERC’s order would have required that we issue refunds within 30 days, ignoring the necessary process of working with ISO New England and load-serving entities throughout the region. This extension was granted by FERC, extending the deadline to May 2027. On April 20, 2026, we filed a request for rehearing at FERC, seeking to resolve the decision’s multiple legal deficiencies. And lastly, on April 30, 2026, we made a section 205 filing with FERC to establish a new base ROE using current market data, not market data that is over a decade old. Using FERC’s own methodology from its recent decision and current market data, we arrived at a just and reasonable base ROE for transmission of 11.39%. We expect that this updated rate will be implemented towards the end of this year, subject to refund. This filing also includes a change to the ROE cap on transmission investments, raising the cap to 12.89%. We are disappointed with FERC’s actions in this proceeding, and while we will continue to protect our right to a fair rate of return on invested capital, we did make two disclosures during the quarter to reflect FERC’s March 19, 2026 decision. The first was an adjustment to our 2026 non-GAAP EPS guidance as disclosed in our 8-Ks filed on March 31, 2026. The change in the base ROE is expected to lower Eversource Energy’s future after-tax earnings in the aggregate by approximately $70 million for 2026, and we also adjusted for the potential Aquarion sale as a result of PURA’s approval. These items together resulted in revised 2026 non-GAAP earnings guidance in the range of $4.57 to $4.72 per share. The second disclosure was the after-tax charge of $43.9 million, or $0.12 per share, related to the FERC decision that I discussed earlier. Moving on to some state regulatory updates. I will not cover everything that Joseph discussed, but I do want to touch on a few items. First, on Aquarion. Should the transaction not close, we would proceed with the pending rate case as filed with PURA, seeking a distribution rate increase of $88 million. The rate case is expected to be completed towards the end of the year, and it would support Aquarion’s ability to continue investments in its infrastructure and to provide reliable service for customers. We are pleased with PURA’s decision approving the sale; however, should the transaction not close, we are prepared to replace the sale proceeds with other alternative financing solutions if necessary. Also in Connecticut, I would like to acknowledge the RAM decision that was issued on April 22, 2026. The decision addresses two very important things. First, PURA authorized the funding of a $100 million reserve for storm restoration costs. The second is that the decision uses forecast data to set rates associated with TPAs. The use of forecast data is a change that we have long advocated. It also allows for rates to be adjusted on a more timely basis, avoiding large over- or under-recoveries. Both of these changes result in more stable rates for customers and more stable and predictable operating cash flows for Eversource Energy. On top of that, PURA’s decision makes these changes while lowering rates for customers. We thank PURA for their thoughtful and constructive decision. Lastly, in New Hampshire, Joseph mentioned the new storm cost securitization law. This means that now in Connecticut and New Hampshire together, Eversource Energy should recover approximately $2 billion in deferred storm costs and carrying charges through these securitization transactions within the next 12 to 18 months. Moving to Slide 11 for a financing update. We executed on one of the latest steps in our plan to continue building balance sheet stability when we issued our first junior subordinated notes in February 2026. We were very pleased that the offering was more than five times oversubscribed and continues to trade at or above par. This gives us confidence that, should we decide to issue something similar in the future, the market supports our strategy. I will underscore that our financing strategy is unchanged since the update we provided during our fourth quarter earnings call. We continue to expect that our equity needs over the next five-year forecast period are in the range of $800 million to $1.1 billion. As communicated previously, this financing plan includes flexibility related to the Aquarion transaction outcome. Next, on Slide 12, I would like to share the latest affirmation of our strategy, which is that our FFO-to-debt metrics remain strong. Our latest metrics are 14.2%–14.5% for S&P and Moody’s, respectively. Consistent with our guidance, these are each over 100 basis points above the downgrade thresholds. In addition, on April 10, 2026, following the FERC ROE decision, S&P reaffirmed its ratings and stable outlook for Eversource Energy and our subsidiaries. These objective measures reflect the successful execution of our previously communicated strategy. Next, let me reaffirm our five-year capital plan of $26.5 billion as shown on Slide 13. This reflects our five-year utility infrastructure investments by segment through 2030, and we are off to a good start with CapEx of nearly $800 million through March 2026, as compared to our 2026 forecast of $5.1 billion. As you can see on this slide, Connecticut AMI is not included in our plan. We look forward to the next steps on this opportunity following the recent constructive hearings held by PURA earlier this year. As we stated in the briefs we filed in March 2026, our goal is to deliver the highest benefit for customers at the lowest possible cost. Turning to Slide 14. We continue to look towards a meaningful inflection in our earnings growth driven by improved regulatory outcomes. That includes the recovery of storm costs through securitization in both Connecticut and New Hampshire. It includes the completion of alternative financing opportunities and distribution rate adjustments, including the result of our CL&P rate request in 2027. Lastly, on Slide 15, we remain confident in our ability to deliver earnings growth towards the upper half of our long-term target of 5% to 7% by 2028. And just to be clear, this would be off of the midpoint of our revised 2026 non-GAAP EPS range. With that, I will turn the call back to the operator for Q&A. Operator: Thank you. We will now open the call for questions. 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. We do ask that you please limit to one question and a follow-up. Our first question comes from the line of Carly Davenport of Goldman Sachs. Your line is now open. Carly S. Davenport: Good morning. Thanks so much for taking the questions. Maybe just to start on Aquarion. As you mentioned, we are still about five weeks or so out from the new appeal window closing. Could you provide your latest thoughts on the potential for further appeals to be filed in that process and your temperature on this progressing to close? Joseph R. Nolan: Yes. We were pleased with the PURA decision. I think it was very clear, and I think that they spoke to the issues that the appeals were surrounding, and I felt very good about the decision. We continue to be watchful. As you know, there were not just the parties that appealed; there are others involved, so we are vigilant. But as we have said in the past, we do not have a gun to our head anymore. We do intend to close the transaction, but if it were not to close, it is not going to be the end of the world. Carly S. Davenport: Got it. That is helpful. And then just on the FERC ROE decision—you are attacking this from a few different angles—but on the 205 filing, you mentioned potential to reach settlement there. Could you talk about what that timing could look like in the case that settlement is on the table versus if it has to go a full length process? John M. Moreira: Sure. As I said in my formal remarks, we feel that a new rate will be implemented towards the end of the year. To your exact question, Carly, the first procedure out of the gate, once we hear back from FERC within 60 days of the date of our filing, is appointing a settlement judge to the case to bring the parties to the table. Hopefully, we can settle on the rate prospectively as well as address the legal inefficiencies in the FERC order as part of that settlement conference. That should happen later this year. Carly S. Davenport: Great. Thank you so much. John M. Moreira: Thank you, Carly. Operator: Our next question comes from the line of Shahriar Pourreza of Wells Fargo. Your line is now open. Analyst: This is actually Marcella on for Shahriar. Thank you for taking our questions. Joseph R. Nolan: Hello, Marcella. Good morning. Analyst: Good morning. Also, on the FERC decision, what is your level of confidence on the 15-month refund period? And what milestones should investors be watching for clarity on whether that interpretation prevails in court? For example, should we be paying attention to the MISO proceeding as something that might read through? And how should we be thinking about timing on that case? John M. Moreira: Sure. If we go the full process and are not able to settle with the parties, yes, I would agree the MISO decision is going to be a significant data point for us. On the 15-month window specifically, we recognize that we are subject to a 15-month refund period, and therefore, we accrued for that in the first quarter, as I mentioned. So the 15-month refund period is law, and we recognize that. But arbitrarily picking a retroactive date for the refund is where we think FERC did not follow the letter of the law. Analyst: That is really helpful. And then shifting gears to New Hampshire storm cost securitization. How should we think about how much you will pursue, whether carrying costs are included, and timing on when we might expect to see that filing? John M. Moreira: Sure. We are hoping the timing is soon so we can get to the table and work with the PUC and the Department of Energy in New Hampshire. I think the dollar amount is probably in the $400 million to $470 million range, and that would include the carrying charge that continues to accrue. It is really to customers’ benefit—the sooner we complete securitization, the better off our customers would be in lowering the ultimate cost that would be securitized. We hope that we could complete that transaction in a reasonable timeframe, by late 2027. Analyst: Great. Thanks. Joseph R. Nolan: Thank you. Operator: Our next question comes from the line of Steve Fleishman of Wolfe Research. Your line is now open. Analyst: Good morning. Hey, Joe, John. How are you doing? Joseph R. Nolan: Good morning, Steve. Wonderful. Analyst: On the FERC questions, when we think about the other parties that you might settle with, who are the parties in this case at FERC? Is it your state advocates? Is it transmission customers? John M. Moreira: It is a broad range of stakeholders that would be involved. As you know, this is a New England tariff, so all six New England state transmission owners are impacted. You can expect that every consumer advocate from those states and the Attorneys General from the six New England states have a seat at the table, and we are prepared to have those discussions with everyone involved. Analyst: And it sounds like, as you said, you can implement subject to refund by a certain date. Is there a deadline where they actually have to rule by? John M. Moreira: My understanding is that FERC has 60 days from the date of filing to let us know when the rate can be implemented, and FERC can suspend the rate up to five months. So if you take the 60 days plus the five months, within seven months from the filing date is where we would expect the rate to be implemented, as I have mentioned, on a subject-to-refund basis. Analyst: And then on Aquarion—what are we actually waiting for at this point to decide whether to close or not? They rejected the reconsideration, so what is left from here? John M. Moreira: We are waiting for the appeal period to be exhausted. The second appeal period exhausts on June 14, 2026. Analyst: And that is at the commission or at the court? John M. Moreira: At the commission. Analyst: Got it. Thank you. Joseph R. Nolan: Thank you, Steve. Operator: Our next question comes from the line of Sophie Karp of KBCM. Your line is now open. Sophie Karp: Good morning. Thank you for taking my questions. In light of the uncertainties with the FERC process and the Aquarion situation as you wait out the appeal window, how are you thinking about the timing of equity capital? Does it make sense to issue the amount that you need now, or would you wait and see these pieces fall into place before you right-size the offering? What is your thinking? John M. Moreira: Sure, Sophie. Let me reiterate our guidance: between now and 2030, we expect to issue in a range of $800 million to $1.1 billion. That is a very nominal number over the next five-year period. Also, as a reminder, in February 2026, we did our first junior subordinated notes offering, which brought in $1.5 billion of cash. Right now, we are watching how the other items play out. Within the next 12 to 18 months, we would expect around $2 billion of incremental cash coming in through the Connecticut and New Hampshire storm securitization proceeds. We will be very thoughtful and mindful of these significant interactions and transactions that could impact our equity needs. We have no urgency to go to market right now. We will keep a close eye on how these transactions ultimately materialize. Sophie Karp: Thank you. And then my other question: when we think about the energy supply situation in New England and Millstone recontracting potential, and the forward prices in New England given the situation in global oil and gas markets, what are you seeing in terms of a policy response across your territories to the potential impacts from higher energy pricing? Joseph R. Nolan: I have been very encouraged. We are injecting 2.6 thousand megawatts of new power into the region, which is going to help moderate the clearing price at ISO New England. ISO New England is not a very volatile market compared to PJM. Looking at Clean Energy Connect injecting 1.1 thousand megawatts into our system, Revolution Wind at 704 megawatts, and additional wind coming in at over 800 megawatts, that is having a significant impact on pricing in the region. I feel very encouraged. Coupled with the fact that we are resisting large data center load—I am really not interested in data centers coming here; it is of no value to our residential customers and would only drive up the price of energy—those are some of the things we are focused on. In Massachusetts, the executive order is looking at all things we could possibly do. They approved a natural gas pipeline enhancement with Enbridge that we are going to partner with to bring in additional gas capacity into the region. We also purchased a 26-acre site from Constellation that will allow us to inject upwards of 2.4 thousand megawatts of power into the region. I feel we are very well positioned to help our customers manage energy costs and drive the clearing price down while providing a stable, reliable network. I am encouraged by the number of requests to interconnect clean energy resources—whether hydro or offshore wind. Offshore wind has around a 50% capacity factor at a time when we really need it—the winter months. I am not overly concerned. I would love more generation, including more combined-cycle plants, but we are well positioned and are not going to see the volatility that some other markets are seeing. Sophie Karp: Thank you. Appreciate the response. Joseph R. Nolan: Thanks, Sophie. Operator: Our next question comes from the line of Andrew Weisel of Scotiabank. Your line is now open. Andrew Marc Weisel: Hi. Good morning, everyone. Thanks for taking my question. Another one on the transmission ROEs. I understand what you are saying about the 205 process and how you can implement subject to refund. What would you be booking on a prospective basis in terms of earnings—say, 2027 and beyond? Will you assume the 11.39% up until FERC or a court indicates that you should not? Will future guidance be based on the 11.39% or the 9.57% base ROE? John M. Moreira: First and foremost, the current guidance that we reiterated and updated with our 8-Ks on March 31, 2026 assumed the current rate of 9.57%. We will wait to see how the 205 ultimately shakes out later this year. Under the current procedure, we expect FERC to determine when we can implement the new proposed rate on a subject-to-refund basis. We will reflect whatever rate we can bill to customers when we provide our guidance on the fourth quarter call in February 2027, once we have solidified this issue. Andrew Marc Weisel: Let us hope they stick to the schedule. Second question on the refunds of the ~$880 million or so. I know the refund period was extended through May 2027. From an accounting perspective, have you taken any reserves, or will you have to, or is that just looming while the challenges and appeals play out? John M. Moreira: We will see how things progress, but based on the legal merits of our case that we have filed—with FERC counsel and our own internal counsel—we feel we have a strong legal position that supports us not booking anything additional until we have further determination and clarity on the retroactive piece going back to 2014. To be clear, we do agree that we are subject under the Federal Power Act to the 15-month refund period, and that is why we booked that this quarter. We were also pleased to see FERC dismiss complaints two, three, and four. Andrew Marc Weisel: Very good. Thank you so much. Joseph R. Nolan: Thank you. Operator: Our next question comes from the line of Travis Miller of Morningstar Inc. Your line is now open. Travis Miller: Good morning. Thanks. Given the uncertainty at FERC over the next year, what flexibility do you have on your transmission investments and your CapEx? Is that an area where you could potentially move around some CapEx if there is a decision that goes against you, or is there even a need to move around CapEx? John M. Moreira: We certainly will look at that. I do not want to get ahead of ourselves, but it is something we can evaluate. As we said in our formal remarks, we were taken aback by this harsh decision from FERC because, as Joseph mentioned, we need more supply, and transmission owners should be incentivized to explore investment opportunities that would reduce overall costs for customers. A decade ago, New England faced tremendous congestion pressure. By eliminating that price differential through transmission investments, we achieved billions of dollars in savings for customers across New England. Travis Miller: That is all I had. Appreciate all the details. John M. Moreira: Thanks for joining us today. Operator: As a reminder, to ask a question, you need to press 11 on your telephone. One moment, please. Our last question comes from the line of Paul Patterson of Glenrock Associates LLC. Your line is now open. Paul Patterson: Good morning. Most of my questions have been answered. On the Connecticut PBR, are we going to wait another ten years for something on that? I am joking, but what is the status? Joseph R. Nolan: Paul, as you know, we have been untangling a lot of things there. It is a very positive turnaround at PURA. We are getting very good, fair decisions. In the pecking order, PBR would be great to have, but at this point, we are trying to get an orderly regulatory environment to operate in and get some other priorities addressed before we poke the bear on PBR. Paul Patterson: Okay, so a wait-and-see kind of thing? Joseph R. Nolan: Yes. Paul Patterson: Do you know what triggered FERC, after all this time, to come out with this decision seemingly out of nowhere? John M. Moreira: We can only suspect it was a tough decision lingering for many years. I think the message they have sent to New England transmission owners is to let the courts make the decision on this proceeding, and that is why we are taking the legal action we discussed today. Paul Patterson: Understood. Thanks so much. John M. Moreira: Thank you. Operator: Thank you. I am showing no further questions at this time, so I would like to turn it back to Joseph Nolan for closing remarks. Joseph R. Nolan: Thank you again for joining us today. You still have time to get on David Campbell’s call—we gave you 15 minutes. Our teams have weathered a lot of storms this past year, and we delivered top-tier reliability for our customers. We are carrying tremendous momentum into 2026 with a clear focus on derisking our business profile, resolving key open items ahead of us, and positioning the company for sustainable long-term growth. Thanks very much. Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.
Operator: Good morning, and welcome to Advanced Flower Capital Inc.'s first quarter 2026 earnings call. At this time, all participants are in a listen-only mode. I would now like to turn the call over to Gabriel A. Katz, Chief Legal Officer. Please go ahead. Gabriel A. Katz: Good morning, and thank you all for joining Advanced Flower Capital Inc.'s earnings call for the quarter ended 03/31/2026. I am joined this morning by Robyn Tannenbaum, our President and Chief Investment Officer; Leonard Tannenbaum, our Chairman; Daniel Neville, our Chief Executive Officer; and Brandon Hetzel, our Chief Financial Officer. Before we begin, I would like to note that this call is being recorded. Replay information is included in our April 2026 press release and is posted on the Investor Relations portion of Advanced Flower Capital Inc.'s website at advancedflowercapital.com, along with our first quarter 2026 earnings release and investor presentation. Today's conference call includes forward-looking statements and projections that reflect the company's current views with respect to, among other things, market developments, anticipated portfolio yield, and financial performance and projections in 2026 and beyond. These statements are subject to inherent uncertainties in predicting future results. Please refer to Advanced Flower Capital Inc.'s most recent periodic filings with the SEC, including our Quarterly Report on Form 10-Q filed earlier this morning, for certain conditions and significant factors that could cause actual results to differ materially from these forward-looking statements and projections. Today's call will begin with Robyn providing an overview of our results. Len will then provide commentary on the lower middle market, and then Dan will provide an overview of our portfolio and pipeline. Finally, Brandon will conclude with a summary of our financial results before we open the lines for Q&A. With that, I will now turn the call over to our President, Robyn Tannenbaum. Robyn Tannenbaum: Thanks, Gabe, and good morning, everyone. We appreciate you joining us to discuss Advanced Flower Capital Inc.'s first quarter earnings. Before turning to earnings, we are pleased to have completed our first quarter operating as a BDC. The conversion to a business development company has expanded Advanced Flower Capital Inc.'s investment flexibility, which has allowed us to pursue opportunities beyond real estate-backed loans. We believe that this expanded opportunity better positions Advanced Flower Capital Inc. to diversify its exposure across industries and credit risk profiles. During the quarter, we closed two non-cannabis deals in the lower middle market, totaling approximately $90 million in new commitments. Additionally, we received $41.2 million in cannabis loan repayments during the quarter. For Q1 2026, Advanced Flower Capital Inc. had net fundings of $39.1 million. The two lower middle market deals are similar to other transactions in our pipeline and have many of the characteristics we look for: cash-flowing operating businesses backed by experienced sponsors. Turning to earnings, for the first quarter of 2026, Advanced Flower Capital Inc. generated net investment income of $0.21 per basic weighted average share of common stock. Additionally, the Board of Directors declared a first quarter distribution of $0.05 per share, which was paid on 04/15/2026 to shareholders of record on 03/31/2026. Before turning the call over to Len, I would like to note that the Board of Directors has put a $5 million share buyback program in place. We view the share buyback authorization as a flexible component of our capital allocation strategy designed to enhance long-term shareholder value. Now I will turn it over to Len to discuss the state of the middle market. Leonard Tannenbaum: Thank you, Robyn, and good morning, everyone. I want to explain why we are excited about private credit and why we believe the timing is particularly compelling. As private credit experienced meaningful reductions in net inflows, many lenders have exited the lower middle market in favor of moving upmarket to support their existing portfolios. This reduction in capital and resulting shift upmarket has created a sizable opportunity for a small, nimble lender like us to capture what we consider to be an exceptional vintage in the lower middle market. In this part of the market, we are seeing better risk-adjusted returns with absolute yields running approximately 100 to 300 basis points higher than they were just six months ago. Our ideal sweet spot is in the $5 million to $50 million EBITDA range, largely below the threshold where the larger private credit platforms operate. We believe that the lower middle market assets that we are currently underwriting carry a meaningful distinction from the covenant-light structures common in the upper market, where lenders often rely solely upon a liquidity covenant. Our deals typically include a cash flow measure and a fixed charge coverage ratio covenant, so we are not allowing the aggressive EBITDA add-backs endemic to larger deals. This is a further indicator of the strong underlying credit quality opportunity available in the lower middle market. Strategically, we are actively expanding our pipeline and continuing to diversify our portfolio. We believe this vintage offers an attractive opportunity, and we are positioning ourselves to capture it thoughtfully and at scale. I will now turn it over to Daniel Neville to discuss the state of our portfolio and our pipeline. Daniel Neville: Thanks, Len. I will begin with an update on our expansion into private credit outside of the cannabis space, followed by an update on our portfolio. As Len described, we feel good about the supply and demand dynamics in lower middle market lending and are excited about the opportunities we are seeing. Since expanding our investable universe, our active pipeline remains strong, with over $1.5 billion of deals as of today. We are focused on sourcing deals and backing companies in the lower middle market across a variety of industries, including healthcare, consumer, manufacturing, and services. We are focused on deals where we have expertise or can add value and have no interest in stretching beyond our core competency. Our sweet spot is providing loans to cash-flowing borrowers with $5 million to $50 million of EBITDA. We are primarily participating in sponsored transactions, though we selectively engage in non-sponsored deals as well. The financings we are looking at are often used for expansion capital, acquisitions, refinancings, or recapitalizations. During Q1, Advanced Flower Capital Inc. closed two loans totaling $90 million, and subsequent to quarter end, Advanced Flower Capital Inc. closed an additional $5 million of loans. In January, Advanced Flower Capital Inc. closed on a $60 million senior secured credit facility to support the combination of STAT and the Mooresby Group, which is backed by Cambridge Capital. In February, Advanced Flower Capital Inc. committed $30 million to a $60 million senior secured term loan to support the acquisition and growth of a leading healthcare benefits platform tailored toward hourly and lower-wage employees. At closing, Advanced Flower Capital Inc. funded $20 million of this commitment, and the remaining $10 million was funded subsequent to quarter end. As I stated last quarter, we currently have three loans on non-accrual and are focused on receiving paydowns on these loans to redeploy that capital into performing credits that should contribute to current income. The receiver has continued the liquidation for our investment in Debbie Holdings. During Q1, we received a $6.2 million paydown, which brings the total paydown since Debbie entered receivership to $20.8 million. Lastly, I wanted to take a minute to touch on Justice Grown. The loan matured on 05/01/2026 and is in maturity default. Now that the loan has matured, we intend to exercise our rights and remedies under the credit agreement, including our rights under the shareholder guarantee and parent guarantee. As a reminder, our loan to Justice Grown is secured by the vertical asset in New Jersey, including an owned cultivation facility and three dispensaries, two of which are owned. In Pennsylvania, we are secured by three dispensaries and an owned cultivation facility, which is currently not operational. We remain laser focused on pursuing our rights and remedies under the credit agreement and realizing maximum value from this loan. Now I will turn it over to Brandon to discuss our financial results in more detail. Brandon Hetzel: Thank you, Dan. For the quarter ended 03/31/2026, we generated total investment income of $9.8 million and net investment income of $4.8 million, or $0.21 per basic weighted average share of common stock. We ended the first quarter of 2026 with $356.6 million of principal outstanding spread across 15 loans. As of 05/01/2026, our portfolio consisted of $370 million of principal outstanding across 17 loans. As of 03/31/2026, we had total assets of $394.9 million, total shareholders' equity of $185.8 million, and our net asset value per share was $7.90. This is an increase of $0.44 per share over the prior quarter. The increase in net asset value per share was primarily driven by net investment income of $0.21 per share and an increase in unrealized appreciation on investments of approximately $0.28 per share, offset by the Q1 dividend of $0.05 per share. During the first quarter, Advanced Flower Capital Inc. expanded its senior secured revolving credit facility to $80 million with an additional $30 million commitment from the facility's lead arranger, an FDIC-insured bank with over $75 billion of assets. The facility remains expandable to $100 million, subject to lender participation and our available borrowing base. During the three months ended 03/31/2026, we had an average balance drawn on the credit facility of approximately $22 million. Lastly, on 04/15/2026, we paid the first quarter dividend of $0.05 per common share outstanding to shareholders of record as of 03/31/2026. I will now turn it back over to the operator to start the Q&A. Operator: We will now open the call for questions. If you would like to ask a question, please press star one on your telephone keypad. If your question has been answered and you wish to remove yourself from the queue, please press star two. Our first question comes from Aaron Thomas Grey with AGP. Your line is open. Aaron Thomas Grey: Hi. Thank you for the question. First one from me. Thanks for some of the comments you provided on Justice Grown. How should we think about potential outcomes here given the other litigation that is pending? The loan is now officially in default, so I am trying to think about the different potential outcomes that could happen over the near term. Thanks. Robyn Tannenbaum: Hi, Aaron. I am going to pass that one over to our Chief Legal Officer, Gabe. Gabriel A. Katz: Sure. Yes, the loan has matured as you noted. We are pursuing all rights and remedies to obtain maximum value from the credit facility, but it is too early to make any predictions on outcomes in this litigation. Aaron Thomas Grey: Okay. So just to clarify, there are still questions in terms of being able to fully take it over as the other litigation is pending, even if it is currently in default now? Gabriel A. Katz: No. We are pursuing our strategies to obtain maximum value from the collateral. Aaron Thomas Grey: Okay. Alright. Great. Next question for me is on incremental loans in the pipeline. I know you have talked before about expected yields. I understand the April ones were a little bit smaller, but I just want to confirm that the ones in the pipeline are expecting similar yields that we have seen, kind of that mid- to high-teens, as we go forward for the year? Robyn Tannenbaum: Hi, Aaron. I will pass that one to Daniel Neville. Daniel Neville: Aaron, we have a few loans in our disclosures, and you can look at those yield-to-maturities as a guidepost. Our overall target, and what we have said previously with the transition to the lower middle market, is that we would expect the yields to move down a touch into the low double-digit range on an overall basis, but we expect the quality of the borrowers and the counterparties on the sponsor side to improve significantly in the lower middle market relative to what is available today across the cannabis landscape. Aaron Thomas Grey: Mhmm. And just last question for me. With the recent rescheduling—currently FDA approved and if they are medical, legal, operations—does that change your outlook for the cannabis market, or are you still more broadly focused, maybe less focused on cannabis for the pipeline? Thank you. Daniel Neville: I will give a little color on the rescheduling side. It is great to see progress at the federal level finally after five years. The positives are it eliminates 280E liabilities for medical operators today and certainly decreases future uncertainty related to go-forward liabilities, given the path that we seem to be on at the federal level, with hearings related to adult use later this year as well. There is also potential relief of historical tax liabilities, at least for medical operators, as was highlighted in the actions over the last few weeks. The combination of those factors could potentially attract additional capital over time. The negatives are that none of the operators were really paying those taxes on a cash basis outside of GTI, and if you look at the cash flow statements for the last couple of years, that reflects a post-280E world on a cash basis today. Certainly, the industry is more competitive than it was five years ago, and it took a long time to get here. To the extent that additional capital is attracted to the industry, that would be positive for asset values—particularly medical asset values given that 280E is eliminated—and it could lead to better realizations for us on loans that we have on non-accrual. We are seeing better opportunities in the lower middle market today given the economics, the less competitive nature of the lending environment, and the quality of the borrowers and counterparties. So on a go-forward basis, while rescheduling is great and could be good for asset values and our loans on non-accrual, we are still focused on expanding into lower middle market lending generally. Operator: Thank you. One moment for our next question. Our next question comes from Pablo Zuanic with Zuanic and Associates. Your line is open. Pablo Zuanic: Yes. Good morning, everyone. You gave some color on the two large loans that you made in the first quarter to non-cannabis companies. Can you expand a little bit more? These are private companies, and we do not have access to their financials. Whatever additional color you can provide to understand better what those companies are doing and what their plans are for the proceeds from the loans would be helpful. Thank you. Daniel Neville: Sure, Pablo. As you mentioned, they are private companies; the majority of loans done in the BDC space are to private companies. We can give a bit of color on two of those businesses. For STAT, we put out a press release that described what the business does. They operate in the revenue recovery space related to suppliers into big retailers like Walmart, Target, and the Amazon ecosystem, and they recover deductions related to invoices for goods that are shipped into those retailers. If you think about the opportunity set there, Walmart has about $700 billion of sales, with cost of goods sold probably somewhere around $400 billion. On every invoice that goes into Walmart, you typically see deductions related to quantity mismatches, on-time in-full, and similar items. These folks work to recover those amounts, which represents a very large opportunity at scale for Walmart alone, and you expand that opportunity as you get to other retailers on the platform. The use of proceeds there was for a refinancing of an existing credit facility for the buyer as well as to partially finance the acquisition of the Mooresby Group. On the benefits platform borrower, that is a healthcare benefits platform that serves low-wage employees. In my previous life, I had 1,700 hourly employees and dealt with benefits, and one of the constant complaints is that regular-way healthcare insurance was too expensive, unaffordable, and honestly overkill for folks in the 18–35 age subset. This product provides a low-cost offering for virtual urgent care, primary care, and generic prescriptions, and it is good for the employee as a low-cost option and good for the employer as an avenue for some tax savings on FICA payroll taxes. The platform is seeing tremendous growth and is really attacking an interesting niche and unfilled need in the healthcare insurance market. Pablo Zuanic: Thank you. That is great color. My last question: you have the cash on the balance sheet that you reported for March plus the expanded credit facility. If I put all that together, do you see that you can deploy all of that this year? You have talked about the pipeline, but I am trying to think how we should model book loan growth from here to the end of the year. Robyn Tannenbaum: Pablo, it is Robyn. As we are entering the lower middle market, it is hard to provide guidance for the rest of the year as to what we are going to fund. We do have dry powder that we look to deploy over the course of the year, and as we get repayments, as we discussed this quarter, we will look to deploy that capital as well. Operator: I am not showing any further questions at this time. I would like to turn the call back over to our CEO, Daniel Neville, for any further remarks. Daniel Neville: Thank you for joining us this morning, and we look forward to updating you on our continued transition to lower middle market lending on future calls. Operator: Thank you, ladies and gentlemen. This does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.
Operator: Hello, everyone. Operator: Thank you for joining us and welcome to the Brookdale Senior Living Inc. First Quarter 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. I will now hand the conference over to Michael Grant, Brookdale Senior Living Inc.’s vice president of investor relations. Michael, please go ahead. Michael Grant: Thank you, Operator. Good morning, everyone, and welcome to Brookdale Senior Living Inc.’s first quarter 2026 earnings call. Participating on today's call are Nikolas Stengle, Brookdale Senior Living Inc.’s Chief Executive Officer; Dawn L. Kussow, our executive vice president and chief financial officer; and Chad C. White, our executive vice president, general counsel, and secretary. On today's call, we will discuss first quarter 2026 results as well as our financial guidance for the 2026 year. We will also provide other general business updates. During today's call, our remarks, including our answers to your questions, will include forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act. These statements are made as of today's date and we expressly disclaim any obligation to update these statements in the future. Actual results and performance may differ materially from forward-looking statements. Certain of the factors that could cause actual results to differ are detailed in the earnings release we issued after market yesterday as well as in our Securities and Exchange Commission filings, including the risk factors described in our Annual Report on Form 10-Ks and Quarterly Reports on Form 10-Qs. I direct you to the earnings release for the full Safe Harbor statement. Also, note that during this call, management will discuss non-GAAP financial measures. For reconciliations of each non-GAAP measure to the most comparable GAAP measure, I direct you to the earnings release and to the company's quarterly supplemental financial information which may be found at brookdaleinvestors.com and was furnished on 8-Ks yesterday. With that, it is my pleasure to turn the call over to our CEO, Nikolas Stengle. Thank you, Michael, and good morning, everyone. Nikolas Stengle: I appreciate you for joining us on today's call and for your interest in Brookdale Senior Living Inc. Before I get into the details of the quarter, I would like to highlight that I have been Brookdale Senior Living Inc.’s CEO for just over seven months. During this time, we have continued the transformational pivot that began nearly a year ago towards Brookdale Senior Living Inc. being, first and foremost, an operating company while also acknowledging and taking advantage of the fact we are a company that is built upon a foundation of specialized senior housing real estate that is becoming increasingly scarce with each passing quarter. Brookdale Senior Living Inc.’s pivot has included meaningful changes in our structure, which in turn define the company that we are. While some of these changes were temporarily disruptive during the fourth quarter and the first couple months of 2026, as any structural change can be, they are absolutely critical in properly positioning our company for this very moment and for the future. As I will describe in more detail shortly, we are already seeing the positive impacts of these changes in our March and April results, and those results give us renewed confidence in the annual guidance and multiyear projections we presented earlier this year. Let me recap some of these changes. First, in October, we implemented our regional leadership structure and redefined reporting relationships at all levels of our company. We created six geographic regions, each led by a single regional vice president of operations, and a dedicated regional leadership team encompassing all the key functions of a senior living company. We repositioned ourselves, in effect, as six companies of roughly 85 communities each, while still supported with the resources available from our corporate headquarters team. Second, in November, we hired Mary Sue Patchett to the role of chief operating officer, Brookdale Senior Living Inc.’s first COO in over a decade. Then in short order, we further bolstered our operations-first approach by formally aligning the operating model at every layer of the company. Practically, this means that our operations team, our sales team, and our clinical team share a common structure and alignment at every level of the company. At the executive level, this means that our head of sales and head of clinical now both report into our COO. This improved structure makes a clear connection with a single line of enablement and a single line of accountability from our executive leadership team, namely me as the CEO, down into each of our communities. With this significant reorganization, many of our community executive directors and other key field leaders experienced a change in their reporting relationships. While absolutely critical for our future success, there is no doubt that the cumulative effect of all these changes did temporarily impact our results in Q4 and early Q1. In February, we also created a new position and hired our senior vice president of strategic operations. This new role consolidates three critical facets of any senior living company—our pricing, our labor management, and our capital deployment—under a single accountable leader. Through all of this, we have also continued to dispose of the leased and owned communities that were previously announced as well as exiting much of our third-party managed business that I will describe in further detail shortly. From the start of 2025 through today, Brookdale Senior Living Inc. has exited from over 100 communities including owned, leased, and managed. That represents a lot of work, and a lot of distraction for all our leaders. In short, after a year of near constant change, not to mention me stepping in as the third CEO to serve in that time period, the table is now set for Brookdale Senior Living Inc. to fully capitalize on the supply and demand realities that exist in the senior living industry. We have the team we want, and we have the portfolio of communities we want. For all these reasons, we remain confident in our 2026 annual guidance of 8% to 9% RevPAR growth and adjusted EBITDA range of $502 million to $516 million as well as with our multiyear growth outlook of mid-teens annual growth of adjusted EBITDA. Now jumping to our results. The quarter's occupancy got off to a slower start in January and into February. While facing the seasonal slowdown that typically occurs in these months, this year we also faced a combination of atypical events, including two meaningful winter storms, absorption of the significant annual in-place rate increase we implemented effective January 1, and our numerous ongoing leadership, structural changes and initiatives that I just described. Our consolidated first quarter occupancy of 82.1% improved by 280 basis points over the prior year's first quarter. On a same-community basis, our first quarter occupancy was 82.7%, up 170 basis points from 81% in the prior-year quarter. Looking ahead, the key selling season in senior housing is roughly May through September. Historically, April occupancy tends to be up slightly sequentially, but this year, we experienced a relatively stronger April. As we included in our earnings release, April consolidated occupancy increased 30 basis points sequentially to 82.3% on a consolidated basis while we improved 30 basis points to 82.8% on a same-community basis. This strengthening occupancy in April is reflective of improved execution tied to the organizational changes we have made and continuing overall strengthening market conditions. Switching to the expense side, labor and other facility operating expenses declined year over year along with our reduction in units, but also showed minor deleveraging as a percent of revenue based on lower occupancy and also due to the pace of changes at Brookdale Senior Living Inc., including our new operations organizational structure, our ERP implementation, and the many changes to our leadership team. Frankly, our expense and productivity management during the first two months of the quarter were negatively impacted by all of these changes, and we have taken decisive action steps. We are already seeing the initial positive impact of our efforts, as our senior housing operating margin for March was on target after lagging our budget for the first two months of the quarter. We also made progress on overtime and contract labor sequentially, and there is more opportunity ahead to improve labor utilization as occupancy continues to grow. Additionally, the winter storms which impacted our occupancy as previously discussed also impacted us on the cost side through elevated utility expenses, repair and maintenance expenses—including general repairs, snow removal, and tree work—and also food expenses. Total direct additional costs from the storms were approximately $3 million to $4 million during the quarter. Next, I would like to take a moment to discuss our managed portfolio. While it is a small portion of our revenue and operating income, it will be helpful to provide some additional color. For some background, in managed communities, the manager earns a fee, typically a mid single-digit percentage of revenue, meaning that the manager does not participate at a meaningful economic level in the upside or downside of a given community. As our longer-term holders know, we have actively decreased our participation in managed contracts from 229 managed communities in 2017 to just seven communities as of today, and we expect to reduce that number even further. As a result of our reduction of managed communities, you will see that during the first quarter, we booked an exit fee of $2.5 million in management fees. Looking forward, we anticipate management fees to be roughly $1 million for the remainder of 2026. We have already taken internal steps to ensure that our organizational structure and our G&A are right-sized to account for this reduction in management fees, and we do not expect any impact to our adjusted EBITDA guidance from this change. Factoring in all the items I have just highlighted, Brookdale Senior Living Inc.’s adjusted EBITDA improved 5% over 2025 despite a 14% year over year decrease in our weighted average consolidated unit count. Additionally, it is important to note that the underlying performance was better than that, as 2025 benefited from early G&A rationalization that we took in advance of the revenue reduction that occurred later in the year with our planned dispositions of communities. Per my comments on management fees and additional G&A rationalization, the second quarter's adjusted EBITDA growth will be in a similar range to that of the first quarter and then we expect more robust improvement in the second half of the year. We have added a slide, Slide 12, to our quarterly investor presentation that speaks to the pacing of quarters in 2026. Again, we remain confident with our guidance of 8% to 9% RevPAR growth and $502 million to $516 million of adjusted EBITDA for the full year of 2026. Turning now to our service delivery. Brookdale Senior Living Inc. continues to define excellence in senior living. In early April, Brookdale Senior Living Inc. had 294 of our communities recognized for the Best Senior Living award by U.S. News & World Report. This is the fifth consecutive year that Brookdale Senior Living Inc. has garnered the most awards of any senior living operator. We are incredibly proud of this recognition, and we are thankful to our over 30,000 community associates who deliver this outstanding level of service every day. In addition to this external validation, Brookdale Senior Living Inc.’s internally tracked metrics also have continued to strengthen. Our February 2026 trailing twelve-month net promoter scores, or NPS, were our highest levels achieved since we resumed monthly survey following the COVID pandemic in 2022. Similarly, our associate turnover and key three leader turnover have continued to improve and are now the lowest since the beginning of the COVID pandemic. These improved metrics are indicative of the success of our recent organizational changes and the cultural transformation we have undertaken. Taken together, they are leading indicators of the accelerating improvement in resident satisfaction, occupancy, and operating margin that we expect over the remainder of the year. At Brookdale Senior Living Inc., we are truly excited for our future, both this year and in the coming years. Equally, we are appreciative for each of our residents, associates, and shareholders for your trust in our team. As a company, we remain on track to unlock the intrinsic value of Brookdale Senior Living Inc.’s specialized services and real estate assets. I will now turn the call over to Brookdale Senior Living Inc.’s CFO, Dawn L. Kussow, for more details on our financial performance and outlook. Dawn L. Kussow: Thank you, Nick. This morning, I will recap Brookdale Senior Living Inc.’s first quarter financial performance and our financial outlook for the year. I will also discuss progress on our ongoing portfolio transition and other balance sheet improvements. Turning first to the first quarter financial results. Comparing our first quarter 2026 to the prior-year quarter, we grew our consolidated occupancy by 280 basis points to 82.1% and our same-community occupancy 170 basis points to 82.7%. The first quarter marked the seventeenth consecutive quarter that Brookdale Senior Living Inc. has delivered 100 basis points or more of year-over-year consolidated occupancy growth. Sequentially, our first quarter consolidated occupancy declined 40 basis points from 2025. Seasonally, the first quarter typically declines from the fourth quarter due to higher levels of flu and other winter illnesses, the impact of winter weather, holiday timing, and also as a result of our annual in-place rate increases, which occur on January 1 each year. Occupancy during the first quarter was modestly behind our expectations, reflecting the impact of the winter storms in the quarter. In contrast, our April occupancy sequential growth of 30 basis points was stronger than our historical average post-COVID April sequential occupancy improvement of 10 to 20 basis points. This level of sequential occupancy growth speaks to our improving execution under the new operating structure. For the first quarter, resident fees of $722 million declined 7.1% from the first quarter of last year. The key factors underpinning the revenue decline versus last year were a 14.2% reduction in our consolidated average units, partially offset by an 8.2% RevPAR increase. As a reminder, we guided to 8% to 9% RevPAR growth for 2026, and we are within that range to start the year. We expect year-over-year RevPAR growth to accelerate over the remainder of the year based on improving community-level execution and the positive mix impact of dispositions. The 8.2% year-over-year increase in RevPAR was driven by a balanced rate improvement and the 280 basis point increase in weighted average occupancy. Note that the unit mix, which stems from our decision to exit a number of communities, including many that were underperforming, also positively impacted our reported RevPAR, leading to a consolidated RevPAR increase of 8.2% versus a same-community RevPAR increase of 5.5%. Resident rate increases were also beneficial to the quarter, as revenue per occupied room, or RevPOR—essentially a realized pricing metric—increased 4.5% year over year. We successfully implemented a high single-digit in-place rate increase on January 1. Note that the 2026 year-over-year RevPAR comparison was impacted by strategic rate concessions taken starting in 2025 to accelerate occupancy. Sequentially, our RevPOR grew 6% from 2025, reflecting the benefit from the rate increase. While we typically expect RevPOR to decline throughout a given year, for 2026, we expect our year-over-year RevPOR performance—especially for the second half of the year—to be better than our typical seasonal trends as we annualize concessions embedded in the prior-year periods. Now let us turn to expenses. As Nick mentioned, the first quarter expense impact of significant winter storms was approximately $3 million to $4 million. On a consolidated basis, first quarter expense per occupied unit, or EXPOR, increased 3.2% over 2025. Our 4.5% increase in RevPOR exceeded EXPOR growth, resulting in a positive spread between realized revenue and expenses per occupied unit. Beyond the storm impact, we did see modest same-community margin compression due to the operating leverage impact of the seasonal occupancy decline. We expect a resumption of positive margin trends as we first grow occupancy through the year and second, move lower-occupied communities up the occupancy bands and realize the associated operating income flow-through. On a consolidated basis, senior housing operating income grew 14% sequentially with margin expansion of 330 basis points. Year over year, operating margin improved 80 basis points while operating income declined 4% on a 14% decline in units since the prior year. Labor is our single largest cost item, at 64% of total facility operating expenses during the quarter. First-quarter same-community labor expense as a percent of revenue improved 20 basis points year over year, and we expect to realize additional leverage over labor costs as occupancy increases in coming quarters. We continue to make progress on reducing labor turnover and improving labor utilization, and we project a stable and predictable labor cost environment for 2026. Other facility operating expenses increased 40 basis points as a percent of revenue on a same-community basis. Utility costs were higher year over year, mainly from the storms, as were food expenses. We expect these costs to moderate during the year. For the quarter, despite the $3 million to $4 million expense impact of the storms, we expanded our adjusted EBITDA by $7 million to $131 million, a 5.6% increase over 2025. As it relates to the year-over-year expected mid-teens growth rate, recall that our 2026 mid-teens adjusted EBITDA growth guidance is from our 2025 baseline adjusted EBITDA of $145 million, not from the as-reported $458 million. The $445 million baseline nets out the timing benefit of Brookdale Senior Living Inc.’s first half 2025 G&A reduction associated with the planned Ventas community dispositions which occurred during 2025. If we were to normalize G&A in the prior year to create a baseline quarter, the year-over-year increase in adjusted EBITDA for the first quarter would have been approximately 11%. General and administrative expense, excluding non-cash stock-based compensation expense, and transaction, legal, and organizational restructuring costs, declined 3.8% year over year to $40.6 million for the first quarter. Recently, we removed additional G&A costs to reflect both disposition activity as well as our scaled-back managed community portfolio. As you may have noted, the guidance provided in our updated investor deck now assumes $157 million in full-year G&A, a decrease from our previous guidance of $162 million. We expect to realize the incremental benefit of reducing G&A starting toward the end of the second quarter, with most of the savings realized in the second half of this year. Cash facility operating lease payments during the first quarter of 2026 were $44.7 million, down a significant $12 million from $56.7 million in the prior-year quarter, primarily as a result of the Ventas lease dispositions which occurred in the second half of last year, coupled with the contractual step-up on lease payments on the retained Ventas leases. Now I want to shift to Brookdale Senior Living Inc.’s progress on our portfolio optimization strategy, which includes the planned dispositions of nonstrategic or underperforming owned and leased communities. We previously shared that we expect to sell 29 communities comprised of 2,364 units during 2026, with the majority of those transactions to occur during the second quarter. During the first quarter of this year, we completed the sale of seven communities with 330 units for proceeds of $22 million net of transaction costs. During the second quarter through today, we have closed on the sale of three additional communities comprising 545 units for $88 million in net proceeds. The dispositions of most of the remaining 19 communities comprising 1,438 units are tracking to close during the second quarter, though a small number may close later in the year. We continue to estimate total proceeds for our planned community dispositions in 2026 to be approximately $200 million. During the first quarter, we also exited two communities with 152 units through lease terminations. Once the remaining 19 dispositions are complete, we do not foresee significant changes to Brookdale Senior Living Inc.’s consolidated portfolio on a forward-looking basis. Looking ahead, we remain comfortable in Brookdale Senior Living Inc.’s ability to deliver both on our 2026 earnings guidance and on our multiyear outlook through 2028 that we provided at our January Investor Day and reiterated on our previous earnings call. As a reminder, for 2026, we expect to deliver 8% to 9% RevPAR growth and mid-teens adjusted EBITDA growth from our 2025 baseline of $445 million, a level that translates to $502 million to $516 million of 2026 adjusted EBITDA. Through 2028, we expect to maintain mid-teens adjusted EBITDA growth. We also believe we can decrease annualized leverage to below six times by 2028. Our 2026 guidance sets forth annual targets. We describe our quarterly pacing outlook for units, RevPAR, and adjusted EBITDA for 2026 on Slide 12 of our investor presentation. Remember, the comparability of the 2026 against 2025 periods is impacted by disposition activity, the timing of the related G&A cost savings, and managed business timing, which results in smaller growth rates on reported results for the first two quarters. We expect our underlying business to still deliver the 2026 and multiyear growth we have previously outlined. We just reported first quarter adjusted EBITDA year-over-year growth of 5.6%. We expect second quarter adjusted EBITDA growth versus the prior-year as-reported results to be in the low- to mid-single-digit range. But remember, when baseline G&A timing in the prior year is considered, our growth would have been up in the low double-digit range. Then, with improved occupancy levels, the associated operating income flow-through, and as cost initiatives take hold, year-over-year adjusted EBITDA growth in the third quarter is expected to return to our longer-term mid-teens growth-rate level, and fourth quarter growth should be even stronger than that. We expect other seasonal factors outlined on the last page of our investor deck to remain consistent with historical trends, with the exception of RevPOR. RevPOR typically declines slightly over the course of the year. For 2026, we expect RevPOR to decline slightly in the second quarter, but then to remain relatively firm in the back half of the year, helped in part by the mix impact of our dispositions. As I mentioned earlier in my remarks, we now estimate general and administrative expense—excluding non-cash stock-based comp, and transaction, legal, and restructuring costs—of approximately $157 million, down from our previous estimate of $162 million for 2026. We continue to expect that cash facility operating lease payments should be approximately $180 million during 2026, and management fees for the second quarter through the fourth quarter to be a total of approximately $1 million. Looking now at the balance sheet, our annualized leverage continues to improve; we finished the quarter at 8.8 times. As of 03/31/2026, Brookdale Senior Living Inc.’s total liquidity was $369 million. On the topic of leverage, I would like to highlight that on March 31, we refinanced a significant portion of our remaining 2027 mortgage debt maturities, effectively extending those maturities to April 2033. Through this transaction, we obtained $185 million of non-recourse mortgage debt secured by seven of our communities and we repaid $191 million of mortgage debt secured by 11 communities. We appreciate our banking partners for their confidence in our business and their ongoing support. Coupled with the refinancing of the entirety of our 2026 mortgage debt, and another portion of our 2027 debt that we completed at the end of 2025, our team continues to proactively manage Brookdale Senior Living Inc.’s balance sheet and extend our more imminent maturities. Adjusted free cash flow for the first quarter was a seasonal outflow of $12 million reflecting, among other factors, use of cash for changes in working capital including the payment of annual incentive compensation, and an increase in non-development capital expenditures. In conclusion, we are excited about the underlying strength we saw to end the first quarter and into the start of the second quarter. As we look forward to the balance of 2026 and beyond, we remain confident that we have the right team in place and that we are pursuing the correct strategic and operational plans. The Brookdale Senior Living Inc. team remains highly confident in our ability to create durable, long-term growth and value for our shareholders. Operator, we will now open the call for questions. Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, please press 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Brian Tanquilut with Jefferies. Brian, your line is open. Please go ahead. Brian Tanquilut: Hey. Good morning. Maybe, Michael, thanks for putting these slides together. So I will reference one of these slides. Dawn, when I look at Slide 12, where you have the quarterly cadence on EBITDA growth even with baseline, just curious how you are thinking about that ramp because it looks like there is a ramp implied in here, and where that confidence comes from, especially given your comment about RevPOR trend over the course of the year. Dawn L. Kussow: Thank you, Brian, for the question. Yes, Slide 12 is a new slide that is explicit about how we are thinking about the quarterly pacing. As we talked about in our prepared remarks, adjusted EBITDA in particular was 5.6% growth year over year on an as-reported basis. What we expect for the second quarter is low- to mid-single-digit year-over-year growth on an as-reported basis, and what is really driving that is two things. Our seasonal trends that we outlined on the last page of the investor deck—we have a full quarter of merit, additional days, holidays that normally come into the quarter—and then the managed property disposition and the managed property fees going away, and the fact that the cost savings are really coming in the back half of the year, so that is a timing difference. Importantly, as Nick and I both talked about in our prepared remarks, that low double-digit year-over-year growth on the underlying business we do expect to accelerate throughout the year. I think Nick will comment on the confidence in the guidance. Nikolas Stengle: Thanks, Brian. A lot of this has to do with our results despite all the changes and disruption that we had to do. We really are on a transformative path here, and some of it predates me. This started maybe about a year ago, and even in the last seven months that I have been in the role—I did share some of these details during the prepared remarks, but it bears repeating—we have undergone many changes, first and foremost, organizationally how we are structured, and it truly defines who we are as a company. The line of connection between the executive leadership team, me namely as the CEO, all the way down to communities, has been reset. So there is a much cleaner line of enablement, a cleaner line of accountability than we have had in many years. A lot of that has to do with hiring a COO, layering up our sales team and our clinical team under that COO, and doing the same thing at every layer of the organization. At the same time—and we need to keep sight of this—we have disposed and exited over 100 communities in that time period, which is very much the right decision, but it is also very disruptive. A lot of effort, a lot of work of leaders going into making that as seamless as it has been has been quite seamless. That is now mostly behind us. We do have a few communities, as we have shared, that we still have to get out of in Q2 and just a handful later in the year. But the reality is that is now mostly behind us, and we are now in a position to really lean into the company and operate the company as the operating company that we are. I do want to point out our April results. Again, one data point—no need to start doing victory laps quite yet—but it is a very strong data point in our April occupancy growing 30 basis points when historically it has been close to flat, maybe 10 to 20 basis points. To have that happen at the early stages of the selling season—which in senior living is typically May through September—is reflective of our confidence and of all the change that we made. Brian Tanquilut: I appreciate that. And then maybe, Nick, I will use that as a segue. When I look at Slide 9—again, lovely slides—controllable move-outs obviously ticked up in Q1. Just curious what your philosophy is or how you are thinking about the balancing act between RevPOR or RevPAR growth and move-outs. I think move-outs are not necessarily negative in this sense when your RevPOR and RevPAR are growing as much as they are. So just curious if you would walk us through that thought process. Nikolas Stengle: Very good set of questions there, Brian. Fundamentally, RevPAR is the number we all need to lean around. We reported 8.2% and feel good about that RevPAR and what that looks like for our guidance for the rest of the year. It truly is a balance between rate and occupancy, and we are always monitoring that and it is always a constant mix. Obviously, as occupancy goes up, then we can lean more on rate. As occupancy is not going up and is stagnant in a subset of communities, we have to lean on rate in a different direction. As far as the move-outs for Q1, we feel very good about it in light of the large in-place rate increase that we were able to push on January 1. Typically in January and February, you do have a slightly increased pace of move-outs specifically for financial reasons, and we monitor all the different categorizations of the in-place rate increase. That happens every January and February. This year was slightly higher, based on the higher in-place rate increase that we pushed through, but it was well within our expectations. In fact, if anything, it showed the stickiness of that in-place rate increase. We feel really good about what we did. We feel really good about our pricing power, and the net result of that move-out pace was as expected and in line with what we hoped to see with the stickiness of that in-place rate increase. Brian Tanquilut: If I may ask just one quick question, Slide 19 shows these community renovation CapEx projects. How should we be thinking about the pipeline of these projects and what you are seeing? The ROIs look good here in this slide, so could you just walk us through that? Thank you. Nikolas Stengle: I am glad you pointed that out. That is another new slide in our investor deck. For those that joined us at our Investor Day, we did a tour of a community where we did a very meaningful CapEx investment—beautiful building, great results. We wanted to share even more details, since part of our story has been our CapEx spend. We are projecting a spend of between $175 million to $195 million of CapEx this year, and we want to do that because we see the results, and Slide 19 shows three very specific examples where those results exist, and we have a pipeline. I mentioned earlier in my prepared remarks, we have hired a new role to our company, the senior vice president of strategic operations, and that leader deploys this capital. We have a program. We have a prioritized list of communities where we build a pro forma. We monitor our results, and we project seeing results very similar to what you see on Slide 19. We have dozens of projects—large, deliberate, comprehensive investments of capital to improve the overall performance of the communities and get returns that achieve our hurdles. Brian Tanquilut: Awesome. Thank you. Operator: Your next question comes from the line of Ben Hendrix with RBC Capital Markets. Ben, your line is open. Please go ahead. Ben Hendrix: Thank you very much. I very much appreciate the slide on pacing, Slide 12. I just wanted to drill in a little bit on the expectation for RevPAR acceleration in the back half and you have noted here both the disposition impact and also the core occupancy growth. Maybe help us parse that out a little bit more. Any notes you can give us on the overall occupancy profile and performance profile of those 19 facilities still pending disposition, so we can get an idea of the core growth and then the mix impact? Thanks. Also, along the same lines, could you give a little detail on the sources and pacing of the incremental G&A savings? It makes sense that maybe you would see a little pickup there in savings from getting rid of some of these smaller communities, but I just wanted to get an idea of where that is coming from and how we should think about that layering on through the balance of the year. Thanks. Dawn L. Kussow: Yes, Ben, great question. Digging into the slide, we outlined the RevPAR growth. We had 8.2% in the first quarter and expect that to be similar in the second quarter. What is driving that, of course, is our occupancy and RevPOR. From an occupancy perspective, we expect our occupancy growth to be within historical seasonal trends. Regarding the dispositions of the 19 communities, they are relatively small communities; the largest one went on April 1. So relatively small, lower-performing communities but not moving the needle. We are getting a little bit of accretion in the back half, but I would say occupancy is directional with the historical trend. On RevPOR, as I mentioned in our prepared remarks, the second quarter normally sees our RevPOR step down after we do our January 1 rate increase. We expect that step down to be slight in the second quarter, but then in the third and fourth quarter we expect RevPOR to remain firm, helped by the accretion benefit from dispositions offsetting that normal step down. That is what will drive the RevPAR growth we have outlined. On G&A, we have taken our expectations down by $5 million. Most of that we expect to see in the second half. From a pacing perspective, my expectation is G&A is going to be relatively the same in Q2 as it was in Q1 because you get a little bit of extra expense with more days, and then our merit increase comes in the second quarter that is going to offset a little bit of the savings that we will get. Most of that $5 million will be in Q3 and Q4. Operator: Your next question comes from the line of Joanna Gajuk with Bank of America. Joanna, your line is open. Please go ahead. Joanna Gajuk: Good morning. Thanks so much. At your Investor Day, you mentioned your interest to add some assets strategically, talking about “tacking” acquisitions, small things. With a lot of interest from the REITs and private equity to consolidate in the industry, do you see more competition, or is that still kind of on the table? And coming back to the discussion around rate increases, it sounds like you pushed a high single-digit increase this year and the financial move-outs were higher, but not out of the ordinary. We are also hearing a lot about higher community fees. Is that also another lever you can pull, especially when you have communities with higher occupancy? Lastly, it looks like about 15% of your consolidated communities are above 95% occupancy. Can you talk about margins and growth in those highly occupied assets? Are the rate increases much higher than the in-place customers when you have such highly occupied assets? Nikolas Stengle: Thanks for the question, Joanna. Our strategy—articulated at Investor Day—on the acquisition side is very small, deliberate, single community or one-, two-, three-community-type acquisitions in markets where we already exist. We are in 41 states today with no desire to be in a forty-second or forty-third state. We are in about 125 different markets with a desire to be in 126 or 127. That is a strategy for some of our peers; that is not our strategy. Our strategy is to be in markets we already are in. At Investor Day, we used the Kansas City and Dallas–Fort Worth areas as illustrative examples where we are looking to make very deliberate, strategic, targeted acquisitions. Typically, the bigger REITs are not doing single-community transactions; they are looking for larger things. So we do not feel, and we do not see in the pipeline we are contemplating, that we are competing against large REITs because we are basically deploying different acquisition strategies based on our needs and their needs. On community fees, that is one of the features of our industry and for sure at Brookdale Senior Living Inc., where we do have an upfront nonrefundable community fee. As your occupancy goes up, you collect on that far more regularly, and you can even increase the community fee. As your occupancy is lower and you need to drive move-ins, that is potentially one of the first things you would discount because it is a one-time thing and you are not locking in a year or two years of rate. It is an easier concession to give to a prospective resident. As our communities strengthen, our overall RevPOR is growing, and community fees—the upfront nonrefundable community fee—we collect and can increase. On highly occupied assets, we have been communicating this high single-digit in-place rate increase that we pushed through on January 1. The reality is not every community got the same number; that is an aggregated number. The more highly occupied communities actually had a low double-digit increase, while the lower-occupied communities had a mid single-digit increase. The net effect is what we have been communicating, but for sure you have very strong pricing power as your occupancy goes up. On Slide 18, we updated the numbers in a slide we have had for a while where you can see the EBITDA per available unit. It increased meaningfully as you compare it to last quarter’s slide because of that additional in-place rate increase we were able to achieve in the more highly occupied communities. Joanna Gajuk: Yeah, exactly. I like that slide. That is the roughly $21,000 EBITDA per unit—that is what I was getting at. So thank you so much for taking the questions. Nikolas Stengle: Yep. Awesome. Thanks for pointing that out. Thank you, Joanna. Operator: Your next question comes from the line of Andrew Mok with Barclays. Andrew, your line is open. Please go ahead. Andrew Mok: Hi. Good morning. The same-store RevPAR, which cuts through the noise of divestitures, was up about 3.4% in the quarter for the senior housing community. You called out annualizing concessions as weighing on that metric in the quarter. Could you give us a sense for how same-store RevPAR is tracking in your higher-occupancy or non-discounted communities? And just to be clear, we should expect same-store year-over-year revenue growth to also accelerate in the back half as you anniversary those pricing concessions, correct? Also, to follow up on the winter storms, you sized total direct cost of about $3 million to $4 million in the quarter. Do you have a more comprehensive impact that would include both the revenue and cost side of things? Thanks. Dawn L. Kussow: Correct. Thanks for the question, Andrew. We are generally bifurcating out the RevPAR and RevPOR growth between the occupancy bands. As we showed on the last call, we are looking at the occupancy bands where we are giving you adjusted EBITDA on a per-unit basis. From a RevPOR perspective, we absolutely expect our RevPOR to follow that normal trending I talked about, with RevPOR doing the normal step-down seasonally, but we expect EXPOR growth to be manageable and margin expansion to improve throughout the year as labor cost leverage improves and seasonal compression releases. On the storms, we did not quantify the revenue impact. We talked about the occupancy impact and the slowness of the occupancy in the first couple of months. We thought it would be helpful at least to quantify those direct costs. Most of those costs—of the $3 million to $4 million—you can see in our other facility operating expenses. A lot of it was our utilities—about two-thirds in our other facility operating expenses—and the remainder was in labor expense. We did not quantify the top line because it becomes a bit more fungible when you are talking about the pacing of occupancy growth and things of that nature. Andrew Mok: Great. Thank you. Operator: Your next question comes from the line of Raj Kumar with Stephens. Raj, your line is open. Please go ahead. Analyst: Hi. Good morning. Focusing on the capital investments—you reiterated your CapEx guidance for this year. Thinking about what you highlighted during Investor Day with the refresh initiatives: how many communities are underway for 2026 with those efforts, and in terms of the average investment size, are you seeing a bigger investment on a per-community basis for what remains? And are you integrating HealthPlus as part of that process to boost the offering at those communities? As my follow-up, I appreciate the disclosures on the occupancy bands with the owned portfolio. As I think about the leased portfolio and bifurcating that opportunity, any way of framing that portfolio’s progression in 2026 and what is embedded in guidance? Chad C. White: Hi, Raj. Good morning. What we can say on the CapEx front is we have a number of projects underway across the portfolio. As Nick talked about when he came on, we had a shift in strategy as we think about our CapEx program. Instead of doing piecemeal projects—adding some new furniture or small fixes—we have really focused on prioritizing our CapEx spend in places where we can drive a great return, as you see on the slide included in the investor deck, and prioritizing larger community refreshes. We have not given an exact number of projects, but the budget is included in our overall CapEx guidance for the year. If we can do more of these refreshes in markets where we can drive additional growth, we think that will drive better returns and ultimately help our performance and help us achieve both the guidance and multiyear outlook we have given. As it relates to HealthPlus, we have it in around 180 communities across the portfolio. We think it is still a very innovative program that our competitors do not offer. It allows us to play in the value-based care space, and it really provides benefits for residents and their family members in the way of reduced hospitalizations and reduced ER visits. As that program matures, we expect it to drive good results, including longer lengths of stay. We also have a lot of good things going on in the portfolio. One other thing Nick mentioned is the progress we have made on net promoter score and turnover—those are key leading indicators that we think will help us achieve the results we discussed today. We are very excited about where the company is going. Dawn L. Kussow: On the leased portfolio, we have a separate slide—Slide 11—in our supplement that has the lease portfolio economics. We are pleased with the margin growth we have seen in the portfolio. It is adjusted free cash flow positive. We also have a significant number of CapEx reimbursement opportunities with our landlords that we are taking advantage of, and we expect that portfolio to continue to progress just as we expect our owned portfolio to progress. Nikolas Stengle: Fundamentally, it is accretive to the business—maybe for the first time in many years. If you look at the specific performance of our lease portfolio, it did quite well from an occupancy and NOI expansion perspective year over year. We feel really good about our portfolio mix. Overall, we will be roughly 76% owned and 24% leased. Managed is just a tiny sliver. It is one of the transformational shifts we have undergone over the last year. Now we have the right portfolio, in the right locations, in the right markets, with the right buildings—and we have the right team. We feel really good about our leased portfolio, as much as we feel really good about the assets we own, which is that scarce real estate. Analyst: Great. Thanks. Operator: We have reached the end of the Q&A session. I will now turn the call back to Nikolas Stengle, CEO, for closing remarks. Nikolas Stengle: Thank you, Samantha. I would be remiss if I did not take a moment and thank all our associates—over 30,000 associates—who at this very moment are caring for all our residents. I would also like to thank all our residents and their loved ones who have put their trust in us. I would also like to thank all our stakeholders—our investors, our banking partners, and all the different partners who work with us. We are excited by what the rest of the year brings now that we have pivoted our company and are on the tail end of all the transformational changes that we have undergone over the last year, and excited by what 2026 will bring. With that, Samantha, we can end the call. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Welcome to GCI Liberty twenty twenty six First Quarter Earnings Call. Afterwards, we will conduct a question and answer session. At that time, if you have a As a reminder, this conference will be recorded, May 7. I would now like to turn the call over to Hooper Stevens, Senior Vice President, Investor Relations. Please go ahead. Hooper Stevens: Thank you, everyone, for joining us today for GCI Liberty's first quarter twenty twenty six earnings call. As you know, this call may include certain forward looking statements within the meaning of Private Securities Litigation Reform Act of 1995. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in the most recent Forms 10 ks and 10 Q filed by GCI Liberty Liberty Broadband with the SEC. These forward looking statements speak only as of the date of this call, and GCI Liberty and Liberty Broadband expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward looking statement contained herein to reflect any change in GCI Liberty or Liberty Broadband's expectations with regard to any change in events, conditions or circumstances on which any such statement is based. On today's call, we will discuss certain non GAAP financial measures for GCI Liberty, including adjusted OIBDA, adjusted OIBDA margin and free cash flow. Information regarding the required definitions along with the comparable GAAP metrics and reconciliations for GCI Liberty can be found in the earnings press release issued today, which is available on GCI Liberty's IR website. Speaking on today's call will be Ron Duncan, the CEO of GCI Liberty and Brian Wendling, GCI Liberty's Chief Accounting and Principal Financial Officer. Also during Q and A, we will take questions related to Liberty Broadband should they arise. And we have additional members of GCI and Liberty Broadband management available to answer questions. That, I'll turn the call over to Ron Duncan. Thank you, and good morning. Ron Duncan: We had an incredibly productive start to the year and delivered solid first quarter results. Continue to execute on our mission of delivering quality connectivity to all Alaskans. At GCI, we recently announced a definitive agreement to acquire Quintilion consideration of $310 million in cash subject to certain adjustments reimbursement of up to $50 million for capital expenditures incurred by Quintillion prior to closing and potential earn out payments. We are incredibly excited to marry two of Alaska's best networks. This transaction will bring together complementary subsea and terrestrial fiber routes our extensive rural microwave network deep operational expertise, and long term investment under one operating model. It will enhance the scale, resilience and reach of GCI's statewide network to benefit all Alaskans. We expect the transaction to be accretive to free cash flow in the first year after closing. We announced yesterday that GCI Liberty has invested $107 million to acquire Searchlight Capital Partners equity interest Liberty Latin America. We are also in discussions with Doctor. John Malone, Chairman of the Board of GCI Liberty and Director Emeritus of Liberty Latin America and certain affiliates to acquire additional shares in Liberty Latin America. We are pleased to begin GCI Liberty's next chapter of growth with this opportunistic investment Liberty Latin America and are keenly interested in acquiring a more significant equity and voting stake in the company from Doctor. Malone and others. Balanair and his team have done an impressive job of developing LLA into leading integrated connectivity provider across Latin America and The Caribbean. And we look forward to participating in the growth potential that lies ahead. As part of this evolution, we intend to change our name from G Liberty to Liberty Capital Corporation in the coming weeks. With no change to our ticker. We are changing our name to reflect our expanded focus at the parent level as we start making investments outside of our core Alaska operating subsidiary. Our Alaska operations will continue under the GCI name and brand. These first steps of strategic change at GCI Liberty represent our focus on augmenting the ways we create value for our shareholders and our progression as Liberty Capital. We look forward to keeping you updated on our progress. Turning now to our operating highlights. Grew consumer wireless subscribers 2% year over year ending the quarter with 200,000 consumer wireless lines. We had a total of 207,700 wireless lines at quarter end including 7,700 business lines. We added 1,000 consumer wireless lines during the quarter including 500 postpaid lines largely from our GCI plus wireless free for a year promotion. On the data side, we saw a 3% decline year over year ending the quarter with 150,500 data subscribers. We lost 700 data subscribers during the quarter due to continued competitive pressure from wireless substitution and limited competition from Starlight. Encouragingly, we note the pace of our broadband losses is decreasing indicating a stabilizing broadband base. We believe the stabilization is due to the success of our new G plus promotional offer and the improvements we are making to speed and reliability throughout our network. As we look forward, we expect the business to remain stable. At GCI, operating priorities are first, invest in our network infrastructure including closing our acquisition of Quintillion second, to complete our build out commitments under the Alaska plan third, to drive value and the benefits of convergence for our customers And finally, to bridge the digital divide throughout our through our rural expansion. Starting with network infrastructure. Our planned acquisition of Quintillion creates value for both the Elastic community and our shareholders and is expected to be accretive to free cash flow within the first year of closing. The transaction will bring together complementary fiber routes and we expect to enhance network resilience routing diversity and overall reliability through a more robust architecture comprised of multiple rings and sub rings. This expanded fiber footprint positions us to compete more effectively against LEO satellite broadband alternatives bringing the more competitive connectivity environment to Alaska. Importantly, this transaction also strengthens critical communications infrastructure that supports Elastic's communities, government operations and national security priorities. Next, on driving convergence and maximizing value in quality for our consumers. We remain encouraged by our promotional offers in the market. Which provide value for our consumers. Last year, we concluded our unlimited test drive promotion. The retention of up sales from that promotion was exceptionally high. The low 90% range. This quarter, we launched free for a year wireless promotion that continues to support our consumer postpaid wireless growth and drives convergence. Our converged customer base continues to grow. More than 40% of our broadband have one or more wireless lines and more than 60% of our post postpaid wireless lines are sold as part of the package. Lastly, on bridging the digital divide in the Alaska through rural expansion and completing our commitments on the Alaska plant. We are nearing completion of our build out for the Elasti plant increasing wireless speeds across the communities we serve. We will continue to focus on providing five gs wireless service to all cover the last things over the covering coming years. Still expect CapEx including quintillion to peak this year and to step down over the coming years as it returns to our historical range of 15% to 20% of revenue. The Plan Quintillion acquisitions should support substantial cash generation as we look ahead. In summary, we are encouraged by our steady financial and operational performance this quarter. At GCI Liberty, we remain focused on our continued evolution as Liberty Capital as we look to create value for our shareholders from our existing business and new investments. With that, I'll turn it to Brian to discuss the financials in more detail. Brian Wendling: Thanks, Ron, and good morning, everyone. At the end of the first quarter, GCI Liberty had consolidated cash cash equivalents and restricted cash of $448 million including $130.131 billion dollars of cash, cash equivalents and restricted cash at GCI. Total principal amount amount of debt at GCI Liberty was approximately 1 billion. At quarter end, GCI Liberty's consolidated net leverage was one point which incorporates cash at the parent level including proceeds from last quarter's rights offering as well as GCI's non voting preferred stock. Subsequent to the end of the first quarter, GCI completed the acquisition of a 6% equity interest in Liberty Latin America, Searchlight for $107 million. GCI will also provide $160 million unsecured loan to Quintillion pursuant to the terms of the acquisition agreement. Pro form a for these two transactions GCI Liberty is consolidated net leverage would have been 2.3 times. At quarter end, GCI's net leverage is defined in credit agreement was 2.3 times. Additionally, GCI's credit facility had $377 million of undrawn capacity net of letters of credit. Pro form a for the $160 million loan that GCI will provide to Quintilion GCI's leverage would have been approximately 2.7 times. Now turning to GCI's operating results for the first quarter. For the first quarter, GCI generated total revenue of $256 million representing a 4% decrease year over year. Adjusted OIBDA of $93 million an 18% decrease year over year. There were approximately $13 million of items impacting year over year comparability, most of which are non recurring in nature. These include about a $4 million benefit we recognized during the 2025 related to the successful appeal of rates for services provided to certain healthcare customers in prior years. Additionally, are lapping a roughly $2 million net benefit to OIBDA last quarter related to the fiber break on the quintillion network that GCI uses capacity. Which has since been repaired. We're also making incremental investments into operating business more efficiently representing an increase of approximately $4 million in operating expenses. Lastly, during the first quarter of this year, we have $3 million of public company costs, which were not in the prior year numbers. We do expect these public company costs to continue. Looking at the segment detail, the consumer revenue declined 5% during the first quarter with the majority of the decline driven by the shutdown of the video business as well as data subscriber losses, slightly offset by growth in wireless. As a reminder, GCI exited the video business during the third quarter of last year, Consumer gross margin increased to 72.2% for the quarter, driven by a decline in consumer direct costs resulting from decreases in video programming costs. Business revenue declined 3% for the first quarter As mentioned above the first quarter, twenty five benefited from approximately 4 million dollars of out of period revenue, excluding our out of period more like recovered revenue, excluding this impact revenue would have been flat Business gross margin decreased to 77.3% for the first quarter primarily driven by higher distribution costs related to restored service on the Quintilion fiber network. As we've previously mentioned, this network was out service during the 2025. Capital expenditures net of grant proceeds totaled $55 million during the first quarter We expect 2026 CapEx of approximately $290 million which includes $20 million that was carried over from 2025 due to normal course timing shifts, as Ron mentioned, we do expect 2026 to represent our peak year of CapEx spend. Generated $99 million of free cash flow for the trailing twelve months through the end of the first quarter. Down around 13% year over year. This was largely driven by an increase in capital expenditures net of grant proceeds. The CapEx increase in 2026 when coupled with ordinary course working capital swings will drive proportionately lower free cash flow on a year over year basis. With that, I'll turn the call back over to you, Ron. Thank you. And operator, we can open it up for questions. Operator: Thank you. Our first question is from David Joyce with Seaport Research Partners. Please proceed. Analyst: Thank you. A few questions please. First I'll ask on the operational side. With the business wireless losses, what were the drivers of that? Ron Duncan: The business wireless is kind of a small part of the business and I think there's ordinary churn going on in there. We've been gradually descending in business wireless partly as people transition business accounts more to the consumer side. I don't think the the magnitude of those losses is material to the overall. Situation that the company is in? Analyst: Understood. And then secondly, on the Liberty Latin American investments, should we think of that as a tax advantaged cash flow play since they announced that their distributing a 9% preferred later this summer, thereby you know, you could use some of your tax attributes with those, you know, cash flows to fund your own preferred and and and CapEx Or is there some other kind of strategic thrust there? Ron Duncan: We think there's a more strategic thrust there. We are pleased with their restructuring, and we'll be happy to receive the benefits of the preferred there. And you're correct, those would be sheltered, but we've been looking at Liberty Latin America for a while before they had decided on their recapitalization plan with the preferred. We believe it's an undervalued entity and has many characteristics that are similar to what we face in the Alaskan market. It's got a great asset footprint in market that is generally underinvested in, although they have some specific end markets that have more competition than we do. We think they're on the verge of a substantial inflection in free cash flow. We think looking at the overall situation there that they are materially undervalued We saw this as an opportunity to get in at that undervaluation and build a bigger position over time. So we're happy to have the benefit of the preferred but not that's not the principal reason for undertaking the transaction. Analyst: All right. Thanks. Final question is on Quintilion. What were your payments to them last year? And have there been other fiber breaks in the past like you experienced last year? And, who are your who would the remaining customers be? Ron Duncan: Okay. Let's let's take those one at a time. I don't think we have broken out the total quintillion payments. Have we, Pete? We've not We've not Okay. We are more than half of Quintillion's total revenues and that's a big piece of what drives the transaction We generally don't compete with them on a customer basis. They're more in the wholesale business and we buy services from them that we then remarket to our business. And rural healthcare customers in the marketplace But we're not give me the last piece of that question again too, please, David. Analyst: Oh, yes. Just wondering who the customer base was aside from yourself. Ron Duncan: The customer base would be people who other people who provide service services largely to the schools and the health care providers. It would include ACS and some of the smaller local telephone companies throughout the state. Analyst: Great. Thank you very much. Ron Duncan: Thank you, David. Operator: Our next question is from Jim Harris with Bislett Management. Please proceed. Analyst: Hi there. Liberty Broadband question. Outside of the repurchases that they're making of of Charter stock from Liberty every month Why wouldn't Liberty Broadband be encouraging Charter to reduce their debt in absolute terms since their business is shrinking. It's making it more risky and reducing the debt would increase the value per share. Wondering why Liberty isn't pushing that absolute debt reduction as their current plan to sort of slow leverage. Thanks. Marty Patterson: This is Marty Patterson speaking for Liberty Broadband. So I think you'll note that pro form a for the Cox transaction, will be a reduction in net leverage. We remain very supportive of the capital allocation policy at the company. And do see them lowering their leverage at the close of the Cox transaction which will be the close of the Liberty Broadband transaction. Okey doke. Thanks. Thank you, Jim. Thank you everyone for participating in today's call. We will speak to you soon. And again, thanks. Take care. Operator: Thank you. This will conclude today's conference. You may disconnect at this time and thank for your participation.
Operator: Good afternoon, and thank you for joining Zevra's First Quarter 2026 Financial Results and Corporate Update Conference Call. Today's call is being recorded and will be available via the Investor Relations section of the company's website later today. The host for today's call is Nichol Ochsner, Zevra's Vice President of Investor Relations and Corporate Communications. Nichol Ochsner: Thank you, and welcome to those who are joining us. Today, we will provide an overview of our recent accomplishments, followed by a review of our first quarter 2026 financial results. I encourage you to read our financial results news release, which was distributed this afternoon and is available in the Investors section of our website. Before we begin the call, please note that certain information shared today will include forward-looking statements. Actual results may differ materially from those stated or implied in any forward-looking statements due to risks and uncertainties associated with Zevra's business. Forward-looking statements are not promises or guarantees and are inherently subject to risks, uncertainties and other important factors that may lead to actual results differing materially from projections made and should be evaluated together with the Risk Factors section in our most recent quarterly report on Form 10-Q, our annual report on Form 10-K and our filings with the SEC. I am pleased to welcome Zevra's management team members participating in today's call. Neil McFarlane, Zevra's President and Chief Executive Officer; Josh Schafer, our Chief Commercial Officer; and Justin Renz, our Chief Financial Officer. Our Chief Medical Officer, Adrian Quortel, will also be available for today's question-and-answer session. Now it's my pleasure to hand the call over to Neil. Neil McFarlane: Thank you, Nichol, and welcome to everyone joining our quarterly call this afternoon. We are building a durable rare disease company grounded in disciplined execution, financial strength and a commitment to patients. We continue to advance our strategic plan, delivering strong performance and positioning ourselves for long-term growth. We made substantial progress in establishing MIPLYFFA as a foundational treatment for Niemann-Pick disease type C or NPC in the U.S. by delivering meaningful clinical impact to patients and pursuing multiple pathways to expand patient access globally. We are also advancing our late-stage asset, Celiprolol, through a Phase III study for the treatment of Vascular Ehlers-Danlos Syndrome, or VES, and executing several approaches to accelerate its development. To sharpen our focus on high-impact activities and remove operational distractions, we optimized the portfolio by divesting noncore assets with the sale of the SDX portfolio, to Commave Therapeutics for $50 million and concurrently resolved the legal dispute. Our balance sheet is strong with a cash position of $236.8 million and no outstanding debt, providing financial flexibility to drive growth. In the first quarter, total net revenue was $36.2 million, which is a 78% increase over Q1 2025. We've now reached a total of 170 prescription enrollment forms for MIPLYFFA from launch through March 31, nine of which were received in the first quarter. Recall, the estimated prevalence of NPC patients in the U.S. is approximately 900, of whom 300 to 350 are currently diagnosed. Thus, we have successfully reached roughly half of this patient population and continue to have traction in newly diagnosed patients. This is a significant early launch achievement and remains consistent with the meaningful opportunity ahead for continued growth. As a reminder, we've established a solid patent position for MIPLYFFA. It received orphan drug designation in the U.S., enabling marketing exclusivity through 2031. Consistent with our strategy to maximize the potential growth drivers for our business, we're pursuing a patent term extension through the U.S. Patent Office and await their decision, which could provide coverage beyond 2031. Through our global Expanded Access Program, or EAP, we are able to deliver a much-needed treatment to patients with NPC in certain European countries and select territories outside of Europe, including the U.K. As of the end of the quarter, we have a total of 122 patients enrolled in the EAP across geographies. Our global EAP is comprised of multiple access programs, including compassionate use and named patient reimbursement. Within each, we expect variability in enrollment and reimbursement over the first few years until the patient base has stabilized, consistent with our experience in the French EAP program. In Europe, there are an estimated 1,100 individuals with NPC. Diagnosis rates exceed those in the U.S., largely because the earlier approval of miglustat established physician awareness and enabled patient identification. To support the geographic expansion with a potential approval of Arimoclomol in Europe, we have a marketing authorization application under review by the European Medicines Agency, or EMA. We submitted our responses to the EMA's 120-day list of questions within the 90-day clock stop period and are progressing along the standard review process to make Arimoclomol available to the European NPC community. As a reminder, we have also received orphan medicinal product designation in Europe for the treatment of NPC. Turning to our late-stage pipeline. Our Phase III DiSCOVER Trial is evaluating Celiprolol for the treatment of beds, a rare inherited connective tissue disorder caused by COL3A1 gene mutations that weaken the walls of blood vessels and hollow organs and can cause arterial rupture or dissection among other complications. Approximately 90% of patients experience an event by the age of 40. There are roughly 7,500 individuals living with beds. Celiprolol is a selective adrenoceptor modulator that works by inducing vascular dilation and smooth muscle relaxation and thereby reducing mechanical stress on tissues of the arterial wall and hollow organs. Currently, there are no approved therapies for beds. Our commercialization strategy for Celiprolol is focused exclusively in the U.S., where there's a clear opportunity to fill an unmet need. While not approved in Europe for beds, Celiprolol is the primary off-label treatment in several European countries. This use is supported by the results of several studies, including long-term European cohorts. We've enrolled a total of 62 patients in the DiSCOVER Trial with 10 patients enrolled in the first quarter. This is an event-driven study, and we have two confirmed events out of the 28 events required to trigger the interim analysis. We continue to implement activities aimed at driving enrollment, including building a network of genetic testing centers to improve diagnosis as well as strengthening connections with key specialists who manage these patients. In parallel, following the FDA Type C meeting we had in the first quarter, we are preparing for a follow-up meeting in the second half of the year to explore pathways to accelerate its clinical development. In summary, we have a clear vision to become a leading rare disease therapeutics company, and we're motivated by the momentum and the opportunity that this phase of growth brings. I'll now turn the call over to Josh to review our commercial performance in more detail. Josh? Joshua Schafer: Thank you, Neil, and good afternoon. Before reviewing the quarterly progress with MIPLYFFA, I'll provide a quick background on NPC. NPC is a rare lysosomal storage disorder caused by mutations in genes that impair intracellular cholesterol and lipid trafficking, leading to the abnormal lipid accumulation in the brain, liver, spleen and other organs. The onset and course of disease are heterogeneous, ranging from infancy to adulthood with progressive neurodegeneration that can vary in both speed of onset and clinical presentation. The extensive data generated for MIPLYFFA and NPC has shown long-term meaningful patient outcomes through the most expansive clinical development program in NPC to date. We have more than 5 years of data across more than 270 NPC patients worldwide through clinical studies, including our pivotal trial, open-label extension study, global EAP and pediatric substudy. All demonstrating MIPLYFFA's efficacy and safety. Notably, MIPLYFFA in combination with miglustat is the first and only disease-modifying therapy shown to halt disease progression at 12 months in a randomized controlled trial based on the validated NPC clinical severity scale. The onset of benefit is rapid with improvements noted at the first clinical evaluation time point of 12 weeks and has durable efficacy with treatment effects sustained for over 5 years. We are pleased to announce that MIPLYFFA was added to the NPC clinical practice guidelines, which were recently published in the Journal of Inherited Metabolic Disease, marking the first update to the guidelines since initial publication in 2018. These guidelines discuss the heterogeneity of the disease and reinforce that the NPC Clinical Severity Scale and genetic testing are the most reliable clinical endpoints and confirmation of diagnosis. The guidelines also point out, consistent with our messaging that early detection is critical to delay disease progression. MIPLYFFA's mechanistic and clinical differentiation is resonating with prescribers and patients and is driving adoption. As Neil shared, we have received a total of 170 prescription enrollment forms since launch with 9 enrollment forms coming in Q1. Our commercial strategy is focused on three key priorities: accelerating time to diagnosis and treatment, driving demand and facilitating access to MIPLYFFA. NPC remains significantly underdiagnosed and often diagnosed late due to heterogeneous symptoms. To enable earlier diagnosis, we have focused on education and engagement within the medical community through a strong presence at medical present data and through our ongoing disease awareness campaign called Learn NPC, Read Between the Signs. Additionally, we have built a custom AI-driven targeting model to find likely NPC patients and have collaborations with providers of genetic testing to accelerate their diagnosis. As a result, we continue to see new enrollments from previously diagnosed as well as newly diagnosed patients. We are also finding patients and seeing demand for MIPLYFFA increase outside of the centers of excellence. Our prescriber base is expanding to include community-based prescribers, which we believe reflects the success of our targeting and education efforts. Many of these new prescribers did not know that they had NPC patients in their practice and were previously unfamiliar with the disease and treatment options. We help facilitate medical education efforts through various initiatives such as the recently launched Expert Connect, which connects HCPs unfamiliar with NPC to experts who can address questions regarding disease state and available treatment options. Our patient mix has grown to include adults and children equally. These trends give us confidence in the estimated prevalence of 900 people in the U.S. living with NPC, and we remain focused on reaching as many patients as possible and expanding the total addressable market. From a market access standpoint, we have stable coverage of 69% and continue to achieve reimbursement through the medical exception pathway. Payer engagement continues to be focused on emphasizing our robust clinical safety and efficacy data and the extensive real-world evidence seen in clinical practice that supports MIPLYFFA's value. We believe clinical benefit support services and broad patient access and independent market research suggests MIPLYFFA is the preferred NPC therapy most trusted by clinicians and shown to improve balance, swallowing, cognition, speech and reduce falls. We received heartwarming letters from families noting how positively impacted they have been by MIPLYFFA and the support of our Amplify Assist patient services program. Together, this feedback reflects the impact of our commercial activities and sets the stage for continued growth. With that, I will turn the call over to Justin to review our financial results. Justin Renz: Thank you, Josh. In addition to the financial details included in today's call, we encourage you to refer to our quarterly report on Form 10-Q for more detailed information, which we intend to file shortly. As Neil mentioned, in the first quarter of 2026, we generated net revenue of $36.2 million, which was an increase in total net revenue of $15.8 million compared to $20.4 million in Q1 of 2025. This is comprised of $24.6 million from MIPLYFFA net sales in the United States, $0.3 million from OLPRUVA, $10.2 million in net reimbursements from the global EAP for Arimoclomol and $1.1 million in royalty revenue. It is worth noting that we had 1 less shipment week of MIPLYFFA in the U.S. due to the first quarter delivery calendar. And as a result, channel inventory fell below the low end of our targeted range. Turning to recent business transactions. In March, we executed an agreement with Commave Therapeutics for the sale of the SDX portfolio for $50 million, monetizing assets that were not central to our core investment thesis. Under our contractual obligations, Aquestive Therapeutics received 10% or $5 million of gross proceeds. In the first quarter, we received $40.5 million of the $45 million in net proceeds, and we received a final payment of $4.5 million in April. In connection with this transaction, we reviewed our capital allocation strategy and retired our debt early, saving on average approximately $8 million a year in future interest expense. We are now debt-free and strategically positioned for growth, supported by a clean balance sheet. These onetime transactions impacted our first quarter financials. Accordingly, we recorded a onetime gain of approximately $43.3 million, partially offset by an approximately $10 million expense associated with the early extinguishment of debt, which is noted in the other income and expense section in our financial statements. Pivoting back to normal operations. During the first quarter of 2026, our operating expenses were $25.2 million, which was an increase of $2.4 million compared to the same quarter a year ago. R&D expense was $4.4 million for Q1 2026, which was an increase of $1.1 million compared to Q1 2025 due primarily to increases in third-party costs and professional fees. SG&A expense was $20.8 million for Q1 2026, which was an increase of $1.2 million compared to Q1 2025, primarily due to an increase in professional fees, partially offset by a decrease in third-party spending. We have utilized the vast majority of our usable net operating loss carryforwards. And as a result of the multiple onetime transactions that we recorded in the first quarter, we incurred an estimated tax provision of $6.9 million. Net income for the first quarter of 2026 was $37.9 million or $0.62 per basic and $0.60 per diluted share compared to a net loss of $3.1 million or $0.06 per basic and diluted share for the same quarter a year ago. Excluding the onetime transactions as well as the related tax provision for clear comparability across periods, the estimated quarterly net income reported would be $11.5 million or $0.18 per diluted share. As of March 31, 2026, Total cash, cash equivalents and investments were $236.8 million, which was a decrease of $2.1 million compared to December 31, 2025. As mentioned earlier, this decrease is attributable to deleveraging driven by our debt payoff, partially offset by the non-dilutive capital proceeds from the sale of the SDX portfolio and supported by our operating income. Collectively, these factors have further fortified our balance sheet, and we remain well positioned with the financial capacity to execute on our strategic priorities independent of the capital markets. And now I'll turn the call back to Neil for his closing remarks. Neil? Neil McFarlane: Thanks, Justin. Our corporate profile has evolved significantly with the execution against the strategic pillars we introduced a little over a year ago. We are delivering strong commercial execution while thoughtfully monetizing assets that are not core to our business. We relocated our corporate headquarters to Boston, a hub of biotech innovation, and we strengthened our leadership by attracting seasoned professionals to our executive management team and Board of Directors, bringing valuable experience and perspective. These efforts, combined with prudent financial stewardship, are positioning us to deliver on our vision. As we advance through 2026, we are anchored by a clinically meaningful commercial product with multiple opportunities for global growth, a late-stage pipeline and a strong financial position. Our collective team at Zevra is energized by the numerous opportunities we have to expand our impact for people living with rare diseases. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question today comes from Kristen Kluska with Cantor Fitzgerald. Unknown Analyst: This is [ Ian ] on Kristen's line. Congrats on the quarter update here. First, now that MIPLYFFA has been added to the NPC clinical practice guidelines, we're just wondering what this means for physician adoption. I mean are these doctors now formally advised to consider MIPLYFFA when treating these patients? Neil McFarlane: We're really pleased. And I think as we've been previously communicating, these guidelines were in process and really came out quite fast after the introduction of new products that were approved in the U.S. It really reinforces the NPC severity scale as the tool that shows disease progression, the genetic testing as a key endpoint and diagnostic tool. The complexity of the disease. When we think about the heterogenicity of both infantile version and adult versions of the disease, it's really important to early detect in order to be able to delay progression. But really importantly, the combination therapy being considered for NPC was one of the major takeaways. I'll ask Josh to talk a little bit about some of the impact that we see and quite frankly, the hurdles that are lowered with these guidelines that have been published. Joshua Schafer: Yes. Neil, just to add to what Neil said, we're also really pleased that the guidelines addressed the need for early detection and that early treatment helps delay progression. I also went on to talk about the importance of using combination therapy for patients who have been diagnosed with NPC. And this is really important because these are the opinions of a select group of key opinion leaders that we're now able to use and communicate and help build confidence and consistency in the way that some HCPs who might not be as familiar with NPC can now use this as a consistent guide for their treatment. Unknown Analyst: And then second, do you have a sense of the proportion of the patients that are identified through the genetic testing that you're conducting and the AI-driven predictive model that ultimately convert onto the drug? I guess -- and just... go ahead. Joshua Schafer: No, sorry, please finish your question. Unknown Analyst: Yes. Just related to that, I was wondering what feedback you're hearing from the physicians that are managing these patients in terms of like how receptive they are being to the data-driven identification approaches that you're using? Neil McFarlane: Wonderful question, and thanks for outlining our commercial strategy really clearly for us. Let me ask Josh to touch on some of the key priorities that we're executing against and some of the feedback that we're getting. Joshua Schafer: Yes. As we mentioned in the prepared remarks, we have three key priorities from a commercial perspective. The first is to accelerate the time to diagnosis and treatment, and we're seeing that through our disease awareness campaign as well as some of the collaborations with the genetic testing companies. Our second priority is to really drive demand and you're seeing that in the enrollments that we've been able to get over the past quarter and more and then facilitate access with 69% of covered lives -- or 69% of covered lives currently able to access MIPLYFFA and the others we're able to do through medical exception pathways. So we feel really confident in our line of sight for more patients, given what we're seeing today, which is a nice mix of newly diagnosed as well as previously diagnosed patients. Operator: And our next question comes from Kambiz Yazdi with BTIG. Kambiz Yazdi: EAP revenue growth was quite robust. Is France driving that growth or other countries? And how should we think about geographic composition of the EAP as a leading indicator for where commercial demand may concentrate post EU approval? Neil McFarlane: And welcome to the analyst coverage. As we reported, 122 patients enrolled in Q1 2026. This really encompasses multiple access programs. We have and multiple territories. In Europe, we've had outstanding for quite some time, our French EAP experience, which we've previously guided and consistently receive about $10 million net per year now that our patient base has stabilized in that territory, and that was per year. Today, we have new markets that are coming on. And that variability in ordering pattern and the rates of new enrollments and the reality is that we've got both compassionate use as well as named patient reimbursement. All of these new attributes lead to the variability that we continuously guide towards. It's early. We have new distributors. We're really pleased, though, with our new distributors and actually all of our distributors and how fast they're able to be able to get the named patient request for individual patients, then drive that back through to being able to get through our system and the product to patients in these territories. So we're really pleased with the continued inbound in these markets. And our goal is to really expand access to as many markets as we can while still focusing on our key territories in the U.S. and expanding the diagnosis and treatment, along with our global expansion, i.e., Europe and the MAA as well. Kambiz Yazdi: And then maybe quickly as a follow-up, can you share with us any quantitative milestones or leading indicators you're tracking internally around your bespoke AI-driven patient identification and genetic testing efforts in identifying newly diagnosed NPC patients? Neil McFarlane: Let me ask Josh to work on some of those strategies that are starting to really give us confidence in the TAM. Joshua Schafer: Yes. And we monitor and measure a number of things, which will remain internal and metrics that we use just internally. But we are measuring how many patients are we finding that are newly diagnosed. We're looking at how many new prescribers we're able to bring into the mix as well. And then other interesting dynamics about the patient's journey, perhaps any other treatments that they may have been on, other diagnoses and other symptoms, all of that is tracked as we look to really understand as much as we can about these patients. This program is working extremely well, and it's allowing us to look at those patients who we know are diagnosed with NPC and find like patients who have not yet been diagnosed and be able to work with clinicians in accelerating their diagnosis and treatment. Neil McFarlane: Yes. Let me add a little bit to that. I think it's important because we talk about the heterogeneity of the disease. The patient journey in NPC, unlike a lot -- so I should say, not unlike a lot of other rare diseases, it is you know one patient, you know one patient. We're talking about children and the primary data that has been developed over many, many years in NPC has been really child-based. In our experience and the expanded access program in the U.S., we built that out, and we saw that it was about 50% of the patients that were children and 50% of the patients that were adults. In our real-world experience moving forward, we still see that. Now that means that we have to continue to learn about the journey of the patient that is the adult patient and understand how we can then make the tools and continue to evolve our commercial strategy and educate physicians that patients in later ages also can present with NPC. So this is early in our launch. We're really pleased with the 170 total enrollments, the 50% children and adults, but we're still learning a lot about what it means for adult patients. Operator: Our next question comes from Sumant Kulkarni with Canaccord. Sumant Kulkarni: I have two, one on MIPLYFFA, one on Celiprolol. You mentioned that MIPLYFFA is now at almost 50% share of the diagnosed and treated patients in the U.S. What does your competitive intelligence tell you about your share of the competitor AQNEURSA in the remainder and your ability to gain further share in this 300 to 350 patients? And do you know of any cases where payers are allowing concurrent use of both MIPLYFFA and AQNEURSA in the same patient? Neil McFarlane: We'll take one question at a time here in regards to the MIPLYFFA question. You are correct, and I'll ask Josh to double-click on this a little. You are correct that also based on the treatment guidelines that were just recently established that a lot of patients, and I can't give you the exact amount, but a lot of patients because of the complexity of the disease as well as the symptomatology of the disease are on multiple therapies, and we're actually seeing success in getting those patients on miglustat and MIPLYFFA and other therapies to be able to get them covered from a commercial perspective. These guidelines, I think, are going to continue to reinforce that combination therapy should be considered for NPC patients. We believe that, that bodes really well for us. Our label is in combination with miglustat. We see that's where our clinical differentiation is in terms of disease modification, halting the progression of the disease and the durable effects that we see. So we see this as a real positive. And I'll ask Josh maybe to talk a little bit about what he's seeing on the ground. Joshua Schafer: Yes. Just to add a little bit more color there. We have been seeing in clinical practice that clinicians want to be able to treat patients with as many different modalities and to approach the treatment from as many different angles as possible. And so we've seen this combination therapy for some time. And now that opinion is really reinforced by the treatment guidelines. This -- what this means is that those 50% of diagnosed patients that we're treating now, some of them very likely may be on other therapies. And this is not an either/or marketplace. This is really an and marketplace. And so we're seeing that continuing to grow. We're also seeing that coverage is continuing to exist for patients. We have 69% of total covered lives today. Those who are not able to get that through direct formulary, we're able to get coverage even for combination therapy through medical exception pathways. Sumant Kulkarni: Got it. On Celiprolol, we know you plan to meet with the FDA again in the second half of this year, but what are some of the specific options that you might have on the table in terms of your ability to move faster to bring this product to VEDS patients? Neil McFarlane: Yes. We mentioned in our last call that we had a Type C meeting in Q1 and that we're exploring pathways to accelerate the clinical development of Celiprolol. I would categorize the conversations as constructive, also informative. We're now -- this is the early stages. We're now in the process of preparing for the follow-up meeting in the second half of 2026. And quite frankly, it's too early for us to tell you what strategies we're going at. But the reality is that we're going in two directions. One, to continue to boost enrollment activities and the other is to accelerate the clinical development through additional pathways with additional data. Operator: Our next question comes from Eddie Hickman with Guggenheim Securities. Eddie Hickman: Congratulations on all the progress. Apologies if this has already been asked, I'm jumping between a few calls. But really nice performance outside the U.S. as well. So I'm wondering if you can give an update on the type of questions that you got from the 100 day, day 120 day. And are they clinical CMC or more commercial? And then what's the sort of time line for that updated CHMP opinion? Neil McFarlane: Yes. Eddie, and you have been the first to ask the question in regards to our marketing authorization application. As we mentioned in the prepared remarks, we did respond to the 120-day list of questions within the appropriate clock stop period. We provided the standard responses that are there. I won't get into the specifics of what it is the questions were or how we address them. But what I would continue to say is that since we've submitted a new application to the agency, we have not actually seen any new questions that we did not see out of the previous European submission and the FDA submission that we were able to then provide. So the substantial amount of data that we have now and the robustness of the package. And as a reminder, it's the totality of the data is over 270 treated patients. including data from our Phase II/III study, the open-label extension study that's got 5 years of data, our EAP that's got over 5 years of data, along with the pediatric substudy. So it's new data and the engagement is fairly standard. So now we're continuing to engage along the path, and we look forward to our next engagement with the European regulators. Operator: Our next question comes from Jason Butler with Citizens. Jason Butler: Two for me. Can you talk about the profile of the newly diagnosed patients that you're seeing? And again, speak to heterogeneity here. How early in the disease are they versus patients that may have had disease for a long time, but the diagnosis is delayed? And then second question, you mentioned that the inventory was below the lower end of the range for range at the end of the quarter. Has that reversed so far in 2Q? Neil McFarlane: Yes. Jason, let me start with the first question, the profile of the newly diagnosed patients. And I know I say this a lot, but when you know one patient, you know one patient because of this heterogeneity of the disease, it's really important. One patient may present with a primary symptom that's an epilepsy. Another may present with gait instability. Another may present with cognitive challenges. And because of that, we're continuing to refine our -- as Josh talked about, the predictive modeling and claims data and all the things that we're doing, but we're learning along the way. So every time we get a new patient, it's further informing how we go out and try to continue to expand. And as I mentioned, this 300 patients to 350 patients, we have a really good line of sight to those diagnosed patients already. We've talked about the prevalence of the 900 in the United States. We now have a lot more confidence that, that 350 and the 900, we're somewhere in between those according to the TAM and what we see as the addressable patient population. So let me ask Josh to talk a little bit about some of the characteristics we see, but the confidence is getting -- is growing every time we see newly diagnosed patients. Joshua Schafer: Yes. Just to bring this to life a little bit. We recently saw the diagnosis of a toddler who had an enlarged spleen and then went through genetic testing and was confirmed to have NPC. On the other end of the spectrum, there was an adult who had been misdiagnosed with MS for years and then changed physicians who happen to be aware of NPC and did genetic testing and confirmed that it was NPC. So it really runs the gamut, but there are some similarities and some characteristics both in terms of the symptoms as well as the journey that these patients go on that we're able to really learn from. And this is feeding our disease awareness campaign that we're continuing to educate physicians. We have a strong presence at medical conferences. We published a lot of data on this as well as the strong commercial efforts that we're putting in place. Neil McFarlane: And Jason, let me hand off to Justin to keep him going here this evening on the inventory question. Justin Renz: Yes. Jason, the way the Q1 delivery calendar fell, we just had one less shipment of MIPLYFFA in the U.S. than typical. And so as a result, our inventory in the channel was a little less than the low end of our targeted range. And so as a result, we do expect this to fall back within our targeted range by the end of the second quarter. Operator: [Operator Instructions] Our next question will come from Brandon Folkes with H.C. Wainwright. Brandon Folkes: Congrats on all the progress. Maybe just two for me. Any color on the time from submitting an enrollment form to getting on product and how that is trending at this stage of the launch? And then secondly, is there a difference in net revenue realized per patient if it goes through a medical exception versus a patient whose insurance falls into the 69% of covered lives currently? Neil McFarlane: Brandon. let me ask Josh to talk a little bit about the enrollment numbers that we're seeing now. Joshua Schafer: Yes. I think your question was really around the time from an enrollment comes in until once a patient receives therapy. And it's varied. It is largely dependent on the payer type, whether it's government or whether it's commercial. We are seeing -- in Q1, we had a number of patients who went through a reauthorization process, which is very typical at the beginning of the year as patients might either change plans or plans might change their policies. And so that had an impact on the first quarter, and we're working through those reauthorizations. So it's a little difficult to give you kind of what the average or the standard is just because of that reauthorizations that took place in the first quarter. Neil McFarlane: Your second question, might have to -- this was about net revenue, and I'm not sure that I quite got that. Can you repeat that question for us? Brandon Folkes: I guess what's the priority to grow the 69% of covered lives? Given your success under medical exceptions, is there a difference in net realized revenue per patient that goes through insurance versus the medical exception? Neil McFarlane: Yes. No, that's a great question. I'll ask Josh to opine. But the 69% of covered lives allows for you to be on a formulary. It doesn't necessarily have a preferred position on the formulary. And it does speed up the process. A lot of our education that's gone to payers so far has really allowed us to be able to educate on the clinical benefits with the medical directors of this [ varying ] plans and achieve what we believe is a really good covered life plan. The important component of the question I think you just asked, which is maybe get into the potential for gross to net as well. We do not contract currently today. So it's standard government discounts along with distribution margins and the like. So the net price hasn't really changed except for the variability in gross to net on a quarter-over-quarter basis. Joshua Schafer: Yes. And I think you're asking a very salient question around the 69% and our intent to grow that. We absolutely do, and we are making steady progress in that area, largely by talking about the clinical differentiation of MIPLYFFA. The guidelines certainly will help those discussions as well. But as you point out, it really doesn't impact the overall ability for a patient to receive MIPLYFFA because every plan has a medical exception pathway. What it does is it reduces a little bit of the time, it reduces some of the burden. We have a very robust patient services resources that we provide to help patients and offices navigate this. And so our goal is to make MIPLYFFA as accessible to patients as possible. And we do that both through increasing the covered lives, but also providing these patient services. Operator: Thank you. This concludes the Q&A portion of today's call. I will now turn the call back to Neil for any additional or closing remarks. Neil McFarlane: Thank you for joining our call today. We look forward to keeping you appraised of our future progress. Have a wonderful evening. 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 afternoon, and welcome to Savers Value Village's conference call to discuss financial results for the first quarter ending April 4, 2026. [Operator Instructions] Please note that this call is being recorded, and a replay of this call and related materials will be available on the company's Investor Relations website. The comments made during this call and the Q&A that follows are copyrighted by the company and cannot be reproduced without written authorization from the company. Certain comments made during this call may constitute forward-looking statements, which are subject to significant risks and uncertainties that could cause the company's actual results to differ materially from expectations or historical performance. Please review the disclosure on forward-looking statements included in the company's earnings release and filings with the SEC for a discussion of these risks and uncertainties. Please be advised that statements are current only as of the date of this call, and while the company may choose to update these statements in the future, it is under no obligation to do so unless required by applicable law or regulation. The company may also discuss certain non-GAAP financial measures. A reconciliation of each of the historical non-GAAP measures to the most directly comparable GAAP financial measure can be found in today's earnings release and SEC filings. Joining from management on today's call are Mark Walsh, Chief Executive Officer; Jubran Tanious, President and Chief Operating Officer; Michael Maher, Chief Financial Officer; and Ed Roma, Vice President of Investor Relations and Treasury. Mr. Walsh, you may go ahead, sir. Mark Walsh: Thank you, and good afternoon, everyone. We appreciate you joining us today. We are pleased with our first quarter results as we once again delivered strong sales performance and continued our earnings inflection with the second consecutive quarter of year-over-year adjusted EBITDA growth. We increased segment profit in both of our major markets through a combination of continued strength in our U.S. comp store fleet, the ongoing maturation of our new stores, profit improvement initiatives and tremendous operational discipline. We also made continued progress on our innovation agenda, which is already delivering benefits to our business. Let me start with a few highlights from the quarter. Sales in our U.S. business grew 11.2% with comps up 6.4%, driven by both average basket and transactions. The secular trend towards thrift remains a powerful tailwind and our maturing new store fleet is in the early stages of contributing to comp sales growth. In Canada, our sales trends were largely as expected with a 0.6% comp decrease during the quarter, reflecting a roughly 70 basis point headwind due to an early Easter. I'm especially proud of our Canadian team's execution this quarter. Despite flat comps, we grew Canadian segment profit almost 24% as we tightly manage production levels and benefited from some significant and sustainable profit improvement initiatives. We opened 3 new stores during the quarter, all of which were in the U.S., and we continue to expect around 25 total new store openings this year. Our new store portfolio continues to perform in line with expectations, giving us confidence in our ability to drive profitable sales growth as these stores mature. Financially, we generated $44 million of adjusted EBITDA in the quarter or 11% of sales. And finally, we are reaffirming our outlook for 2026, which Michael will address in more detail. Turning to our results by geography. Let's start in the U.S., where we believe that we are still in the early innings of consumer thrift adoption. Our 6.4% comp despite some unusually disruptive weather was broad-based with strong growth across regions, categories and income cohorts. We continue to see the strongest growth in our younger and more affluent consumer cohorts, which speaks to the power of our model and its ability to resonate with shoppers across demos. We feel very good about our competitive positioning and value gaps as new clothing and footwear prices continue to face upward pressure. Additionally, on-site donation growth continues to be robust, which helps power our flywheel, enabling our compelling assortment. In short, the U.S. business is firing on all cylinders, and we are excited about our continued expansion in this market. In Canada, our 0.6% comp decrease was largely in line with our flattish comp expectation with the Easter shift negatively impacting our comp by roughly 70 basis points. Macro conditions remain stable but sluggish, particularly in our key Southern Ontario market, including the Greater Toronto area and Windsor, where we have roughly 35% of our Canadian store fleet. We do not expect a material change in the economic conditions in Canada in the near-term, and we continue to plan our business around a roughly flat comp. Having said this, our first quarter results demonstrated our ability to drive meaningful profit improvement in Canada despite limited top line growth. Canadian segment profit increased $6 million over last year and profit margin expanded 310 basis points, which we attribute to our continued focus on productivity and tight management, matching demand and production. We also have a number of tests and initiatives underway to drive meaningful improvements in sales yields and cost per unit in our off-site facilities. We are quickly sharing learnings and best practices across our central processing centers and expect incremental benefits in the coming quarters. Moving on to new stores. We opened 3 new store locations in the U.S. during the quarter and continue to be pleased with the results as they are performing in line with our expectations. As I indicated earlier, we are excited to continue growing our store fleet in the U.S. and believe we can expand at current rates for years to come. For 2026, we are planning to open around 25 new stores, over 20 of which will be in the United States across 11 states with a nice mix of infill and new markets. An upcoming highlight this quarter is our first North Carolina store as our Burlington location opens later this month. Repeating our theme, our new store growth remains the highest return and most important use of our capital, and we are excited to bring our value offering to more consumers. Shifting now to innovation where our key priority areas are strengthening our price value equation, driving efficiency and cost reduction and expanding our data science and business insights. Last quarter, we announced the launch of ABP Light, an asset-light extension of our automated book processing or ABP system. I am pleased to report that we have completed our rollout plans ahead of schedule with the vast majority of the fleet now leveraging our ABP capability. We expect these stores will now reap the proven benefits of ABP and think this is a great example of how we can deploy technology in a cost-effective and high-return way across our store portfolio. We also continue to significantly strengthen the foundation of our data science and business insights. The team has been working hard to transition to a more robust data estate, structuring operating data that allows us to translate and communicate insights to drive field action, thus improving our ability to: one, react to changes in sales trends; two, improve productivity; three, support margin discipline; and finally, to help us continually refine our value proposition for consumers. I would like to highlight the progress we're making through a strategic partnership with Microsoft. For several months, Microsoft has had a team of forward deployed engineers working closely with Savers to embed AI agents directly into our operating model. Our first Agentic AI capability monitors our loyalty program, empowering our field organization with insights to boost consumer engagement and drive productivity. Our loyalty program is a strategically important part of our business as it represents roughly 73% of our sales and is a key focus as we continue to grow our store fleet. This deployment also provides us an Agentic template for an agile future rollout of AI capabilities and insights across our enterprise. We have already identified several other use cases for AI agents across our business and are either deploying or finalizing for implementation as part of our broader innovation road map. We look forward to sharing more updates on future calls. I'd like to thank our nearly 24,000 team members for their efforts in driving a strong start to 2026 and helping us deliver our commitments to our customers, nonprofit partners and shareholders. Our mission is to make secondhand second nature, and that continues to gain momentum. We are well positioned to build on this momentum and deliver continued success. I'll now hand the call over to Michael to discuss our first quarter financial performance and the outlook for the remainder of 2026. Michael Maher: Thank you, Mark, and good afternoon, everyone. As Mark indicated, we had a solid first quarter. Total net sales increased 8.9% to $403 million. On a constant currency basis, net sales increased 6.9% and comparable store sales increased 3.5%. We are especially pleased with our sales results in the U.S., where net sales increased 11.2% to $234 million. Comparable store sales increased 6.4%, fueled by both average basket and transactions, with broad-based gains across categories, regions and income cohorts. Given the breadth of our sales performance and the fact that we have yet to see a material lift from our new store openings, we remain very confident in our ability to grow the U.S. business. We also saw continued stability in Canada, where net sales increased 6.7%. On a constant currency basis, Canadian net sales increased 2% to $131 million and comparable store sales decreased 0.6%, reflecting an earlier Easter that negatively impacted comp by 70 basis points due to store closures on Good Friday. In the near-term, we do not assume any material improvement in the Canadian economy. And as such, we'll be planning our Canadian business conservatively. However, as Mark mentioned, we did successfully expand segment margins and grow profit contribution even without comp sales growth through strong execution, efficiency gains and the continued maturation of our new stores. All things considered, we believe this quarter is a good model for how we will continue to grow segment profit contribution even with limited sales growth going forward. Cost of merchandise sold as a percentage of net sales decreased 10 basis points to 45.4% due to comp leverage and efficiency initiatives as well as growth in on-site donations, partially offset by the impact of new store openings. Salaries, wages and benefits expense was $86 million. Excluding IPO-related stock-based compensation, salaries, wages and benefits as a percentage of net sales was roughly flat at 20.5%. Selling, general and administrative expenses increased 13% to $98 million and as a percentage of net sales increased 80 basis points to 24.4%, primarily due to growth in our store base, increased routine maintenance costs, namely higher SNO removal expenses and increased occupancy costs. Depreciation and amortization increased 18% to $23 million, reflecting investments in new stores. Net interest expense decreased 15% to $13 million, primarily due to the impact of our debt refinancing last fall. GAAP net loss for the quarter was $5 million or $0.03 per diluted share. Adjusted net income was $2 million or $0.02 per diluted share. First quarter adjusted EBITDA was $44 million and adjusted EBITDA margin was 11%. U.S. segment profit was $43 million, an increase of $4 million, primarily due to increased profit from our comparable stores. Canada segment profit was $31 million or up $6 million due to disciplined management of production and expenses and the CPC productivity and efficiency initiatives Mark mentioned earlier. Our new stores continue to perform in line with our expectations and mature on schedule as their contribution ramps. However, as we mentioned last quarter, a more balanced store opening schedule this year means more front-loaded preopening expenses. While we expect preopening expenses for the year to be roughly flat with last year at approximately $14 million to $16 million, first quarter preopening expenses were approximately $1 million higher than last year. Our balance sheet remains strong with $62 million in cash and cash equivalents and a net leverage ratio of 2.5x at the end of the quarter. We also repurchased 1.2 million shares at a weighted average price of $8.51. Our capital allocation strategy remains unchanged as we continue to prioritize organically funding new store growth, repaying debt as we target a net leverage ratio under 2x by the end of next year and opportunistically repurchasing shares. I'd like to now turn to our guidance and discuss our outlook for fiscal 2026, which remains unchanged from the previous full year guidance we gave back in February. We continue to expect net sales of $1.76 billion to $1.79 billion. Comparable store sales growth of 2.5% to 4%, net income of $66 million to $78 million or $0.41 to $0.48 per diluted share. Adjusted net income of $73 million to $85 million or $0.45 to $0.53 per diluted share, adjusted EBITDA of $260 million to $275 million, capital expenditures of $125 million to $145 million and approximately 25 new store openings. Our outlook for net income assumes net interest expense of approximately $50 million and an effective tax rate of approximately 28%. For adjusted net income, we're assuming an effective tax rate of approximately 27%. We're projecting weighted average diluted shares outstanding to be approximately 163 million for the full year. This does not contemplate any potential future share repurchases. Finally, I'd like to briefly touch on our expectations for the second quarter. We expect total revenue growth to be 100 to 200 basis points lower than the first quarter due to the impact of foreign exchange rates. We expect constant currency total revenue and comp sales growth similar to the first quarter. We also expect Q2 adjusted EBITDA growth to be similar to Q1 with the cadence of earnings through the balance of the year to resemble 2025. We plan to open 6 new stores during the quarter, in line with our goal of more ratably opening stores throughout the year. This concludes our prepared remarks. We would now like to open the call for questions. Operator? Operator: [Operator Instructions] We'll go to our first question from Matthew Boss at JPMorgan. Matthew Boss: Congrats on a nice quarter. So, Mark, can you elaborate on the step-up in comp trends that you're seeing in the U.S. business, in particular, 2 straight quarters of double-digit same-store sales on a 2-year stack. Maybe if you can touch on new customer acquisition, secular shift tailwinds. And just any puts and takes to consider with the second quarter comp trend maybe relative to the mid-single-digit full year guide? Mark Walsh: Yes. Thanks, Matt. Look, I think it starts with what we've seen is widespread growth across geographies and merchandise categories. And that obviously plays into a great experience, value and selection winning. But on top of that, we're seeing accretive adoption trends amongst our younger and higher income households. We've seen that continue. So, we're seeing trade down, trade in. I would also say that demand is really healthy across a broad base of all income demographics. And I think that's a key difference versus Canada. The secular trend certainly remains a tailwind. And what's really great is basket and transactions have driven comp. And as we mentioned around the Agentic initiative, the loyalty program is an important element in how we consider and drive growth, and we've continued to see really nice growth in our loyalty program in the U.S. Michael Maher: And then, Matt, to your question about how we think about Q2. So far, what we've seen in April in the U.S. is actually a little bit of acceleration in the U.S. comps. But we do expect those comps get a little tougher to lap as we progress through the year. So still thinking about a mid-single digit. And Canada really haven't seen much change, remains roughly flattish as we've now lapped the Easter shift. Matthew Boss: That's great color. Michael, maybe just as a follow-up, could you update us on the new store waterfall and maturity curve? And just the expected contribution from the waterfall in this year's comp outlook relative to multiyear as more of the store cohorts mature? Michael Maher: Sure. So, new stores continue to perform in line with our expectations and consistent with the waterfall, as you describe it, that we've laid out here over the last year or so. So just as a reminder for everyone, typically, in year 1, we see about $3 million in top line sales. We do lose money both from the preopening expenses that we incur as well as in the first year of operations as we're still ramping volume and developing, building that on-site donation foundation. Profitability, we typically pass breakeven in the second year and then continues to ramp as the sales improve. Ultimately, we target a 5-year -- excuse me, a year 5 top line of about $5 million and something close to a 20% contribution margin. So, so far, our new store classes continue to perform in line with that waterfall. And thus far, Matt, we don't -- we're still too early in that pipeline for those stores to be meaningfully contributing to our comp. So, the comps that we're posting in the U.S. really are mature store comps. Recall now that we only started opening new stores at this pace in the last couple of years and really only the 24 class at this point has entered the comp base. So, it's less than 50 basis points in total benefit to the comp, but we expect that's going to continue to build as more of those stores enter the comp base going forward. Mark Walsh: Let me supplement Michael's answer, Matt. It remains the highest and best use of our capital to open up new stores. Operator: We'll move next to Brooke Roach at Goldman Sachs. Brooke Roach: I was hoping you could unpack the improvement in profitability that you're seeing in your Canadian business. How should we expect that to continue for the rest of the year? And then more broadly, can you help us understand what the quantitative opportunities that you see from your AI capability monitors and your agents in profitability as you look on a multiyear basis? Jubran Tanious: Yes. Brooke, this is Jubran. I can take the Canadian profitability question. The first thing I'd say is it's actually -- it's driven by a few factors. It's not one thing. So, the first of which is some of our initiatives in CPC. Mark talked about those in his opening comments. Those continue to get better, more efficient, more effective through a variety of process improvements. And we've been very pleased with that and proud of the team. We're in the midst of expanding that to all of our off-site locations. So that's one. The second thing, and we talked about this on past calls, is striking the right balance in total pounds process, right, the amount of production level and maintaining a good equilibrium so that we are feeding customers, fresh product, but also doing it in a very healthy gross margin way. And we think the team did an excellent job at striking that equilibrium this past quarter. The third thing I'd cite is just ongoing refinement and improvement of our data and analytical tools. And that's important because as you think about converting pounds into items, those improvements have helped us better align items that we supply to the customer at the category level. So, it improves our ability to put the right thing at the right time in front of the customer, and that obviously benefits our sales yield. And then, Brooke, the last thing I would cite is just the ongoing on-site donation growth, which we are seeing improve in a broad-based way. This past quarter, over 3/4 of our supply came from on-site donation and Green Drop mix, nice year-on-year improvement and one that we expect to continue. So, you put all that together. And yes, we absolutely expect those trends to continue through the balance of the year, and that's all contemplated in our guidance for Canada. Mark Walsh: Brooke, on your question around AI and the Agentic deployment, let me say that it's just one element of a much broader innovation approach that includes ABP Light, includes a number of process and efficiency improvements that we're driving in our off-site production centers and then applying data science and business insights to what is a data-rich business. So, from an AI-specific perspective, these efforts are primarily efficiency and productivity driven, and we will develop a better sense for how big of an impact it will be over time. Michael Maher: Yes. And Brooke, Michael, just one closing thought on that. I think, first of all, as Jubran stated, what we're seeing in Canada really pleased with that. We do -- while we don't guide segment profit specifically, we do expect directionally that to continue, and we have contemplated that in the guidance for this year. I think longer term, to your question about innovation, I think it just gives us added confidence in that longer-term algorithm of getting back to that high teens EBITDA margin as we continue to see the new stores mature but also see the innovation initiatives really take root. Operator: Next, we'll move to Randy Konik at Jefferies. Randal Konik: Michael, I just want to jump off on the last thing you said there in terms of segment profit or geographic profit margins continue to move higher. Can you give us some perspective on where we sit with those Canadian margins versus history in the U.S.? And what are you going to -- are there things you're doing in Canada that you intend to apply to the U.S. business to kind of further take those margins higher? Just give us some thoughts on some of these profit initiatives you're working on and where they are in that kind of life cycle. How much higher can we go from here? Michael Maher: Sure, Randy. Why don't I start and then maybe I'll let Jubran jump in and provide a little color, too. So, first of all, we've long seen that we have structurally higher contribution margins in Canada than the U.S. I actually think that gap probably widens in the short-term in 2026 because we continue to invest in growth in the U.S., which, as we have said now for a while, does create a short-term headwind. Long-term, it's absolutely value accretive. But we know that there's some short-term margin pressure as a result of opening new stores. Now we're generating nice comp growth, and we're seeing healthy gains from on-site donations and yield improvements in the U.S. as well. But you do have that headwind. Whereas in Canada, the focus really is on profit improvement and process optimization. We are not really investing meaningfully in new store growth in Canada at this point. We are a mature business there, much more highly penetrated, obviously, than we are in the U.S. And so that gives us a chance to really focus on the productivity and efficiency initiatives that Jubran described earlier and really see those flow through into the bottom line as you saw here in the first quarter and the improvement in our Canadian segment profitability. So, I do expect directionally that trend to continue this year. And I'll let Jubran speak to how we're thinking about leveraging that across both countries. Jubran Tanious: Yes. Randy, it absolutely is. When we think about production, productivity and efficiency improvements, that cuts across borders. The team does a very good job of working collaboratively on discovery, leveraging best practices, scaling that across all of our facilities. So I'll take 2 of them that we talked about earlier, offsites. The improvements that we have made in offsites are going to benefit all locations, not just in Canada. Data and analytics, that refinement that I mentioned, where we have tools that are better than they have been in terms of putting the right thing at the right time in front of the customer, that cuts across all segments. So the short answer to your question is, yes, we expect goodness broad-based from that. Randal Konik: And just a follow-up. It looks like you managed payroll well in the quarter. I think you've had some deleverage in that item in the last few quarters or the last 4 to 6 quarters. Is that something where now we're kind of turning the corner on that payroll side of things, we'll start to get some leverage going forward out into the balance of the year and into 2027 and beyond? How do you think about that? Michael Maher: Well, Randy, a couple of things on the OpEx line. So remember that we are -- salaries, wages and benefits line, I think you're referring to. So we are continuing to step down the IPO-related stock comp in that line. We've got 1 quarter left of that here in the second quarter. That's roughly $4 million in each of Q1 and Q2. That falls away completely in Q3 and beyond. So you will see that. Incurring -- excluding those sort of nonrecurring items, though, yes, I think so. We do still have some pressure from new stores and those maturing and getting to scale there. So I think you'll see that kind of normalize as we go forward, get past the onetime items. But I would expect actually more of the improvement this year to come from gross margin rather than the operating expense lines as we continue to see the new stores mature and the benefit of that and their related on-site donation ramp flowing through to the margin line. Operator: We'll go to our next question from Michael Lasser at UBS. Michael Lasser: How long can you continue to grow the profitability in Canada on a flat comp? At some point, do you start to experience deleverage if the same-store sales do not grow and do you need to take action to reinvigorate the same-store sales growth in that market? Jubran Tanious: Michael, Jubran, I'll grab the profitability question. Yes, I understand your question. Long-term, I think there is merit to what you're saying, but we think there is still a tremendous amount of opportunity, certainly for the remainder of this year on all the initiatives that we have to improve efficiency and effectiveness. And so the trends that we saw in Q1, we expect to continue this for the remainder of this year. Mark Walsh: Michael, thanks for the question. Look, we're not satisfied with the flat comp at all. We continue to test differential marketing approaches, whether it be using our influencers to a higher degree, social, paid and then broadcast opportunities. We are investing in the core fleet as well. We've got some renovations teed up, and we've also got some relocations planned. And we just continue to focus on that price value equation and making sure that we're delivering a terrific experience to our Canadian consumers. So our goal is to not have that deleverage happen, and we're certainly not going to sit still with a flat comp. Michael Lasser: Okay. My follow-up question is on the delta between your sales yield and what you are paying for donations. So a, what are you seeing with respect to the sales yield? How much of the improvement in sales yield is being driven by like-for-like pricing? And then on the payment for donations, are you experiencing any inflation as a result of the overall environment and some of the strains that charities are under around the country? Jubran Tanious: Yes. Why don't -- Michael, this is Jubran. I'll grab your supply cost question first. So a reminder to the group that our supply costs, these are a set of contracts that we have with all of our great nonprofit partners across our 3 countries that are typically anywhere between 1 and 3 years. And they are deliberately relatively short- to medium-term because we are always evaluating what market is that we can stay very competitive in terms of what we pay for, whether that is a delivered goods, delivered product as we talk about, or on-site donation, which we have reliably continued to grow across all segments. So the short answer to your question is, are we experiencing any unexpected upward pressure or cost on supply? No, we're not. That's all very, very predictable. It's contract-based, and we can see it clearly. And we plan for it many, many, many months in advance. And then I'll just also take the opportunity to say that in terms of availability of supply, both for our comp stores and to feed new store growth, no concerns at all. The team continues to execute well. We see no ceiling on how high on-site donations can go, and that's what we're seeing in the business. Michael Maher: Yes. And then, Michael, this is Michael. I'll take your question on the sales yield. So we were really pleased with the roughly 6.5% increase in sales yield that we delivered in the first quarter. There's an element of higher ASP in that. We strive to keep that, though, at or below inflation over time. And that's sort of a normal recurring thing. But really, what drove that outsized growth this quarter was kind of things Jubran talked about earlier, being very careful about how we're managing production and lining that up to demand, especially in Canada, but also the productivity initiatives in our off-site processing facilities, which is helping us to drive getting the right item to the right location at the right time and therefore, greater sales yields on those items as well. Operator: We'll take our next question from Bob Drbul at BTIG. Robert Drbul: A couple of questions for you. The first one is, when you look at, I guess, energy cost impact, is -- can you talk about how you're being impacted throughout the business from that perspective? And then I guess the second question I have is just, can you expand a bit more just new store productivity? And are you seeing any variations? And I think -- and as you more measured approach to this year, 5 in the first quarter, 6 in the second, like the benefits to a more measured rollout from an execution perspective, what you're seeing there? Michael Maher: Yes, Bob, let me take the first question, and then I'll let Jubran take the new store one. So energy costs, Yes. The run-up in fuel costs came fairly late in the quarter for us. So not really a material impact to our first quarter. At these levels, we think there is some modest pressure for the balance of the year. Nothing that we think we can't mitigate, but obviously, a fast evolving situation that we'll just continue to monitor. Jubran, do you want to talk about the new store question? Jubran Tanious: Yes. New stores have been very pleased, as Mark talked about in his opening comments, Bob. So in line with our expectations, I think our ability to pick winners and refine our modeling of new stores has just gotten better and better over the years, and we're seeing that in performance. So to your question of are we seeing any outliers, it's been pretty consistent. We feel very good about our ability to predict and then also execute all the things that have to go into play to make a new store open on time and be successful. And then in terms of our ability to prospect and find attractive new locations and fill up that pipeline, that has only gotten stronger as we think about the remainder of this year and what we have committed to in 2027, we are right on track with where we hope we would be. Operator: We'll move next to Mark Altschwager at Baird. Mark Altschwager: I wanted to follow up on the price value framework you've been building on here in the last few calls. With the U.S. comp now nicely in the mid-single digits and your competitive set continuing to take price, has anything in your testing changed your view on the AUR opportunity? Are you taking any incremental price tactically by category or by geography? And just how are you thinking about further opportunity if that value gap widens? Is it more about loyalty growth with new customer acquisition on that trade down? Or is there maybe some incremental AUR contribution to comp as we move forward? Mark Walsh: Great question. Look, I think it starts with we are very focused on maintaining a super deliberate and very attractive price value relationship for our customer base. And that's U.S. and Canada. I mean we're focused on it. We've got a great data set that informs our approach on where we're putting category pricing in a given geography, critical, critical element. As we think about watching the item ratio or flow-through, that really informs us as to where there are certain opportunities in certain geographies and certain categories. So again, very analytically data science-driven approach to how we're deploying pricing across our fleet. And again, that's U.S. and Canada. The differences are obviously the geographies and the sensitivities to price relative to how quickly those garments or those goods sell. So it is very data science oriented. We're monitoring our approach carefully. And in this environment, we seem to be winning. I mean we're really pleased with the throughput that we've gotten in both countries when it comes to our price value relationship. Mark Altschwager: And just a follow-up on the loyalty program, the loyalty file. Can you size up where that is today and how much it grew in Q1? Trying to get a better understanding of how much the U.S. strength is growth in that file versus deeper engagement with your existing base. Mark Walsh: Yes. The file is growing quite nicely. We're a little north of 6 million total loyalty members across North America. We continue to see nice growth. We're very pleased with -- I think the thing we're most pleased about is that top loyalty cohort behavior really continues to outperform in both countries. And it represents roughly 73%, 74% of our sales. A great ability for us to connect with our consumers very cost efficiently at any given time. Operator: Our next question comes from Peter Keith at Piper Sandler. Peter Keith: Nice quarter, guys. I know it sounds like Q2 has continued the trend. But with the backdrop of higher gas prices, in the past, you have spoken to a lower income element as a portion of your customer base. So wondering if with the loyalty program, are you seeing anything of note as it relates to sort of trade-in versus trade out in this kind of evolving economic backdrop? Mark Walsh: Yes, I'll take that one. So look, I think in both countries, we continue to see a real nice adoption trend amongst younger and higher income consumers. And when you think about higher income consumers, certainly trade in, trade down is part of our growth mix in our loyalty platform. There are some differences though between the countries. We see in the U.S. consistently that demand has remained healthy and broad-based across all income demographics. In Canada, where there is a little more of an economic sluggishness -- sorry about that. We see our lower household income cohort disproportionately impacted. So that's really the only difference we're seeing between the 2 countries and how they're engaging with us and through the loyalty program. Peter Keith: Okay. Helpful. And then, Mark, to follow up on the prepared remarks with using AI and applying it to your loyalty program. I guess I was hoping you can kind of unpack exactly what you guys are doing. It sounds like maybe something that would enhance sales, but I'd like to just get a better understanding of what's happening. Mark Walsh: Well, I think it's a really good question. So I think we're -- our goal is, and we're picking very important and critical strategic elements of our business model and what the stores do. So obviously, the loyalty program is an important element of our consumer engagement platform. Having our store managers, having our store leadership continually focus on this very critical element was a great starting point for us to kick off our agentic strategy. So what this agent is doing is basically communicating to our store managers, this is where you are relative to your peer set from a loyalty perspective, could be great, could be depending on where you are in that continuum. It gives you things to consider and actions to take relative to how you're engaging with the consumer at that moment when they could either sign up or the opportunity to get them signed up. We see this as the unlock for several more agents to come right behind that, again, to allow us to keep our team and our store managers focused on critical issues throughout the week, period, month and just -- and then providing the information upward so that regional district managers, regional managers, Jubran and the country leads can drill down when appropriate to ensure that those key disciplines are being met and focused on throughout the year. Operator: We'll move to our next question from Jeremy Hamblin at Craig-Hallum. Unknown Analyst: This is Will on for Jeremy. First, I was just wondering if you're able to quantify the weather impact you saw in Q1. And then you noted the 70 basis point headwind from Easter. I guess should we be considering a similar magnitude of benefit here in Q2 from the late Easter last year? Michael Maher: It's Michael. So yes, I don't know if I quantify a weather impact other than to say it really was more about how the quarter played out. Very lumpy in terms of the comps just given the weather patterns this year versus last. February was our best comp because February last year had some really extreme weather. January was our softest comp because we had some really extreme storms in both the U.S. and Canada this year. Actually, I would say that some degree of extreme weather is just par for the course in Canada, in particular. It was probably more extreme than normal in the U.S. and therefore, arguably even a little bit more disruptive to our U.S. comp, which continued nevertheless to be strong. So again, we're focused on what we can control. And as we exit the quarter and see that all kind of normalize, we're pleased with the reacceleration in the U.S. comp. As far as the Easter impact, yes, that headwind of roughly 70 basis points to Q1 will flip and benefit us in Q2 by a similar amount. Unknown Analyst: Got it. That's helpful. And then I just wanted to touch on the ABP Light rollout. It sounds like it's solidly ahead of case here. I mean it may be too early, but just curious if there's any quantifiable benefits you've been able to realize thus far from the rollout? Jubran Tanious: Yes. This is Jubran. It is a little bit early to cite the results, but very pleased with the rollout between our traditional automated book processing ABP and now it's derivative ABP Light. We've rolled it to roughly 85% of the fleet. The rollout has gone well. Reminder, books is only about 5% of our business, but I think ABP Light is a great example of our innovative process, data-intensive stress testing and a smart rollout plan that we feel good about. So we'll continue to monitor it in the coming months. Operator: We'll go next to Owen Rickert at Northland Capital Markets. Unknown Analyst: This is Keaton Schuelke on for Owen. You called -- with the strength in the younger and more affluent cohorts, I was curious to hear how their basket size purchase frequency and category mix has been trending versus legacy customers. And curious how you expect that to trend going forward? Mark Walsh: Thanks for the question. Pretty consistent. Nothing out of the ordinary in terms of the trend lines that we're seeing from that particular customer cohort. Unknown Analyst: Okay. And then any early read on Tennessee and North Carolina stores? Are those markets ramping faster or slower than prior cohorts? And kind of what are you expecting out of those? Mark Walsh: We're excited about those markets to be sure, we have not yet opened those stores. Our first store in North Carolina will open later this month. And then our first store in Tennessee will be several months beyond that, maybe end of this year, early next year, that sort of thing. So nothing to report on that. But suffice to say, very energized by the white space opportunity and the quality of the sites that we've secured. Operator: And we'll go next to Dylan Carden at William Blair. Dylan Carden: I guess I'm curious, is there any incremental or change in the competitive dynamic in Canada? I know that market tends to lag from an online migration standpoint, if that's a piece of it. And to the extent that there isn't, just the line of sight you have in some of the improvement in that market or if it's more -- if you're managing a business to a flat comp, that becomes more of a manifest destiny so you feel more comfortable with. Jubran Tanious: Yes. Jubran, I can take a piece of that and then guys can jump in. No, in terms of longer-term expectation of growing the top line, I think Mark spoke to that earlier. We're not satisfied with the flat comp. We think there's a number of things that we can test and tinker with and trial. What we do know is that we can control what we can control now, and that is efficient and effective use of our material and labor to put the right thing at the right time and the right amount in front of the customer. So I think doing that well in a more sophisticated way allowed us to have the gross margin improvement that we saw in Q1. In terms of competitive landscape directly for us in Canada, nothing specific that we could point to that's materially changed that. Mark Walsh: Not-for-profit is really our #1 competitive set in the Canadian market. And being within 12 miles of 90% of the population, we're fairly saturated. So we're highly competitive in every market in Canada. And again, we're not satisfied with our comp trend. We're going to -- we're doing a lot to try to improve those trends. Michael Maher: Yes. Dylan, I think -- it's Michael. Just to kind of put a bow on that, to your point, and just to underline what Mark and Jubran said, we continue to work to drive the business in all facets, including top line. In the near-term, though, we are mindful of the macro environment, and we believe it's prudent to plan for a flattish comp for the balance of this year. And we continue to believe that even with that backdrop, we can drive profit improvement on the order of what we saw in the first quarter. Dylan Carden: And then on the AI technology side of things, any incremental thinking on how you might use that from an inventory management standpoint, pricing, decisions on what to keep versus donate? Yes, I guess, sort of an open-ended question there. Mark Walsh: Yes. We've got a robust innovative pipeline for sure. And we've got a lot of promising initiatives in test. We're pretty conservative, though, about bringing them public. So once we get to a place where we're ready to deploy, we will certainly be sharing those opportunities. Operator: And that concludes our Q&A session. I will now turn the conference back over to Mark Walsh for closing remarks. Mark Walsh: I just want to thank everyone again for their interest, and we look forward to talking to you in roughly 3 months. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good afternoon, everyone, and welcome to eHealth, Inc.'s conference call to discuss the company's first quarter 2026 financial results. [Operator Instructions] I'll now turn the floor over to Eli Newbrun-Mintz, Senior Investor Relations Manager. Please go ahead. Eli Newbrun-Mintz: Good afternoon, and thank you all for joining us. On the call today, Derrick Duke, eHealth's Chief Executive Officer; and John Dolan, Chief Financial Officer, will discuss our first quarter 2026 financial results. Following these prepared remarks, we will open the line for a Q&A session with industry analysts. As a reminder, this call is being recorded and webcast from the Investor Relations section of our website. A replay of the call will be available on our website later today. Today's press release, our historical financial news releases and our filings with the SEC are also available on our Investor Relations website. We will be making forward-looking statements on this call about certain matters that are based upon management's current beliefs and expectations relating to future events impacting the company and our future financial or operating performance. Forward-looking statements on this call represent eHealth's views as of today, and actual results could differ materially. We undertake no obligation to publicly address or update any forward-looking statements, except as required by law. The forward-looking statements we will be making during this call are subject to a number of uncertainties and risks, including, but not limited to, those described in today's press release and in our most recent annual report on Form 10-K and our subsequent filings with the SEC. We will also be discussing certain non-GAAP financial measures on this call. Management's definitions of these non-GAAP measures and reconciliations to the most directly comparable GAAP financial measures are included in today's press release, except where such reconciliation has been admitted in reliance on this unreasonable efforts exception provided under Item 10(e)(1)(i)(B) of Regulation S-K. With that, I will turn the call over to Derrick Duke. Derrick Duke: Thank you, Eli. Good afternoon, and thank you for joining us today. We're pleased with our first quarter results, which came in ahead of expectations. driven by stronger-than-anticipated Medicare enrollment volume at favorable unit economics. During the quarter, we made meaningful progress towards the strategic initiatives we outlined on our last earnings call, including implementing targeted cost reductions and completing critical build and readiness work for initiatives that launched in April. Most notably, we prepared for the rollout of our lifetime advisory model and the introduction of our new final expense insurance product. We are also encouraged by recent industry developments. Last month, CMS finalized the 2027 Medicare Advantage rate, which came in above the initial proposal. While this is just one variable in the system, we believe it is an important signal that CMS leadership is responsive to industry feedback and focused on long-term program sustainability. That said, we are early in the planning cycle for the upcoming annual enrollment period. Carriers are currently developing their 2027 bids, including benefit structures and geographic market strategies. We anticipate gaining a more comprehensive understanding of the upcoming AEP cycle and individual carrier approaches once bids are submitted. While some carriers may prioritize market share capture this AEP, we believe margin will remain the primary focus for most and the Medicare Advantage reset cycle will continue. This means further adjustments to planned benefits and service areas as well as additional plan eliminations. As a result, we expect consumer demand to remain strong and carrier inventory dynamics to remain complex, similar to last year. We believe this environment underscores eHealth's value proposition as we help consumers navigate the evolving Medicare landscape. Against this backdrop, we are intentionally evolving eHealth's operating model to foster deeper, longer-lasting relationships between members and advisers. Our goal is to ensure consumers see eHealth not as a onetime enrollment platform, but as a trusted ally throughout their health care journey. Central to this evolution is our lifetime advisory model, which I will discuss shortly. From a financial standpoint, our priorities this year are achieving breakeven or better operating cash flow and positioning the company for sustainable, profitable growth once the Medicare Advantage reset cycle is complete. Our revised 3-year outlook, which we published today in our earnings slides, reflects a return to revenue growth in 2027 alongside adjusted EBITDA margin expansion, positive operating cash flow and breakeven or better free cash flow. First quarter revenue was $88 million, ahead of our expectations. GAAP net loss was $4.7 million and adjusted EBITDA was $9 million, exceeding our internal plan. Revenue performance was driven by Medicare enrollment volume as well as better-than-expected revenue outside of core MA agency sales, reflecting progress in our diversification efforts. This includes providing ancillary and post-enrollment services. During the quarter, we implemented headcount reductions and vendor consolidation initiatives. These actions are expected to reduce our fixed operating cost base by approximately $30 million in 2026 compared to 2025, representing roughly a 20% reduction. While we realized some savings in the first quarter, the full impact is expected to become more apparent as we move through the year. Quarter 1 results also reflect our strategic decision to reduce variable marketing and agent-related spend, focusing investment on our best-performing channels. First quarter MA LTV increased 3%, while total acquisition cost per MA equivalent approved member declined 10% compared to a year ago. In the first quarter, we moved with urgency to execute on our strategic plan and make the necessary preparations for the launch of our lifetime advisory model. This key initiative is supported by a set of newly released agent-facing technology tools designed to enhance the beneficiary experience. These tools leverage the data and institutional knowledge that we have built up over decades of working with a wide array of beneficiaries. Core components include a customer dashboard that provides a holistic view of the member relationship with eHealth, system-generated recommendations that prompt advisers to engage at the right moments and dynamic insight-driven scripts embedded directly into the sales and service workflow. Together, these tools are intended to ensure more personalized, proactive conversations while also driving consistency, scalability and quality across the adviser experience as the model matures. As part of this strategy, we are expanding the scope of services we provide beyond core MA coverage. eHealth already offers ancillary plan options such as dental, vision, hearing and hospital indemnity plans. Last month, we launched final expense insurance offerings. These products enrich our health-based inventory by providing beneficiaries with additional financial protection and ultimately, peace of mind. Final expense sales also offer attractive unit economics and a compelling cash flow profile. Over time, we plan to add more products and services that will benefit our members based on findings from consumer focus groups and industry research. The lifetime advisory model is expected to support consistent year-round engagement and enables more effective cross-selling. Through this strategy, we believe we will increase member lifetime value, improve retention, strengthen unit economics and build durable brand equity rooted in trust and loyalty. As part of today's earnings release, we're updating our 3-year financial targets. I would first like to stress that our decision to pull back on growth in 2026 was intentional and strategic. In this environment, we have the ability to drive higher Medicare enrollment volume but chose instead to prioritize operating cash flow by focusing on our most profitable marketing channels, building our lifetime advisory model and taking a focused and disciplined approach to our diversification initiatives. We believe this strategy positions us well to return to growth next year on a stronger foundation. Our 3-year forecast reflects mid-single-digit revenue growth on a percentage basis for 2027 as we selectively dial up member acquisition spend. We expect our revenue growth rate to increase to the mid-teens in 2028, supported by our core MA business and a greater contribution from ancillary sales driven by our new operating model. Beginning in 2028, we also expect our E&I segment to contribute to growth with a focus on expanding employer coverage through partner-driven ICHRA offerings. Adjusted EBITDA margins are expected to increase each year starting in 2027 to reach 20% by 2028. This translates to double-digit percentage adjusted EBITDA growth in '27 and '28, reflecting the benefits of our fixed cost reductions and favorable Medicare unit economics. We forecast achieving breakeven or better free cash flow in 2027. Our revenue growth goals could be accelerated should we observe a more rapid stabilization of the Medicare Advantage market relative to our current outlook. We're pleased with our first quarter results and the progress we've made executing against the initiatives outlined on our fourth quarter earnings call. We believe eHealth is well positioned to continue delivering superior service and value for our customers and carrier partners, and we look forward to updating you on further milestones along our path towards sustainable, profitable growth. I will now turn the call over to our CFO, John Dolan, for his remarks. John? John Dolan: Thank you, Derrick, and good afternoon, everyone. We delivered a strong start to the year, meeting our revenue, earnings and operating cash flow expectations and achieving a greater Medicare enrollment profitability compared to a year ago. Our results were driven by disciplined demand generation, strong sales execution and a favorable year-over-year trend in lifetime values of Medicare products. We also saw early benefits from the fixed cost reductions implemented earlier this year. As I walk through our first quarter financial results, you will see a consistent theme, higher quality enrollments, greater operating efficiency and a foundation that we believe will support enhanced cash flow generation over time. Please note, all comparisons will be made on a year-over-year basis unless otherwise specified. First quarter 2026 total revenue was $88 million, representing a 22% decline. Medicare segment revenue also declined 22% to $81.3 million, driven primarily by lower enrollment volume as we reduced variable marketing spend to focus on our best-performing channels. Medicare submissions declined 24%, with the revenue impact partially offset by growth in lifetime values for Medicare Advantage, Medicare Supplement and PDP products. In the first quarter, we recognized $8 million of positive net adjustment revenue or tail revenue compared to $10.5 million in the prior year. Tail revenue was driven by our Medicare and ancillary products and represents cash collections in excess of our original lifetime value estimates. Importantly, we continue to hold significant unrecognized positive adjustments related to our existing book of business. First quarter non-commission revenue was $8.2 million, which was ahead of our internal expectations and reflects lower carrier sponsorship revenue compared to a year ago. Turning to Medicare enrollment profitability. The first quarter Medicare LTV to CAC ratio was 1.4x, representing a 17% improvement from 1.2x. First quarter total acquisition cost per MA equivalent approved member declined 10%, driven by a 28% reduction in variable marketing cost per MA equivalent approved member, partially offset by a 9% increase in customer care and enrollment cost per MA equivalent approved member. The reduction in variable marketing cost per MA equivalent approved member reflects our more disciplined marketing spend, improved channel mix and the continued impact of branding initiatives, which have a proven record of enhancing enrollment quality. The year-over-year increase in customer care and enrollment cost per MA equivalent approved member reflects lower application volume and our decision to retain sufficient agent capacity to support the launch of our lifetime advisory model. This model requires agents to dedicate a portion of their time to member engagement and cross-selling activities. We also plan to have a telesales organization with a higher mix of tenured advisers, which we expect to benefit conversions and enrollment quality. First quarter lifetime values increased 3% for Medicare Advantage, 19% for Medicare Supplement and 78% for PDP products compared to a year ago. First quarter Medicare segment gross profit was $33 million, down 8%. At the same time, Medicare segment gross profit margin increased significantly from 34% to 41%, reflecting improvements in the first quarter Medicare LTV to CAC ratio. Turning to retention. Our most recent AEP cohorts, those enrolled in the fourth quarter of 2024 and the fourth quarter of 2025, continue to outperform each of their respective predecessor cohorts. This progress reflects targeted improvements across our sales and marketing organizations, along with continuing innovation in our customer online experience, resulting in stickier enrollments. Our overall commission receivable value continued to grow on a year-over-year basis, ending just over $1 billion compared to $923 million as of March 31, 2025, or a 12% increase. Looking ahead, the launch of our lifetime advisory model is expected to both improve retention at a client level and foster longer-term relationships with our members across multiple products. First quarter revenue in our Employer and Individual segment was $6.7 million, down 29% from $9.5 million a year ago. Segment gross profit was $3.7 million compared to $6 million last year. From a consolidated profitability perspective, first quarter GAAP net loss was $4.7 million compared to GAAP net income of $2 million. The decline was primarily driven by restructuring charges related to our headcount reduction this quarter. First quarter adjusted EBITDA was $9 million, down from $12.5 million, and the adjusted EBITDA margin was 10% compared to 11% in the prior year. First quarter non-GAAP total operating expenses, which excludes stock-based compensation and restructuring charges, declined 21% to $82.3 million, reflecting organization-wide expense reductions. Non-GAAP marketing and advertising expense declined 38%, including a 44% reduction in variable marketing costs, consistent with our lower enrollment volume targets. Non-GAAP customer care and enrollment expense declined 13%, reflecting lower adviser headcount. On the fixed cost side, non-GAAP technology and content expense declined 8% and non-GAAP general and administrative expense declined 6% compared to a year ago. We expect to see the full benefit of recent fixed cost initiatives as we progress through 2026. First quarter operating cash flow was $35.8 million compared to $77.1 million and ahead of internal expectations. We remain on track to achieve our full year operating cash flow goals as reflected in our 2026 guidance. The year-over-year decline in first quarter operating cash flow primarily reflects the timing of several working capital items as well as severance and other onetime costs associated with our fixed cost reduction actions. In addition, carrier sponsorship revenue was lower year-over-year as the prior year quarter benefited from AEP-related sponsorship dollars that shifted into the first quarter. At the end of March 2026, eHealth had $110.8 million in cash, cash equivalents and short-term marketable securities. Based on our execution year-to-date and with the annual enrollment period still ahead of us, we are maintaining our 2026 guidance ranges for revenue, GAAP net income, adjusted EBITDA and operating cash flow. We are updating our outlook for 2026 net adjustment revenue, which is now expected to be in the range of $8 million to $20 million. We believe we are well positioned to achieve our financial objectives for the year. Consistent with the framework Derrick outlined, we view 2026 as an intentional bridge year, one focused on improving the quality of our revenue, enhancing the efficiency of our operating model and achieving cash flow generation rather than maximizing volume. Our actions this year, including disciplined demand generation, launching our lifetime advisory model and rationalizing our cost structure are designed to position eHealth to achieve the 3-year financial targets we published today. You can reference these targets on Slide 10 of our earnings slides posted on eHealth's Investor Relations site. Our 3-year forecast assumes a modest increase in Medicare marketing spending in our best-performing channels starting in the fourth quarter of 2027. We expect to amplify the impact of this increased marketing investment through our lifetime advisory model as growth in our core Medicare commission revenue is complemented by higher cross-sell rates of ancillary products, including hospital indemnity plans and final expense insurance. In addition, we expect to start seeing positive contributions from our ICHRA business in 2028. Given our planned revenue growth, we believe we will realize significant operating leverage from the recently implemented fixed cost reductions. Cash flow profitability remains the central objective of our long-term financial strategy, and we believe the progress we're making in 2026 establishes a strong foundation for a return to growth while delivering on our cash flow goals. Macro assumptions behind our 3-year forecast are relatively conservative. There could be upside if the Medicare Advantage market recovers faster than we currently anticipate. And with that, we would like to open the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Ben Hendrix of RBC Capital Markets. Benjamin Hendrix: Michael Murray, on for Ben. I appreciate your commentary on your revenue growth expectations for the next few years. I'm curious if you have any tail revenue embedded in these targets? And if you do realize tail revenue this year, would that alter your targeted growth rate? Derrick Duke: John, do you want to take that? John Dolan: Yes, sure. Let me take that question. I appreciate the question. Yes, in our long-range plan, we have assumed effectively flat tail revenue growth. So similar to what we've put in the 2026 guidance, similar assumptions into the outer years. Benjamin Hendrix: Okay. So if you did realize tail revenue this year, that would lower your growth rate targets for 2027, for instance? John Dolan: Not necessarily. If you're looking at -- the growth will be flat on the tail, but it would obviously be offset by other growth. Benjamin Hendrix: Okay. Derrick Duke: Yes. So let's try again. The assumed tail revenue in our 2026 plan is consistent in the 3-year LRP. So the revenue growth in the out years is not coming from increased tail, if that's what you're asking. Michelle Barbeau: Yes. So we're already expecting this year, correct? So it's -- we are expecting to recognize tail this year. You can look at our guidance of $8 million to $20 million. So if you can think about somewhere at the midpoint of that guidance, you can assume that a tail for '25, and we are assuming flattish tail revenue for the forecast periods in the outer years as well. So are you saying if we were to recognize tail above and beyond current guidance in '26? Benjamin Hendrix: Yes. Say, if you recognized it at the high end of your guidance range, would that lower your expected EBITDA growth in 2027? Michelle Barbeau: I think if we were within the guidance range, no. If we were -- if we saw a significant positive development above and beyond our current guidance, yes, obviously, because you would look at '27 off a higher base in '26. But if we are somewhere within our guidance range, no, that would that would imply a similar growth rate and similar EBITDA growth rate. John Dolan: Yes. So if you look at our 3-year financial targets -- the 3-year financial targets that we provided, we're assuming zero growth on tail, but other revenue streams will be generating that growth. As we said in '27, it's single-digit percentage growth rate and '28 is mid-teens. So tail is not contributing to that. Benjamin Hendrix: Okay. I got you. That's helpful. Just shifting gears to cash flow. First quarter is typically pretty strong cash collection quarter for you guys. It came in a little bit below last year's number. Obviously, you maintained your cash flow guidance. I wanted to see if there's any timing-related items in there and why you have conviction just hitting that full year guidance? Derrick Duke: Yes, sure. So the -- I'd say about 80% of the decline year-over-year is really driven by a couple of things, lower carrier sponsorship timing. We had some timing and onetime items in the quarter, such as we had severance related to our fixed cost reductions. And then there was some lower commission collections because of our lower volume. So those are the main drivers in the decline. It's -- I'd say it's the cash flow did exceed our expectations, and we are definitely on track for achieving our 2026 guidance ranges. Michelle Barbeau: Just to reiterate, the bulk of it is timing and the onetime costs related to severance. That accounts for about 80% of that. Operator: Your next question comes from the line of George Sutton from Craig-Hallum. George Sutton: You mentioned 2026 would be a bridge year and you were not going to necessarily chase growth. It sounded very similar to how 2025 came out for you. So I just want to make sure I understood the deltas year-over-year in terms of how you're going to market? Derrick Duke: The deltas in revenue expectations and marketing spend, like just maybe give me a little bit more, George. George Sutton: Actually, both. You sort of characterized it as we didn't chase growth in '25, try to be responsible about going after the right customers and using the right channels. It sounds like you're doing the same thing in 2026. I'm just trying to understand what's different. Derrick Duke: Yes. Well, the difference is the commitment that we've made and the focus that we have on generating positive operating cash flow. And so that we did not achieve that in 2025, and we believe it was important for us to focus on that in 2026 as we strengthen, again, as we've characterized, strengthening the foundation of the company. There's multiple ways that we've gone about that, George, including the Q4 refinancing that we were able to secure to help strengthen the balance sheet. And so the next evolution of that is to be disciplined again in our approach in '26 and again, not chase growth at all costs. We think that's the responsible thing to do in light of the continued market disruption. Again, I think we've been pretty clear in our communicating our view that what's happening in the market is sort of one event that's occurring over multiple years as carriers make the important decisions that they're making to improve their own financial statements and their margin. And we're respective of that. And we want to position eHealth to be ready to take advantage of a return to growth in the future once the market stabilizes. Michelle Barbeau: And just very quickly, George, I think that it is correct that a lot of what you are seeing in '26 is continuation of what we started doing in '25. So for example, the marketing channels and the focus on brand and direct channels, you will see it being even more pronounced in the fourth quarter AEP as we're pulling back from the less profitable channels. And that will continue for the 3-year outlook as well. And that's why you see that pretty significant EBITDA growth that we're projecting. But what is also different this year is the lifetime advisory model that we're implementing, and that will mean that in Q2 and Q3, we're really pulling back on what we're spending into the market. Those enrollments are not very high profit enrollments in the first place. So we're going to use the time of agents to engage with our existing members, and that will have downstream implications for retention and for ancillary sales. The ancillary sales this year will start contributing, but you will really start seeing much bigger impact in '27 and '28 in terms of the cross-sell rate impact. So that's layering on what you started seeing in '25 layering on top of that in '26. George Sutton: Could you just help me understand what the Lifetime Advisory model will look like from an engagement perspective? Obviously, we've had ancillary offerings before, and those were available to customers. Is it just simply more proactively marketing those to them? Or how does the engagement change? Derrick Duke: That's a great question, [ Greg ]. I'm going to start, and then I'll ask Michelle to contribute as well. So it's important to understand that historically, inside of the eHealth operating model that as new products were put into the platform, the expectation from an operating model perspective was that, that would need its own set of advisers. It would need its own demand generation of budget effectively in order to drive growth. The lifetime advisory model doesn't rely on additional marketing spend, doesn't rely on additional agents to sell the product. It's really encouraging and supporting our current advisers to develop a holistic relationship with the member once they engage with a member. So it's not about more product versus what we've had in the past, although our future expectation is that we'll continue to add products and services as we see needs that beneficiaries have. But the real change here is that we're supporting the adviser to engage with their member and to effectively be a one-stop shop that, that adviser is equipped to engage and meet the holistic needs of the member. Michelle? Michelle Barbeau: Sure. I'll add on. I mean we really think about this -- it is about putting the consumer first. And so it's not just about, yes, we've done a lot to improve our brand, our marketing, that will continue, but it's really focused on that over 65 segment. And so as we bring that member in, how do we continue to cultivate that relationship, not just to drive sort of the immediate enrollment, which is absolutely also really needed in this environment and what's going on in Medicare, but it's also just doing right by the consumer, ensuring that we can use the time and the capacity that we have. So we really link that beneficiary to that adviser. And through that relationship, we cultivate what you asked about, right, what are those activities, the engagement, it follow-up on planned check-in is going on right now. Do they have their PCP? Can we help with an annual wellness visit? Cross-sell, right, will come in as well. Are there referrals? Are there other people that are really satisfied with our service that we can also sell. So it's not just relying on marketing, but really kind of setting this up for a long-term relationship. Operator: [Operator Instructions] Your next question comes from the line of George Hill of Deutsche Bank. Unknown Analyst: This is [ Maxi ] on for George. I want to ask about the shift toward higher-margin branded marketing channels. Could you give us an update on how much of your Medicare enrollment mix in Q1 came from these branded channels? And how does it compare to last year? Derrick Duke: Yes. Michelle, do you want to take that? So I think the question is what percentage of our enrollment volume is coming from our branded channels? And how does that compare to a year ago? Michelle Barbeau: Yes, yes. I will tell you that we continue -- so first off, when we look at sort of how do we maximize marketing spend, it is really guided on quality, on the return, like LTV to CAC, right, as you saw in sort of the slide is really the North Star. So you then focus on what are the best performing channels. Also even within the channels, you're looking at what are the top-performing campaigns and how do you continue to optimize. So we continue to lean into our branded channels with the right mix throughout Q1, Q2, Q3. And kind of similar to what we said earlier, you're going to see that even continue to improve into Q4. Unknown Analyst: Got it. Just a quick follow-up. Could you give us some color on the unit economics of cross-selling ancillary products through the lifetime advisory model and ICHRA versus MA? How should we think about the company's overall margin profile as these products scale? And how much of the mid-teens revenue growth in 2028 is expected to be driven by ICHRA and ancillary products through this model? Derrick Duke: Yes. So the way -- again, I'll start and then John and/or Michelle or others can chime in. So the way we think about the ancillary opportunity, again, it's really important to understand that in the lifetime advisory model, there's no additional marketing demand dollars that the company is spending in order to generate the revenue that we are expecting in the ancillary business. The ancillary bucket is a wide array of products. So each product has its own sort of LTV profile based on the unit economics of each. But the way I would just generally encourage you to think about this is that for each cross-sell opportunity that we have the opportunity to add somewhere between maybe 15% to 20% of LTV to the MA sale when we sell an ancillary plan. So that's how we think about the economics on ancillary. On ICHRA, we would just say it's -- certainly, we have it modeled, but it's a little -- probably a little early for us to share how we think about each of the unit economics of that. And it's a small amount of the revenue growth that's in our 3-year LRP at the moment. So it's certainly not material in the plan at this point as it relates to the 28 revenue growth that's in the plan. John Dolan: One of the other things I'd probably add to it is some of the ancillary products have a much more favorable cash flow profile, which is something that we've built into our plan. Operator: There are no further questions at this time. We have reached the end of the Q&A session. This also concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good afternoon, and welcome to Savers Value Village's conference call to discuss financial results for the first quarter ending April 4, 2026. [Operator Instructions] Please note that this call is being recorded, and a replay of this call and related materials will be available on the company's Investor Relations website. The comments made during this call and the Q&A that follows are copyrighted by the company and cannot be reproduced without written authorization from the company. Certain comments made during this call may constitute forward-looking statements, which are subject to significant risks and uncertainties that could cause the company's actual results to differ materially from expectations or historical performance. Please review the disclosure on forward-looking statements included in the company's earnings release and filings with the SEC for a discussion of these risks and uncertainties. Please be advised that statements are current only as of the date of this call, and while the company may choose to update these statements in the future, it is under no obligation to do so unless required by applicable law or regulation. The company may also discuss certain non-GAAP financial measures. A reconciliation of each of the historical non-GAAP measures to the most directly comparable GAAP financial measure can be found in today's earnings release and SEC filings. Joining from management on today's call are Mark Walsh, Chief Executive Officer; Jubran Tanious, President and Chief Operating Officer; Michael Maher, Chief Financial Officer; and Ed Roma, Vice President of Investor Relations and Treasury. Mr. Walsh, you may go ahead, sir. Mark Walsh: Thank you, and good afternoon, everyone. We appreciate you joining us today. We are pleased with our first quarter results as we once again delivered strong sales performance and continued our earnings inflection with the second consecutive quarter of year-over-year adjusted EBITDA growth. We increased segment profit in both of our major markets through a combination of continued strength in our U.S. comp store fleet, the ongoing maturation of our new stores, profit improvement initiatives and tremendous operational discipline. We also made continued progress on our innovation agenda, which is already delivering benefits to our business. Let me start with a few highlights from the quarter. Sales in our U.S. business grew 11.2% with comps up 6.4%, driven by both average basket and transactions. The secular trend towards thrift remains a powerful tailwind and our maturing new store fleet is in the early stages of contributing to comp sales growth. In Canada, our sales trends were largely as expected with a 0.6% comp decrease during the quarter, reflecting a roughly 70 basis point headwind due to an early Easter. I'm especially proud of our Canadian team's execution this quarter. Despite flat comps, we grew Canadian segment profit almost 24% as we tightly manage production levels and benefited from some significant and sustainable profit improvement initiatives. We opened 3 new stores during the quarter, all of which were in the U.S., and we continue to expect around 25 total new store openings this year. Our new store portfolio continues to perform in line with expectations, giving us confidence in our ability to drive profitable sales growth as these stores mature. Financially, we generated $44 million of adjusted EBITDA in the quarter or 11% of sales. And finally, we are reaffirming our outlook for 2026, which Michael will address in more detail. Turning to our results by geography. Let's start in the U.S., where we believe that we are still in the early innings of consumer thrift adoption. Our 6.4% comp despite some unusually disruptive weather was broad-based with strong growth across regions, categories and income cohorts. We continue to see the strongest growth in our younger and more affluent consumer cohorts, which speaks to the power of our model and its ability to resonate with shoppers across demos. We feel very good about our competitive positioning and value gaps as new clothing and footwear prices continue to face upward pressure. Additionally, on-site donation growth continues to be robust, which helps power our flywheel, enabling our compelling assortment. In short, the U.S. business is firing on all cylinders, and we are excited about our continued expansion in this market. In Canada, our 0.6% comp decrease was largely in line with our flattish comp expectation with the Easter shift negatively impacting our comp by roughly 70 basis points. Macro conditions remain stable but sluggish, particularly in our key Southern Ontario market, including the Greater Toronto area and Windsor, where we have roughly 35% of our Canadian store fleet. We do not expect a material change in the economic conditions in Canada in the near-term, and we continue to plan our business around a roughly flat comp. Having said this, our first quarter results demonstrated our ability to drive meaningful profit improvement in Canada despite limited top line growth. Canadian segment profit increased $6 million over last year and profit margin expanded 310 basis points, which we attribute to our continued focus on productivity and tight management, matching demand and production. We also have a number of tests and initiatives underway to drive meaningful improvements in sales yields and cost per unit in our off-site facilities. We are quickly sharing learnings and best practices across our central processing centers and expect incremental benefits in the coming quarters. Moving on to new stores. We opened 3 new store locations in the U.S. during the quarter and continue to be pleased with the results as they are performing in line with our expectations. As I indicated earlier, we are excited to continue growing our store fleet in the U.S. and believe we can expand at current rates for years to come. For 2026, we are planning to open around 25 new stores, over 20 of which will be in the United States across 11 states with a nice mix of infill and new markets. An upcoming highlight this quarter is our first North Carolina store as our Burlington location opens later this month. Repeating our theme, our new store growth remains the highest return and most important use of our capital, and we are excited to bring our value offering to more consumers. Shifting now to innovation where our key priority areas are strengthening our price value equation, driving efficiency and cost reduction and expanding our data science and business insights. Last quarter, we announced the launch of ABP Light, an asset-light extension of our automated book processing or ABP system. I am pleased to report that we have completed our rollout plans ahead of schedule with the vast majority of the fleet now leveraging our ABP capability. We expect these stores will now reap the proven benefits of ABP and think this is a great example of how we can deploy technology in a cost-effective and high-return way across our store portfolio. We also continue to significantly strengthen the foundation of our data science and business insights. The team has been working hard to transition to a more robust data estate, structuring operating data that allows us to translate and communicate insights to drive field action, thus improving our ability to: one, react to changes in sales trends; two, improve productivity; three, support margin discipline; and finally, to help us continually refine our value proposition for consumers. I would like to highlight the progress we're making through a strategic partnership with Microsoft. For several months, Microsoft has had a team of forward deployed engineers working closely with Savers to embed AI agents directly into our operating model. Our first Agentic AI capability monitors our loyalty program, empowering our field organization with insights to boost consumer engagement and drive productivity. Our loyalty program is a strategically important part of our business as it represents roughly 73% of our sales and is a key focus as we continue to grow our store fleet. This deployment also provides us an Agentic template for an agile future rollout of AI capabilities and insights across our enterprise. We have already identified several other use cases for AI agents across our business and are either deploying or finalizing for implementation as part of our broader innovation road map. We look forward to sharing more updates on future calls. I'd like to thank our nearly 24,000 team members for their efforts in driving a strong start to 2026 and helping us deliver our commitments to our customers, nonprofit partners and shareholders. Our mission is to make secondhand second nature, and that continues to gain momentum. We are well positioned to build on this momentum and deliver continued success. I'll now hand the call over to Michael to discuss our first quarter financial performance and the outlook for the remainder of 2026. Michael Maher: Thank you, Mark, and good afternoon, everyone. As Mark indicated, we had a solid first quarter. Total net sales increased 8.9% to $403 million. On a constant currency basis, net sales increased 6.9% and comparable store sales increased 3.5%. We are especially pleased with our sales results in the U.S., where net sales increased 11.2% to $234 million. Comparable store sales increased 6.4%, fueled by both average basket and transactions, with broad-based gains across categories, regions and income cohorts. Given the breadth of our sales performance and the fact that we have yet to see a material lift from our new store openings, we remain very confident in our ability to grow the U.S. business. We also saw continued stability in Canada, where net sales increased 6.7%. On a constant currency basis, Canadian net sales increased 2% to $131 million and comparable store sales decreased 0.6%, reflecting an earlier Easter that negatively impacted comp by 70 basis points due to store closures on Good Friday. In the near-term, we do not assume any material improvement in the Canadian economy. And as such, we'll be planning our Canadian business conservatively. However, as Mark mentioned, we did successfully expand segment margins and grow profit contribution even without comp sales growth through strong execution, efficiency gains and the continued maturation of our new stores. All things considered, we believe this quarter is a good model for how we will continue to grow segment profit contribution even with limited sales growth going forward. Cost of merchandise sold as a percentage of net sales decreased 10 basis points to 45.4% due to comp leverage and efficiency initiatives as well as growth in on-site donations, partially offset by the impact of new store openings. Salaries, wages and benefits expense was $86 million. Excluding IPO-related stock-based compensation, salaries, wages and benefits as a percentage of net sales was roughly flat at 20.5%. Selling, general and administrative expenses increased 13% to $98 million and as a percentage of net sales increased 80 basis points to 24.4%, primarily due to growth in our store base, increased routine maintenance costs, namely higher SNO removal expenses and increased occupancy costs. Depreciation and amortization increased 18% to $23 million, reflecting investments in new stores. Net interest expense decreased 15% to $13 million, primarily due to the impact of our debt refinancing last fall. GAAP net loss for the quarter was $5 million or $0.03 per diluted share. Adjusted net income was $2 million or $0.02 per diluted share. First quarter adjusted EBITDA was $44 million and adjusted EBITDA margin was 11%. U.S. segment profit was $43 million, an increase of $4 million, primarily due to increased profit from our comparable stores. Canada segment profit was $31 million or up $6 million due to disciplined management of production and expenses and the CPC productivity and efficiency initiatives Mark mentioned earlier. Our new stores continue to perform in line with our expectations and mature on schedule as their contribution ramps. However, as we mentioned last quarter, a more balanced store opening schedule this year means more front-loaded preopening expenses. While we expect preopening expenses for the year to be roughly flat with last year at approximately $14 million to $16 million, first quarter preopening expenses were approximately $1 million higher than last year. Our balance sheet remains strong with $62 million in cash and cash equivalents and a net leverage ratio of 2.5x at the end of the quarter. We also repurchased 1.2 million shares at a weighted average price of $8.51. Our capital allocation strategy remains unchanged as we continue to prioritize organically funding new store growth, repaying debt as we target a net leverage ratio under 2x by the end of next year and opportunistically repurchasing shares. I'd like to now turn to our guidance and discuss our outlook for fiscal 2026, which remains unchanged from the previous full year guidance we gave back in February. We continue to expect net sales of $1.76 billion to $1.79 billion. Comparable store sales growth of 2.5% to 4%, net income of $66 million to $78 million or $0.41 to $0.48 per diluted share. Adjusted net income of $73 million to $85 million or $0.45 to $0.53 per diluted share, adjusted EBITDA of $260 million to $275 million, capital expenditures of $125 million to $145 million and approximately 25 new store openings. Our outlook for net income assumes net interest expense of approximately $50 million and an effective tax rate of approximately 28%. For adjusted net income, we're assuming an effective tax rate of approximately 27%. We're projecting weighted average diluted shares outstanding to be approximately 163 million for the full year. This does not contemplate any potential future share repurchases. Finally, I'd like to briefly touch on our expectations for the second quarter. We expect total revenue growth to be 100 to 200 basis points lower than the first quarter due to the impact of foreign exchange rates. We expect constant currency total revenue and comp sales growth similar to the first quarter. We also expect Q2 adjusted EBITDA growth to be similar to Q1 with the cadence of earnings through the balance of the year to resemble 2025. We plan to open 6 new stores during the quarter, in line with our goal of more ratably opening stores throughout the year. This concludes our prepared remarks. We would now like to open the call for questions. Operator? Operator: [Operator Instructions] We'll go to our first question from Matthew Boss at JPMorgan. Matthew Boss: Congrats on a nice quarter. So, Mark, can you elaborate on the step-up in comp trends that you're seeing in the U.S. business, in particular, 2 straight quarters of double-digit same-store sales on a 2-year stack. Maybe if you can touch on new customer acquisition, secular shift tailwinds. And just any puts and takes to consider with the second quarter comp trend maybe relative to the mid-single-digit full year guide? Mark Walsh: Yes. Thanks, Matt. Look, I think it starts with what we've seen is widespread growth across geographies and merchandise categories. And that obviously plays into a great experience, value and selection winning. But on top of that, we're seeing accretive adoption trends amongst our younger and higher income households. We've seen that continue. So, we're seeing trade down, trade in. I would also say that demand is really healthy across a broad base of all income demographics. And I think that's a key difference versus Canada. The secular trend certainly remains a tailwind. And what's really great is basket and transactions have driven comp. And as we mentioned around the Agentic initiative, the loyalty program is an important element in how we consider and drive growth, and we've continued to see really nice growth in our loyalty program in the U.S. Michael Maher: And then, Matt, to your question about how we think about Q2. So far, what we've seen in April in the U.S. is actually a little bit of acceleration in the U.S. comps. But we do expect those comps get a little tougher to lap as we progress through the year. So still thinking about a mid-single digit. And Canada really haven't seen much change, remains roughly flattish as we've now lapped the Easter shift. Matthew Boss: That's great color. Michael, maybe just as a follow-up, could you update us on the new store waterfall and maturity curve? And just the expected contribution from the waterfall in this year's comp outlook relative to multiyear as more of the store cohorts mature? Michael Maher: Sure. So, new stores continue to perform in line with our expectations and consistent with the waterfall, as you describe it, that we've laid out here over the last year or so. So just as a reminder for everyone, typically, in year 1, we see about $3 million in top line sales. We do lose money both from the preopening expenses that we incur as well as in the first year of operations as we're still ramping volume and developing, building that on-site donation foundation. Profitability, we typically pass breakeven in the second year and then continues to ramp as the sales improve. Ultimately, we target a 5-year -- excuse me, a year 5 top line of about $5 million and something close to a 20% contribution margin. So, so far, our new store classes continue to perform in line with that waterfall. And thus far, Matt, we don't -- we're still too early in that pipeline for those stores to be meaningfully contributing to our comp. So, the comps that we're posting in the U.S. really are mature store comps. Recall now that we only started opening new stores at this pace in the last couple of years and really only the 24 class at this point has entered the comp base. So, it's less than 50 basis points in total benefit to the comp, but we expect that's going to continue to build as more of those stores enter the comp base going forward. Mark Walsh: Let me supplement Michael's answer, Matt. It remains the highest and best use of our capital to open up new stores. Operator: We'll move next to Brooke Roach at Goldman Sachs. Brooke Roach: I was hoping you could unpack the improvement in profitability that you're seeing in your Canadian business. How should we expect that to continue for the rest of the year? And then more broadly, can you help us understand what the quantitative opportunities that you see from your AI capability monitors and your agents in profitability as you look on a multiyear basis? Jubran Tanious: Yes. Brooke, this is Jubran. I can take the Canadian profitability question. The first thing I'd say is it's actually -- it's driven by a few factors. It's not one thing. So, the first of which is some of our initiatives in CPC. Mark talked about those in his opening comments. Those continue to get better, more efficient, more effective through a variety of process improvements. And we've been very pleased with that and proud of the team. We're in the midst of expanding that to all of our off-site locations. So that's one. The second thing, and we talked about this on past calls, is striking the right balance in total pounds process, right, the amount of production level and maintaining a good equilibrium so that we are feeding customers, fresh product, but also doing it in a very healthy gross margin way. And we think the team did an excellent job at striking that equilibrium this past quarter. The third thing I'd cite is just ongoing refinement and improvement of our data and analytical tools. And that's important because as you think about converting pounds into items, those improvements have helped us better align items that we supply to the customer at the category level. So, it improves our ability to put the right thing at the right time in front of the customer, and that obviously benefits our sales yield. And then, Brooke, the last thing I would cite is just the ongoing on-site donation growth, which we are seeing improve in a broad-based way. This past quarter, over 3/4 of our supply came from on-site donation and Green Drop mix, nice year-on-year improvement and one that we expect to continue. So, you put all that together. And yes, we absolutely expect those trends to continue through the balance of the year, and that's all contemplated in our guidance for Canada. Mark Walsh: Brooke, on your question around AI and the Agentic deployment, let me say that it's just one element of a much broader innovation approach that includes ABP Light, includes a number of process and efficiency improvements that we're driving in our off-site production centers and then applying data science and business insights to what is a data-rich business. So, from an AI-specific perspective, these efforts are primarily efficiency and productivity driven, and we will develop a better sense for how big of an impact it will be over time. Michael Maher: Yes. And Brooke, Michael, just one closing thought on that. I think, first of all, as Jubran stated, what we're seeing in Canada really pleased with that. We do -- while we don't guide segment profit specifically, we do expect directionally that to continue, and we have contemplated that in the guidance for this year. I think longer term, to your question about innovation, I think it just gives us added confidence in that longer-term algorithm of getting back to that high teens EBITDA margin as we continue to see the new stores mature but also see the innovation initiatives really take root. Operator: Next, we'll move to Randy Konik at Jefferies. Randal Konik: Michael, I just want to jump off on the last thing you said there in terms of segment profit or geographic profit margins continue to move higher. Can you give us some perspective on where we sit with those Canadian margins versus history in the U.S.? And what are you going to -- are there things you're doing in Canada that you intend to apply to the U.S. business to kind of further take those margins higher? Just give us some thoughts on some of these profit initiatives you're working on and where they are in that kind of life cycle. How much higher can we go from here? Michael Maher: Sure, Randy. Why don't I start and then maybe I'll let Jubran jump in and provide a little color, too. So, first of all, we've long seen that we have structurally higher contribution margins in Canada than the U.S. I actually think that gap probably widens in the short-term in 2026 because we continue to invest in growth in the U.S., which, as we have said now for a while, does create a short-term headwind. Long-term, it's absolutely value accretive. But we know that there's some short-term margin pressure as a result of opening new stores. Now we're generating nice comp growth, and we're seeing healthy gains from on-site donations and yield improvements in the U.S. as well. But you do have that headwind. Whereas in Canada, the focus really is on profit improvement and process optimization. We are not really investing meaningfully in new store growth in Canada at this point. We are a mature business there, much more highly penetrated, obviously, than we are in the U.S. And so that gives us a chance to really focus on the productivity and efficiency initiatives that Jubran described earlier and really see those flow through into the bottom line as you saw here in the first quarter and the improvement in our Canadian segment profitability. So, I do expect directionally that trend to continue this year. And I'll let Jubran speak to how we're thinking about leveraging that across both countries. Jubran Tanious: Yes. Randy, it absolutely is. When we think about production, productivity and efficiency improvements, that cuts across borders. The team does a very good job of working collaboratively on discovery, leveraging best practices, scaling that across all of our facilities. So I'll take 2 of them that we talked about earlier, offsites. The improvements that we have made in offsites are going to benefit all locations, not just in Canada. Data and analytics, that refinement that I mentioned, where we have tools that are better than they have been in terms of putting the right thing at the right time in front of the customer, that cuts across all segments. So the short answer to your question is, yes, we expect goodness broad-based from that. Randal Konik: And just a follow-up. It looks like you managed payroll well in the quarter. I think you've had some deleverage in that item in the last few quarters or the last 4 to 6 quarters. Is that something where now we're kind of turning the corner on that payroll side of things, we'll start to get some leverage going forward out into the balance of the year and into 2027 and beyond? How do you think about that? Michael Maher: Well, Randy, a couple of things on the OpEx line. So remember that we are -- salaries, wages and benefits line, I think you're referring to. So we are continuing to step down the IPO-related stock comp in that line. We've got 1 quarter left of that here in the second quarter. That's roughly $4 million in each of Q1 and Q2. That falls away completely in Q3 and beyond. So you will see that. Incurring -- excluding those sort of nonrecurring items, though, yes, I think so. We do still have some pressure from new stores and those maturing and getting to scale there. So I think you'll see that kind of normalize as we go forward, get past the onetime items. But I would expect actually more of the improvement this year to come from gross margin rather than the operating expense lines as we continue to see the new stores mature and the benefit of that and their related on-site donation ramp flowing through to the margin line. Operator: We'll go to our next question from Michael Lasser at UBS. Michael Lasser: How long can you continue to grow the profitability in Canada on a flat comp? At some point, do you start to experience deleverage if the same-store sales do not grow and do you need to take action to reinvigorate the same-store sales growth in that market? Jubran Tanious: Michael, Jubran, I'll grab the profitability question. Yes, I understand your question. Long-term, I think there is merit to what you're saying, but we think there is still a tremendous amount of opportunity, certainly for the remainder of this year on all the initiatives that we have to improve efficiency and effectiveness. And so the trends that we saw in Q1, we expect to continue this for the remainder of this year. Mark Walsh: Michael, thanks for the question. Look, we're not satisfied with the flat comp at all. We continue to test differential marketing approaches, whether it be using our influencers to a higher degree, social, paid and then broadcast opportunities. We are investing in the core fleet as well. We've got some renovations teed up, and we've also got some relocations planned. And we just continue to focus on that price value equation and making sure that we're delivering a terrific experience to our Canadian consumers. So our goal is to not have that deleverage happen, and we're certainly not going to sit still with a flat comp. Michael Lasser: Okay. My follow-up question is on the delta between your sales yield and what you are paying for donations. So a, what are you seeing with respect to the sales yield? How much of the improvement in sales yield is being driven by like-for-like pricing? And then on the payment for donations, are you experiencing any inflation as a result of the overall environment and some of the strains that charities are under around the country? Jubran Tanious: Yes. Why don't -- Michael, this is Jubran. I'll grab your supply cost question first. So a reminder to the group that our supply costs, these are a set of contracts that we have with all of our great nonprofit partners across our 3 countries that are typically anywhere between 1 and 3 years. And they are deliberately relatively short- to medium-term because we are always evaluating what market is that we can stay very competitive in terms of what we pay for, whether that is a delivered goods, delivered product as we talk about, or on-site donation, which we have reliably continued to grow across all segments. So the short answer to your question is, are we experiencing any unexpected upward pressure or cost on supply? No, we're not. That's all very, very predictable. It's contract-based, and we can see it clearly. And we plan for it many, many, many months in advance. And then I'll just also take the opportunity to say that in terms of availability of supply, both for our comp stores and to feed new store growth, no concerns at all. The team continues to execute well. We see no ceiling on how high on-site donations can go, and that's what we're seeing in the business. Michael Maher: Yes. And then, Michael, this is Michael. I'll take your question on the sales yield. So we were really pleased with the roughly 6.5% increase in sales yield that we delivered in the first quarter. There's an element of higher ASP in that. We strive to keep that, though, at or below inflation over time. And that's sort of a normal recurring thing. But really, what drove that outsized growth this quarter was kind of things Jubran talked about earlier, being very careful about how we're managing production and lining that up to demand, especially in Canada, but also the productivity initiatives in our off-site processing facilities, which is helping us to drive getting the right item to the right location at the right time and therefore, greater sales yields on those items as well. Operator: We'll take our next question from Bob Drbul at BTIG. Robert Drbul: A couple of questions for you. The first one is, when you look at, I guess, energy cost impact, is -- can you talk about how you're being impacted throughout the business from that perspective? And then I guess the second question I have is just, can you expand a bit more just new store productivity? And are you seeing any variations? And I think -- and as you more measured approach to this year, 5 in the first quarter, 6 in the second, like the benefits to a more measured rollout from an execution perspective, what you're seeing there? Michael Maher: Yes, Bob, let me take the first question, and then I'll let Jubran take the new store one. So energy costs, Yes. The run-up in fuel costs came fairly late in the quarter for us. So not really a material impact to our first quarter. At these levels, we think there is some modest pressure for the balance of the year. Nothing that we think we can't mitigate, but obviously, a fast evolving situation that we'll just continue to monitor. Jubran, do you want to talk about the new store question? Jubran Tanious: Yes. New stores have been very pleased, as Mark talked about in his opening comments, Bob. So in line with our expectations, I think our ability to pick winners and refine our modeling of new stores has just gotten better and better over the years, and we're seeing that in performance. So to your question of are we seeing any outliers, it's been pretty consistent. We feel very good about our ability to predict and then also execute all the things that have to go into play to make a new store open on time and be successful. And then in terms of our ability to prospect and find attractive new locations and fill up that pipeline, that has only gotten stronger as we think about the remainder of this year and what we have committed to in 2027, we are right on track with where we hope we would be. Operator: We'll move next to Mark Altschwager at Baird. Mark Altschwager: I wanted to follow up on the price value framework you've been building on here in the last few calls. With the U.S. comp now nicely in the mid-single digits and your competitive set continuing to take price, has anything in your testing changed your view on the AUR opportunity? Are you taking any incremental price tactically by category or by geography? And just how are you thinking about further opportunity if that value gap widens? Is it more about loyalty growth with new customer acquisition on that trade down? Or is there maybe some incremental AUR contribution to comp as we move forward? Mark Walsh: Great question. Look, I think it starts with we are very focused on maintaining a super deliberate and very attractive price value relationship for our customer base. And that's U.S. and Canada. I mean we're focused on it. We've got a great data set that informs our approach on where we're putting category pricing in a given geography, critical, critical element. As we think about watching the item ratio or flow-through, that really informs us as to where there are certain opportunities in certain geographies and certain categories. So again, very analytically data science-driven approach to how we're deploying pricing across our fleet. And again, that's U.S. and Canada. The differences are obviously the geographies and the sensitivities to price relative to how quickly those garments or those goods sell. So it is very data science oriented. We're monitoring our approach carefully. And in this environment, we seem to be winning. I mean we're really pleased with the throughput that we've gotten in both countries when it comes to our price value relationship. Mark Altschwager: And just a follow-up on the loyalty program, the loyalty file. Can you size up where that is today and how much it grew in Q1? Trying to get a better understanding of how much the U.S. strength is growth in that file versus deeper engagement with your existing base. Mark Walsh: Yes. The file is growing quite nicely. We're a little north of 6 million total loyalty members across North America. We continue to see nice growth. We're very pleased with -- I think the thing we're most pleased about is that top loyalty cohort behavior really continues to outperform in both countries. And it represents roughly 73%, 74% of our sales. A great ability for us to connect with our consumers very cost efficiently at any given time. Operator: Our next question comes from Peter Keith at Piper Sandler. Peter Keith: Nice quarter, guys. I know it sounds like Q2 has continued the trend. But with the backdrop of higher gas prices, in the past, you have spoken to a lower income element as a portion of your customer base. So wondering if with the loyalty program, are you seeing anything of note as it relates to sort of trade-in versus trade out in this kind of evolving economic backdrop? Mark Walsh: Yes, I'll take that one. So look, I think in both countries, we continue to see a real nice adoption trend amongst younger and higher income consumers. And when you think about higher income consumers, certainly trade in, trade down is part of our growth mix in our loyalty platform. There are some differences though between the countries. We see in the U.S. consistently that demand has remained healthy and broad-based across all income demographics. In Canada, where there is a little more of an economic sluggishness -- sorry about that. We see our lower household income cohort disproportionately impacted. So that's really the only difference we're seeing between the 2 countries and how they're engaging with us and through the loyalty program. Peter Keith: Okay. Helpful. And then, Mark, to follow up on the prepared remarks with using AI and applying it to your loyalty program. I guess I was hoping you can kind of unpack exactly what you guys are doing. It sounds like maybe something that would enhance sales, but I'd like to just get a better understanding of what's happening. Mark Walsh: Well, I think it's a really good question. So I think we're -- our goal is, and we're picking very important and critical strategic elements of our business model and what the stores do. So obviously, the loyalty program is an important element of our consumer engagement platform. Having our store managers, having our store leadership continually focus on this very critical element was a great starting point for us to kick off our agentic strategy. So what this agent is doing is basically communicating to our store managers, this is where you are relative to your peer set from a loyalty perspective, could be great, could be depending on where you are in that continuum. It gives you things to consider and actions to take relative to how you're engaging with the consumer at that moment when they could either sign up or the opportunity to get them signed up. We see this as the unlock for several more agents to come right behind that, again, to allow us to keep our team and our store managers focused on critical issues throughout the week, period, month and just -- and then providing the information upward so that regional district managers, regional managers, Jubran and the country leads can drill down when appropriate to ensure that those key disciplines are being met and focused on throughout the year. Operator: We'll move to our next question from Jeremy Hamblin at Craig-Hallum. Unknown Analyst: This is Will on for Jeremy. First, I was just wondering if you're able to quantify the weather impact you saw in Q1. And then you noted the 70 basis point headwind from Easter. I guess should we be considering a similar magnitude of benefit here in Q2 from the late Easter last year? Michael Maher: It's Michael. So yes, I don't know if I quantify a weather impact other than to say it really was more about how the quarter played out. Very lumpy in terms of the comps just given the weather patterns this year versus last. February was our best comp because February last year had some really extreme weather. January was our softest comp because we had some really extreme storms in both the U.S. and Canada this year. Actually, I would say that some degree of extreme weather is just par for the course in Canada, in particular. It was probably more extreme than normal in the U.S. and therefore, arguably even a little bit more disruptive to our U.S. comp, which continued nevertheless to be strong. So again, we're focused on what we can control. And as we exit the quarter and see that all kind of normalize, we're pleased with the reacceleration in the U.S. comp. As far as the Easter impact, yes, that headwind of roughly 70 basis points to Q1 will flip and benefit us in Q2 by a similar amount. Unknown Analyst: Got it. That's helpful. And then I just wanted to touch on the ABP Light rollout. It sounds like it's solidly ahead of case here. I mean it may be too early, but just curious if there's any quantifiable benefits you've been able to realize thus far from the rollout? Jubran Tanious: Yes. This is Jubran. It is a little bit early to cite the results, but very pleased with the rollout between our traditional automated book processing ABP and now it's derivative ABP Light. We've rolled it to roughly 85% of the fleet. The rollout has gone well. Reminder, books is only about 5% of our business, but I think ABP Light is a great example of our innovative process, data-intensive stress testing and a smart rollout plan that we feel good about. So we'll continue to monitor it in the coming months. Operator: We'll go next to Owen Rickert at Northland Capital Markets. Unknown Analyst: This is Keaton Schuelke on for Owen. You called -- with the strength in the younger and more affluent cohorts, I was curious to hear how their basket size purchase frequency and category mix has been trending versus legacy customers. And curious how you expect that to trend going forward? Mark Walsh: Thanks for the question. Pretty consistent. Nothing out of the ordinary in terms of the trend lines that we're seeing from that particular customer cohort. Unknown Analyst: Okay. And then any early read on Tennessee and North Carolina stores? Are those markets ramping faster or slower than prior cohorts? And kind of what are you expecting out of those? Mark Walsh: We're excited about those markets to be sure, we have not yet opened those stores. Our first store in North Carolina will open later this month. And then our first store in Tennessee will be several months beyond that, maybe end of this year, early next year, that sort of thing. So nothing to report on that. But suffice to say, very energized by the white space opportunity and the quality of the sites that we've secured. Operator: And we'll go next to Dylan Carden at William Blair. Dylan Carden: I guess I'm curious, is there any incremental or change in the competitive dynamic in Canada? I know that market tends to lag from an online migration standpoint, if that's a piece of it. And to the extent that there isn't, just the line of sight you have in some of the improvement in that market or if it's more -- if you're managing a business to a flat comp, that becomes more of a manifest destiny so you feel more comfortable with. Jubran Tanious: Yes. Jubran, I can take a piece of that and then guys can jump in. No, in terms of longer-term expectation of growing the top line, I think Mark spoke to that earlier. We're not satisfied with the flat comp. We think there's a number of things that we can test and tinker with and trial. What we do know is that we can control what we can control now, and that is efficient and effective use of our material and labor to put the right thing at the right time and the right amount in front of the customer. So I think doing that well in a more sophisticated way allowed us to have the gross margin improvement that we saw in Q1. In terms of competitive landscape directly for us in Canada, nothing specific that we could point to that's materially changed that. Mark Walsh: Not-for-profit is really our #1 competitive set in the Canadian market. And being within 12 miles of 90% of the population, we're fairly saturated. So we're highly competitive in every market in Canada. And again, we're not satisfied with our comp trend. We're going to -- we're doing a lot to try to improve those trends. Michael Maher: Yes. Dylan, I think -- it's Michael. Just to kind of put a bow on that, to your point, and just to underline what Mark and Jubran said, we continue to work to drive the business in all facets, including top line. In the near-term, though, we are mindful of the macro environment, and we believe it's prudent to plan for a flattish comp for the balance of this year. And we continue to believe that even with that backdrop, we can drive profit improvement on the order of what we saw in the first quarter. Dylan Carden: And then on the AI technology side of things, any incremental thinking on how you might use that from an inventory management standpoint, pricing, decisions on what to keep versus donate? Yes, I guess, sort of an open-ended question there. Mark Walsh: Yes. We've got a robust innovative pipeline for sure. And we've got a lot of promising initiatives in test. We're pretty conservative, though, about bringing them public. So once we get to a place where we're ready to deploy, we will certainly be sharing those opportunities. Operator: And that concludes our Q&A session. I will now turn the conference back over to Mark Walsh for closing remarks. Mark Walsh: I just want to thank everyone again for their interest, and we look forward to talking to you in roughly 3 months. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Honest Company'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 call over to Chris Mandeville, Interim Head of Investor Relations at the Honest Company. Please go ahead. Chris Mandeville: Good afternoon, and thank you for joining our first quarter 2026 conference call. With me today are Carla Vernon, our Chief Executive Officer; and Curtiss Bruce, our Chief Financial Officer. Before we begin, I will remind you that our remarks today include forward-looking statements subject to risks and uncertainties. We do not undertake any obligation to update these statements, and actual results may differ materially. For a detailed discussion of these factors, please refer to our safe harbor statements in today's earnings materials and our recent SEC filings. We will also discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in our earnings release and accompanying presentation, which are available at investors.honest.com. Finally, please note that all consumption data included in our discussion today, unless otherwise noted, will reflect Circana MULO+ measured channel data for the 13 weeks ended March 29, 2026, as compared to the prior year. With that, I'll turn it over to Carla. Carla Vernon: Thank you, Chris, and hello to everyone joining us. Today, I will provide a high-level look at our first quarter performance and offer insights into how we are successfully executing our strategy to profitably scale the Honest brand. Following my remarks, Curtiss will provide greater detail on our Q1 financial results and discuss our reaffirmed full-year outlook. We are pleased with our start to 2026 as our recent actions to optimize our portfolio are bearing fruit. Our Q1 results demonstrate that Powering Honest Growth is leading to an enterprise that is more strategically focused, growth-driven and structurally profitable. Let me begin with our first quarter results. By bringing a sharpened focus to our right to win categories and channels, we delivered organic revenue growth of 3.9% Delivering this growth on top of double-digit growth in the prior year underscores the momentum across our portfolio. As we continue to increase the availability of Honest products, we are also expanding our business across a broader set of households. Over the last 3 years, we've been disciplined in our focus on driving shareholder value through top line scale and bottom line expansion, and in Q1, we did exactly that. In addition to delivering organic revenue growth, our adjusted gross margin of 43.5% was the strongest in our history. This year-over-year gross margin expansion of 480 basis points demonstrates the impact of our Powering Honest Growth initiative. By streamlining the focus to our right to win categories, we have ignited a virtuous cycle that allows our teams to successfully execute against our 3 strategic pillars of brand maximization, margin enhancement and operating discipline. In Q1, our brand maximization strategy of growing revenue scale and consumer strength of the Honest brand was evident. We delivered 8.3% consumption growth significantly ahead of our comparative category average growth of 2.6% and a notable acceleration from the 3.4% we delivered in Q4 2025. Best of all, our momentum continued to be volume-led with unit consumption up 20%. As I shared last quarter, the Honest brand benefits from 2 powerful dynamics. The first and most foundational is the growing consumer interest in cleanly formulated and effective products for people with sensitive skin. The second dynamic is the unique competitive advantage of the Honest brand, which drives our commitment to upholding the highest standards in everything we do. This gives us the ability to build deep consumer trust and loyalty across a diverse range of households. This spans families with babies and toddlers to those with big kids and teenagers and even households with no kids at all. In the United States, 89% of U.S. households do not have any children under the age of 6, while 75% of U.S. households have no children at all. This is why we are purposeful in designing a growth strategy that provides a broad range of products developed with a wide range of ages in mind. As a reminder, according to Numerator, over half of Honest's current buyers are for no kid households. Across all household types, the love for our cleanly formulated and sustainably designed personal care products continues to grow. At Honest, every product must meet our industry-leading Honest standard, which is a set of guiding principles that includes a list of over 3,500 ingredients we do not use and that shapes every step of product innovation and development to ensure our high expectations for safety, efficacy and design. This appeal is evident in our growth. In Q1, our total household penetration reached a new all-time high of 8.1%, up 50 basis points from year-end. We're proud to have welcomed 1.6 million new households over the past year. As we look at the opportunity in household penetration, we still have significant runway ahead. For example, in Baby Personal care, key branded competitors hold household penetration anywhere from 2x to 6x greater than ours. In all purpose wipes, larger brands have as much as 5x to 7x the household penetration of Honest. This considerable market opportunity presents a clear line of sight to our next phase of growth with a focus on transitioning existing category buyers to Honest and welcoming entirely new households into these categories. Now allow me to share more on each of these portfolios, beginning with wipes. In Q1, our total wipes portfolio delivered consumption growth of nearly 25%. With a wide and growing array of formats, Honest wipes are expanding throughout the store and across household types with products ranging from adult flushable wipes and hand sanitizing wipes to toddler flushable wipes and all-purpose baby wipes. The consumption of our all-purpose baby wipes grew 14% this quarter, reflecting just how much our community loves having a stylish pop of design on their changing table, countertop or in their bag for those everyday cleanup moments. This quarter was the national rollout of our updated more shopper-friendly packaging for our all-purpose wipes. With this new bolder, more shoppable package design, it is much easier for people to discover these wipes on store shelves. We introduced our largest packaging format to-date, a mega pack that allows parents to maximize value and stay fully stocked on our wonderful sensitive skin safe wipes. Our Honest flushable wipes are a clear standout in our portfolio, delivering Q1 consumption growth of more than 200% off of a still emerging base. These plush moist and plumbing safe flushable wipes have now grown at more than 10x the category rate for 3 consecutive quarters. As a result, we are now the #4 flushable wipe brand in the category, up from the #5 spot in Q4 2025. This momentum illustrates how our growing Honest community loves the unique combination of fashion, function and flushability we bring to the category, and we're just getting started. A few weeks ago, we adopted a very stylish and thoroughly modern new approach to our marketing of flushable wipes. We kicked things off with a high-profile social media campaign in March, partnering with mega influencers specifically chosen to resonate across our target households. Whether you love an intimate conversation with Tia Mowry, a besty moment with Kat Stickler or a freestyle wrap by Hannah Berner, we had something for you. The response from followers was immediate and the algorithm did its thing. In fact, 1 post amassed 1.5 million views across Instagram and TikTok in just its first 12 hours. Building on that incredible digital engagement, we launched a national campaign in April across a broad media landscape of video, social, out-of-home, festivals and more. The ads, posts and videos put the spotlight on the moments when even the most stylish and glamorous women get honest about why they love our flushable wipes. We didn't stop there. This quarter, we also refreshed our collection of hand sanitizing wipes. In Q1, we relaunched our Lavender and Grapefruit scent in updated counterworthy packaging and rolled out our pocket packs in those 2 fresh scents. For the quarter, we saw a consumption increase of more than 60% on our hand sanitizing wipes, maintaining our position as the #2 brand in the category. Now shifting to Personal Care. Our Personal Care collection delivered consumption growth of 16% in Q1. Our shampoo, body wash, bubble bath and lotion have long been a trusted choice in the 11% of U.S. households with children under the age of 6. In fact, with consumption growing 7x faster than the category, Honest has officially become the #2 brand across total baby personal care, jumping from the #4 position last year. Now to build on that momentum, we are expanding our reach. We are pleased to have introduced our new Pixar Toy Story collection, bringing the Honest standard to the 89% of U.S. households with big kids and kids at heart. Initially, we launched the collection, both in-store and online at Walmart. As of a few weeks ago, I'm excited to announce that we added the collection to Amazon, which will meaningfully expand our reach just in time for the Toy Story 5 movie release next month. Speaking of going to Infinity and Beyond, our brand literally reached new heights recently. During the live stream of the NASA Artemis II mission in April, astronaut Christina Koch radio Houston to ask Mission Control for help in tracking down the Honest lotion the crew had packed on board. It was incredible. It was an organic moment that highlights just how essential our products are to our community even in orbit. Not only was this an incredible affirmation that Honest products are for everyone, but because my own mother was a NASA hidden figure, this was a full circle moment in more ways than one. Finally, let me share an update on our diaper portfolio, where we have seen progress on our performance. Our consumption declines in diapers were nearly cut in half, moderating to negative 9.6% in Q1 from 18.3% in Q4 2025 as we lapped the distribution losses of gender-specific prints at a key retailer late in the quarter. However, our outlook for the broader diaper category remains cautious. We are navigating a highly competitive and promotional environment that we expect will continue to pressure the category. While diapers remain an important option for families looking for the Honest standard of clean, we will prioritize our growth in households with babies and families with little kids through our higher growth, higher-margin wipes and personal care platforms. Despite these localized category pressures, the broad strength of our portfolio is shining through. Our positive Q1 results show that we are financially stronger and on the right path with great possibilities ahead. With that, I will now turn the call over to Curtiss to provide more detail on our Q1 financial results and walk through our reaffirmed full-year 2026 outlook. Curtiss Bruce: Thank you, Carla, and good afternoon, everyone. As Carla mentioned, our first quarter results are a clear indication that the structural improvements we made to our business last year through Powering Honest Growth initiative are driving our growth and profitability today. We are pleased with our start to the year. Before diving into the financial results, I want to provide a brief update on this transformation. We are seeing the immediate accelerated benefits of a highly favorable margin mix, driven by our sharpened focus on our right to win categories alongside the positive impact of our rightsized SG&A. As we look to the balance of the year, we remain firmly on track to realize our expected supply chain efficiencies in the second half of 2026. As a reminder, we expect Powering Honest Growth to deliver between $10 million to $15 million in annualized savings, serving as a powerful catalyst to further fortify our bottom line health and generate the fuel needed to reinvest in our growth. Now turning to our first quarter performance. Revenue was $78.1 million compared to $97.3 million in the prior year period, primarily reflecting the impact of our strategic Powering Honest Growth category and channel exits. On an organic basis, revenue grew 3.9% to $78.1 million. This growth is particularly notable as it was achieved over a difficult prior year comparison, which was bolstered by retailer inventory buildup ahead of the 2025 tariffs. Our performance this quarter reflects strong momentum behind our higher growth, higher-margin wipes and personal care platforms, partially offset by moderating diaper sales declines. These diaper results were driven by the initial lapping of previously disclosed headwinds related to a key retailers transition to gender-neutral prints. Q1 reported gross margin came in at 42.6%, a 390 basis point improvement compared to the prior year period. On an adjusted basis, our gross margin of 43.5% was historically strong, reflecting favorable freight costs as well as mix from our higher growth, higher-margin wipes and personal care platforms, which was accelerated by Powering Honest Growth. These items were partially offset by tariffs. Total operating expenses decreased $1.2 million year-over-year, including a modest restructuring charge related to Powering Honest Growth. Excluding this transitional cost, our adjusted operating expenses declined by $1.8 million. This reduction was driven by our structural SG&A improvements, which more than offset our plan to drive double-digit increases in marketing investments directed specifically toward our higher growth, higher-margin wipes and personal care platforms. Coupling these structural cost savings with our meaningful adjusted gross margin expansion creates a powerful financial engine, underscoring our capacity to strategically reinvest in our brand while rightsizing our SG&A at the same time. Looking at our bottom line, we reported a net loss of less than $0.1 million for the quarter. Q1 adjusted EBITDA was $4 million, representing an adjusted EBITDA margin of 5.1%, down from $6.9 million and a 7.1% margin in the prior year period, largely due to lower reported revenue. Regarding our balance sheet and cash flow, we continue to be in an exceptionally strong position. We ended the quarter with $90.4 million in cash and cash equivalents and 0 debt, while Q1 free cash flow was $3.8 million, a substantial improvement compared to the negative $3 million in the prior year period. This year-over-year increase was primarily driven by continued working capital improvements stemming from Powering Honest Growth and our rigorous focus on operating discipline. During the quarter, we utilized $3 million of our newly authorized $25 million share repurchase program with an additional $8.3 million deployed subsequent to quarter end. In total, these repurchases were executed at an average price of $3.26 per share. These actions reflect our confidence in the structural improvements we have made to our business, the significant financial flexibility generated by our asset-light operating model and our commitment to balancing aggressive reinvestment in our growth initiatives with returning meaningful value to our shareholders. Moving to our outlook. While we are encouraged by our start to 2026, we are also mindful that it is still early in the year, and we are navigating an environment where several macroeconomic uncertainties remain. That said, the actions we've taken to optimize our portfolio have created a much stronger foundation for profitable growth. We have effectively shifted our resources toward the categories where Honest has the clearest competitive advantage, and our 2026 framework reflects both the early returns of that discipline and our prudent approach to the balance of the year. With that context, we are reaffirming our full-year 2026 outlook. We continue to expect the following: reported revenue declines of 18% to 16% due to our strategic exits, organic revenue growth of 4% to 6%, in line with our long-term algorithm, adjusted gross margins in the low 40s and adjusted EBITDA of $20 million to $23 million. As I wrap up, I want to emphasize how pleased we are with our start to the year. We believe our first quarter results clearly demonstrate that sharpening our focus on our right to win categories has built a resilient financial foundation. We are executing with strict operational discipline and maintaining a clear line of sight towards sustainable, profitable growth. With that, I will turn it back to Carla for final remarks. Carla Vernon: Thank you, Curtiss. As we shared last quarter, Powering Honest Growth was about unlocking the full potential of our business model by serving as a force multiplier to our strategic pillars. We believe that our Q1 results confirm that the heavy lifting we did in 2025 is paying off. I'd like to thank our team of Honest Butterfly for their commitment and diligence in building our shared vision for Honest. Now more than ever, Honest is well positioned to deliver strong value creation for investors, expand our Honest community and build the enduring strength and meaning of the Honest brand. With that, I will now turn it over to the operator to open the line for questions. Operator: [Operator Instructions]. Your first question comes from the line of Aaron Grey with AGP. Aaron Grey: First question for me, I just want to talk a little bit about the reiterated guidance. I can certainly understand the commentary in terms of wanting to have to take a prudent approach for the remainder of the year. Just given if you take the run rate for 1Q, that kind of takes you to the high end of your guide now. Curious if there's any shipment timing that hadn't impacted the Q or any type of seasonality we should be thinking about ahead just given some of the other top line initiatives we talked about right now -- earlier on the call that should obviously lead to some nice sales trajectory. Curtiss Bruce: Aaron, this is Curtiss. We are certainly pleased with the revenue growth in Q1. It represents a very good start to the year and in line with our expectation and I say we're equally pleased with the consumption of 8% growth as well, and that was on our higher growth, higher-margin portfolios in Wipes and Personal Care. As you think about the full-year, we're just reiterating our guidance, right? We are still expecting to be able to deliver on the 4% to 6% organic growth. We don't have any concerns coming out of the quarter that there was any dislocation in revenue performance and the consumption performance. Aaron Grey: Second question for me is in terms of marketing spend, some uptick there sequentially to about $14 million. Maybe talk about some of the strategy that you have. You talked about it a little bit, Carla, in your prepared remarks. I'd love to hear in terms of some of the initiatives you have to help support the growth for some of the brand launches and expansion there. Carla Vernon: Sure. Why don't I get started? Aaron, we really believe that marketing is a force multiplier here at Honest, and it has always been an important piece of the fabric of building this powerful brand. We think we've got a strategic advantage because ever since our beginning, we've been very brand forward, very consumer forward. We know that this investment we're making in marketing is going to be a very powerful driver of this improved awareness that's key to our growth strategy. As you know, we have -- the success we've demonstrated on household penetration gains have been very balanced across our products and our consumer types, and that's because we've been very intentional as we allowed ourselves to be more focused coming out of Powering Honest Growth. That degree of focus is allowing us to point our marketing dollars and our marketing strategies strongly towards our key categories. In this quarter, what you've already seen is we kicked off a fantastic marketing campaign against our flushable wipes business. You remember in my comments, we are now the fourth largest brand in flushable wipes, and we delivered more than 200% consumption growth in the quarter. We just about 4 weeks ago, started kicking off a very groundbreaking campaign. You can see some images from that campaign in our investor slide presentation, our social media feed as always. This campaign really takes a different approach than other flushable brands in the category. We are living up to our name of being honest, right? We've got these really glamorous, beautiful women talking about the role that a flushable wipes plays in their life and why they love our particularly soft and plush and cleanly formulated wipes. We've got that campaign off to a very strong start. It includes a social media lens where we've got mega influencers across different demographics. Also, what we have going now is, as I mentioned, our Toy Story 2 launch behind our new portfolio of kid personal care kicked off as Pixar began the early initial rounds of driving buzz against that movie. That movie launches in June. We're really just getting into the window where our own awareness driving of that portfolio is heating up as well as Disney's. We've got some other great stuff planned for later in the year that I look forward to coming back and talking to you about. Curtiss Bruce: Yes. Aaron, let me just reiterate and maybe add on to Carla's comments. We definitely believe that brand building is a strategic advantage for us here. We're going to continue to invest in marketing as we look to strengthen the business and create a sustainable growth platform. This is why it was so important for us to execute Powering Honest Growth. The gross margin acceleration, the gross margin expansion is really the fuel that we need in order to continue to invest in marketing to have a long-term sustainable business. Operator: Our next question comes from the line of Anna Glaessgen with B. Riley Securities. Anna Glaessgen: In the past, I think the classical brand discovery was talked about through diapers and then expanding through the broader categories that you guys offer. Now while we've seen diapers declining, we're also seeing continued nice gains in household penetration. Can you speak to how consumer discovery of the brand has shifted and how your go-to-market has shifted in response? Carla Vernon: Wonderful. I'll give that a try. You are right, Anna. We are at our all-time highest household penetration, which is such an affirmation that we have picked categories where consumers love what we have and where our portfolios are very expandable across demographics and across types. A few things drive that. I've talked a lot about the fact that the largest percent of households in America are not, in fact, the littlest baby households, but they are both those bigger kid households and the households like my own, my daughter ought to go off to college where maybe there was a kid in the household and there isn't anymore as well as households where maybe there were never any children in the household. What we found is that the benefit of Honest, which is that clean formulation, sensitive skin safe, that is relevant, not just for babies, right? That is relevant. We know that a degree of adults describing themselves as having sensitive skin is as high as 50% to 70% based on certain research. Honest products that we make have been relevant to a broader set of households for a while. We already sell more than half of our -- or excuse me, more than half of our consumers are already in these households. What we're doing now is really putting the strategy and product innovation road map together with that consumer base and making sure we talk to them. This Flushables wipe campaign that I just talked to you about is a great example. We are talking to adults about why they will love Honest products. That is really a new form of expanded investment, and we're seeing it work because, of course, those businesses are -- the growth of those businesses is outpacing the pressures we're seeing in the diaper category. We feel really good about what that shift in mix and shift in focus has done for our business model. Anna Glaessgen: Then one follow-up on marketing. Nice to see the investment in Wipe and the activation there, as you noted in the first quarter. Should we take that level of spend and assume that continues? Or was it elevated given the launch cadence that hit that quarter? Curtiss Bruce: Yes. I'll take that one. This is Curtiss. As we think about marketing, we -- you're correct, we did have an increased level of investment in Q1. That was behind the activity that Carla previously mentioned. Like I said in the earlier remarks or the earlier question from Aaron, we are going to continue to invest in marketing. We're not going to sort of guide expressly to that line item, but the investment in marketing is going to be fueled by Powering Honest Growth, and then our -- both the revenue guidance and the EBITDA guidance reflect that increased investment. Operator: Our next question comes from the line of Andrea Teixeira with JPMorgan. Andrea Teixeira: Amazing story about your mom. Carla, I was just hoping Curtiss to talk about like the competitive environment we hear in general. I guess you're above and beyond that in terms of like your premium positioning. But on the diaper segment, there has definitely been a more competitive stance from a lot of the players. If you can comment on that. Conversely, I know you've been getting a lot of new products in and distribution, and you clearly accelerated the delivery this quarter. I was just hoping if you can comment about like what are the learnings and what is the -- what are you seeing towards the back end of the year, as Aaron was saying in his question, right? I mean, you probably would have a potential to raise the guidance. I understand that, obviously, it's early in the year, but how we should be thinking of what's happening -- what has happened in the quarter and what it informs you through the rest of the year? Carla Vernon: Great to hear from you, Andrea. Let me begin with the diaper portion first, and then I'll move on to the new product and distribution learning and our approach to that. Yes, we agree. The diaper category is under an enormous amount of pressure. That pressure is multifaceted, as we know, with macroeconomic pressures facing consumers, along with just increased competitive landscape that is more heated up than we've seen it in previous years. For us, where we feel encouraged is that as we modeled our diaper business, we knew it was important to get past these distribution losses. Now that we are really lapping those distribution losses that we've been talking to you about, and we saw our own declines cut in half then that told us that as we've been looking at the category, things are playing out according to what we've built into the model and according to what we expected. With that said, we know that those baby households are important, and so we think we show up differently than most of the other brands in the baby aisle in the baby category because we have the power of a single brand that applies broadly across even when just in the baby set with great meaning because people trust our products to really do what they say. As we are seeing, there are places where people feel that is very important and worth it to them, right? That is because I think that's clean trust we've always had. We love to think it has to do with also our beautiful design. It just they're beautiful products to use as we know, as well as making sure that they deliver on their sensitive skin friendly benefits. We've got the power of a brand that can press multiple different ways in the aisle. That's why we're still seeing our growth is offsetting those declines that we're managing in diapers. When I think about new products and distribution, I guess I'll pick up on that same storyline, which is the Honest brand was always built broadly even from its beginning. What we have learned is that as we bring the brand into things like kid personal care, adult flushable wipes, hand sanitizing wipes, makeup remover wipes, trial and travel, we are finding the brand is a fit no matter where we take it to new spaces in the store, we take it to new rooms in anybody's household, we take it to new consumers. That does come with the need to invest in each of those categories. We have to show up and talk to that consumer group in that particular category against that job to be done. That's why you've seen that the team has built a financial model that allows us to go after these higher-margin categories while reinvesting. Curtiss Bruce: Then let me just add because we're talking about innovation, we're certainly pleased with the start to Q1, particularly around the innovation. Our 2026 plan and our 2026 guidance on organic revenue was really balanced. It was innovation, velocity and distribution, and so this was not a singular one driver plan. We are still very confident in our ability to deliver with the success that we had with innovation and the distribution that went into the market in Q1. Andrea Teixeira: If I can squeeze one about e-commerce and how you are potentially outperforming. I think it was always the case, but I just wanted to check in, in terms of a channel performance against Biggs? Carla Vernon: I think you're talking about broad national e-commerce. Is that right, Andrea? Andrea Teixeira: Yes. Carla Vernon: Yes, we are continuing to be very pleased. First of all, we're seeing that across the board, whether it's your traditional brick-and-mortar retailers as they continue to build out their own focus in e-commerce in AI-driven purchases and shopping behavior or where you're looking at the sort of original pure-play e-commerce brands. Our brands, they really fit those models. We know that everyday essentials and consumables do very well in e-commerce. We're seeing a lot of strength for HTC in e-commerce in general. Honest was -- we love to talk about this, right? We were born digital. We were one of the original DTC brands. We were built by the digital generation, and we were built for the digital generation. Our products really come to life very well in an e-commerce channel, and we're seeing that the algorithm plays out very strongly. with that being certainly one of the fastest places we deliver growth. Operator: [Operator Instructions]. Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Dana Telsey: Two questions. One, as you think of the tracked channel consumption, which is up, I think, 8.3%, a real acceleration from the fourth quarter. As you think about going forward, how do you see the levels of demand? Is it new product drivers? Is it category drivers? How would you -- how are you planning go forward? Then on the margin side, with the change in energy prices, how is it impacting your pricing, your customer? Any shifts that you've been seeing? How has it adjusted by channel? Carla Vernon: Dana, let's start with that consumption acceleration. As you noted, when we exited the previous quarter, Q4, we reported consumption growth of 3%. In this quarter, we reported consumption growth of 8%. That growth is very encouraging to see given all of the complexities we've been talking about in the macroeconomic environment. The way I think about the drivers and how that would play out for the rest of the year, this lapping of the distribution declines in diapers is certainly one of the components of why it is sort of more wind at our back on a consumption basis with regard to that piece of our portfolio. We should still see that in the year, but as we've talked about, the diaper category has a lot of pressures. That's why we want to make sure our guidance has got that consideration for the unknowns in the diaper category. We also -- well, let me step back and say, Curtiss talked about our growth based on 3 very balanced drivers, right? We've got innovation as a driver. That includes innovation we launched last year, like flushable wipes entering brick-and-mortar for the first time last fiscal year. That stuff takes a while to catch on and drive awareness. The fruit continues to pay out and grow. Now we've got the awareness driving campaign to act as continued wind in the sales for that type of business. Remember, I also mentioned last quarter, we did a considerable amount of our innovation launches for the year in the first quarter intentionally so that we have the ability to drive that all year. New items are a piece of our growth for the year. Then you've got the velocity and the continued availability increases. Those make out really the 3 ways we look at our growth: innovation, the velocity, velocity that consumers -- when they try our products, they love it. We have great repeat rates, and we are driving a lot of marketing to drive awareness. Then the distribution growth. There are a lot of drivers for us on distribution growth. Sometimes our brand is already in a retailer, but we might only be in the baby set. When we enter and step our way into the flushable lifestyle, that drives a lot of distribution for us even in a retailer we're already in. Think of the kid personal care business the same. We were already in Walmart. We were already in Amazon, but that was an entirely new sort of branch to our tree, if you will, that we are now able to get the benefits of as we launch innovation and expand even in retailers we're already in. Curtiss Bruce: Then I will take the inflation and fuel question here. We continue to monitor and evaluate the impact that the volatility in our macroeconomic environment could have on our business. This is where our asset-light model, our inventory position and the cost mechanisms we have with our suppliers enable us to manage risk in the short term. As we think about 2026, we are confident in our ability to still deliver against our expectations. Operator: Our next question comes from the line of Owen Rickert with Northland Capital Markets. Owen Rickert: Just quickly for modeling purposes, last quarter, you mentioned guiding to organic growth improving sequentially throughout the year. Is that still the right way to think about guidance right now? Curtiss Bruce: Yes. Owen, it's a good question. We are pleased with our start, both on net revenue and on consumption. That was the sequential improvement that we talked about, and so that's in line with our expectations. We are still very confident in our ability to deliver the annual guidance, but we're not offering any updates on the cadence. Owen Rickert: Then secondly for me, what early reads are you seeing from some of those newer product launches like the Sensitive Rich cream, Send Wipes and Hydro Rich cream just in terms of potential velocity and repeat? Carla Vernon: A lot of those items launched in Q1, and so often in my experience, Owen, it is still early to have a true velocity run rate on new items like that. What becomes important is making sure that the shelf sets are all settled in so that we really have a clean read on that data and then driving that awareness. What I would really anchor us on is that in almost any category where you look at Honest, our household penetration is so low that each of these new products really gives us an opportunity to reach into a new household and introduce the brand. For example, you brought up some of our baby items, Sensa Rich Cream, and that is in our Personal Care portfolio. Our Personal Care portfolio is still only at 2% household penetration, whereas what we see in brands that have been around the category longer, we see those with anywhere from 5 to 7x as much penetration as we have. As we continue to make our way in these categories, drive familiarity with the awareness that the Honest brand is there, we feel very, very confident that there is so much runway from our loyal consumers as we continue to drive that growth. Operator: I'm showing no further questions. With that, I'll hand the call back over to CEO, Carla Vernon, for closing remarks. Carla Vernon: Well, thank you, everybody, for joining us this quarter as we continue to go to Infinity and beyond. We look forward to talking to you next quarter. Operator: Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.
Operator: Greetings, and welcome to the KORU Medical Systems First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Louisa Smith from Investor Relations. Louisa Smith: Thank you, operator, and good afternoon, everyone. Joining me on the call today are Linda Tharby, Chief Executive Officer of KORU Medical Systems; Adam Kalbermatten, President and Chief Commercial Officer; and Tom Adams, Chief Financial Officer. Earlier today, KORU released financial results for the first quarter ended March 31, 2026. A copy of the press release is available on the company's website. I encourage listeners to have our press release in front of them, which includes our financial results and commentary on the quarter. Additionally, we will use slides to support further commentary in today's call, which are also available on the Investor Relations section of our website. During this call, we may make certain forward-looking statements regarding our business plans and other matters. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially due to risks and uncertainties, including those mentioned in the associated press release and our most recent filings with the SEC. We assume no obligation to update any forward-looking statements. During the call, management will also discuss certain non-GAAP financial measures. You will find additional disclosures, including reconciliations of these non-GAAP measures with comparable GAAP measures, in our press release, the accompanying investor presentation, and SEC filings. For the benefit of those listening to the replay, this call was held and recorded on Wednesday, May 6th, 2026, at approximately 4:30 p.m. Eastern Time. Since then, the company may have made additional comments related to the topics discussed. I'd now like to turn the call over to Linda Tharby, Chief Executive Officer. Linda, please go ahead. Linda Tharby: Thank you, Louisa, and good afternoon, everyone. Before we get into the quarter, I want to briefly acknowledge that this will be my final earnings call as CEO. As we shared last quarter, Adam has been appointed as my successor and will step into the role on July 1st. The transition is well underway and is progressing extremely well. I have great confidence in Adam's leadership and in the continued momentum of the business under his direction. I'll begin today with some commentary on our performance highlights in the quarter, and then Adam will step in to speak about our broader strategy. Tom will then walk through our financial results before we open the call for questions. Q1 2026 was a record start to the year. We delivered $11.8 million in revenue, representing 22% growth over the prior year period. This reflects the strength and consistency of a recurring revenue model business built on the foundation of approximately 60,000 patients on the KORU platform. A few highlights. Domestic core grew 12% year-over-year, driven by new patient diagnosis starts in both legacy KORU accounts as well as competitive conversions, driving outperformance within a strong underlying SCIg market. International core grew 35%, driven by prefilled syringe conversions in Europe and strong distributor orders in a new market to support this growth. Within our non-Ig pipeline, two of our existing pharma collaborations advanced assets within their Phase III clinical trials, including one for an expanded indication and the other restarting their trials for a new drug application. We executed to plan in submitting our 510(k) application for the use of the Freedom Infusion System with deferoxamine, reflecting further tangible progress in our growing commitment to expand beyond Ig. From a balance sheet perspective, we used only $100,000 in cash this quarter, ending the period with $8.8 million in cash, reflecting our continued progress towards sustainable profitability. We are reiterating our full-year 2026 guidance for revenue, gross margins, adjusted EBITDA, and cash flow. Overall, this was a very good quarter, delivering strong revenue growth and continued execution against our strategic priorities. And now I am pleased to turn it over to Adam. Adam Kalbermatten: Thank you, Linda. I'm encouraged by what lies ahead for KORU. Before I discuss our strategy more broadly, I'd like to take a moment to reflect on how our recent performance fits into the three-pillar strategy, protecting and growing our domestic core business, international expansion, and enabling more patients by adding more drugs to our Freedom Infusion System. The three strategic pillars we've been executing against are all moving in the right direction, and they remain central to our focus as I step into my role as CEO. The first pillar is protecting and growing our domestic core business. Our U.S. business continues to outperform the underlying SCIg market, driven by capture of new patient diagnosis starts in both legacy KORU accounts as well as competitive account conversion and further supported by a strong recurring revenue base serving chronic immunodeficient patients. Regarding the recent clearance for RYSTIGGO on KORU's label, our commercial rollout with this asset is advancing as planned. We are working through clinical evaluations with specialty pharma companies, and we expect the incremental revenue contribution from RYSTIGGO this year to be modest. Most importantly, however, this rollout represents meaningful progress as an entry point into the ambulatory infusion clinic channel and marks an important expansion of our platform beyond the home setting as RYSTIGGO is administered across both home and ambulatory infusion clinic environments. We believe this positions us well for increasingly meaningful contributions in this channel in the years ahead. We also want to highlight secondary immunodeficiency or SID as an important emerging opportunity for KORU. Outside the U.S., SID has already become a key priority for major pharma players, and there has been increasing focus on Ig manufacturers translating that success in the U.S. market with several ongoing pivotal trials expected to reach their endpoints in 2027. Should reimbursement coverage expand in this area domestically, it could meaningfully broaden our addressable opportunity in SCIg with another indication. In terms of current market dynamics, the SID market growth has been tracking ahead of the broader SCIg market, with growth currently being driven primarily by immunologists. However, we anticipate that as the clinical trials conclude, SCIg manufacturers will begin actively marketing to hematologists and oncologists who recognize the unmet need for patients following courses of treatment with immunosuppressive drugs like chemotherapy and ultimately opening up an entirely new and incremental patient population that we believe KORU is well positioned to serve. The second pillar is international expansion, and this remains one of the most exciting areas of our business. Today, our international growth has been led by SCIg, but consistent with our domestic strategy, we are establishing a footprint designed to support an extension into non-Ig drugs over time. In the first quarter, we delivered 35% international growth, and we believe we are still in the early stages of a much larger long-term opportunity. With key EU markets coming online in 2026 through the pharmaceutical manufacturer-driven vial to prefilled syringe conversions, there is significant runway for continued market penetration. Our growth rates in these markets will continue to be variable as we continue to deepen our knowledge and expand our capabilities across reimbursement, pharmaceutical and home care partnerships. Beyond this core SCIg opportunity, we are also actively exploring the expansion of our oncology initiative into international markets, an area we view as a longer-term growth driver for the company and one for which we already have compelling market insight given some of our early hospital work on the KORU value proposition, including last year's Denmark nursing study. The third pillar is enabling more drugs to reach more patients. Our pipeline continues to advance meaningfully with new drug submissions, Phase III trials with the KORU Freedom Infusion System and multiple new feasibility agreements. We are engaged in active conversations with partners across multiple therapeutic areas, conversations that we believe will translate into tangible opportunities for KORU in the years ahead. Turning to the pipeline. We now have eight active non-Ig drug opportunities in development, which together represent more than 6 million annual infusions worldwide, a meaningful reflection of the breadth and scale of what we are building. To put that in context, 6 million incremental annual infusions would represent approximately double our current SCIg business revenue, where we estimate we are enabling the delivery of nearly 3 million infusions a year, underscoring the significant long-term growth potential embedded in our pipeline. I want to highlight two important updates this quarter. As Linda noted earlier, two of our existing non-Ig pharmaceutical collaborations have advanced to Phase III clinical trials, and we remain an infusion device supplier for those trials. Apellis continues to invest resources in adding new clinical indications for Empaveli, having progressed into Phase III trials for the drug's fourth indication, this one in DGF or delayed graft function. We estimate this unmet need within nephrology represents an additional 25,000 annual infusions across the pediatric patient base. And second, one of our undisclosed pharmaceutical partners has reinitiated Phase III clinical trials on one of its assets, for which we believe the opportunity to be 500,000 annual infusions. The progression of both of these drugs in their clinical pipelines represents meaningful signals of forward momentum across our development portfolio and another step forward in potentially recognizing commercial revenue opportunity upon these drugs' commercial launches. Additionally, we submitted our 510(k) application this quarter for use of the Freedom Infusion System with deferoxamine, for which we estimate that there are approximately 200,000 annual infusions of this drug, another base hit for our non-Ig strategy. We also made the decision this quarter to remove vancomycin from our active development pipeline. As we reviewed the market opportunity, the current usage we are already seeing and the risk of an infusion to the central artery, we chose to commit our resources to align to our greatest commercial opportunities. The incremental 2026 revenue associated with vancomycin was expected to be modest, and we remain confident that our current guidance still accurately reflects the strength and trajectory of the business going forward. Turning to oncology specifically. We continue to have highly constructive discussions with pharmaceutical partners on a range of oncology assets and the opportunity ahead remains strong. We are in active communication with the FDA regarding our Phesgo submission, and we are also in early discussions around an additional high-volume oncology asset that we believe could be significant for us. We look forward to providing further updates as these discussions progress. The momentum building across our domestic business, international expansion and pipeline reflects progress on our three-pillar strategy. Each pillar is advancing and the compounding effect of that execution is what drives durable long-term value creation. We remain focused on maintaining that discipline as we move into the next phase of KORU's growth. I'll now turn things over to Tom for a review of our quarterly financial results and 2026 outlook. Tom Adams: Thanks, Adam, and good afternoon, everyone. We are very pleased with another strong quarter with revenue of $11.8 million, which represents 22% year-over-year growth and speaks to the underlying strength of the business. Breaking down by segment, domestic core grew 12% year-over-year. Growth was driven by higher consumable volumes from new patient starts and market share gains within new and existing accounts against the healthy SCIg market backdrop. International core grew 35% year-over-year, driven by higher pumps and consumables volumes in support of prefilled syringe conversions in the EU market. We saw strong first quarter distributor orders from one of our new 50 ml prefill markets, where we saw a bolus of pump orders for new patient starts and moving forward, we'll expect to see end user pull-through of our consumables. We remain highly encouraged by the opportunity ahead of us in the EU. PST revenues grew 166% over the prior year period, driven by higher clinical trial product revenues from our pharma collaborations who are advancing in their clinical trials. As always, this business will remain variable based on milestone and clinical trial timing, but the underlying activity level with pharmaceutical companies remains high. On gross margin, we delivered 61.5% for the quarter to 62.8% in the prior year period, a 130-basis points reduction year-over-year. The primary drivers of the decrease were higher production costs based on timing of production runs at the end of 2025 that were amortized in Q1 as well as tariff-related charges that did not occur in the prior period. These were partially offset by favorable geographic sales mix. Adjusting for the 87-basis point tariff impact, gross margins for the quarter would have been 62.4%. Despite the tariff headwinds in the quarter, we remain confident in our full year guidance range of 61% to 63%. Turning to cash. We ended the quarter with $8.8 million, reflecting minimal cash usage of $100,000 in the quarter. This was driven by 22% revenue growth and continued operating leverage. On a cash flow from operations basis, Q1 was essentially breakeven, a strong result given the normal seasonality patterns of the business. As we've noted before, Q2 is expected to be our heaviest cash usage quarter for the year, driven by the annual one-time cash outlay for last year's performance bonuses paid in April. We expect positive cash flow in the back half of the year as revenue ramps and planned operating leverage builds. Based on these dynamics, our full year guidance of positive cash flow remains intact. And as a reminder, we also have access to our unused $10 million debt facility, which provides additional financial flexibility for incremental opportunities as we execute against our growth plan. Looking at the full picture for Q1, revenue grew 22%, gross margin was 61.5% and net losses improved 33% to $800,000 and adjusted EBITDA was minus $10,000, essentially breakeven and a 95% improvement versus the prior year period. Operating expenses increased 11% versus the prior year. We continue to invest strategically in sales and marketing and R&D to support growth while maintaining spending discipline across the business to drive operational leverage. On guidance, we are reiterating our full year 2026 outlook with revenue of $47.5 million to $50 million, representing growth of 15% to 22%, gross margin of 61% to 63% and positive adjusted EBITDA and positive cash flow for the full year. Growth momentum in the business continued to advance in the quarter. We are maintaining the current range with the guidance we provided in March. Our Q1 results were benefited from strong PST revenues associated with clinical trial orders. We are also watching how dynamics related to how end user adoption develops behind the strong distributor orders we saw in Q1 in our prefill markets. Let me walk through each component in further detail. On revenue, the primary growth drivers are continued U.S. and international share gains in SCIg, NRE and clinical trial revenue from ongoing and new collaborations and modest incremental revenue from pending 510 clearances. We continue to expect these drivers to build through the year, taking into account some upticks in initial orders. We expect the back half to be weighted more heavily as recent clearances and new prefilled geographies ramp up and patients are added. We have also incorporated geopolitical risk associated with the Middle East in our guidance. We continue to expect revenues to ramp in the second half. On gross margin, we are maintaining our full year range of 61% to 63%. We expect pricing and manufacturing efficiencies to support our range through revenue mix variability in new markets and channels could move margin modestly in either direction quarter-to-quarter. We continue to be active and are making progress with cost improvement initiatives through our operational excellence programs to drive margins higher. On cash, we were disciplined in our usage this quarter. Q2 is expected to be our heaviest usage quarter from our annual one-time prior-year bonus payouts. And moving into the second half, we see operating leverage building through the year with a positive cash flow anticipated in the second half. I'll now turn the call back over to Adam for additional comments on our forward momentum. Adam? Adam Kalbermatten: Thanks, Tom. I want to take a few minutes to talk about what lies ahead. On the domestic side, we now have two new non-Ig drugs on label. RYSTIGGO was cleared earlier this year in January in addition to the earlier Empaveli in the U.S., Aspaveli in the EU approvals starting in 2022, which are now generating broader patient indications. Our oncology opportunity continues to advance. Our Phesgo 510(k) is currently under active FDA review, and we are also in productive discussions related to another high-volume oncology asset. On the international side, we achieved EU MDR clearance of our Freedom60 with prefilled syringe compatibility earlier this year and are supporting the EU conversion. We are also actively exploring the expansion of our oncology opportunity into international markets. Alongside our pipeline and market expansion work, we continue to invest in the next generation of the Freedom platform. We plan to submit a 510(k) and MDR applications for the next-generation Freedom60 pump in 2026, and we are targeting the submission for the flow controller in late '26 or early 2027. The pharmaceutical pipeline remains strong. We have four new collaborations targeted for this year, two of which have already been in signed. Two existing collaborations have advanced to Phase III clinical trials. And with the deferoxamine 510(k) submitted this quarter, we are steadily building towards a diversified platform spanning multiple therapeutic areas, one that we believe will define the next chapter of recurring revenue growth for KORU. I want to close with a broader framing of where we are going because I believe the best is genuinely ahead of us. The foundation we have built is differentiated and durable, a growing recurring patient base, a patient-preferred delivery system, deep and expanding pharma partnerships and a platform purpose built to support multiple drug categories across multiple therapeutic areas. That foundation positions KORU for something meaningfully larger than where we are today. Our long-term targets are clear, and we are executing toward them with discipline, $100 million in revenue, accelerated double-digit revenue growth, gross margins above 65% and EBITDA margins of 20% or greater. Achieving those targets requires continued focus on three things, growing our domestic market share, expanding internationally as we help to enable the pharmaceutical manufacturer vial to prefilled syringe market conversion and adding more drugs on our label. We know what we need to do, and we are doing it. The first quarter results are a tangible demonstration that we are on the right path. The pipeline is advancing. The platform is expanding, and the team is executing against the strategy in an exceptional way. As I step into the role of CEO, I do so with a deep sense of responsibility and an equally deep sense of confidence in what this capable company is able to achieve. KORU's most significant chapter of growth is ahead of us, and I cannot be more energized about what that means coming next. With that, I'll turn it back to Linda for closing remarks. Linda Tharby: Thank you, Adam. Q1 sets the tone for 2026, underscoring the results we've been working hard to deliver and is a reflection of how far this organization has come. As I step back from my role at KORU, I leave with real confidence in Adam's leadership, in the strategy and in this team's ability to execute against it. The strategic pillars are in place, the pipeline is advancing and the commercial momentum is there. I have no doubt that the path to $100 million in revenue, margins above 65% and EBITDA of 20% or greater is within reach. It has been a privilege to lead this company and to work alongside such a talented and dedicated group of people. I want to express my sincere gratitude to our employees, our customers, our partners and our shareholders. To the entire KORU team, thank you. What we have built together and what you will continue to build is something I am incredibly proud of. I remain fully supportive during the transition, and I'm confident the company's best days are ahead. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question will hear from Caitlin Roberts with Canaccord Genuity. Caitlin Cronin: Linda, again, congratulations on the next chapter of your journey. Just to start off, maybe just the rationale for keeping top line guidance the same despite the beat this quarter. And if you could give us some insight into the maybe updated cadence for the year. Linda Tharby: Thank you, Caitlin, for your wishes. And yes, we are very excited that we have a strong quarter behind us and good momentum heading into the year. I will let Adam comment on the guidance for the year. Adam Kalbermatten: Caitlin, thanks for the question. As Linda was mentioning, we're really, really happy with the strong start to the year in Q1. We have a lot of momentum. We're continuing to outperform the market and international growth remains strong. In addition, we're finding a lot of new opportunities. One of the things is we're going after bigger opportunities, we are seeing that there's some more variability there, really around the vial to prefill syringe conversions in Europe and how we're going about entering each of those markets. We continue to see a lot of really good momentum there. But at the moment, we're pretty confident in our guidance, and we're just not looking to make any changes on that at the moment until the year plays out a little bit further. Linda Tharby: I was just going to hand it to Tom for the cadence question, Caitlin. Tom Adams: Caitlin, you can think of our -- in terms of our guidance, you can think of the pattern, specifically in Europe. similar to last year, where we have initial markets that are ordering pumps, if you will, to start their initial adoption. We expect to see that adoption play through in Q2. And then after that happens, we expect to see strength in the back half of the year. So very similar to what we saw last year in the case of the European and the international markets. Caitlin Cronin: Understood. And then just thinking about adding new drugs to the core revenues, how much of your core mix is Empaveli and Aspaveli today? And do you have any expectations for non-Ig mix this year over the next few years? Linda Tharby: Yes. Maybe just -- I'll start and then hand it to Adam for more specifics. So broadly, we don't comment on any specific drugs contribution. But what we have said is that all of the new drugs we're adding, we expect to add between $0.5 million and $1 million in 2026 via those new label additions. With that, I'll turn it to Adam. Adam Kalbermatten: Yes. So, as we are thinking about non-Ig drugs, I mean, one of the recent ones we had approval on is with RYSTIGGO, and we're seeing some really good traction on that so far. Between RYSTIGGO and some of the other drugs outside Ig, we're continuing to look at anywhere between $0.5 million and $1 million overall is what we're targeting to plan. We're tracking really well against that overall, throughout the first quarter and looking forward to continuing to execute that plan as we get to the rest of the year. Tom, anything else you want to add to that? Tom Adams: No, I think you guys hit it pretty well. Operator: Next, we'll move to Frank Takkinen with Lake Street Capital Markets. Frank Takkinen: Wishing you the best in retirement, Linda. I look forward to keeping in touch. I was hoping to start with some additional color on oncology conversations. I think Adam twice in the prepared remarks, you referenced kind of the what's up beyond Phesgo and large volume oncology infusions. Can you just maybe speak a little bit more about that? When could we see the second oncology? I know we're still waiting for the first, but when could we see the second oncology and maybe magnitude of size would be helpful color as well. Adam Kalbermatten: Frank, great question. You picked up on that earlier. So, we're really excited about the oncology opportunity, right? Just to kind of frame that out at a higher level. We're seeing it today as almost a $40 million market opportunity growing over the next five years to over $120 million. Putting that in perspective, that's roughly 4 million units today, growing to over 10 million units. We did file for Phesgo at the end of last year. We are in active discussions with the FDA. So, we still continue to be really excited about that. We continue to expand into other areas where we have some other potential drugs that we're looking to bring on label. So, we do have some active discussions ongoing now. As we see it continuing to go forward, we're hoping that towards the end of this year, hopefully, in the next quarter, we have an update on where we are with Phesgo moving forward. But at a high level, still really, really excited about where this is going and what it can do for us. Phesgo alone is approximately 1.1 million, 1.2 million units a year. So, we see that as being something that would be really, really great entering into these infusion clinics. Frank Takkinen: Got it. That's helpful color. And then I was hoping to follow up on the distributor. I think last year, we saw this play out. And obviously, there was extreme growth from the geography launch with prefilled last year. But we had a distributor order come in, and I think there was a concern that, that was going to be the big order of the year. And then what we actually saw was orders increasing in magnitude of size throughout the year. Is there a chance that, that dynamic could actually happen again as this geography is just getting up and running on prefilled? Tom Adams: Yes, Frank, thanks for the question. Yes, similar to last year, you are correct. We did see some nice orders in the first quarter of 2025. Then we saw a little bit of a lag after that in this particular market. And as I mentioned, as adoption and rollout happen, that took about a quarter. And then you're right, we saw the ramp-up really start to pick up in the second half of the year, particularly in our international business. So, we do expect a similar pattern. We entered the next phase of a launch in a particular market. And so, we see a similar pattern rolling out here in 2026. Operator: And next, we'll move to Jason... Jason Bednar: Can you hear me okay? Linda Tharby: We can hear you, Jason. Jason Bednar: Great. Linda, I will add to the well wishes here. Have been great working with you and wish you all the best. Adam, I want to follow up on, I think, Caitlin's question earlier on the revenue side. So, I think the midpoint of the guide, I mean I appreciate it's early in the year, still you left it unchanged, but it does imply a little bit of a decel from the revenue growth rate we saw in the first quarter. I think midpoint something like mid-teens implied over the balance of the year. So, what decels from here? Is it the U.S. that decels in the growth? Is it international that decel in the growth? And then also within the whole answer, if you could, I think I heard you're building a little bit of cushion or uncertainty around the Middle East. So, if you can maybe quantify or size that for us, it would be helpful. And then also within the whole answer, if you could, I think I heard you're building a little bit of cushion or uncertainty around the Middle East. So, if you can maybe quantify or size that for us, it would be helpful. Adam Kalbermatten: Yes. Absolutely. I heard a few things in there. So let me start, and then maybe I'll pass it to Tom. In terms of where we've started the year, we're feeling really, really good about everything ongoing, both domestically and internationally. As we look at international markets and where we see some of the high growth coming, it's really country by country and figuring out the pieces of the puzzle in each of these countries, how the health care systems work. As we're going forward, we're planning to do a lot of blocking and tackling. And depending on how that uptake continues to go, it's going to go at different speeds in different markets. Compared to last year, when we converted the large international market, it's a little bit of a different approach, where it wasn't a pharma-driven tender. It's more of "How do we go out and actively convert those markets on our own?" And we're working with partners to do that, but it's a little bit of a different approach than last year. So, we want to continue to see how that plays out over the second quarter with the balance of the year. But overall, we're still seeing very positive momentum, very, very happy with how we started the year, and we're encouraged that we're on track and continuing to move forward in a very positive fashion. But Tom, maybe you want to take that second part of the question. Tom Adams: Yes. I'll just reiterate some of what Adam said. And the fact of the matter is that we are still largely a distributor market in our international business. And with that, you do get distributor orders that are ramping up for launches. So, we did see some of that in Q1. So, we know that some of that has to play out. We know that we need to see that patient conversion happens. And then we typically see it backed up by orders after that conversion starts to pull through. So, we did see some of that in Q1. And then again, the type of market is different. The tender markets are generally faster because the pharmaceutical is the financial backer of the tender markets, and the reimbursement markets are generally a little slower. So, we're taking all those dynamics into effect with our phasing in our quarters. But I will say we start off pretty strong with our Q1 results. Linda Tharby: He also asked about the timing of the phasing for the Middle East and the comment there. Tom, if you can comment on that. Tom Adams: Yes. So, in terms of the Middle East, if you all remember last year, we started up a distributor in the Middle East. We have one large one that dominates it for us. And we saw some strength, we are just cautious this year, just due to the geopolitical risk. We don't see the strength in the orders so far this year. So, we're just putting some caution around that Middle East distributor. Not a meaningful part of our business, but one that we're just making sure that we're cautious with, given the risk in the region. Jason Bednar: Okay. All right. That's helpful. And then just as a follow-up, I mean, actually kind of dovetailing off of that, the Middle East point. Now a lot of companies are dealing with fuel surcharges, freight increases as they source product, just given where oil is. So, I don't know if you're seeing that. Maybe you can speak to that a little bit, just how you're handling that in terms of are there mitigation actions underway if you are seeing that in your sourcing? And then also, are you passing along any fuel surcharges or price increases to your customers? Tom Adams: Yes. Thanks, Jason. We're watching that situation closely, specifically with oil prices with respect to our supply chain. We do procure plastics from different parts of Asia, et cetera. So, we are watching it. So far, we haven't seen any impacts that are material to our business. But we will continue to monitor the situation. We know this conflict started in Q1. So, we think there will be some time before it really hits. But for now, we don't see any meaningful impacts. Jason Bednar: Congrats, Linda. Linda Tharby: Thank you, Jason. Pleasure to work with you as well. Operator: And next, we'll move to Chase Knickerbocker with Craig-Hallum Capital Group. Chase Knickerbocker: So, just first for me, if you could give us a quick update on kind of what you saw from an SCIg volume growth in the market in Q1? And then, just secondly, another one on international. If we kind of look at where the strength came from in Q1, maybe talk us through kind of how many geographies this reflects, as far as prefilled conversions? How many times has it occurred now? Is it one or two geographies that we may be sold into ahead of those conversions that kind of led to a little bit of a stocking benefit in Q1? Maybe just kind of some additional thoughts on those fronts. Adam Kalbermatten: Chase, I'll start with your question. You had a few in there. On the international market side, we are seeing strong growth across a few different specific markets. In the past, we've mentioned five specific countries where we saw a large volume of prefilled syringes entering the market, and we are working in all of those markets. They continue to go through what I would describe as the initial conversions and continue to progress with those new patient starts and conversions. Each of them is a little bit different depending on how the pharmaceutical partners are introducing them, but we're following closely behind in all of them. So, we're making progress across the board. I think you were specifically asking if we're one or two. We are tracking in all five of those that we previously mentioned. In terms of volume growth, Tom, I don't know if you want to take that one on the numbers side of things and what we're seeing so far. Linda Tharby: I think it was for SCIg growth. Tom Adams: Yes. On the SCIg side, we did see a strong -- in the U.S. market, we saw strong growth. In terms of the market, we did outpace the market. Our third-party marketing source had a number of around 8%, and we outpaced that with our performance. We see strength in the U.S. business. We expect that strength to continue, and we expect to continue to grow sequentially in our U.S. business. So, we left the quarter feeling very good about the future strength in that business. Chase Knickerbocker: Got it. And then maybe just on the 510(k) submission for the next-gen pump. Can you just give us an idea of kind of what's left to do to enable that submission? And if we should think about the kind of timing on MDRs, kind of similar to 510(k), will those happen pretty concurrently? Adam Kalbermatten: We're really excited about our Freedom360 pump. That's the new pump that we have under development right now, which is looking to accommodate all sizes of prefilled syringes in one device. So, this is super exciting as the market continues to progress from vials to prefilled syringes across the different geographies. In terms of where we are right now, we are at the end of our development process. We're actually in the middle of going through some final checks on that development side, called design verification testing. As we get to the second half of this year, we are looking to submit our regulatory filings in both the U.S. and Europe. So, we're super excited about how this is continuing to progress. We've had a number of different industry meetings and specific pharmaceutical partner meetings where we've been discussing the pump across the board. We're getting very positive feedback. So, a lot of excitement is building here. And we're kind of at the 10-yard line looking to drive this one across the goal line pretty soon here towards the end of the year. Operator: There are no further questions at this time. I would like to turn the floor back to Linda Tharby for any additional or closing remarks. Linda Tharby: Great. So, thank you for your questions. I'm extremely proud of the strong track record of the company over the last five years, which reflects the strong team that I am leaving behind here at KORU. I want to thank Adam, who is knee-deep in this transition and is going extremely well. So, with the strategic momentum that we have ahead of us, I really think the company is well-positioned as we move forward. So, thanks to everyone for all the support. Operator, you can close the call. Operator: Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.
Operator: Good day, and thank you for standing by. Welcome to the Arcutis Biotherapeutics, Inc. 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, Brian Schoelkopf, Head of Investor Relations. Please go ahead. Brian Schoelkopf: Thank you, Marvin. Good afternoon, everyone, and thank you for joining us today to review our first quarter 2026 financial results and business update. Slides for today's call are available on the Investors section of the Arcutis website. Joining me on the call today are Frank Watanabe, President and CEO of Arcutis; Todd Edwards, Chief Commercial Officer; Patrick Burnett, Chief Medical Officer; and Lasse Vairavan, Chief Financial Officer. I'd like to remind everyone that we will be making forward-looking statements during this call. These statements are subject to certain risks and uncertainties, and our actual results may differ. We encourage you to review all the company's filings with the Securities and Exchange Commission, including descriptions of our business and risk factors. With that, let me hand it over to Frank to begin today's call. Todd Watanabe: Thanks, Brian, and good afternoon, everyone. As always, we appreciate you guys making the time to join us. I want to start today's call with an overview of the latest developments at Arcutis and the progress we're making against our grow, expand, build strategy. I'll then turn things over to Todd for a commercial update, then Patrick for an R&D update; and finally, Latha for a review of the quarter's financial results as well as how we're thinking about investing in 2026 to drive ZORYVE inflection. So I'm starting on Slide 5. Hopefully, by now, you're all familiar with the grow, expand, build framework that we have adopted to define our strategy to sustain near- and long-term growth for both ZORYVE and the company overall. In a nutshell, our plan is to continue to grow our core ZORYVE business in our currently approved indications to expand ZORYVE into additional indications and to build our innovative pipeline beyond ZORYVE. So starting with the grow pillar for driving momentum in our core approved indications, we're very excited to have submitted a supplemental NDA for ZORYVE cream, 0.05% in atopic dermatitis patients aged 3 to 24 months in April. This is a segment of patients who are significantly impacted by AD and who are in dire need of safe and effective treatment options beyond the very small number of currently approved therapies. Patrick will comment on the opportunity more, but we see this as a very significant new opportunity for ZORYVE, and there's a lot of excitement amongst dermatology clinicians about our data and the possible approval. We also completed enrollment in a MUSE trial for ZORYVE foam, 0.3% in children with scalp and body psoriasis ages 2 to 11 years of age, and that should serve as the basis for submission for -- to extend the label to this age group, aligning it with the 0.3 cream. On the commercial front, we've successfully completed -- we've essentially completed, excuse me, the expansion of our dermatology sales force to enable deeper reach into the dermatology landscape. And I'm happy to report that our expanded derm sales force is in the field as of this week, but of course, we probably won't begin to see an impact on sales for a few months. We also began the build-out of our dedicated PCP and pediatric sales team, starting with the recent hiring of our Head of Primary Care franchise. This team will embark on a targeted effort to engage with those primary care and pediatric clinicians who are already using a fair bit of topical therapies in their practice. We also continue to make important progress against our expand pillar as we work to bring the unique benefits of ZORYVE to people impacted by chronic inflammatory skin conditions beyond our currently approved indications who are also in need of targeted innovative treatment solutions with a focus on diseases where we've already seen compelling potential of ZORYVE based on case reports and case series. And specifically, we're nearing full enrollment of our Phase II proof-of-concept trial in vitiligo, and we continue to enroll patients in our Phase II POC trial in hidradenitis suppurativa or HS. We're also evaluating additional Phase II proof-of-concept trials in indications beyond vitiligo and HS, and we'll obviously update you guys on our further decisions. And finally, we reached an important milestone in our pipeline building activities with the initiation of a Phase Ia, Phase Ib trial for ARQ-234. The investments we're making and the efforts we're taking to advance our initiatives across these 3 pillars are laying groundwork for further ZORYVE sales inflection and operating leverage expansion in 2027 and far beyond as well as positioning us to sustain growth for the long term and most importantly, expanding our impact on individuals living with chronic inflammatory dermatosis. Despite now having a successful commercial franchise in ZORYVE, we continue to be at our core, a biotechnology company championing meaningful innovation within medical dermatology. These investments in innovation and growth reflect that intent. And with that, I'll hand the call over to Todd to give you a Q1 commercial update. Todd Edwards: Great. Thank you, Frank, and good afternoon, everyone. Turning to Slide 7. We continue to see strong sales performance in the first quarter with net product revenues of $105.4 million, up 65% versus the first quarter of 2025. This healthy quarterly performance was achieved despite the customary first quarter seasonality impacting branded therapies driven by patient deductible resets, elevated co-pay utilization, annual insurance transitions and pull forward of refills into Q4. This typical pattern was further amplified this year by the impact of severe weather events we had across the country during the quarter. On an aggregate basis and in line with expectations, this resulted in a more significant sequential decline in product revenues from quarter 4 to quarter 1 compared to 2025, where seasonality was mitigated due to the initial launch of ZORYVE in atopic dermatitis. Importantly, we are through the impact of this typical seasonality and anticipate a return to robust quarter-on-quarter demand growth going forward. Our gross to net remained stable in the 50s. And as communicated on our last call, we anticipate it will remain in the same range for the remainder of 2026. Our first quarter gross to net rate improved compared to quarter 1 2025 due to our evolving payer contracting that benefited product revenues for the period. Looking ahead to the second quarter, we expect quarter-over-quarter net sales growth driven primarily by increasing patient demand as well as continued gross to net improvements as we progress from our current rate to the low 50s as the year progresses. Turning to Slide 8. After a typical December to January pullback in demand, weekly prescriptions on a rolling 4-week average based on IQVIA EXPONent data have returned to a healthy growth trend and reached approximately 21,000 prescriptions per week across all indications and formulations for ZORYVE. As is clear from this chart, ZORYVE continues to generate sustained Rx growth. For the remainder of 2026, we anticipate sustained demand growth will be the primary driver of ZORYVE's revenue expansion. The most important driver of this sustainable momentum will remain the conversion of topical corticosteroids to advanced targeted topical therapies as health care providers and patients' perceptions of the risk of chronic use of topical steroids evolves. In a few minutes, Patrick will comment on developments we are seeing on that front. Investments we have made to expand our dermatology sales force will also contribute to demand growth in the second half of the year, and our efforts in primary care and pediatric settings will start to have an impact later in 2026 and 2027. Next, I'll provide some additional detail on demand across topical therapeutics and dermatology in the first quarter. I'm on Slide 9. As demonstrated in the chart on Slide 9, prescription volumes were down across the board for topicals in the first quarter of 2026 compared to the fourth quarter of 2025. Of note, the impact was not only seen with branded products, but also with topical corticosteroids, antifungals, vitamin D analogs and topical calcleurin inhibitors. Products in these categories are primarily generic, making them less sensitive to the typical seasonality experienced by branded products in the first quarter. And yet this year, they still saw marked sequential declines quarter-on-quarter. We believe that this dynamic speaks to the fact that the severe weather events in the first quarter impacted dermatology prescription volume in general, a headwind that compounded typical seasonality and affected the entire topical segment. Of note, the prescription decline for ZORYVE in the quarter at 6% was meaningfully lower than the other branded non-steroidal topicals, which collectively were down 15% for the quarter. This relative outperformance is further evidence of the growing preference for ZORYVE by dermatology health care providers and patients. ZORYVE's relative strength in the period also drove further share expansion with ZORYVE's share of total branded non-steroidal topical prescriptions increasing to 48% in the first quarter, a 3 percentage point increase from the end of 2025. Moving to Slide 10. We are excited about the key investments we are making in 2026 to drive ZORYVE's continued momentum and set the foundation for its growth inflection in 2027 and beyond. We have completed our previously announced dermatology sales force expansion. As Frank noted earlier on the call, we're pleased to report that these new sales force members are out in the field as of this week. As is typical, these sales representatives require a couple of months to gain familiarity with their call points. So we anticipate seeing the impact on demand from these added boots on the ground beginning in the third quarter. We are also underway in the build of our primary care and pediatric team. We are thrilled to announce today that we have hired the head of this new franchise, Katie Swoss. Katie brings incredible breadth and depth of experience with dermatology therapeutic commercialization, having held various strategic and operational leadership positions, and she has already begun building out the rest of her team. As we described previously, we are adopting a high targeted approach with this sales team focused on high-volume, early adopter PCPs and pediatricians concentrated in major metropolitan areas, positioning this investment to be accretive from the outset. From there, we will evaluate additions to the sales team as we further refine our strategy and gain in-depth understanding of the space. We look forward to completing the initial build-out process next quarter with the launch into the field in Q3, initial impact to demand beginning in the fourth quarter. Rounding out focused commercial investments, our Free to Be Me direct-to-consumer patient awareness campaign featuring Tori Spelling, her daughter, Stella McDermott and professional golfer, Max Hona has driven strong meaningful patient engagement. Their shared collective experiences are helping to drive awareness for ZORYVE across all indications and are resonating with a broad range of patient demographics. We look forward to the continued progress of this important direct-to-consumer effort to ensure we are capturing and reflecting the patient voice and patient experiences as they live and manage their chronic inflammatory skin conditions and the impact ZORYVE has on their lives. With that, I'll now turn the call over to Patrick. Patrick Burnett: Thank you, Todd. Good afternoon, everyone. In the first quarter, we continue to make significant progress in our efforts to support young children and infants suffering from plaque psoriasis and atopic dermatitis. Starting first with atopic dermatitis, children under the age of 2 are the most vulnerable patients in a population that desperately needs alternative therapeutic options to the handful of currently available treatments. As a dermatologist, I can tell you firsthand how challenging it is to sufficiently address these diseases in this age group given the very limited set of approved therapies and how eager the parents and caregivers are for effective, safe and well-tolerated treatments to bring comfort to their kids. Safe, well-tolerated treatments are especially important in this age group when the immune system and the skin barrier are still developing. We take their plea very seriously, and we believe the clinical profile and formulation of ZORYVE are well suited to the needs of this young patient population. On our March call, we highlighted the positive top line data from the INTEGUMENT infant Phase II trial of ZORYVE cream 0.05% in infants aged 3 to less than 24 months with mild to moderate atopic dermatitis. Expanding on what we shared in March, we were honored to have our abstract selected for a prestigious late-breaker session and presented by Dr. Lawrence Eichenfield at the American Academy of Dermatology Annual Meeting at the end of March, select portions of which we have here on Slide 12. Over 1/3 of study participants who completed 4 weeks of treatment achieved a validated investigator global assessment for atopic dermatitis that's a VIGA-AD success. that's defined as a score of 0, which is clear, or 1, which is almost clear with at least a 2-grade improvement. Close to half of infants achieved a VIGA-AD score of clear or almost clear, that's a 0 or 1 at week 4 and 24% already at week 2. Now for those infants with at least mild scalp involvement at baseline, more than 2/3 achieved VIGA scalp success at week 4. And as previously highlighted, 58.3% of infants achieved at least a 75% reduction in their eczema area and severity index that's an EASI-75 at week 4 and 3/4 of infants already at week 2. Now to the right, we see a representative patient. This is a 23-month old boy who had previously been treated with topical corticosteroids with an IGA of 3 or moderate severity at baseline, and he's showing significant improvement at week 4 with an IGA of 1 or almost clear. I think these photos really represent the meaningful impact that our 0.05% cream delivered to patients in this study and why we're so excited to already have these data submitted to the FDA. Collectively, the findings from the INTEGUMENT infant study add important clinical evidence on the promise of investigational ZORYVE cream 0.05% in infants 3 to 24 months with rapid and robust efficacy across multiple clinical endpoints, coupled with excellent tolerability and a clean safety profile. Now moving on to Slide 13. I want to highlight one particularly notable result that we shared from INTEGUMENT infant at the AAD, namely the rapid impact that ZORYVE had on itch for these patients as reported by their caregiver. Itch is one of the most disruptive symptoms of atopic dermatitis in patients of all ages and the rapidity with which a therapy can alleviate itch is an important aspect of a drug's therapeutic profile. We've known since early clinical development that ZORYVE has a rapid impact on itch. The chart on the left-hand side of Slide 13 shows itch improvement over time in our registrational INTEGUMENT-1 and 2 trials in atopic dermatitis as measured by WI-NRS or worst itch numeric rating scale. As you can see, we saw itch reduction as early as 24 hours after first application, and that was the first time point measured in these trials. However, through our clinical trial experience and feedback from clinicians in the field, we appreciated that the speed with which ZORYVE impacts itch is exceptional. And with that in mind, in it taking an infant, we chose to measure impact on itch using the dynamic pruritus score, or DPS, with measurements as early as 10 minutes after application. The results from that analysis are demonstrated in the chart on the right-hand side of this slide. Nearly 50% of patients experienced a 25% improvement in itch as measured by their caregivers within just 10 minutes of application of ZORYVE and 2/3 of patients experienced relief within 4 hours. These results not only reinforce our conviction that ZORYVE will be an important therapeutic option for infant patients, but this demonstrated speed of onset has also prompted us to further study the impact of ZORYVE on itch. To that end, we recently initiated a study INTEGUMENT-Ich, to assess descriptive classification of pruritus over time with ZORYVE 0.15% cream in patients with atopic dermatitis. This 40-patient trial will begin enrolling shortly. We believe that the further validation of ZORYVE's rapid impact on itch that this trial is intended to demonstrate, particularly within the first 24 hours after initiating therapy is an important step in better understanding and articulating ZORYVE's profile in atopic dermatitis. INTEGUMENT itch is an example of our strategy to generate additional clinical data for our current indications to further bolster the data set behind ZORYVE. -- an important component of our growth strategy pillar. I look forward to sharing subsequent updates on other clinical activities we're pursuing along the same vein. Next, I'll provide an update on our label expansion efforts to support pediatric patient populations. As Frank mentioned in the opening, we submitted a supplemental NDA to the FDA in April for ZORYVE cream 0.05% to expand the indication to infants 3 to 24 months. We're thrilled to have taken this critical step to potentially bring a new safe, well-tolerated and effective therapeutic option to this patient population. It's notable that we were able to submit our application in just 3 months after having read out the top line results from our INTEGUMENT infant trial. This reflects the speed with which our team at Arcutis is moving on behalf of patients and our response to the high level of urgency shared by those HCPs who care for these youngest AD patients. Turning next to our pediatric expansion efforts for plaque psoriasis. We recently completed enrollment of a MUSE trial or maximum MUSE trial for ZORYVE foam 0.3% for children ages 2 to 11 years old with scalp and body psoriasis. The trial is intended to serve as the basis of an sNDA submission to extend the indication to this age group and to align the psoriasis indication of the 0.3% cream and foam. If approved, ZORYVE foam could offer a truly unique therapeutic option for caregivers helping their young children manage this disease that has historically been difficult to treat when presenting in hair-bearing areas. In addition, as previously announced, our supplemental NDA for ZORYVE cream 0.3% for psoriasis patients down to the age of 2 years is under review by the FDA and the PDUFA action date of June 29 is quickly approaching. I'll note that the rationale for extending our label to the infant population for atopic dermatitis does not apply to plaque psoriasis or seborrheic dermatitis. Onset of diseases in these patient populations is common in atopic dermatitis, while it's not in the other 2 diseases. Our current label in seborrheic dermatitis positions us to effectively serve the addressable patient population and potentially securing a label expansion to the pediatric age range in plaque psoriasis will similarly equip us to serve the addressable patient population. As demonstrated in the table on Slide 14, these latest developments in expanding our indications to additional pediatric and infant populations build on a consistent focus we've maintained over the years to broaden the availability of ZORYVE. We're driven by the need of these younger children for effective, safe and well-tolerated therapeutic alternatives to topical corticosteroids. We also anticipate that when health care providers see how effectively ZORYVE alleviates inflammatory skin disease in their most fragile and vulnerable patients, they'll be more inclined and appreciate the potential benefit from ZORYVE for their adult and adolescent patients with the same diseases. Now turning to Slide 15 and the pipeline. This is the build pillar of our strategy. We've now initiated the Phase I trial of ARQ-234, our novel biologic targeting CD200R in healthy volunteers and adults with moderate to severe atopic dermatitis. There's a clear and distinct need for a systemic therapy for patients with atopic dermatitis who have relapsed on or who are refractory to IL-4, IL-13 drugs. Many in the drug industry and many clinicians had until recently hoped that agents targeting OX40 would meet that need. However, after a series of disappointing clinical data sets and growing safety concerns for these programs targeting OX40 already leading to program discontinuations, that hope has dissipated, leaving a white space for novel new treatment pathways. It's our belief that the CD200 axis targeted by ARQ-234 could bring an important new tool for providers and an important new option for patients. The CD200 axis plays a central role in both innate and adaptive immunity with CD200 signaling reducing immune activation for T cells, type 2 innate lymphoid or ILC2 cells and myeloid cells and decreasing secretion of pro-inflammatory cytokines. Given the impact of this access, there's a solid basis for optimism about the role of CD200R agonist programs may play in treating inflammatory diseases. The Phase I trial for ARQ-234 is comprised of a single ascending dose or SAD component in healthy volunteers, which is currently ongoing and a multiple ascending dose or MAD component followed by a proof-of-concept cohort, both in patients with moderate to severe atopic dermatitis. While we will not share the results from the trial until completed, we will keep you apprised of our progress through these different components. Now moving on to Slide 16. As you can see, we've already delivered on several meaningful clinical milestones in 2026 and look forward to continuing clinical progress throughout the year. Of note, we continue to enroll our Phase II proof-of-concept trials in vitiligo and hidradenitis suppurativa or HS. We're nearing full enrollment for our vitiligo trial and remain on track to provide a readout of trial results and an update on our clinical development plan in Q4 of this year. And a similar readout for our HS program in Q1 of 2027 also remains on track. And Todd alluded earlier to the continued shift from topical steroids to advanced targeted topical therapies like ZORYVE. As we've mentioned on prior calls, we're seeing a steadily growing consensus within the dermatology specialty around the clinical needs for that shift, and we saw further evidence of this since the start of the year. On Slide 17, I highlight just a few of the recent discussions on this topic. I would call your attention in particular to one of the conclusions of the recently published expert consensus statement on advanced nonsteroidal topical therapies for atopic dermatitis, which came out in March in the Journal of Drugs in Dermatology. As you can see, some of the most distinguished experts in the field agree that advanced nonsteroidal topicals should be preferred over topical corticosteroids for long-term management of atopic dermatitis due to their cleaner safety profiles. This is typical of what we continue to hear from the leaders in dermatology, and this growing consensus will propel the conversion to the newer agents, of which ZORYVE is the leading treatment. With that, I'll turn the call over to Latha to further detail our Q1 financial results. Latha Vairavan: Thank you, Patrick. I'm on Slide 19. We generated net product revenues in the quarter of $105.4 million, which is up 65% from Q1 of 2025. This year-over-year increase was driven primarily by increased patient demand. We also had lower gross to net in the first quarter of 2026 versus a year earlier, contributing to higher net product revenues. As Todd mentioned earlier, this improvement in gross to net was primarily driven by the evolution of our payer contracting. And while our gross to net rate is lower to begin the year, we still anticipate our gross to net to be in the 50s throughout 2026, ending in the low 50s. Cost of sales in the first quarter were $9.8 million compared to $8.8 million in the first quarter of 2025, primarily due to increasing ZORYVE sales volume. For the first quarter of 2026, our R&D expenses were $30.6 million versus $17.5 million for the corresponding period in 2025. This year-over-year increase was primarily due to the $10 million milestone obligation to Ducentis shareholders triggered by the dosing of the first subject in the ARQ-234 Phase I trial, which occurred in the quarter. SG&A expenses were $74.1 million for the first quarter of 2026 compared to $64 million in the same period last year, up 16% as we continue to invest in our commercialization efforts for ZORYVE. We anticipate a modest increase to the SG&A expense in the back half of the year, driven by headcount-related costs for the dermatology sales force expansion and the build-out of our primary care and pediatric sales team. we are maintaining our revenue guidance in the range of $480 million to $495 million for the full year 2026. Moving to Slide 20. You can see that we had cash and marketable securities of $224.3 million on our balance sheet as of March 31, 2026. Importantly, we maintained positive cash flow in the quarter with $2.2 million of net cash provided by operating activities. We will continue to be disciplined in our investments in the business to maintain positive cash flow throughout the rest of the year. We have total debt of $101.5 million and have the right to withdraw another $50 million in whole or in part at our discretion through the middle of '26. I am now on Slide 21. With the continued broad adoption of ZORYVE and sustainable sales momentum that the franchise has demonstrated, we have reached the rare milestone amongst biotechnology companies of achieving positive cash flow at Arcutis. We first achieved sustainable positive cash flow in the fourth quarter of last year and have communicated that through diligent expense management, we anticipate maintaining positive cash flows on a quarterly basis throughout 2026. This -- the core ZORYVE business is strong and the shift from topical steroids to branded nonsteroidal topicals will continue to offer immense growth opportunity for many years to come. Concurrently, we are reinvesting capital generated from our ZORYVE franchise back into our business in order to inflect growth in 2027 and beyond. ZORYVE's growth is driven by both of these factors. You've heard about several of these initiatives today, including our sales force expansions in both derm and primary care, DTC efforts, clinical investments to support current and potential additional indications for ZORYVE and progress on our innovative pipeline. There are additional initiatives for which we are making disciplined investments that we look forward to detailing throughout the year. These investments lay the foundation for both near- and long-term growth for Arcutis. They will help to further catalyze the continued growth of ZORYVE and inflect its trajectory. ZORYVE is a profitable franchise. And if we were not pursuing these impactful accretive investments, we would commence operating leverage expansion in 2026. As we look ahead to 2027, we expect a moderation in the need for increased investment in our current business compared to this year. Coupled with the anticipated continued sales growth of ZORYVE, we expect that we will see meaningful increase in our operating leverage and cash flow generation in 2027 and beyond. With that, I will now turn the call back to Frank for closing remarks. Todd Watanabe: Thanks, Latha, and thanks again to all of you for joining us today and for your continued interest in Arcutis. I'm immensely grateful to our team and very proud of their hard work, their dedication to building shareholder value and their commitment to the patients we are serving. And with that, I'll open up the call to Q&A. Operator: [Operator Instructions] Our first question comes from the line of Andrew Tsai of Jefferies. Lin Tsai: So it sounds like gross to net performed better than compared to last year, Q1 of last year. Can you guys maybe qualitatively describe what drove that better percentage? Was it something within your control? And what kind of positive impact could that have for the rest of the year? I know you kind of guided gross to net for the rest of the year. Is it fair to assume blended gross to net for this year could be better than the blended gross to net for 2025? Todd Watanabe: Sure. Yes. Todd, do you want to take that one? Todd Edwards: Yes. I think I'll take that call, Andrew. Thank you for the question. So yes, as mentioned, we did have price improvement in the first quarter of this year relative to Q1 2025. This year-on-year improvement was primarily driven by improvements in formulary status with more preferred versus nonpreferred position with some of our commercial plans. What this means is that for a patient, for a preferred status, it's a lower co-pay versus nonpreferred position. So with the preferred status and lower co-pay for the patients, that leads to lower co-pay expenses and lower co-pay buy-down for Arcutis give us the pricing upside. Now while our rate is lower than the prior year, we continue to anticipate that we'll be stable in the 50s without a doubt throughout the year. And as mentioned, we'll be working down from the higher 50s at the beginning of the year, transitioning to the lower 50s at the end of the year as patients continue to buy down the deductibles and we have lower co-pay expenses. Now as we look forward, I think it's a bit too early to anticipate how all these factors will carry forward to future years. But I remain very confident that we'll continue to have a very strong gross to net, and we'll maintain our gross to net within the 50s going forward. Thank you for the question. Operator: Our next question comes from the line of Tyler Van Buren of TD Cowen. Tyler Van Buren: Just to help quantify the quarter-over-quarter impact in the Q1 seasonality, as we compare to Q4, can you help us understand how much of that was the gross to net impact versus volume impacts from weather or Q4 pull forward? And the second part or follow-up is, I understand that you're saying that Q2 sales will be above the first quarter, but do you believe it's likely that Q2 sales could significantly exceed the sales that were posted in Q4? Todd Watanabe: Tyler, yes, Todd, do you want to take that one, too? Todd Edwards: Yes, absolutely. Thank you, Tyler. So in reference to the quarter-on-quarter impact of seasonality and the differential between gross to net and demand, as we've highlighted, there was an upside on gross to net due to the which that has changed from nonpreferred to preferred with the -- as mentioned, the demand saying relative to the 6% on that. And if you think about it, with the seasonality, which is typical because of the pull forward of the refills into Q4, we got employers that are often change in insurance from employees that's effective January 1 of the year. That transitions impacts relative to ZORYVE and then, of course, the higher deductible reset that impacts it. And then as noted, this was compounded relative to the weather impact. And I will just mention that this whole weather impact and demand impact was not just limited to the topical products. When you look at the systemics, they were also impacted as well. For example, Otezla was down 11%, Rinvoq 3% Dupixent 2%. This is on volume due to this seasonality with this and being amplified by the impact of the weather. Relative to Q2 sales and how we think about them going forward, I will mention that Q2 quarter-to-date through April 24, ZORYVE has 13% growth versus Q1 within the same time period. So we're off to a very strong start within Q2 here, and I have high confidence that we'll continue to build on this demand trend and have robust growth quarter-over-quarter as we go forward. Operator: Our next question comes from the line of Seamus Fernandez of Guggenheim Securities. Colleen Garvey: This is Colleen on for Seamus. When thinking about this year's sales guidance, what are the assumptions driving the lower end of the guide? By our math and just based on the current prescription trajectory, we're starting to struggle to land within the upper end of the guide and consensus looks to already be above. So just trying to understand the pushes and pulls to maintain the current guide. Todd Watanabe: Colleen, Look, I would say that we just updated the guidance in February. so not that long ago, we don't intend to update our guidance at least for the moment every quarter. So we'll continue to evaluate the trend as the year progresses. And if we feel that it's appropriate to update the guidance, we will. But we felt that at this point, early in the year, particularly with a slightly anomalous Q1, we felt that it was prudent just to hold fast. Latha, Todd, I don't know if there's anything else you want to add to that. Todd Edwards: Nothing else, Frank. Latha Vairavan: Calling out, I would say that the -- we issued the guide after the end of the year. And as Frank said, we don't see the need so early in Q1 to take it up. So as the year progresses, then as the guide rate changes, then you'll be able to align more to where the demand trajectory is headed. But for now, I think you can lean into the upper end and stay there. Operator: Our next question comes from the line of Judah Frommer of Morgan Stanley. Judah Frommer: We appreciate kind of the updated trends on total scripts and the share being taken there. Anything you're noticing in NRx new scripts and any trends that are indicative of where TRx could move going forward? Todd Watanabe: You're talking absolute volume share? Judah Frommer: Yes. Todd Watanabe: I would say... Share of new scripts, how that's trending, if anything has changed, has that formulary position maybe impacted what new scripts are doing? Okay. Sure. Todd, do you want to take that one? Todd Edwards: Yes, I'll take that one. When we look at the Q1 for ZORYVE and you look at the new-to-brand Rx for the branded nonsteroidal topicals, you look at that basket for Q1, ZORYVE drove 48% of the new-to-brand Rxs for the branded non-steroidal topicals. And we're very encouraged by this. I mean, I'll just reference this as comparison. If you look at like Opzelura, it was 28%. I think what's more is that you look at for ZORYVE and the NBRx decline quarter-over-quarter, we were basically flat. I think -- which is another strong signal. The other is when you look at our refills, Look at our total volume prescription, of that, our refills are about 45%, which is once again very encouraging for us, not only on the NBRx, but also on the refills that are contributing to our TRx and our overall growth. If I look within Q2 and I look at approximately the last 3 to 4 weeks, we've had very impressive NRx growth with ZORYVE, which once again is a great leading indicator of what's to come as far as TRx growth as we roll forward into the quarter. Operator: Our next question comes from the line of Uy Ear of Mizhuo. Uy Ear: I have 2, if I may. The first question is, could you maybe just help us understand or quantify the opportunity from the infant atopic dermatitis conditions. I think, Frank, you mentioned it was a significant opportunity. And how -- and maybe just help us understand how you'll capture that opportunity? Is it primarily through the derm sales force that you currently have or from building out the primary care pediatric sales force? That's the first question. Todd Watanabe: Go ahead. Did you have another one Uy Ear: Yes, I do. The second question is maybe, Lata, the SG&A was lower than what I think we or the consensus expected something like by $4 million. Now that you have the full sales force expansion, do you expect an uptick in the second quarter? Because I thought, if I heard correctly, I don't know what the starting point is, but you indicated that you were expecting a modest SG&A uptake in the back half of the year. So maybe just help us understand the cadence of spending for the year. Todd Watanabe: Okay. Thanks. So Patrick, maybe why don't we start, if you wouldn't mind sharing maybe a dermatologist perspective on the 3- to 24-month opportunity and the unmet need. And then, Todd, maybe you can address how we're going to get at that commercially. And then Latha, if you could address his question around OpEx. Patrick Burnett: Sounds good, Frank. Yes. So I think this 3 to 24 months group, and I'll let someone else kind of comment on the kind of absolute size of that group. But I think they are uniquely reflecting a patient population that has -- we're talking about essentially crisaborol approved there and then maybe 5 or 6 topical corticosteroids. So I think this really is a group that as we've been out kind of talking to pediatric dermatologists, and these patients are not just managed by pediatric dermatologists. The they're managed by a lot of dermatologists, dermatology, PAs and NPs as well, that this is one where people really do struggle to be able to get these patients under control. Obviously, it's not a group that you want to jump to a systemic right away. They tend to have a higher body surface area. Their disease tends to evolve kind of quickly over time into a pretty high percent of involved skin. And kind of as we alluded to in the call, there's a really high sensitivity to exposure to corticosteroids right out of the gate. I mean these are very, very young patients and the developmental milestones are at the top of mind for caregivers. So really kind of finding something that fits into that mindset, I think the ZORYVE profile fits beautifully into that. And I think we kind of alluded to the fact that this is a way to really win the hearts and minds of prescribers because if you could solve this problem for them, I think it really helps with the overall lift for the brand and what it means for the field. So I think that's the derm perspective. And as far as the overall size of the opportunity, I think I'll turn it over to you, Todd, to talk about that. Todd Edwards: Yes. Thank you, Patrick. And I'll just reemphasize, as Patrick mentioned, this patient population is tremendously underserved. If you think about it, it's really just EcrIA, which burns in the one application is available and then topical steroids, which, of course, brings great concerns to a caregiver, you say relative to steroid exposure. How we're going to drive this opportunity as we go forward once we get the approval will be across both the dermatology sales force as well as the PCP and pediatric sales force. Dermatology sales force because we do have pediatric dermatologists as well as other dermatologists to see this population and that we're conveying there's a real value proposition for this population. And then, of course, with our primary care and pediatric team, they'll be calling on pediatricians to make certain they create that awareness for the patient. And then in -- in addition to that, saying, we'll be doing a lot of direct-to-consumer campaign. And when I say consumer, it's a caregiver. We'll be making certain that we're reaching out and we're driving brand awareness of ZORYVE for this population to that caregiver to make certain that we know that it's available. And then in reference to the approximate side, it's about $2 million to $2.5 million as far as the patients, the opportunity that sits here within this age group in atopic dermatitis. Todd Watanabe: And Latha, can you address Uwe's question about the OpEx? Latha Vairavan: Yes. I would say SG&A for Q1 was slightly below consensus, but not we don't see a dramatic decline. So nothing to concern yourself there. The field force should have started in Q2. You'll see a portion of that hitting Q2 actual. So some normalization of that. The expansion for the primary care field force that will happen in the second half is what the comment modest increase references. And some of the initiatives that Todd talked about, you'll see some of that expense also play out for the course of the year. So that's our feedback on SG&A being higher year-over-year. Operator: Our next question comes from the line of Serge Belanger of Needham. Serge Belanger: The first one, just regarding coverage for ZORYVE. Do you expect to make any headways on what is remaining for Medicaid and Medicare coverage? Or is that more of a 2027 event? Just curious maybe if you can pull it forward to 2026. And then with the sales force expansion, you're going to be going to lower deciles prescribers. Just curious how they differ from the higher decile. Obviously, volumes are lower, but do they tend to prescribe less topical products than the higher decile ones? Todd Watanabe: Yes. Todd, sorry to worry you out, but could -- you want to take those 2? Todd Edwards: Yes. No, I'm happy to. Great question. So thank you. First one in reference to the coverage question and making headway relative to Medicaid and Medicare. We will continue to make headway in Medicaid. We can do that within 2026 as we continue to contract with these individual states relative to the fee-for-service Medicaid. We're currently in negotiations and conversations with some of those states where we don't have ZORYVE on formulary. Relative to Medicare, it's a longer process. We have to contract with each independent Part D plan. And typically, they do those formulary updates at the first of the year. So it is -- I'm saying likely going to be January 1, 2027, but there is opportunity with the Part D plans to be able to pull that forward into 2026. And so as previously communicated, ZORYVE has access in approximately 1/3 of the Part D plans. And it's our ambition to continue to accelerate that as we go forward, and we'll make every effort to pull that forward into 2026. And then the other is in reference to the sales force expansion, yes, you are correct. The ambition here is to be able to have a higher frequency, a higher level of engagement with the med decile providers by not diluting that frequency on the higher decile providers. And what mainly differentiates between high decile and medium decile is the opportunity to prescribe, meaning that they have a higher -- the higher deciles have a higher patient base, higher patient load. They typically do tend to be more rapid adopters of branded products. But with this median decile providers, there's ample opportunity for us here to continue to expand ZORYVE and believe that, that frequency will lead to higher adoption of ZORYVE. Operator: Our next question comes from the line of Richard Law of Goldman Sachs. Unknown Analyst: This is Tan on for Rich. The first one on the primary and pediatric care setting. Curious if you could speak more to what you're doing differently than CALA in those settings. What areas were they not doing well that you think you can improve on? And then I have a follow-up. Todd Edwards: Yes. No, it's a great question. Thank you. I'm sorry, Frank. I just jumped in. Thank you. So what we're doing differently is we are -- I mean, what -- I wouldn't reference it as what we're doing differently as it is what we're going to do to make certain that we set this primary care team up for success and that we can drive utilization of ZORYVE within these specialties is that, as mentioned, as we build this team at launch, we're going to be highly focused. We're looking and we've been able to build out the target list to make sure that we're going to be engaging the highest opportunistic primary care and pediatricians. And what I mean by highest opportunistic is this will be the PCPMPs that have the highest patient loads within the 3 indications in which ZORYVE is approved, not only that, but that these providers have demonstrated their willingness to adopt branded products. And these will sit within the major metropolitan areas. Also, we'll make certain that within each of these representative territories that we'll have a defined number of targets where we can make certain that, that representative can have the right frequency on each target to be able to drive trial and adoption of ZORYVE. Once again, setting this up for success. And then as we deliver success, we'll continue to scale from that point going forward. Unknown Analyst: Okay. Got it. And the second one on the foam in vitiligo and HS. What efficacy benchmarks would you say would be sufficient to give you confidence in continuing development in those 2 indications? Todd Watanabe: Sure. Todd, you got to pass. Patrick, do you want to take that one? Patrick Burnett: Thanks. Yes. So as we're looking at vitiligo and HS, keeping in mind that these are smaller open-label trials -- what we're really trying to understand is what does the ZORYVE profile look like relative to current standard of care treatments. And so for vitiligo, we're really kind of looking at the responsiveness timing relative to Opzelura. We know that one of the big challenges for patients with vitiligo is how quickly that they're seeing a response in the skin because that can really drive compliance. So once you get the patient onto the treatment, if they're not seeing the response that they want to, sometimes they'll fall off of their treatment. And I think that's where the mechanism of ZORYVE with PDE4 kind of working both on the inflammatory component, but also we've seen some evidence, as we outlined earlier, some impact potentially on the actual kind of melanocyte protection and pigment production is our hypothesis. So for why it is that we might see an earlier response rate. So we're kind of looking at what that profile is. Now when we look at HS or hidradenitis suppurativa, one of the things that we really want to be able to see is where are we moving these patients in the earlier stage of disease and how would that treatment, given that there isn't a really effective topical that's out there being used right now for patients with HS, where does that fit within the treatment paradigm that has emerged, where many of those patients are pretty quickly being moved to systemics even if they might have disease that might be able to be managed by an effective topical. So there, I think we see a little bit more blue sky for that. And what we're going to try and outline as we get into Q4 for vitiligo is a pretty clear understanding of both what we are seeing from the response profile, but also where we see the commercial opportunity and how we would see that profile fitting into the landscape. Todd Watanabe: Yes. And maybe I could just add one additional thought to Patrick's comments. And I think specifically in the HS case, and we saw this again with the APOLLO data today, the systemic therapies are not particularly effective in this disease. So even patients on systemic therapy are often going to need adjunctive treatment. And ZORYVE is really unique in the topical space that it can be safely used in combination with systemic therapies. And the disease is often occurring in intertriginous areas, the growing arm pits where doctors are much more reluctant about using topical steroids as well. So I think both early-stage disease, but also adjunctive to systemic therapy as we're seeing in psoriasis and atopic dermatitis. I think ZORYVE has a uniquely compelling profile for that use case as well. Operator: I'm showing no further questions at this time. I'll now turn it back to Frank for closing remarks. Todd Watanabe: Okay. Well, I will just thank everyone again for making time. I know it's a busy time of the year for you guys. So I appreciate you calling in and look forward to talking to you all in another quarter. Thanks. Bye-bye. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Greetings, and welcome to Zevia PBC First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Jean Fontana, Investor Relations. Thank you, Ms. Fontana. You may begin. Jean Fontana: Thank you, and welcome to Zevia's First Quarter 2026 Earnings Conference Call. On today's call are Amy Taylor, President and Chief Executive Officer; and Girish Satia, Chief Financial Officer and Principal Accounting Officer. By now, everyone should have access to the company's first quarter 2026 earnings press release and investor presentation made available this afternoon. This information is available on the Investor Relations section of Zevia's website at investors.zevia.com. Before we begin, please note that all financial information presented on today's call is unaudited. Certain comments made on this call include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. During the call, we will have some non-GAAP financial measures as we describe business performance. The SEC filings as well as the earnings press release, presentation slides that accompany today's comments and reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are all available on our website at investors.zevia.com. And now I'd like to turn the call over to Amy Taylor. Amy Taylor: Thank you, Jean. Good afternoon, everyone, and thanks for joining our first quarter 2026 earnings conference call. We're off to a strong start to the year with record sales growth of 21% and adjusted EBITDA of approximately $1 million, both exceeding our expectations for the quarter. This is clear evidence that our strategy is gaining meaningful traction. Across channels, we're seeing encouraging momentum spanning from consumers discovering Zevia for the first time to long-time Zevia drinkers enjoying our new flavors. Importantly, this performance reflects the deliberate actions we've taken over the past several quarters to rightsize our cost structure and reinvest in marketing, sharpening our innovation pipeline and driving new distribution. Taken together, these efforts are translating into a strong setup for the remainder of the year. The momentum we're seeing today reinforces our confidence that we are on the path to long-term growth and profitability. Now I'd like to walk through our progress across our core pillars, starting with marketing, continuing through product innovation and rounding out with distribution updates. On the marketing front, we delivered two engaging brand campaigns to start the year as we bring to life Zevia's distinction as the radically real people's champion. First, our Ztox campaign in January invited consumers to detox from artificial soda with a simple swab to a Zero artificial better-for-you alternative. The campaign came to life through experiential marketing, sampling and digital and influencer activations and helped kick off a strong start to the year. And second, our timely and shareable Real Soda for real humans campaign ran in March and April, making it clear that only robots should drink chemical cola and Zevia is the soda for humans. Paid advertising across digital platforms and live TV, including March Madness games was the primary driver of reach. Offups at high-profile events like South by Southwest, where consumers had to approve they were humans to get Zevia swag further amplified the campaign. Sweepstakes activated on social generated thousands of entrants and engaged new consumers. We believe our mix of advertising and grassroots marketing and more than ever, our differentiated brand voice is proving efficient and effective in building awareness, trial and ultimately demand for Zevia. In March, we announced Zevia's biggest marketing news to date, a partnership with Grammy and Billboard Music award-winning artist, Cardi B. She, like Zevia, is a champion for the radically reel. Famous for her humor, honesty and openness, she has the 25th most followed Instagram account with over 200 million social media followers in total spanning across demographics and interests. Cardi B joins us at the perfect time as we roll out our new packaging in store, our 2026 innovation with spring resets and our improved taste across most of the portfolio. This will be a step change in reach and awareness for Zevia, supporting our objective to expand the user base. Between Cardi B and other marketing programs during the month of March, Zevia saw its highest ever organic social media reach and the highest level of social media engagement of any month since the brand's launch. The partnership announcement alone generated 152 million editorial impressions in just the first week. To kick things off, Zevia was a key sponsor of the Little Miss drama tour with a super fan giveaway and a brand presence at each stop. We plan to fully activate this partnership through social media, event activations, sampling, paid media campaigns and at retail, including potential new product innovation in the future. We look forward to sharing more on our broadest reaching brand campaign plan yet, debuting in the next couple of months. Turning to product innovation. We're pleased with the overall response to our on-trend fruit flavors as they continue to roll out nationally. While still early, initial reads show that our new items are outperforming medium velocities for our broader portfolio. At two top national retailers, for example, these items are driving incrementality of 38% and 53%, respectively. Orange Creamsicle Fruit Punch and Peaches & Cream launched its spring resets at the end of the first quarter. These flavors are on shelves now attracting new consumers and providing variety for our loyal base. Package design is our most efficient communication vehicle and a key driver of trial. Our new, more vibrant designs look delicious and bring to life our points of difference as a clean label, great tasting soda with zero sugar and zero fake ingredients. Along with our innovation and our enhanced taste profile in stores as of Q2, this refresh has supported space gains as it bolsters retailer confidence in Zevia's ability to bring in even more new valuable shoppers and to drive repeat purchases and finally, to deliver incrementality. Looking ahead, we'll continue to surprise and delight consumers with seasonal offerings such as the forthcoming holiday limited edition pack, but more to come on that in the future. So now let's move to our third growth pillar, distribution. We're pleased with our results across channels, especially our same-store distribution gains in existing channels such as grocery and our new activity in the club channel. The club channel is expected to help accelerate household penetration and growth. In the first quarter, we executed a successful national Costco rotation, broadening our reach to new consumers in emerging markets where we see potential for year-round distribution or additional rotations. In our more penetrated permanent markets, we saw strong velocities continue. In the mass channel, we saw an acceleration in velocity with notable outperformance in sales through digital platforms, a key priority for Walmart. Additionally, we are pleased with the expansion into Canadian Walmart stores and momentum in Walmart chain-wide bodes well for future opportunities with other customers in the mass channel. In grocery, spring resets are underway, and Zevia has made some strong space gains. Kroger has expanded our in-store distribution, adding incremental flavors and boosting Zevia's visibility. The brand made similar gains through new item distribution and improved shelf sets at major regional players such as HEB and Publix. These developments helped the brand drive market penetration nationally and in underdeveloped regions such as the South and the East Coast. And finally, Zevia's e-commerce business continues to grow at an impressive rate, outperforming expectations. The introduction of smaller packs across multiple flavors has helped to drive trial and assist the strategy of major e-commerce operators as they seek to compete with grocery and mass. We also see strong performance from our existing 24-pack and variety pack offerings with our subscription business super serving a heavy user. As the only zero-sugar clean label offering at an accessible price point, Zevia plays a unique role in modern soda. We're positioned to win as young consumers increasingly reject conventional carbonated soft drinks and choose better-for-you options. In closing, we've made tremendous strides in advancing our strategic growth pillars and strengthening Zevia's financial position. While we see uncertainty in the macro, we're focused on what we can control, and that is capitalizing on the opportunity to leverage Zevia's distinct market position as a great-tasting zero-sugar, clean label and affordable better-for-you option. As we continue to execute across marketing, product and distribution, we are confident in our ability to deliver sustainable profitable growth over the long term. And so with that, I'll turn it over to Girish. Girish Satya: Thank you. Amy. Good afternoon, everyone, and thanks for joining our call today. Our strong first quarter performance underscores the tangible progress we're making against our strategic priorities. The reinvestments we've made across product, packaging and marketing enabled by our productivity initiatives led to a return to growth in 2025 and fueled first quarter growth of 21%, our highest growth rate since becoming a public company. In addition to accelerated top line growth, we drove vast improvement in our adjusted EBITDA. We are proud of what we've accomplished as we believe that Zevia has tremendous long-term growth opportunity. With that, let's turn to our results and an updated outlook for 2026. For the first quarter, net sales grew 21.2% to $46.1 million. The increase versus the prior year was primarily due to expanded distribution in the club channel and higher volume gains in the mass and e-commerce channels. Gross margin was 48.4%, a 170 basis point decline from a record high of 50.1% in the first quarter of last year. The decline reflects the impact of higher aluminum costs and to a lesser degree, the higher mix of club sales. This was partially offset by higher average selling price related to a shift in promotional timing as well as higher price realization. Selling and marketing expenses were $14.5 million or 31.5% of net sales in the first quarter of 2026 compared to $15.3 million or 40.3% of net sales in the first quarter of 2025. Breaking it down, selling expense was $9.4 million or 20.4% of net sales in the first quarter of 2026 compared to $9.1 million or 24.1% of net sales in the first quarter of 2025. The 370 basis points improvement was due to better warehousing and efficiency gains from automation. Marketing expense was $5.2 million or 11.2% of net sales in the first quarter of 2026 compared to $6.2 million or 16.2% of net sales in the first quarter of 2025. The lower marketing expense as a percentage of sales was due to a shift in timing of our national campaign relative to last year. We continue to balance brand and performance marketing with the objective of driving more awareness for Zevia. General & Administrative expenses were $9.1 million or 19.7% of net sales in the first quarter of 2026 compared to $7 million or 18.4% of net sales in the first quarter of 2025. This includes $2.3 million or 490 basis points in litigation expenses in the first quarter of 2026. Adjusted EBITDA was approximately $0.9 million compared to an adjusted EBITDA loss of $3.3 million in the prior year period. Turning to our balance sheet. We ended the quarter with approximately $26.6 million in cash and cash equivalents and have an undrawn revolving credit line of $20 million. Looking ahead, we will continue to build upon the strong progress we have made across our strategic pillars. Our revised outlook reflects the record performance in the first quarter, balanced with the ongoing uncertainty in the macro environment. In addition, our guidance reflects significant cost pressures associated primarily with higher fuel prices as well as additional increases in aluminum costs. Now turning to our outlook. Based on our first quarter results and incorporating increasing macro uncertainty, we are raising our full year net sales guidance to between $170 million to $175 million, reflecting 7% growth at the midpoint of the range. As a reminder, our net sales outlook reflects the planned discontinuation of our tea line, which we expect to impact growth by 1-point to 1.5 points. We continue to expect the first and third quarters to deliver the biggest growth of the year due to timing of promotional and marketing investments. Turning to profitability. We now expect full year adjusted EBITDA in the range of negative $2 million to negative $4 million. This incorporates an incremental $6 million in costs, 2/3 of which are related to the surge in fuel prices and the remainder of which are related to higher fuel-related aluminum costs. This is on top of the $5 million in incremental costs related to aluminum prices that we outlined on our previous earnings call, so combined an $11 million headwind to profitability. This guidance assumes gross margin will be roughly in line with our Q1 gross margin rate with slight pressure in the back half. The aforementioned fuel charges outside of aluminum costs will impact selling expense. Worth mentioning that if you back out the $11 million of incremental costs, our adjusted EBITDA outlook would have been $7 million to $9 million for 2026, roughly a mid-single-digit margin rate. While we expect these elevated prices to come down over time, we're also taking proactive steps to offset these higher costs. We have already taken $20 million of costs out of the business over the last 2 years. And while we see additional savings opportunities, these will take time to realize and won't be taking at the expense of growth. Turning to our outlook for the second quarter of 2026. We expect net sales of between $43 million to $45 million. Once again, this guidance reflects the planned discontinuation of our tea offerings, the lapping of sell-ins to Walgreens and Albertsons in the second quarter of last year as well as a shift in marketing and promotional dollar spend from Q2 to Q3. In addition, we continue to expect to realize the impact of planned price increases. We expect adjusted EBITDA loss of between negative $0.5 million and negative $1 million, reflecting a gross margin rate similar to the first quarter. In addition to higher fuel costs, we also expect to incur approximately $1 million in restructuring costs related to the relocation of one of our distribution centers. In closing, we are very pleased with the overall momentum of our business, which demonstrates strong execution against our strategic growth pillars. Early reads on our enhanced product portfolio, incorporating new free flavors is resonating with consumers, and we look forward to the rollout of our enhanced classic flavors and new packaging in the second quarter. This, coupled with intentional investments in marketing through which we are amplifying brand awareness and driving trial position us well to unlock future growth. As we move past these cost pressures over time, we are confident in our ability to drive healthy profitability for this business. I will now turn it over to the operator to begin Q&A. Operator? Operator: [Operator Instructions] First question comes from the line of Sarang Vora with TAG. Sarang Vora: Great quarter, guys. Congratulations. I wanted to start with the new brand ambassador Caridi B relationship. Can you talk a little bit about how you've figured out the brand ambassador as well as how does it change your marketing approach as you go in the second half of the year? Are we expecting a little bit -- the guidance, does it include a little bit uptick in marketing as well with all the plans that you talked about? Just a little bit on marketing and the brand evolution would be helpful. Amy Taylor: Sure. So Cardi B came on board as a part of our broader plan for 2026, so therefore, within planned budgets. And as we -- as you may have noted in our prepared remarks, we talked a little bit about shifting promo dollars at retail out of Q1 this year to focus on the summer. And so if you think about our focus at retail, the timing of the rollout of our new packaging, the new flavors in market with spring resets, the improved taste profile across our core, all of that with the tailwind that Cardi will provide through increased awareness and through the engagement that she'll bring, it's all timed very nicely. So what you should expect from the partnership is an always-on social media approach from both sides. Not only does Cardi have a really strong reach, but she's highly engaged in social and then her fan base is very engaged with her. So we'll find her to be very supportive of product messaging in a really organic and authentic way. But we're also going to overlay a campaign spend against the partnership right out of the gate. So you'll see a campaign, an advertising campaign this summer inclusive of traditional and over-the-top streaming television and digital that we're really excited about that will really help step change our reach and support our #1 priority, which is expanding the base. So there's a lot more to the partnership that will be within grassroots and driving trial and at retail, but we're excited immediately out of the gate about the always-on social media nature of this partnership given her engagement and then the big summer advertising campaign that comes just at the right time for the business. Sarang Vora: That's -- and just one quick question. I know there's a lot of cost pressures you talked about, especially tariffs and the fuel prices and stuff. Can you talk about the pricing approach to it? Is there a thought to raise prices in the back half of the year to mitigate some of these costs? Is that baked in your guidance as well? Girish Satya: Yes. So from a pricing perspective, as a reminder, we passed through a price increase in the first quarter. We've been pleased with the uptick and higher price realization. We are focused on ensuring we can balance value to the consumer and the P&L as well. We're unlikely to be passing through incremental pricing in the back half of the year. We do believe that the cost pressures, although are immediate in 2026. They will subside over time, and we're proactively addressing it via other levers within the business. Operator: Next question comes from the line of Eric Des Lauriers with Craig-Hallum Capital Group. Eric Des Lauriers: On a very strong quarter here and very strong outlook factoring in the significant cost pressure that you guys are facing. I mean, very impressive outlook and job done. First question, just kind of trying to level set or just understand where we are in the overall rollout of the new packaging and new flavors, certainly nice progress and some nice callouts in the prepared remarks and in the presentation. But just wondering if you could sort of give us an overall sort of standing of what inning we're in and how long we should look for the rollout of new packaging and new flavors to continue before we sort of effectively reached full nationwide distribution. Amy Taylor: Sure. So as we sit here today in May, I would say we're in the second inning. The Q1 result was game as it relates to the rollout of new packaging. And what I mean by that is by the end of the second quarter, you should find shelves that are stocked with almost all new packaging. So we've got some early green shoots. We've got some accelerating velocities and some nice results at retail that it's too early to attribute those directly to the new packaging, but qualitatively and anecdotally, both in feedback from consumers and retailers, the new packaging performs very well for us in terms of communicating the Zevia points of distinction and being very clear about our positioning, which is a step change over the packaging in the past. as well as pops well on shelves and kind of does justice to the variety and deliciousness of all of our flavor options. So it's early going, but we will be all the way to bright going into the back half of the year. And so that's partially baked into our presumptions of some acceleration of velocity in the back half. Eric Des Lauriers: Okay. Great. That's super helpful. And just to, I guess, clarify there and also, I think, informs my next question here. But did you say that you expect it to be largely complete sort of entering the back half of the year and then. Amy Taylor: Yes. Eric Des Lauriers: And then I think -- okay. All right. Great. So then this I would assume is the answer to my next question here. I just -- there was comments on the sort of pace of revenue growth throughout the year. I think it was especially strong in Q1, of course. And I think you called out -- could you just kind of help close the loop there on what's driving that acceleration in Q3? Is it just kind of sting on the gas on this distribution rollout? Or is there any other forces at play, shelf resets, et cetera, that we should be aware of? Girish Satya: So I think there's several things that are factored into sort of the growth rates being higher in Q1 and Q3. In Q3, we are shifting not only promotional dollars, but also marketing dollars into Q3 to sort of coincide with the peak as Amy alluded to, the packaging will be fully rolled out by the end of Q2. And so we're expecting a bit of an acceleration given all those three factors in Q3, which is why we've been calling out Q1 and Q3 as the sort of higher growth quarters for the year. Eric Des Lauriers: Congrats again on the very strong quarter and strong outlook here, including the cost. Operator: Next question comes from the line of Jim Salera with Stephens Inc. James Salera: I wanted to start maybe some discussion around club. You mentioned you just completed the rotation at Costco. Contemplated in your outlook for the rest of the year, is there any incremental club rotations in the back half of the year? Or anything that we should be thinking about in terms of visibility there? And maybe as a second part to that question, can you talk about the incrementality of the rotation in Costco and how many new households or maybe lapsed users that help you engage? Amy Taylor: Sure. It's early to quantify the household penetration impact of the Costco national rotation in Q1, but it certainly was additive to the quarter incremental and reflected in our growth. The advantage of the national rotation does a couple of things. Number one is it strengthens our velocities in -- based on increased presence in store in the markets in which we have permanent distribution as well as helps to spur discussions about future rotations for the regions in which we have rotational distribution and then opens up a conversation about two things, increased permanent distribution and/or future national rotation. So those are all on the table and represent upside to the plan. When we perform well in existing market that helps us to move from rotation to permanent and it helps to infuse what we're working on right now, the hope is that we would get another national rotation in the balance of the year. So all of that is promising and largely incremental. But as I mentioned, it does represent upside in the plan. So right now, we're not making a whole lot of assumptions in the back half of the year around incremental distribution at club on where we are today. James Salera: Great. I wanted to ask a follow-up on the DSD network. Just any updates there and how that's trending? And maybe as we have some of this new packaging that should improve on-shelf visibility, how you anticipate that impacting the kind of West Coast portion of your business that's supported by the DSD network? Amy Taylor: Yes. I think we're really bullish on the summer window for the markets of DSD for our ability to drive incremental displays in this critical window. We're focused on getting singles in front of the consumer on display. We're focused on leveraging the new excitement around Cardi [ D ] as being part of the reason why against that as well as, as we mentioned before, we focused promotional dollars for the summer. So DSD will have a role in outperforming display execution versus the rest of market there, and we're happy with their ability to do that so far. But in terms of an outlook on DSD, we're just really focused on execution in our, what I'll call regional pilots today, which is, as you mentioned, in the Northwest and the Southwest, so focused on the West Coast, we're a little bit more developed. And we don't have any more plans to expand DSD outside of the existing footprint, but we are bullish on their ability to help us open up new channels and specifically convenience over time. And we've talked about this before, but both the category and the brand are still in very early days in convenience. So we'll pace ourselves there and focus more on same-store penetration and growth in independent channels in the meantime. Operator: Next question comes from the line of Andrew Strelzik with BMO Capital Markets. Andrew Strelzik: First one I wanted to ask on the quarter. Obviously, a nice upside to your expectations, your guidance for sales and EBITDA in the first quarter. So I was hoping you could maybe talk about what played out more favorably than you initially expected? Amy Taylor: Yes, I can talk about the sales side and then just quickly turn it over to Girish. But I think the key point here is that our base business is and was strong in Q1. And as mentioned, we shifted promo out of the quarter to focus on the summer and yet retail sales came back stronger than anticipated. So we saw some good velocity acceleration even as we lap new distribution, so across grocery at Whole Foods and a few other accounts where we're actually gaining share as well. And then in some other cases, there was contribution to the Q from new distribution, be it that Costco national rotation or a few other same-store expansions within grocery. And then we're pleased to see price increase more fully realized and then realized faster than anticipated. So on the net sales side, those were the major drivers. And maybe Girish could round us out. Girish Satya: Yes. And I think the other 2 factors were the Costco rotation was less dilutive than we had anticipated. As Amy alluded to, we also saw higher price realization, which obviously helps flow through the rest of the P&L. And we've just continued to ratchet down expenses that are not consumer-facing and continue to drive cost discipline throughout the organization. So I think you see all of that sort of playing out in Q1 results. Andrew Strelzik: Okay. Great. And maybe building on that, you guys beat your 1Q guidance by, call it, $5 million and only raised the revenue outlook for the year by $1 million to $2 million. Are you seeing anything that's making you more cautious about the outlook? Is there anything from your internal plans that's changing? Maybe it's just conservatism? I just want to take your temperature on the forward look. Girish Satya: Yes. No, thanks for that. And look, we're really pleased with the outperformance thus far, and there's really nothing in the business itself that makes us more cautious. As a reminder, we have a very broad demographic base, and we're simply seeing sort of the K-shaped economy that all others are and the value consumer is getting squeezed. And so really out of an abundance of caution, we didn't pass through all of it, and we're still early in the year. And we'll -- we have a lot of exciting new initiatives that are in front of us, which gives us a lot of positivity heading into the rest of the year. However, as noted, the macro continues to give us a little bit of pause. So really, we're trying to be prudent in our outlook. Andrew Strelzik: Okay. If I can maybe squeeze one more in. On the $6 million of cost, is that ratable through the year across the three remaining quarters? And in the past, you guys have done a nice job finding incremental cost saves to offset that. I know you said that those will take some time to play out. I guess, how long do you think it will take before you start to maybe realize some of those potential offsets? Girish Satya: Absolutely. So yes, we've already begun to see the impact of the increased fuel expenses, primarily as noted in our freight expenses. We started to see that in the back half of March, more fully in April and May. And so you'll begin to see that impact in Q2. And as noted, it will be ratably throughout the year. Of course, to the extent that there is cease fire and diesel prices come down, you'll take 90 to 120 days to really see the full offset of that come back into the P&L. That being said, as a reminder, we've taken $20 million of cost out of the business. We see an incremental opportunity for $3 to $5 million that probably won't begin to flow into the P&L until Q4, but really most likely Q1 of next year. And so we'll continue to look for opportunities, but we're not going to do it at the expense of growth. And as just a reminder, on a trailing 12-month basis, we're basically breakeven from an adjusted EBITDA standpoint despite all the cost pressures. And so we do believe in the long run, this can be a very solidly profitable business, especially as we sort of lap some of these more macro cost shocks that are out of our control. Operator: [Operator Instructions] Ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to turn the floor over to Amy Taylor for closing comments. Amy Taylor: Sure. Thank you. Just very briefly. Thanks for joining us, everyone. I'll just reiterate, we're really encouraged about the progress we're making across our strategic growth pillars, and I'm really proud of this team, the leadership on down. And 2026 will be a pivotal year for Zevia as we introduce exciting new product innovation, powerful marketing campaigns and then package design evolutions, all of which really support our unique positioning within better-for-you beverage. And while we're, as Girish mentioned, navigating macro-related cost pressures and some uncertainty, we really believe we have laid the groundwork for long-term future growth and profitability, and Q1 seems to be a reflection of that. Excited about the future. Thanks very much. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the DoubleVerify First Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Brinlea Johnson, Investor Relations. Please go ahead. Brinlea Johnson: Good afternoon, and welcome to DoubleVerify's First Quarter 2026 Earnings Conference Call. With us today are Mark Zagorski, CEO; and Nicola Allais, CFO. Today's press release with this call may contain forward-looking statements that are subject to inherent risks, uncertainties and changes and reflect our current expectations and information currently available to us, and our actual results could differ materially. For more information, please refer to the risk factors in our recent SEC filings, including our Form 10-Q and Form 10-K. In addition, our discussion today will include references to certain supplemental non-GAAP financial measures and should be considered in addition to and not as a substitute for our GAAP results. Reconciliations to the most comparable GAAP measures are available in today's earnings press release, which is available on our Investor Relations website at ir.doubleverify.com. Also, during the call today, we'll be referring to the slide deck posted on our website. With that, I'll turn it over to Mark. Mark Zagorski: Thanks, Brinlea, and good afternoon, everyone. We delivered strong Q1 results as we continued our solid execution on our product innovation, strategic and financial road maps. In Q1, we achieved 10% year-over-year revenue growth, led by accelerating growth of our social verification and optimization solutions, and we delivered a 31% EBITDA margin, which exceeded expectations, largely due to AI-fueled operational efficiencies. Advertiser growth was positive across all key industry verticals in the quarter as we continue to benefit from our focus on further diversification of customer engagements and ad spend across various client types. We also repurchased $100 million worth of shares year-to-date, reflecting confidence in our business and our commitment to returning capital to shareholders as a core element of our long-term value creation strategy. We expect to deliver a strong 2026 as we successfully execute on our strategic plan to verify the quality, optimize the investment and prove the impact of digital ad impressions across any platform, media or market or advertiser spend. The solid results this quarter were fueled by our core growth catalysts, social activation and measurement products, streaming TV verification and our dynamic suite of solutions that empower advertisers to better navigate the evolving ecosystem of AI advertising platforms and Gen AI content. Across all of these sectors, our incredibly durable value proposition remains tantamount. DV is the independent essential trust layer that marketers rely on to ensure their ad spend is protected from fraud in unsuitable context and most importantly, delivers the highest possible return on investment. And this essential role in the ecosystem continues to expand as new product innovations power our growth flywheel. Let me share a few recent stats that underscore the impact of these investments. Driven by continued success on Meta, social measurement grew 23% year-over-year, a significant acceleration from Q4. Social activation, our fastest-growing solution set, grew 92% year-over-year in Q1, up from 62% in the fourth quarter. Authentic Advantage on YouTube, which combines Scibids AI optimization with prebid filtering and post-bid measurement launched in Q3 last year and is also expanding rapidly. It is now on track to deliver $10 million of expected ACV in 2026. CTV measurement impression volumes also grew, up 28% in the quarter. And our ABS-enabled streaming TV prebid Do-Not-Air List entered general availability in January. With 3 top 15 customers representing hundreds of millions in CTV spend implementing these DV-only streaming TV controls. DV continues to break new ground in the drive towards greater transparency in streaming TV. AI measurement tools like Slop Stopper, which is now available on YouTube and AI agent ID are showing meaningful engagement rates. Our AI Slop Stopper measurement solution for mobile and online video and display is already applied to over 40% of measured impressions, and the prebid tool is being tested by 6 of our largest advertisers. Our midterm goal remains to increase the contribution of social, streaming TV and AI-driven solutions from under 30% of total revenue today to approximately 50%. As we drive this evolution, our mobile and online video and display business remained stable in Q1 with approximately 2/3 of impressions that we engage with delivered on mobile, in-app and mobile web environments. We remain focused on creating a revenue mix that closely aligns with the fastest-growing global digital ad sectors. TV continues to drive new revenue opportunities, distance ourselves from competition and create meaningful margin expansion through AI efficiencies and product innovation. AI solutions, social activation tools and streaming TV quality solutions are positively impacting our customers' ad performance and building a foundation for TAM and market share expansion for DoubleVerify. Shifting focus to the role that AI is playing in the ongoing expansion of our product-led growth cycle, we continue to lean into AI to operate more efficiently, launch products faster and improve margins. And as the emerging AI advertising universe evolves, it is creating new revenue opportunities that expand our TAM as we extend our essential role in this burgeoning environment. Regarding this new environment, we've identified 3 main areas where DV has the largest AI growth opportunities and which we are already seeing traction with customers. First, the Agentic Buying and selling of media, where we are building new products, connecting with and leading the development of the numerous protocols that will help advertisers lean into AI-based buying. Second, we are empowering advertisers to navigate the dynamic AI-impacted advertising landscape as AI cyber fraud and AI content slop becomes prolific. And third, we are digging into the massive potential ad market on LLM chatbots where many of our current advertisers are beginning to deploy their marketing dollars, GIFT had little in the way of transparency and independent measurement. Let me talk briefly about each one of these opportunities. First, we are focused on establishing security and trust in the agentic advertising ecosystem. Trust has always been essential in our industry, and we recently joined the Ad Context Protocol, AdCP, a coalition of ad tech companies established by Agentic Advertising organization to define standards for ad buying and selling by AI agents. According to eMarketer, about 2/3 of ad buyers plan to focus more time on Agentic ad buying this year. While in early days, we are actively engaged to make sure DV is at the forefront of establishing standards that will continue to preserve trust and transparency for its advertisers wherever they choose to deploy their advertising investments. As with all of our engagements, we remain independent and agnostic and the way we operate in the agentic advertising world will be the same with the ability to plug into any agentic protocol from the IAB framework to platform-specific systems that are important to our customers. Second, we are expanding tools to protect ad investments from AI-fueled challenges. We continue to enhance our market-leading suite of AI tools that combat the increasing challenges of navigating AI Slop and avoiding AI cyber fraud. With the launch of DV AI SlopStopper for Social, we've expanded our capability for advertisers to avoid low-quality AI-generated content on YouTube and will broaden our coverage to other walled gardens in the coming quarters. Fueled by malicious AI, cyber fraud continues to become more sophisticated, threatening to challenge the ROI and efficiency gains driven by the positive use of AI. In Q1 2026, DV's fraud web continued to harness AI to fight fraud as AI-powered fraud schemes proliferated at a record pace and became even more sophisticated. AI-powered bot schemes continue to evolve faster than ever with 140% more bot scheme variants emerging in Q1 '26 compared to Q1 '25. In parallel, app-based fraud continues to accelerate dramatically, especially across mobile and CTV, where we have classified over 1,300 apps as fraudulent since the beginning of 2026. Finally, we are focused on capitalizing on the massive potential ad market that AI chatbot marketing will represent. According to eMarketer, ad spend on LLMs is forecasted to grow by over $25 billion by 2029, with ad spend expected to cannibalize over 14% of search spend, a $400 billion market that DV has historically not been able to access. OpenAI recently shared that they expect to generate $100 billion in advertising revenue by 2030, underscoring just how the market may be moving even more rapidly than analysts are predicting. As has been the case for the open web, mobile, streaming and social environments, unbiased independent measurement will play a key role in engendering the advertiser trust needed for this new ecosystem to thrive. While AI platform ad models continue to evolve, advertiser demands remain the same, ensuring ad transactions are trusted and transparent and ads are viewable, brand suitable and delivered to legitimate traffic within authentic content environments. Our enterprise customers and agency platforms have made it clear to us that expanding beyond test budgets in AI environments will require even greater transparency and trust than is present today. We are confident that, as we have shown on social and streaming platforms, our role as an essential trust layer will extend to this new ecosystem, and we are engaged in discussions with several LLMs who are leaning into ad-supported models. As AI drives digital advertising to become more automated, agentic and opaque and as AI Slop becomes the must-avoid content category for advertisers, the need for independent verification, protection and performance measurement has never been greater. Regardless of platform, buying mode or message, DV will be an integral trusted part of the ad equation. Moving to social verification. The social sector remains our fastest-growing business segment and is a core driver of our next phase of growth. No other verification or measurement provider has more innovative solutions for advertisers seeking to protect their spend on social platforms and ensure it performs. Social activation accelerated meaningfully to over 90% year-over-year growth in the first quarter, up from around 60% growth in Q4. This acceleration was driven by continued scaling of our social prebid solutions, elevated by enhanced product capabilities on Meta as well as expanded capabilities across TikTok and YouTube. 87 advertisers have now utilized Meta activation since launch, up from 68 in the fourth quarter with 31 of these customers coming from our top 100 clients. As of the end of the first quarter, our Meta activation product was already at a $12 million annualized run rate. On YouTube, DV Authentic Advantage has seen strong customer adoption. Some of our largest CPG customers have started scaling on the solution, driven by the significant ROI improvements that it delivers. Through the combination of Scibids AI optimization with social prebid filtering and post-bid measurement, DV Authentic Advantage customers have seen their media CPMs decline by as much as 36%, while reach has expanded by 64% and brand suitability integrity remains strong. As with DV's Meta prebid solution, we are just starting to scratch the surface with the impact that Authentic Advantage can have on our customers' business and our growth profile, and we're excited about the significant opportunities ahead for both products. As mentioned previously, our social suite of tools are ramping, and we recently announced the expansion of DV AI verification to include DV's AI Slop Stopper for social. This new industry-leading offering is designed to help advertisers navigate the growing challenges posed by low-quality AI-generated content and safeguard brand reputation across social and video-centric environments, starting with YouTube. DV's AI Slop Stopper for social is another DV tool that empowers advertisers to ensure their brand investment is protected wherever they spend while driving stronger media outcomes. Additionally, in the quarter, we expanded brand suitability coverage across Snapchat's Discover feed format, enabling our advertisers to have complete coverage across Snap Discover Tiles placements. And we recently announced that we achieved Media Rating Council or MRC accreditation for TikTok video viewability, becoming the first measurement vendor to receive the accreditation. As advertising investment continues to grow across video-centric social platforms like TikTok, independent verification plays a critical role in ensuring transparency and accountability. And with accredited measurement informed by tens of trillions of historical ad transactions, advertisers can now evaluate campaign effectiveness with greater confidence and ensure their media investments deliver real value. This milestone underscores our commitment to delivering the highest standards of measurement accuracy and transparency and further demonstrates the company's alignment with the MRC accreditation process as a critical layer of accountability in digital advertising. Turning to streaming TV. We continue to deliver product innovation to address advertiser demand for independent transparency and increasing fraud in streaming environments. Our continued product innovations helped grow CTV measurement volumes by 28% year-over-year this quarter. We've already begun to see solid adoption of ABS Do-Not-Air list from 8 of our largest advertisers as well as strong interest in our authentic streaming TV solution. And in this quarter, we announced that Spectrum Reach became the first partner to join DV's certified transparent streaming program, reinforcing its commitment to secure program level transparency across streaming TV inventory. Spectrum Reach will share key show level data across their programming, including news and live sports, spanning both direct IO and programmatic buying. These insights will be available directly within DV Authentic Streaming TV reporting, giving advertisers verified post-bid visibility into the specific programs their ads ran alongside. By combining real, not implied or aggregated show-level transparency in a privacy-focused way with DV's performance analytics and optimization capabilities, advertisers can now better understand how contextual relevance drives outcomes and make smarter decisions to optimize future streaming investments. This is just the start of our drive to deliver granular unaggregated show-level transparency across all streaming environments, and we are seeing momentum from additional platforms to join our certified transparent streaming program. The results of our innovation leadership are clear. We are growing client engagements and winning deals with new solutions where there aren't any competitors. We work with over 340 advertisers now generating more than $200,000 annually. And our unique solution underscored a 77% greenfield win ratio in Q1, meaning that we're winning deals with solutions in new areas in which there are no competitive incumbents to displace. Investment in innovation continues to be DV's secret sauce to get stickier with our customers, win new deals and gain market share. And AI is enabling us to innovate more efficiently than ever as we continue to expand margins while launching and expanding the tools that cement our role as the essential trust layer for buyers and sellers of digital media. With strong execution in the first quarter, we're leaning hard into AI-powered innovation that will continue to extend our leadership position. Looking ahead to the rest of the year, we remain focused on product development acceleration, partner expansion and market share growth and continued strong margins and cash flow. With that, let me turn the call over to Nicola. Nicola Allais: Thanks, Mark, and good afternoon, everyone. For the first quarter, we achieved 10% year-over-year revenue growth and 31% EBITDA margins. Off the strong start to the year, we are reiterating guidance for the full year. For the first quarter, total revenue was $181 million, representing 10% year-over-year growth. Total advertiser revenue, which includes activation and measurement, represented 90% of total revenue and grew 9% year-over-year, driven by 12% growth in volume or MTM, partially offset by a 4% decline in fees or MTF. Activation revenue grew 6% with ABS representing 53% of activation revenue in the quarter. As of quarter end, over 75% of our top 500 clients were using ABS. Measurement revenue grew 16% year-over-year with social measurement revenue increasing 23% and representing 49% of measurement revenue and international revenue increasing 18% and representing 27% of measurement revenue. Supply side revenue represented 10% of total revenue in the quarter and grew 12% year-over-year. We're driving growth by adding new CTV and digital platform partnerships and by continuing to expand DV solutions on retail media networks. Moving to expenses. In the first quarter, we delivered 82% revenue less cost of sales. Our continued investments and use of AI capabilities are allowing us to scale at a consistently efficient rate even as we measure increasing levels of volume. We delivered $55 million of adjusted EBITDA, representing a 31% margin as compared to 27% margin in Q1 of 2025. Total expenses for product development, sales and marketing and G&A increased 2% as compared to 10% revenue growth. We are showing early signs of the benefit of using AI capabilities to grow through improved productivity across the organization and increased software capitalization related to product development. We are scaling the business more efficiently, which results in increasing EBITDA margins. Stock-based compensation was $24 million in the first quarter, flat to prior year. For the second quarter, we expect stock-based compensation of approximately $25 million to $27 million and weighted average fully diluted shares outstanding of approximately 157 million shares. For the full year, we continue to expect stock-based compensation to range between $102 million to $107 million, a decline year-over-year, reflecting the impact of our updated equity incentive plan that reduced the annual value of equity grants in 2026 by over 40% as compared to 2025. Turning to cash. Year-to-date, we have repurchased 9.8 million shares for $100 million, of which 7.3 million shares were repurchased in the first quarter for approximately $75 million and 2.5 million shares were repurchased in April for approximately $25 million. Year-to-date, the 9.8 million shares we repurchased represent approximately 6% of fiscal year-end 2025 outstanding shares. Net cash from operating activities in the first quarter was $4 million and was impacted by timing of collections and payments at the end of the quarter. For the full year, we expect free cash flow conversion of approximately 60%. We ended the first quarter with approximately $174 million in cash and no long-term debt. Now turning to guidance. For the second quarter of 2026, we expect revenue to range between $199 million and $205 million, representing a year-over-year increase of approximately 7% at the midpoint. As a reminder, we're lapping our 21% growth rate in Q2 of 2025. And we expect adjusted EBITDA to range between $63 million to $67 million, representing a 32% adjusted EBITDA margin at the midpoint. For the full year 2026, we are reiterating our prior guidance. We expect revenue to range between $810 million and $826 million, representing an 8% to 10% year-over-year increase and expect adjusted EBITDA margins of approximately 34%. As discussed on our prior call, incremental growth in 2026 will be driven by 3 product-led growth engines. First, continued adoption of our solutions across social and streaming TV; second, growth from existing enterprise clients scaling our product offering; and third, continued new customer acquisition driven by DV's differentiated products. Our first quarter results demonstrate progress on each growth driver with increasing social activation revenue growth, increased adoption and scaling of new products and a consistently high win rate. Our first quarter results show solid execution. With a clear focus on durable growth and expanding profitability, we're well positioned to continue to deliver long-term shareholder value. And with that, we will open up the line for questions. Operator, please go ahead. Operator: [Operator Instructions] Your first question comes from the line of Matt Swanson with RBC Capital Markets. Matthew Swanson: Congrats on a solid start to the year. I think I'll pick up right where Nicola left off there. So I mean it was a great quarter for social measurement. But I mean, really focusing on that growth opportunity in social activation. Any time you have something with over a 90% growth rate, we should probably start there. Can you just kind of give us an update on how things are trending and kind of how the rollout has been going relative to your expectations with your customers, especially on Meta? Mark Zagorski: Yes. Thanks for the question, Matt. So obviously, we're really pleased with the scale -- scaling and speed of scaling on social activation, which is really being driven by all 3 prongs. The first, as you mentioned, Meta activation and the new Meta prebid tools we have there. The second, growth in YouTube through our Authentic Advantage solution; and third, through TikTok as well, which is -- continues to grow at a really nice pace on the pre-bid side. So our social activation business is really running on all cylinders. And one of the things I think this really underscores is the fact that our solutions are really playing an essential role in the walled gardens. I think there were some questions about whether or not, hey, is DV as powerful or as needed in the walled gardens as it is in the open web. And this -- the growth of this is proving that out. I think it also underscores the power of the prebid and kind of post-bid engine where we can launch prebid solutions where we already have measurement in place, we see a nice catalyst for growth. So it's scaling well. Meta, in particular, now is over 80 clients have engaged with it. Some of our biggest advertisers are now engaged there. We mentioned, I think, in the last call, we wanted to get to a $15 million ARR by the end of '27 -- or '26, I'm sorry, and we're already at $12 million. So like this is growing well. I think it's scaling well. And again, it's definitely being driven by Meta, but it's also that social activation 90% growth number is being supported by our innovations in TikTok and YouTube as well. Matthew Swanson: Great. And then, Nicola, just kind of thinking more on the guidance side. I know over the last couple of years, you've become less exposed to kind of the CPG and retail sectors. But if there's anything from kind of a macro standpoint that you would point out to us? And then just any update on the advertiser who went through the agency change last quarter? Nicola Allais: Yes. So I'll start by saying from a vertical perspective, we spoke a lot about retail and the impact it had on our business for the end of the year. That has normalized as we had expected. We already spoke about it on our last call. And overall, all of our key verticals showed growth in the first quarter of 2026. And we haven't seen material changes across the verticals. If anything, we've been able to diversify further into healthcare and technology, which allows us to not be as reliant on retail and CPG. So it feels more normalized, and it feels that we are continuing to diversify in a way that's going to help to create a more predictable business for us. In terms of macro, if you look at the verticals, I'll address the 2 verticals that I generally mentioned in terms of uncertainty based on what's happening in the macro for us, auto and travel are fairly small verticals. So we're not as exposed to those. And just a general comment on macro. We're obviously not assuming strong tailwinds, but we're assuming an environment that's going to remain fairly stable. Operator: Your next question comes from the line of Brian Pitz with BMO Capital Markets. Brian Pitz: Mark, since I know Slop Stopper is one of your favorite topics, maybe you could give us your latest expectation around penetration rate and maybe thoughts on the future opportunities around this product. And then maybe stepping back more broadly, as AI content continues to proliferate across the Internet, talk about what you're hearing from advertisers in terms of how they're adapting to this changing environment? Are they starting to get more comfortable? Maybe just a little bit more insight. Mark Zagorski: Thanks for the question, Brian. And yes, I love Slop Stopper just because I love saying the name on these calls so much. As we noted in the call, Slop Stopper is now being applied on the measurement side to about 40% of all of our impressions. That's a pretty -- it's probably one of our fastest scaling attach rates for any different category that we've seen. So on the measurement side, it's really being picked up pretty quickly, and that's a great thing. And it also shows to your second part of your question that advertisers are still just trying to figure out how they navigate this world of AI content. And Slop Stopper is built for a specific reason. It's to avoid low-quality, questionable AI content, right? Not all AI content is bad, but there's certainly stuff out there that advertisers want to avoid, and that's what Slop Stopper helps them do. When we think about kind of what's next for that tool, so we launched a prebid Slop Stopper solution on YouTube. We're going to expand that to additional social platforms over the next few quarters. And it's the platforms that -- the social platforms, particularly around video, that are the most kind of challenging for advertisers to try to figure out where they should and shouldn't advertise against. So we see this as, again, another catalyst for higher attach rates for our solution and another catalyst for folks to actually lean into working with DV, maybe even if they're not because it gives them another tool to use to navigate challenging content. And I think the other thing, and as I mentioned in my earlier question, there is -- there's a growing need for our solutions within the walled gardens and not because the content there is particularly better or worse than any other platform, but the content there is becoming really overrun with a good amount of AI content and the advertisers really are looking for tools to help navigate that. So the problems that advertisers saw in the open web are evolving to different types of challenges behind walled gardens. And the great thing is that we've got solutions to address all of them. Operator: Your next question comes from Maria Ripps with Canaccord. Maria Ripps: Mark, you said that you were in discussions with several LLMs regarding sort of verifiying ads on their platforms. Is this the same brand safety stack that you offer today? Or will the agentic ad environment require sort of a fundamentally different product? And how are you thinking about sort of pricing -- sort of structuring pricing models for agentic ads? Mark Zagorski: Thanks for the question, Maria, and it's a really great one. So when we think about what's going on with the ad-supported LLMs, what we've seen so far, even as recently as this week, there's been announcements that OpenAI is embracing third-party ad solutions, right, from demand solutions and creative optimization through companies like Cargo and Pacvue and Smartly. The next step for them, as we've noticed, is really to start looking at measurement and verification. And we're leaning into discussions with lots of different LLMs on that front. And when it comes to kind of what we think about what our solution can do there, it really is to play the same fundamental role that we do in social and in streaming and in display and online video, which is acting as a trust and transparency layer. And that has everything -- has to do with everything from ensuring that ads are viewable and visible by a real human to ensuring that the context where it ends up with is aligned with what that brand and who that brand is and where they want to be. So from a general thesis perspective, the application of our solutions in that environment is pretty much the same. It's building trust between the buyer and the seller. When it comes to the business model around it, we've got lots of different business models when we employ with platforms. But almost all of them are advertiser-paid and they're based on volume of engagement. So as we look at the opportunity within the LLMs, our assumption is that model will extend into there as well, which will be volume-based, advertiser paid based on the scale and level of engagement of that advertiser with the impressions on those platforms. Maria Ripps: Got it. That's very helpful. And then just following up on Slop Stopper. So as we think about the product, do you view it primarily as a retention tool sort of bundled into existing relationships? Or is this a product that can be priced and sold independently? And sort of you just launched it on YouTube, it's coming on other platforms. But sort of what's the realistic time frame for this product to move the needle on revenue either directly or indirectly? Mark Zagorski: Yes. It's another great question. So I think of Slop Stopper really as 2 -- having 2 positive impacts on our business. The first, as you noted, is the retention. It creates greater value in our engagements with our customers by giving them another category of content to have greater transparency on. So for current customers, who already are using our measurement, I think it gives us kind of a stickier, more ingrained relationship. That is always helpful as we go back to renegotiate deals and look at price increases down the road, right? So that's one. The second is it helps with attach rate, right? So it helps advertisers who maybe, for example, aren't using us on Prebid, on YouTube. But now knowing that they can avoid AI slop by using our solution, that drives up attach rates for our solutions there. So I think it has, again, a two-pronged impact the way it currently is structured. A, it helps us retain and grow our relationships with current customers, but it also drives up attach rate. If there's a third aspect as well, it is a differentiator in the market, right? We're -- it is a unique solution for DV that our competitors don't have. It allows us to win deals on a greater scale than we would if we didn't have it. So there's a direct impact to kind of the new customers that we are able to bring on as well. I think we're already seeing -- and so the last part of your question is like when does it create a financial impact in the business. I think we're already starting to see that a little bit. When you see kind of our measurement growing at 16%, which is a great rate for us there. When you see our social activation growing, which -- of which AI Slop Stopper is part of social activation growing at 92%. Those numbers are fueled by features like this, which are unique to DV, which drive attach and create new customer engagements. Operator: Your next question comes from the line of Andrew Marok with Raymond James. Andrew Marok: Maybe just one for me on the chatbot surface again. Obviously, we've seen OpenAI kind of evolve its offering from a CPM to a CPC over time. And of course, nothing is finished yet. But from the architecture of the chatbot ad offering itself, is there anything that they could do that would be more or less advantageous for you to partner with? Are there any kind of structures that you kind of hope that they might lean toward? Mark Zagorski: Thanks for the question, Andrew. You made some great points. The first is that the model is evolving, and it's evolving very quickly, right, as both advertisers experiment and as the LLMs experiment with advertising, right? So they're changing pretty quickly. The current setup of the structures actually lean very well into what we do very well, which is analyzing content and context that's text-based at scale very rapidly. So the way that the engagements are set with consumers, the predominant nature of how consumers engage with those chatbots falls kind of very nicely into what DV has done for the last 15 years, which is analyze advertising in contextual or text environments. So that current structure actually fits well to what we do. Our experience working with walled gardens and getting real-time feeds of content, whether it's from folks like TikTok or others, gives us kind of a really strong legacy to build upon, to be able to analyze the ads in those environments. So I guess that's a long way of saying we're pretty flexible. We've built for many different types of systems from video systems to short-form video systems to text-based open web engagements. So the way that ChatGPT or any of the platforms are set up today are relatively easily engaged with our current system and our current classification system based on what we've done in the past. So we are ready. We've built for very challenging environments before, real-time environments, unique environments based on an individual engagement. And I don't think this is going to be a significant lift for us to move beyond that. Operator: Your next question comes from the line of Matthew Condon with Citizens. Unknown Analyst: This is [ Briana ] on for Matthew Condon. Just a question. You've raised the Authentic Advantage on YouTube ACV to $10 million from $8 million last quarter and then Meta activation, I think it was now $12 million versus $8 million prior. Just can you help us understand the incremental growth you're seeing within these 2 products? How much is it coming from new advertisers? Or is it more so the existing advertisers ramping spend? Mark Zagorski: So it's a combination of both. So it's current DV advertisers that we've upsold to this solution launching and the previous advertisers who we brought on board actually scaling. As we've noted, we went from high 60s number of engagements to 80-plus now. So we've got new customers scaling the solution on Meta Prebid. The same kind of scaling is happening on Authentic Advantage. So it is a combination of both. What we love about it is once advertisers get engaged, they really do stay sticky and scale with us over time. And we've got a handful of our largest advertisers kind of growing at very solid rates across both Meta and Authentic Advantage. I mean when you get a 90% growth rate on something like social activation, it's going to be fueled not just by new customers, but by current customers really starting to scale their business, and that's what we're seeing here. Unknown Analyst: Got it. That's helpful. And then just on the social side, activation grew 92%. Just on activation revenue, it slowed to 6% from the 4Q number. Just can you help unpack what's going on within that line item? Nicola Allais: Yes. So activation for the quarter was up 6%, which equates to the growth that we had in the fourth quarter of last year. Mark spoke of the social activation growth, which is a high percentage on a smaller base. The rest of the business, as we said in our remarks, has remained fairly steady in the first quarter, and the majority of that business would be driven by mobile and online video and display business. Now we are obviously focused on being able to verify and continuing to grow where the advertisers are spending. And so tied to that growth that you see on social activation is the social measurement growth of 23%. Those are the vectors that we're focused on so that we're able to continue to verify wherever the advertiser is spending. Operator: Your next question comes from the line of Mark Murphy with JPMorgan. Mark Murphy: I'll add my congrats. Interested in behaviorally, what are you seeing out of the group of 6 or 7 of the large retail and CPG companies that had started to drag on your growth rates. I think that was about 1.5 years ago. And with the understanding, obviously, you would have lapped that slowdown. Is there any signaling from those companies relating to their own internals or how they're coping with commodity prices or consumer spending trends? I'm just wondering if you see any kind of different behavior there? And I have a quick follow-up. Nicola Allais: Mark, we're not seeing any different behavior than the overall vertical, right, for both CPG and retail. And as I said earlier, Retail, in particular, we've sort of seen the spend patterns normalize after the end of last year, which is a positive for us. And then in general, across the verticals, basically all of our key verticals showed growth in the first quarter. So the performance we had was spread. We are diversifying away from CPG and retail because we have large clients that are scaling, especially in healthcare and technology. And so as much as we can diversify as a result of us signing larger brands in different verticals, that obviously helps the business. But to go back to the initial part of your question, what we saw in Q1 is more of a normalized pattern of spend for CPG and retail. Mark Murphy: Okay. That's encouraging. So my other question is coming back to the prospect of working with the LLM providers, whether it's OpenAI or Perplexity or someone else. I'm curious when you think might be the earliest opportunity for some of those ads to maybe run in scale where they could conceivably be measured and verified in a way that would start to contribute noticeably. And then -- and also, is the push to do this coming more from the LLM providers themselves? Or do you think it's coming more from the brand advertisers? Mark Zagorski: Yes. Mark, it's a great question. Things are moving very rapidly on the LLMs with regard to advertising. We've mentioned in the last call and this call that our advertisers are more than excited to test them out, but to scale budgets, and they've been very clear with us and their agent has been clear with us to scale budgets, they've let the platforms know that they're going to need third-party measurement, they're going to need more transparency and more verification. So the drive to kind of integrate into the platforms is really coming from our partners and the brands who want the same level of transparency, the same level of currency-type measurement on the LLMs that they get everywhere else. I mean, on Meta, on YouTube, on TikTok, on the open web, on streaming, they get that kind of agnostic verification and they're demanding it on the LLM. So things are evolving rapidly there. We saw this week that ChatGPT and OpenAI opened their ad platform to numerous third parties to buy -- to allow for buying and creative optimization on those platforms. So it's clear that they're definitely embracing the marketplace. They're embracing third parties to come in and help build that business. And when you throw a number out there like $100 billion by 2030 in ad revenue, they're going to need partners to do that. So we're very positive and bullish on the opportunity. It certainly hasn't materialized yet, and we've been very clear on that, but we do believe that if we can use history as a guide with what's happened with social with us and streaming and mobile, et cetera, that we think this will be a great opportunity for DV down the road. Operator: Your next question comes from the line of Tim Nollen with SSR. Timothy Nollen: Could I switch topics to CTV? Actually, you've had an announcement or 2 during the quarter. And I'm just curious, what are you bringing to TV measurement to CTV that is new and different versus what has existed thus far? And I'm using the term measurement loosely, there's a lot of new ways to measure TV. I'm just curious what is the opportunity for DV in a much more complicated TV market these days than it used to be. And just relatedly, you mentioned MTMs for CTV were up 28%, I think, in the quarter. Could you just put that in a bit of context for us? I assume that's accelerating on the new products and kind of where is that trending for the rest of the year? Mark Zagorski: Yes, Tim, thanks for the question. We've said that of our -- we've got 3 pillars we're focused on for growth: social, AI, which we spend a lot of time on, but streaming is incredibly important to us as well. Impression growth last quarter was up 28%. And it was driven by higher attach rates for some of our new solutions. So the launch of verified streaming TV, which gives advertisers the ability to actually measure and ensure that their ads are being delivered on a high-quality full episode player, not on an outstream or embedded video someplace that it is a truly streaming TV environment. That is gaining traction and driving attach rates up on the post-bid measurement part of our business. We've also seen with our tools like the automated do not air list which allow advertisers to create dynamic exclusion lists of programming that they don't want to be around. Our attach rate has almost tripled for that across our prebid solutions on specific DSPs. So we've seen attach rates grow, which drives prebid. We've seen -- and when prebid attach grows, post-bid attach measurement grows as well. And I think it's because that advertisers have been demanding more transparency on CTV, right? Believe it or not, they probably get less granular verification data on CTV than they get on social or even on like short-form video and YouTube. So I think our solutions are starting to touch a nerve with advertisers. It's driving up attach rates. And it's increasing, obviously, the number of impressions that we're measuring across streaming TV as well. This is all good for us. Attach rates mean more money on how people are using our solutions more. Nicola Allais: Yes. And Tim, on your question for the volume of impressions. So yes, it grew 28% in the first quarter, and we do expect that to continue to outpace the overall revenue growth of the company just because it is the area that is growing. So we do expect that to continue. Timothy Nollen: Okay. And just a quick follow-up. When you're talking about -- I use the term CTV again kind of loosely, but -- and you mentioned streaming, Mark, are you specifying this from video that you've been measuring on -- in other areas like in social? Mark Zagorski: Yes. CTV, we designate as something that actually ends up on a large player in a living room. Streaming TV includes CTV, but includes high-quality branded entertainment that may end up, for example, on a mobile device or a tablet, but it's Hulu. It's not a TikTok video. It's Paramount. It's not a reel. That's different. So streaming TV, think of it includes all high-quality TV. CTV includes stuff that ends up in your living room on a big screen. Operator: Your next question comes from the line of Youssef Squali with Truist. Robert Zeller: This is Rob on for Youssef. On the gross margin expansion due to AI, I'm just curious if we could unpack that. And then is this the new norm for 2026? Or are you still targeting the 80%? And then I'm just curious on the drivers behind the sequential trend in large advertising customers and ARPU for that as well. Nicola Allais: Yes. So on the gross margin, we achieved 82% in the quarter. And the way we're able to do that is that we are using AI tools to essentially allow us to verify and classify content a lot more efficiently. And our expectation is that even though the volume of impressions that we measure will continue to grow, we'll be able to maintain a healthy gross margin. Whether it's 80% or 82%, it's going to depend a little bit on the volume that comes from the new batch of verification that we will have to do, including on the AI platforms. So it's hard to say. But one thing is certain is that we will be able to continue to remain efficient as the volumes grow. And so 80% is a safe benchmark, and it's a very healthy benchmark. And then on the other question, which was trending on large advertisers, what we're seeing -- and we called this out in the last call, which is the average dollars per client for the top 100 is continuing to grow year-over-year. We look at that on an annual basis, but it is certain that our large advertisers are being upsold to the new solutions and are part of the growth rates that we mentioned on social activation. So the ARPU is growing as we're able to offer them new products, especially on social and soon on CTV. Operator: Your final question comes from the line of Justin Patterson with KeyBanc Capital Markets. Jacob Armstrong: This is Jacob on for Justin. I guess kind of hitting on that last point about how you're using AI internally on classification. Can you talk about maybe some of the areas that DoubleVerify is using AI internally in terms of ramping engineer productivity and maybe how you're keeping that -- keeping a scaling token costs in mind while kind of ramping adoption internally these tools? Mark Zagorski: Yes. Thanks for the question, Jacob. We look at obviously, 2 large buckets of how we are leveraging AI. First is in kind of internal execution where we focus on efficiency and effectiveness and better client engagement. And the second major bucket is kind of the AI product development, which we've talked about a lot on this call. When it comes to kind of internal AI execution, we are focused really on agentic development and using agents to create code. So far, we've seen 40% faster software development. We're triaging IT tickets at rates we've never seen before. And it's allowed us to, as we've said before, maintain a headcount that will continue to show efficiencies over the coming year. So, a, just in general, engineering operations, we've been able to balance the cost of tokens with kind of the impact on it. And we look at everything from an ROI perspective when we lean in on using AI. You also mentioned core classification. And we've been using that to help our core systems kind of do what they do much faster. It's increased our productivity by 4x in classification. We're driving labeling, what we do when we label content by about 2,000x faster. And we've been very clear that we've got a decent number of contractors that have been helping us with the labeling and feeding our models. That number of contractors will be reduced by over 100 by the end of the year. So we're seeing efficiencies by using AI and an engineering team across core classification. And eventually, we're going to see this with client interaction as well as we start moving towards more natural language interfaces that enable better client interactions with less client service engagement and overhead. So it's a big impact on our operations. That's why we're seeing not only increasing margins, but faster go-to-market with product and more efficient client engagements. Operator: I will now turn the call back over to management for closing remarks. Mark Zagorski: Thank you all for joining us this evening. As we look ahead, we remain confident in the performance of our business and our priorities are clear: deepen adoption of the core products with core customers, accelerate the growth of our solutions for social, streaming TV and AI and drive industry-leading margins by leveraging the power of AI. We appreciate your continued support and look forward to connecting with many of you at upcoming conferences. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Good afternoon, and welcome to the ADMA Biologics First Quarter 2026 Financial Results and Business Update Conference Call on Wednesday, May 6, 2026. [Operator Instructions] There will be a question-and-answer session to follow. Please be advised that this call is being recorded at the company's request and will be available on the company's website approximately 2 hours following the end of the call. At this time, I would like to introduce the company. Please go ahead. Unknown Attendee: Welcome, everyone, and thank you for joining us this afternoon to discuss ADMA Biologics financial results for the first quarter of 2026 and recent corporate updates, I'm joined today by Adam Grossman, our President and Chief Executive Officer; Terry Kohler, Chief Financial Officer and Treasurer. During today's call, Adam will provide some introductory comments and provide an update on corporate progress, and Terry will provide an overview of the company's first quarter 2026 financial results. Finally, Adam will then provide some brief summary remarks before opening the call up for questions. Earlier today, we issued a press release detailing the first quarter 2026 financial results and summarized certain achievements and recent corporate updates. The release is available on our website at www.admabiologics.com. Before we begin our formal comments, I'll remind you that we will be making forward-looking assertions during today's call that represent the company's intentions, expectations or beliefs concerning future events which constitute forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. All forward-looking statements are subject to factors, risks and uncertainties such as those detailed in today's press release announcing this call and in our filings with the SEC, which may cause actual results to differ materially from the results expressed or implied by such statements. In addition, any forward-looking statements represent our views only as of the date of this call and should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligation to update such statements, except as required by the federal securities laws. We refer you to the Disclosure Notice section in our earnings release that we issued today and the Risk Factors section in our annual report on Form 10-Q for the quarter ended March 31, 2026 for a discussion of important factors that could cause actual results to differ materially from these forward-looking statements. Please note that the discussion on today's call includes certain non-GAAP financial measures including adjusted EBITDA and adjusted net income. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP metric is available in our earnings release. With that, I would now like to turn the call over to Adam Grossman. Adam? Adam Grossman: Thank you. Good afternoon, everyone. We had a strong start to the year with earnings growth and margin expansion despite total revenue being essentially flat, underscoring the resilience of the business. We grew adjusted net income by 22% year-over-year, expanded corporate gross margins to 71% and generated approximately $58 million of operating cash flow during the quarter. This was in spite of top line pressures primarily impacting BIVIGAM. We believe the first quarter results likely represent the trough revenue baseline from which we would expect to be able to drive growth in the coming quarters. Key drivers of that, in our view, will be enduring ASCENIV demand, expanding margins and continued strong cash generation. ASCENIV end market demand reached record levels in the first quarter with revenue growth of approximately 28% year-over-year. We saw continued strength and record metrics across new patient starts, prescriber adoption, product pull-through and patient adherence. As a reminder, our distributors not only have to maintain safety stock levels to ensure the continuity of patient care, but we understand these specialty distributors also typically keep extra stock available for immediate administration and to guard against any potential supply chain, manufacturing, testing or regulatory disruptions. We see our distributors' inventory and pull-through sales data on a regular basis and believe these levels are consistent with those of our industry peers and are appropriately sized. At the same time ASCENIV demand is growing, competitive dynamics in the first quarter as well as the variability in ordering patterns created a challenging commercial backdrop, in particular for BIVIGAM. I will discuss these competitive dynamics in a moment. Operationally, during the period, we completed the monetization of 3 plasma centers, enhancing liquidity while further diversifying our plasma sourcing by adding a new third-party plasma supplier. We are also actively reducing expenses in a targeted manner to improve profitability without adversely impacting our core operations. Importantly, with a balanced mix of internal and third-party plasma procurement, we believe we have ample supply of high-titer plasma to support both our near and long-term ASCENIV growth objectives. Our balance sheet remains strong with pro forma net leverage below 0.5x, driven by continued cash generation and adjusted EBITDA growth, which should provide us with the flexibility needed to support growth and activate on our capital allocation priorities. Now let me take a step back and explain why we believe we are experiencing an extraordinarily unique moment in our industry. We believe that historically, the plasma fractionation industry has been in a dislocated state where IG utilization demand has outpaced the industry's ability to supply. Over the back half of 2025, in the first quarter of 2026, new IG products have entered the U.S. market. During the first quarter, the industry also saw a surplus of raw material plasma supply, increased PDT and IG finished goods inventory across the distribution network and aggressive pricing tactics, including discounting and rebating from newer entrants. This drove greater-than-expected competitive intensity and distribution recalibration. We believe there was and continues to be a rapid shift in the ordering patterns occurring at the wholesaler and distributor level, which adversely impacted reported first quarter revenue and created additional variability in ordering patterns for ADMA's products within the quarter. We believe these dynamics were timing related and are transitory in nature. And although it's still early, we are observing signs of reversion in the second quarter. We see these as industry-wide dynamics, not only specific to ADMA. And again, we believe they primarily impacted distributor behavior rather than end market demand. While these dynamics impacted near-term ordering patterns, there was no deterioration in underlying demand for ASCENIV, where fundamentals remain strong and continue to improve with record utilization growth throughout the quarter. We are particularly encouraged that the second quarter run rate based on April demand is in line with the level of first quarter direct sales. This reinforces the key point. Record ASCENIV demand and utilization, which is a forward-looking indicator, is robust and growing, despite the broader standard IG and plasma products market competitive pressures. In our view, this is clear evidence that the first quarter variability was driven by distribution and inventory dynamics primarily affecting BIVIGAM, not by any change in demand or forward-looking growth outlook for ASCENIV. We continue to believe ASCENIV remains early in its penetration curve and that we have multiple durable growth drivers. We believe we still benefit from record new patient adds, a growing prescriber base, expanding distribution network, strong payer access and increasing physician confidence driven by ASCENIV's differentiated clinical profile and favorable real-world outcomes. In review of the reported ASP declines from certain competitor IG products, we know that the market is seeing elevated levels of aggressive discounting and rebating across standard IG. We remain disciplined in our pricing strategy and are committed to building a durable and sustainable growth model. These near-term competitive and pricing dynamics do not change our conviction in the forecast of long-term growth and durability of the U.S. IG market or ASCENIV's differentiated position in the later-line setting for refractory immunodeficient patients. Looking ahead, we believe we have several important catalysts, including our recent approval for ASCENIV's pediatric label expansion and the associated commercial opportunity and upcoming preclinical data publication for our lead pipeline program, SG-001, which will be presented at the International Society of Pneumonia and Pneumococcal Diseases Conference. We expect this SG-001 preclinical data presentation, including oral and poster sessions, to further illuminate the product's novel profile and market as we advance our capital-efficient development pathway. ADMA is a unique company in the plasma-derived therapies complex in that we have a specialized, innovative and forward-thinking R&D engine, which translates into growth opportunities and expanded product margins. Our yield enhancement manufacturing process allows us to maximize the high-titer plasma RSV plasma we collect required to meet ASCENIV's increasing demand. Yield improvement was designed to enhance our R&D pipeline programs including SG-001 so that, in the same way, we are able to maximize value on the hyperimmune plasma used to produce SG-001. We have identified a proprietary way of blending the highest-titer plasma containing strep pneumoniae antibodies from donors and will rely on the yield enhancement IG production methods for future clinical trials and potential future commercialization. To design the most effective method for SG-001 production, we have developed and designed proprietary blends of plasma that are already showing strong proof of concept in preclinical studies for two virulent and prevalent serotypes of pneumonia. As data becomes available, we will keep the market apprised of our R&D development. ADMA remains on track to submit its pre-IND package for SG-001 to the FDA later this year, and we believe, if approved. SG-001 represents an approximately $300 million to $500 million in annual market opportunity at peak that can be ramped to a short order, leveraging our existing platform, infrastructure and commercial footprint. All told, our confidence in ASCENIV's growth trajectory and our mission to meet unmet medical needs for immunocompromised patients remains unchanged. ASCENIV demand is strong, fundamentals are intact and the IG markets growth outlook remains robust, and we believe we are well positioned to drive sustained growth, expand margins and increase cash generation moving forward. Before I turn the call over, I want to recognize and thank our entire ADMA team for their continued dedication and execution during what has been a dynamic and evolving market environment. Their focus on patients, operational discipline and commitment to excellence continues to drive our performance and position the company for expected long-term success. We are grateful for your contributions and proud of the progress we are making together. With that, I'll turn the call over to Terry. P. Terence Kohler: I will begin with our first quarter financial performance and then provide an update on our balance sheet, cash generation and the outlook for the remainder of 2026. Total revenue for the first quarter was $114.5 million compared to $114.8 million in the prior year period, representing flat trends year-over-year. ASCENIV revenue was $97.5 million, representing 28% growth year-over-year, while BIVIGAM revenue was $15.4 million, down 54% and disproportionately impacted by the competitive market dynamics discussed. Revenue from the sale of intermediates and other products also declined year-over-year by $3 million. Gross profit for the quarter was $80.8 million, resulting in gross margin of 71% compared to 53% in the prior year period. Adjusted EBITDA was $59.7 million, representing 24% year-over-year growth, and adjusted net income was $40.7 million. GAAP net income for the quarter was $45.3 million. Turning to the balance sheet. We exited the quarter with substantial flexibility. Pro forma net leverage remains below 0.5x, even following the revolving credit facility draw and accelerated stock repurchase deployment, and we retained approximately $100 million of additional borrowing capacity to support future growth initiatives and return capital to stockholders. Additionally, the company has been actively executing share repurchases, which we will continue deploying opportunistically, and through March 31, resulted in ADMA converting approximately 3.6% of the outstanding share count into treasury stock. ADMA generated $58 million in cash from operations during the quarter and received an additional $5 million in proceeds from the sale of 3 plasma centers in the period. The accounts receivable decline during the quarter was driven by the change in revenue quarter-over-quarter. All of our accounts receivable from the year-end 2025 balance sheet have now been collected, and we ended the quarter with $138 million of cash and cash equivalents. As has been the case historically, the quality of our accounts receivable remains strong. DSOs, which represents accounts receivable as of the balance sheet date divided by net sales per day in the quarter, increased in Q1 2026 to approximately 107 days. As we have referenced in the past, working capital remains a focus for the company, and we believe DSOs stabilized during Q1. Going forward, we believe the appropriate level of DSOs for ADMA is between 90 and 105 days, and we will target that range with expected improvement from current levels over the back half of the year as ordering patterns normalize and as the McKesson Specialty distribution agreement continues to ramp up. For full year 2026, we now expect total revenue in the range of $530 million to $560 million. This outlook reflects continued ASCENIV growth, partially offset by the expectation of sustained competitive pressure in the standard IG space over the course of 2026. Full year 2026 expectations for adjusted EBITDA are now $265 million to $300 million, and adjusted net income is expected to be between $170 million and $200 million. These expectations reflect not only the reduced revenue expectations in the year but also an expected step-up in operating expense, primarily driven by R&D spend related to our SG-001 program, but also a step-up in SG&A as we continue to invest in our commercial operations. Given the uncertainty in the competitive landscape which Adam described earlier, we are withdrawing longer-term guidance at this time. To be clear, this updated outlook does not reflect any change in our confidence regarding the underlying demand fundamentals for ASCENIV as a later-line therapy for refractive and complex immunocompromised patients, which remains strong. However, from where we sit today, we simply do not have the longer-term visibility that we have when the IG landscape was less competitive and in a period of undersupply. Overall, we believe ADMA remains exceptionally well positioned. The company has a differentiated growth asset in ASCENIV, a strong balance sheet and a continued commitment to return capital to stockholders, expanding margins, positive free cash flow and multiple levers to drive long-term value creation. With that, I'll turn the call back over to Adam for closing remarks. Adam Grossman: Thank you, Terry. In summary, we believe the most important takeaway from this quarter is that underlying ASCENIV growth trends continue to strengthen even as the distributors of plasma-derived therapies, including standard IG, work through a temporary period of dislocation, reinforcing the durability of ADMA's franchise. We remain focused on what matters, ASCENIV patient outcomes, product pull-through, patient adherence, prescriber expansion and long-term margin expansion and earnings power. Across each of those dimensions, we continue to see encouraging trends even beyond the first quarter. Additionally, we see meaningful long-term opportunity in SG-001 and in the broader platform we have built. We remain focused on disciplined execution and creating long-term stockholder value. Our confidence in SG-001's market potential remains unwavering as we continue to see a potentially rapid path to commercially scaling the SG-001 product to $300 million to $500 million on an annual basis if approved. Despite recent competitive challenges, we believe we are operating from a position of relative strength. Our business is highly differentiated and specialized. Yield-enhanced production remains embedded in our commercial model. Our plasma sourcing strategy has become more capital efficient and more diversified. Our balance sheet remains flexible, and we are generating robust cash while continuing to invest behind the franchise and our capital-efficient pipeline. We believe that combination positions us well to navigate the current and rapidly evolving U.S. immune globulin environment, and we are confident ADMA and ASCENIV will emerge even stronger as market conditions normalize. Thank you for your time today, and thank you for your continued support of ADMA Biologics. With that, operator, please open up the call for questions. Operator: [Operator Instructions] Our first question comes from Anthony Petrone at Mizuho Financial Group. Anthony Petrone: So maybe the standard IG backdrop comments, Adam, different pressure in that segment. Wholesalers and distributors are changing their ordering patterns. We have competitive dynamics. It appears certainly supply has built up in the channel, and then you have price pressure being triggered by some of the competitors out there. So I guess at what point did this really start to build within the channel? When did you sort of see it on the radar screen? And you're sort of referencing the April patterns here somewhat reversing. What really is line of sight as to when some of these pressures sort of dissipate and we get back to sort of a normal underlying landscape in the traditional IG space? And I'll have a couple of follow-ups. Adam Grossman: Sure. Thanks, Anthony. We appreciate the question. So as you know, the new entrants launched in the back half of 2025, but we really started to see the competitive nature of some of the rebating and discounting was really towards the end of February, beginning of March. Distributors were informing us that they were preparing to place orders and then the market just grew into a state of intense dislocation. As we've said, BIVIGAM was the product that was primarily impacted here. I think if folks recall our commercial history, BIVIGAM has now been on the market for 5-plus years. When we launched, it was the most expensive standard IG product, and we were afforded some very good utilization based on the reimbursement dynamics in the ambulatory infusion setting. And I think that we've really done a good job at setting a nice model here. But new entrants have the benefit of setting new prices. They set some high ASPs. We've seen some dramatic ASP erosion as I spoke about in the prepared remarks there. But primarily, it was impacting BIVIGAM. From a utilization standpoint, we did see BIVIGAM take a decent hit in Q1 from a utilization standpoint. We are seeing that utilization revert a little bit towards the back part of March and certainly April. For BIVIGAM, April was the best utilization month of the year so far. But with respect to ASCENIV, ASCENIV has been largely insulated. We saw record utilization in Q1 and April, and we don't typically speak about individual months utilization, but we think this is a pretty unique period here. But we hit record level of end user utilization in the month of April. And what we said during the prepared remarks is that the level of utilization of April is in line with the direct sales that we made in Q1. So this is a recent dislocation with respect to ordering patterns and discounting, but I do think that this could persist for some period of time. We are seeing trends of reversion for BIVIGAM, and again, ASCENIV -- our confidence is unwavering with ASCENIV. We feel that this product is going to continue to grow quarter-over-quarter. So we don't want investors to think that, for any reason, the core driver of value for our business on a go-forward basis is at risk here. As a later-line therapy, ASCENIV is continuing to open up new doors. We're seeing accelerating patient starts. And we're very encouraged by the trends that we're seeing for ASCENIV. Operator: Our next question comes from Gary Nachman of Canaccord Genuity. Gary Nachman: A few questions for me. So what is factored in your revised guidance with respect to both ASCENIV and BIVIGAM for 2026? If you could break that out separately. And then, Adam, maybe just describe a bit more how much pricing pressure are you seeing with BIVIGAM, if you can quantify that? And how are you adjusting your plans for manufacturing of that product versus ASCENIV? And I mean, do you think it pays to still compete in the standard IG space going forward? And then just a bit more on what the demand queue looks like for ASCENIV. So describe the key metrics that you're seeing on that and how soon you think new patients will be coming off that queue and getting treated with ASCENIV, if you're confident that you're going to see this sequential growth going forward for it. Adam Grossman: So thank you, Gary. That's a lot of questions in one. I was taking notes feverishly. So if I don't hit on something, please feel free to ask me again. So with respect to guidance, this updated framework is really based on the recent dislocation and the competitive pressures. So this assumes that there's going to be some sustained pressures in the standard IG space which should persist, really, we're thinking for the remainder of 2026. Again, it could be a little shorter, it could be a little longer. Again, we just don't have the visibility right now. We've certainly taken a conservative approach here. I mean, this is certainly not something that we are happy to do. There was a lot of thought that went into this. And again, we really want to reiterate that we are collecting the raw material plasma from our third-party providers. We are working on producing as much ASCENIV as we possibly can. And we are seeing that pull-through is accelerating month-over-month and that our production is really just starting to be able to meet that pull-through level here. So we are making more batches of ASCENIV in the first part of this year than we ever have in our corporate history at this point in a calendar. So we're very pleased with our third-party positive procurement. We're very pleased with yield enhancement. Again, all the product that we're selling so far this year is yield-enhanced manufactured product. With respect to your questions about BIVIGAM, look, I've always said it, Gary. I never wanted to be in the standard IG business. But when we acquired this manufacturing facility about 9 years ago, we inherited this product. And again, it's a good product. It's a safe product. It's a product that is efficacious and doctors like it. Unfortunately, right now, we're seeing heavy discounting from new entrants. And if you look at the ASP of some of the new products out there, you can see that from their launch to where they are now in the second quarter from ASP reported to CMS level, they've discounted in the order of between 15% to 20% they've eroded from their original pricing. So that's pretty substantial. It's not a game or a tactic that ADMA Biologics has ever chosen to play. We've pretty much been pretty consistent from a pricing standpoint. Our ASP is very predictable. It doesn't move around a lot. And to certain sites of care into certain books of business, that is valuable. So does it pay to compete in this market? I think the best way I could say it to you, Gary, is we're not going to go out and provide high levels of discounting just to make some sales. It doesn't benefit you into the future. As I mentioned, we're already seeing BIVIGAM revert to very, very strong utilization levels here in April. So my guess is that some of these new entrants have some short-dated material. I hear anecdotal reports of that. My guess here is that they're just trying to play a game to dislocate products like ADMA's from utilization to get people familiar with the product. But I don't think it's a strategy that's going to benefit these competitors long-term. I think the strategy that ADMA has taken, and we're playing a long game here, focused on long-term growth and value creation for stockholders and, ultimately, providing good products that help patients. So I do think it pays. We continue to manufacture BIVIGAM. It's a good product. It's a safe product. It's a product that is liked very much by our end-user customers. I think this is a transitory period in nature. And I think that we'll weather this storm and will come out the other side stronger. So I don't know, Terry, if there's anything you want to add regarding guidance or anything like that. But the variability is really just ordering patterns, Gary. ASCENIV demand remains strong. Guidance is conservative, but it really takes into account these competitive pressures. And it doesn't take into consideration any change in our outlook for ASCENIV demand as a later-line therapy in the refractive complex immunodeficient patients. P. Terence Kohler: Yes, Gary, I'll just echo that. I mean, really, the primary assumptions I think you're getting at is that for BIVIGAM we're assuming in this guidance is a sustained level of this increased competition. ASCENIV, we fully believe in that product and its capabilities and it will continue to grow quarter-over-quarter, and that's what's baked into the assumptions. Gary Nachman: Okay. And if I could just follow up with one more. Just, Terry, maybe explain a little bit more since there has been so much focus on the DSO. So just -- you're expecting that to get to a more reasonable level of 90 to 105 days from where it is currently. So just, how you expect to get there and in what time frame and the initiatives you're putting in place with your current customers, how important McKesson is to help you get there as well? And how much that's going to play into the continued increases in cash flow generation that you talked about? P. Terence Kohler: Sure. So as I said, DSOs in the quarter were 107 days. We want to target between 90 and 105 days. We believe that in the back half of this year, we're going to be able to drive improvement in our DSOs. McKesson, as you pointed out, is going to be an important factor in that as that business continues to grow as a percentage of our overall distribution partners, then they are favorable to our overall DSO performance. And we believe that, that will push us down into a range that is within our target. That's a big piece of it. We also believe that -- although we believe that this competition, and it will lead you for the rest of the year, we do believe that ordering patterns will normalize, and so that's baked into that as well. And as you said, some of the concessions that we have provided a normal course to distribution partners over the first part of this year, we're going to look to tailor that back in the back half of this year. So all those things should help us with our DSOs. Adam Grossman: And Gary, if I could just touch on one thing. Something else that we're thinking about here, and as Terry was speaking and I was thinking about McKesson and the opportunity from the new book of business that we're able to target now that we've got that distribution partner in place. Secondary immune deficiency is really the largest driver of growth of IG. And when Terry was speaking, I was thinking about the fact that we're in this period right now where -- my entire adult life, I've been in the IG space. And ADMA Biologics has been a company, call it, 20 years. And for that entire time, you've really seen this dislocation with respect to there's a supply and demand imbalance. There's more demand than the industry was always able to produce. This is the first time -- and I think I said this in the prepared remarks, right, that this is the first time that the market is in a period of, be it consistent supply or maybe a period of oversupply. And for the last decade-plus, IG has been growing at 10% -- low double digits, 10%, 11%, 12%, 13% year-over-year. IG has been growing. And what we see now, and we see some of the industry expert analyst reports that are coming out, they're forecasting low single-digit growth. So you're talking about 2%, 3%, 4% growth year-over-year. And I don't think this is something that our brethren IG companies are out there talking about publicly. But it's also factored into our guidance and why we're targeting the secondary immune deficient population and going after that book of business. So I thought it was something important to say. But IG is still growing. It's still a highly durable business. The use of immune globulin is not going away anytime soon. It's just these periods where we used to see low double-digit growth year-over-year, we're now seeing low single-digit growth. And I think this is transitory, but I think it's something that's important for us to get out there and that investors are aware of. The market is robust. It's still growing. It's just growing a little slower. P. Terence Kohler: And Gary, I think your other part of that question was on cash generation. And so obviously, in the quarter, we generated a substantial amount of cash. Our cash from operations was $58 million, which is greater than all of 2025. We believe that our cash generation is going to continue to be strong over the course of this year. And so we believe that's just going to continue over the course of this year. Gary Nachman: Okay. And actually, that was all helpful. If I could just squeeze in two more quick ones because I know I get these questions. So I just want to make sure that you don't think there's going to be any spillover in terms of discounts and rebates that you're seeing in the standard IG space over to ASCENIV, that it's going to hold up in terms of pricing. And then 001, you highlighted a bunch of times. But just how long you think it would take you to run that in the clinicals if you start it next year and when realistically it could reach the market? Adam Grossman: Thanks, Gary. I'm just making notes so I don't miss a beat here. So look, we take this disciplined pricing approach across all of our products. So as I mentioned, ASCENIV has been largely insulated. We've seen growth from a utilization standpoint. You see that broken out product level revenues, ASCENIV is still a strong, strong product for us, generating substantial margin opportunity for us. And I think that, that really does speak to the durability of the drug, the durability of our business model and our ability to be resilient in times of these competitive pressures. So I don't think you're going to see us discounting heavily any time soon. It's not a practice that we want to engage in. I think the product speaks for itself. I think that the data that we have published, that others have published independently of ADMA, I think that, that really demonstrates and speaks volumes for the utility of this drug in the refractive highly complex immune-deficient patients that is chronically ill and suffers from persistent infections. So it's a differentiated drug. No one has anything like it out there in the market. And again, our government payer, commercial payer split, it's leaning a little bit more towards the commercial payers. We've certainly been contracting over the course of 2025 into 2026 with some of these commercial payers. So we all know how the game works with the commercial payers. There are a couple of points there depending upon how much utilization there is, but we're very proud of the positioning for both our products, ASCENIV and BIVIGAM. We're very proud of the status that we have with the Florida Cancer Group, which works exclusively through McKesson Specialty business. So I don't anticipate there's going to be any substantial discounting for any of our products, including ASCENIV, to answer your question. With respect to SG-001, so we haven't given any timelines yet. But you asked a question that is reminding me of things I used to say many, many years ago when we were running the clinical trial for ASCENIV, which was then known as RI-002. But assuming that all of our animal work, all the preclinical testing that we're doing, all the assay testing, all of the pilot scale lot production that we're doing pans out. When we are ready to start a clinical trial, there are multiple shots on goal with a product like this. Are we going to go for something similar to what we've done with ASCENIV? Are we going to go for something a little sexier with respect to a potential treatment indication for hospitalized patients? There are a number of avenues that we are seeing benefits in preclinical testing that we could go for this product. But hypothetically, if we were going to go for this like we did for ASCENIV's clinical trial, the FDA has published guidance for industry on how to bring in immune globulin to market. Typically, you have to take, I believe, it's about 50 patients that are well controlled patients off of their commercial IG. Then you replace their commercial IG with the investigational product for 12 months. And if the primary endpoint of that study, if there is less than one serious bacterial infection per patient per year, then you will be to have -- deemed to have met the primary endpoint of less than one serious bacterial infection per patient. Pretty much every IG that I am aware of that has run a TID study has met the primary endpoint. So it is a 12-month study. To run a 12-month study, I'm pretty sure I've been quoted in the public setting as saying, doing a 12-month study takes about 18 months to do. But if that is the pathway, that could give you some idea. But we have not yet provided timing on when that trial will start. But we have given guidance that we will plan to meet with FDA this year on a pre-IND meeting so that as we enter 2027, we'll be in a position to provide guidance to The Street on what kind of trial we're going to run, how long it's going to take, what it's going to cost. So stay tuned. But very encouraged by the data. We're going to be at this conference in a couple of weeks. And I encourage investors and others to take a look at our website as it gets updated with respect to that preclinical data. Operator: Our next question comes from Kristen Kluska at Cantor. Kristen Kluska: So when we think about the prior revenue guidance, do you think the underlying assumption was always that a vast majority of it was going to be driven by ASCENIV? And understand a lot of the color you provided to us today on BIVIGAM, which was very helpful. But maybe can you just help us understand, are you looking for any specific dynamics in the market over the next few months that will get you comfortable providing guidance, especially again as it relates to the fact that ASCENIV is going to have a lot more of the revenue share in the future? And then the other question I had was just understanding the real-world benefits. I know CIS is this week. I know there's been some third-party publications out there, and how you plan to maybe utilize these data sets, not just for your physician conversations, but if it could also help with the payer and reimbursement piece as well. Adam Grossman: Thanks for the question, Kristen. So maybe I'll take your second question first. Yes, this data that we have been publishing and that other third parties published on their own has been very helpful in our payer conversations throughout the back half of 2025 and into 2026. So the payers are seeing this real world evidence in their own patient population. They're seeing these patients staying out of the hospital. They're seeing less frequent ER visits and doctors visits, and they're seeing less concomitant medications in the patients that switch from standard IG to a ASCENIV because of their chronic persistent infection. So this real-world data is really adding value for us from a commercial payer perspective, full stop. With respect to, I think, the first part of your question, the real-world data is really helping to convert clinicians that have been on the fence. I know, Kristen, we've spoken about this a lot during our conversations together over the years. There's a large amount of clinicians that are in the buy-and-bill space with respect to UTI, IVIg administration. And what I can tell you, the feedback from my commercial team has been robust and very, very positive with respect to how the clinicians, if you will, I'm using quote marks, that are "on the fence" of do they want to take the risk and buy in all the ASCENIV to give it to a patient because they're afraid they might not get reimbursed. And what I can tell you is that this data has really helped us push a number of clinicians over that line, and they have become converts and they have started patients this year in 2026. As I said in the prepared remarks, we're seeing increasing new prescribers. We're seeing new patient adds all the time. And everything is really coming together. I know it's our fifth plus year of commercial launch here, but we really feel that the opportunity is in front of us, that ASCENIV is really starting to gain traction and momentum in the ambulatory infusion setting. I think that all the reasons that we spoke about the McKesson Specialty agreement and the book of business from a secondary immune deficient population perspective, we think that, that certainly is a great opportunity for the product. And also, we haven't spoken about it much, but with the pediatric indication, we think that this is certainly gaining some very good conversations with pediatric teaching hospitals. We hear some are even discussing putting this on formulary for hospitalized immunocompromised children. So, while we've always given -- again, because it's weight-based dosing, but I do think that there is a big push right now from a medical education perspective, and doctors are really understanding where the utility is for this product. So the outlook for the drug remains positive. We think the forward-looking opportunity is going to drive this company's growth and profitability. It will help fund all of the capital deployment initiatives that we have with share buybacks. ASCENIV is going to continue to fund our R&D, and it's going to potentially fund any future clinical trials from our very capital-efficient R&D engine. So it's a great drug. The core message of our business and the core message of today is that BIVIGAM got hit, ASCENIV is largely insulated. The growth outlook, we are unwavering in the forward-looking growth opportunity. How fast it's going to grow, that's what we are guiding to right now is there are some challenges in the market. But will the product grow? We believe it will. So thanks for that question. And we really do believe in the outcomes and the clinical benefits that patients experience while on the drug. It's a good product that helps patients that have no alternative, Kristen, and it's going to continue to do so. Operator: Our last question comes from Anthony Petrone at Mizuho Financial Group. Anthony Petrone: Just hopping across some calls here. Adam, you mentioned just excess plasma supply as well that's out there. So it sounds like there's elevated finished IG on the shelf and maybe some elevated plasma. When you just think of that totality, again, you sort of mentioned it's going to take a little bit of time to work itself out. But if you had to estimate it, is that 2 quarters? Could it last a year? Just how long does it take the supply chain to straighten out? And just McKesson quickly there. When you think about new sites of care, like how quickly can the McKesson addition actually result in net new prescribers for ASCENIV? Adam Grossman: Thanks, Anthony. So with respect to IG inventories, I mean, the Plasma Protein Therapeutics Association publishes data on IG sales from reporting manufacturers into the U.S. market. And if you go on their website, you can see the data for the fourth quarter of 2025. That was published, I want to say, at the tail end of March. It really looks to me like there was an enormous amount of push-in from the overall industry. And I want to say in December, I think the trend was roughly about 12 million grams or so of IG being sold by the industry to distributors or direct customers throughout the year on a monthly basis. I want to say in December, there was about 16 million grams or so sold. I don't have that data in front of me. I'm recalling that from memory. But the point being, I don't think utilization grew, call it, 20% between October, November and December. So my crystal ball tells me there's some excess inventory with respect to standard IG from the overall industry in the channel that needs to work its way through. How long that takes, I don't know. IG utilization is robust. What I find encouraging, Anthony, is that BIVIGAM has returned to what I would like to say normal levels in April from a utilization standpoint. It's on the lower bound of what we've seen as normal, but it's back to a place where I'm not pulling the hair out of my head. So I'm feeling better about the market situation. So how long it persists, I don't know. I don't know how much inventory our competitors have. I don't know how much longer they can continue to provide these aggressive discounts and rebates and how much more they want to erode their ASP. With respect to raw material, you asked the question, I mean, that's anyone's guess. I saw an announcement that one of our contracted third-party providers, while it's not going to impact ADMA's ability to collect raw material plasma to make ASCENIV, the high-titer plasma, but Grifols has announced some center closures, and I know some other plasma collection organizations have announced that they're going to be closing some centers. ADMA in the quarter monetized our centers. We signed a new third-party agreement with that collector. But these other larger fractionators are choosing to close them down. I think that there is an oversupply of raw material plasma. I think the spot market has some very attractive and favorable pricing at the lowest levels that I've seen in a while. So I think that, that may persist longer than the IG oversupply situation that's there. But that would be a better question for others than me. We are pretty much self-sufficient from a standard normal sourced plasma perspective. We collect that plasma from our current 7 centers. And again, we're in a pretty good position with respect to the high-titer procurement from our third-party providers and our internal collections. You asked about McKesson and its ability to materialize. We're already seeing increased utilization. April was a good month. This is -- it's in line, I would say, with expectations. But you put a forecast together, and when you hit it, you're happy. So the McKesson book of business is starting. We had a strong April, and we're anticipating that this is going to continue to grow in compound as we progress in the coming period. So hopefully, that answers your questions. Thanks, Anthony. Operator: This concludes the question-and-answer session. I would now like to turn it back to Adam for closing remarks. Adam Grossman: I just want to thank everybody for taking the time today to dial in to today's call. We appreciate your continued support. And again, donate plasma, as I've always said. You can help save many, many lives with just one donation. So thank you again to the ADMA staff and team. Stay healthy, everyone, and have a great evening. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, and welcome to the First Quarter 2026 Macerich Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ms. Alexandra Johnstone, Vice President of Finance and Investor Relations. Please go ahead, ma'am. Alexandra Johnstone: Thank you for joining us on our first quarter 2026 earnings call. During this call, we will make certain statements that may be deemed forward-looking within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995, including statements regarding projections, plans or future expectations. Actual results may differ materially due to a variety of risks and uncertainties set forth in today's earnings results and supplemental and our SEC filings. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the supplemental filed on Form 8-K with the SEC, which is posted in the Investors section of the company's website at macerich.com. Joining us today are Jack Hsieh, President and Chief Executive Officer; Dan Swanstrom, Senior Executive Vice President and Chief Financial Officer; and Doug Healey, Senior Executive Vice President of Leasing. And with us in the room is Brad Miller, Senior Vice President of Portfolio Management. With that, I would like to turn the call over to Jack. Jackson Hsieh: Thanks, Alexandra, and good afternoon, everyone. I'll give some brief comments on the quarter, followed by an update on our leasing progress against our Path Forward plan, some context on what we're seeing in Class A regional malls and discuss our recent acquisition of Annapolis Mall. Our first quarter results reflect the continued progress we're making on our Path Forward plan. Our FFO as adjusted per diluted share was $0.34. For our go-forward portfolio, sales per square foot increased to $941. Total comparable in-line sales increased 3.9% from Q1 2026 versus 2025, and foot traffic was slightly up. Go-forward portfolio centers NOI growth was 1.2%. One of our primary goals with the Path Forward plan is to elevate and transform the merchandising plan and mix of our centers through the leasing of 1,000 new units, which will create thriving retail centers with increased customer traffic, dwell time and result in improved productivity for our tenants. This leasing strategy enables us to mark-to-market the rents in our retail portfolio, enabling us to create $140 million of cumulative SNO, the signed not open tenant pipeline that will drive our property NOI through 2028. And coupled with our $2 billion disposition plan, we believe will result in higher FFO per share and lower corporate leverage. Our cumulative SNO pipeline at the end of Q1 was $116 million against our $140 million target. That is contracted revenue with approximately 80% flow-through to NOI that is multiyear growth engine that will provide the NOI ramp through 2028. Leasing our temporary vacant and below-market in-line and vacant anchor spaces remains one of the critical elements of our path forward plan as the new 1,000 leases represents almost 25% of the entire space units within our go-forward portfolio. Our leasing speedometer, which tracks revenue completion was at 81% at the end of Q1 and currently stands at 83%. We only have 250 remaining leases to complete the plan, of which 125 leases are currently in the LOI phase and 125 units are in the prospecting phase. These remaining space units are primarily situated within our fortress, fortress potential assets in A, B and C rated spaces. Our ELC approval quarterly run rate has averaged 100 deals per quarter. In Q1, we approved 103 new lease transactions. Based upon our new lease approval run rate and the remaining 250 deals that need to execute, I'm confident we will substantially complete our leasing target by year-end. As I now have passed my 2-year tenure here at Macerich, I've gained more confidence and belief in the resurgence of Class A regional malls and their ability to consolidate trade areas and to become even more relevant to customers and tenants. The mall industry has had to battle decades of overbuilding, the Amazon effect, anchor store closures and major in-line tenant consolidation and bankruptcies, the global financial crisis and COVID. It's havoc on the U.S. mall industry where only 895 enclosed malls currently remain. The silver lining today is that tenants have seen a demonstrated improvement in their omnichannel strategy with good physical stores. There has been a lack of new store expansion until most recently. Retailers' preference has been a growth strategy of quality versus quantity, large flagship and high-quality built-out physical stores versus historical market saturation strategies in the past. But the 236 Class A regional malls today, we have multiple strategies and targets for anchor tenants, numerous in-line international, domestic and experiential tenants that can drive customer traffic to our centers. We have a high-quality, irreplaceable portfolio with 90% of our NOI from Class A malls. Gen Z shoppers today are another long-term tailwind for us as that cohort over-indexes in visiting physical stores, spending money on items, food and experiences. By 2040, Gen Z will be the largest spending demographic surpassing millennials and Gen X. I recently created a Gen Z committee within our company. Their focus is on helping us gain insight on how to transform and elevate our centers through winning loyalty of the Gen Z customer without losing the current dominant millennial and Gen Xers that visit our centers. Executing our Path Forward leasing strategy will result in physical permanent occupancy increasing from 84% to 88% to 89%, which will enable us to have more pricing power and ability to further elevate and transform our centers. To give you a specific example of this later-stage transformation, at Scottsdale Fashion Square, we replaced a 35,000 square foot home furnishing tenant with luxury and dining options, including Hermès, Elephante and Laurel Piana. Cost of occupancy on the new spaces increased more than 10x. Sales are also projected to increase more than 10x to over $100 million. Backfilling our 30 vacant anchors is also critical to our elevate and transform strategy. We have all 30 of these locations committed, over 2.9 million square feet that is expected to generate over $750 million in sales. More importantly, these are catalysts to unlock productivity in entire mall wings and drive in-line leasing. The Scheels Sporting Goods store at Chandler is a perfect example of the success of this strategy. Since Scheels' opening in late 2023, the Chandler Mall trade area has increased over 40% and overall traffic at the center is over 20%. Prior to Scheels' opening in a vacant Nordstrom store, that mall wing had in-line vacancy and less relevant tenancy. Today, not only has the Shield wing dramatically elevated, the entire center is experiencing elevated tenancy and transformation. Lululemon expanded and relocated their store. Other new store openings include Warby Parker, Travis Mathew's, JD Sports, Viori, James Avery, Gorjana , Swarovski, Levi's, Garage, Din Tai Fung and many other exciting brands to be announced soon. Green Street upgraded our Chandler asset from A- to A and their cap rate valuation compressed 100 basis points. That's the playbook that we're executing across 30 similar projects. Dick's House of Sport recently opened at Freehold Raceway Mall. And that center has experienced increased traffic and vibrancy in the former vacant Lord and Taylor wing and is enabling us to leverage more leasing throughout the center. Most recently, we executed a deal with Bon Mauer to locate in the former Nordstrom building. We currently have 10 committed Dick's House of Sports stores in our anchor store inventory. Before I comment on our recent Annapolis Mall acquisition, I want to share a quick update on Crabtree Mall. We have already made improvements in the common area and are currently addressing our preplanned CapEx. We have completed 36 new and relocation lease deals and 27 renewals. The Raleigh-Durham MSA is on many tenants target list, given the growth and health of the trade area, and Crabtree is continuing to gain market share as we have implemented the Elevate and Transform strategy. Annapolis Mall has similar positive green shoots like Crabtree Mall. The difference is that the prior owners successfully started the Elevate and Transform process 2 years ago. Last week, we closed on the mall acquisition for $260 million, plus $12 million for the 13.1acre vacant Sears parcel. This is a Class A regional mall with 1.5 million total square feet in one of the most affluent markets on the East Coast, average household income over $161,000 in the primary trade area and a total trade area population of over 1 million. Over the past 2 years, the prior owners were able to secure a Dick's House of Sport that is opening later in August and signed 18 new tenant deals, totaling 353,000 square feet opening in 2026 and 2027, including Dave & Buster's, Tesla, Uniqlo, Aeropostale, Abercrombie, Jack & Jones, Pop Mart, a Lululemon relocation expansion plus recent long-term renewals with Apple, Zara and AMC. Annapolis Mall's proximity to the dominant Tysons Corner Mall extends our platform, creating a more influential portfolio that will benefit from our ability to lease up the remaining 107,000 square feet of near-term available space, including 52,000 square feet of prime in-line space in the new Dick's House of Sport wing. We are currently exploring backfill opportunities for the vacant Sears parcel. It sits on the most heavily trafficked corner of the property and provides optionality for future retail, mixed-use or alternative development. The acquisition is accretive to our 2028 target FFO range under our Path Forward plan by approximately $0.04 per share on a leverage-neutral basis. We expect year 1 NOI, including SNO of approximately $29 million, projected to stabilize in the $33 million area. That's an initial yield of 10.5%, increasing to 11% plus at stabilization. The asset is in good physical condition and does not require significant capital to address deferred maintenance. We funded the acquisition with cash on hand, which includes $85 million of ATM equity at an average price above $19 and $150 million of borrowings on our line of credit. As I look forward, we are well on the way to completing our Path Forward plan. The finish line is in plain sight. I have a high degree of confidence in achieving our 2028 operational and financial targets. No one is building new Class A regional malls, and the leasing demand is evident. We operate in affluent supply-constrained markets and approximately 90% of our go-forward NOI comes from Class A properties. We believe the structural tailwind of expanding retailers, coupled with the burgeoning Gen Z demographic will be a continued positive factor for our business over the next decade. When we come out on the other side of this plan, we believe you're going to be looking at a company with 88% to 89% physical permanent occupancy, embedded annual rent escalators across our portfolio, a balance sheet with lower leverage, strong free cash flow generation and a portfolio of irreplaceable assets in affluent markets with the most relevant retailers in place. We look forward to providing an update on Path Forward 3.0 at NAREIT in June. With that, I'll turn it over to Doug. Doug Healey: Thanks, Jack. First quarter reflects continued leasing momentum across our portfolio. Portfolio sales at the end of the first quarter were $899 per square foot, up $18 when compared to the last quarter, representing a new high watermark for the company. When you look at our go-forward portfolio, sales were $941 per square foot, underscoring the strength of our elevation strategy and long-term rent growth opportunity. Occupancy at the end of the first quarter was 93.4%, down 60 basis points sequentially. This seasonal decline is consistent with prior years as temporary tenants typically vacate during the first quarter. The go-forward portfolio occupancy at the end of the first quarter was 94.5%, reflecting strong underlying demand for space in our best centers. In the first quarter, we opened 225,000 square feet of new stores. Most notably, we opened 2 new restaurants in the Nordstrom luxury wing at Scottsdale Fashion Square, Din Tai Fung and Teleferic Barcelona. This is our second store with Din Tai Fung and first with Teleferic Barcelona. Teleferic is the first Arizona family-owned contemporary Taas restaurant actually originating in Barcelona. Din Tai Fung and Teleferic going well-established concepts such as Elephante, Catch, Society Swan and our restaurant leasing in this wing is now complete. These restaurants have opened to tremendous fanfare, and all are exceeding our goals and expectations, reinforcing the role of high-quality food and beverage as a key traffic driver in luxury assets. We also opened a 10,000 square foot Aritzia store in Los Cerritos. Aritzia is one of the most sought-after retailers in North America and a great catalyst as we elevate the merchandising mix in the center. This is our eighth store with Aritzia, and we expect to grow this relationship as the brand expands its store fleet and increases its open to buys. Leasing activity remained strong throughout the first quarter. In total, we signed 1.6 million square feet of new and renewal leases, of which 700,000 square feet were new deals, more than double the amount of new leasing we completed in the first quarter of 2025. As Jack highlighted, backfilling vacant anchor space is critical to our transformation strategy. During the quarter, we signed 3 more anchor tenants, Dick's House of Sport at Los Cerritos, Round 1 at Washington Square and Von Mauer at Freehold Raceway Mall. For those less familiar with Von Mauer, it's a family-owned upscale department store founded in the late 1800s in Davenport, Iowa. It's still headquartered there and run by the Von Mauer family. Von Mauer is known for its exceptional service, premium brands and high-quality build-outs. Von Mauer's 145,000 square foot store, is currently under construction and will open in the third quarter of 2027. Von Mauer, along with the recently opened Dick's House of Sport will play a key role in transforming and elevating the merchandise mix at Freehold. We're also excited to announce our first deal with Fogo de Chao, which will open in the redevelopment area of Green Acres Mall. This 7,500 square foot Brazilian steakhouse is globally recognized brand with more than 70 locations nationwide. Fogo de Chao has successfully evolved into a first-class contemporary dining concept that will strongly resonate with our young customers. Fogo de Chao is scheduled to open in 2027, and we look forward to announcing additional locations with this brand across our portfolio in the very near future. Turning to our lease expirations. We have commitments on approximately 90% of 2026 expiring square footage that is expected to renew and remain open with another 10% in the letter of intent stage. As a result, we're effectively done with 2026 and now actively focused on 2027 and 2028. In fact, as we look specifically at our 2027 expirations, we're 30% committed with another 55% in the letter of intent stage. These are critical milestones that significantly derisk the renewal component of our 5-year plan. Retail environment is healthy and tenant demand continues to be strong. In the first quarter of 2026, we reviewed and approved roughly the same number of new deals as we did in first quarter 2025. And keep in mind, 2025 was a record leasing year for us. Supported by our enhanced internal leasing processes, we now have clear insight into what's next across our portfolio. Letters of intent remain a key leading indicator of future leasing activity and based on both volume and velocity, we expect this strong momentum to continue throughout the remainder of the year. Lastly, we're looking forward to the Las Vegas ICSC convention in mid-May, where we expect strong retailer attendance in a highly productive environment. Over the course of 3 days, we have more than 300 scheduled meetings with 250 different retailers, spanning legacy retailers, international retailers, entertainment and experiential concepts, food and beverage, health and wellness and emerging brands. We are confident that the activity coming out of this convention will translate into incremental leasing growth, which will continue to strengthen our already robust leasing pipeline. And with that, I'll turn the call over to Dan to go through our first quarter financial results. Daniel Swanstrom: Thanks, Doug, and good afternoon. I'll start with a review of first quarter financial results. FFO as adjusted was approximately $92 million or $0.34 per share during the first quarter of 2026. I would like to highlight the following item included in our FFO as adjusted for the quarter. Total gain on undepreciated asset sales of approximately $10 million, resulting primarily from the sale of a land parcel at Washington Square. Go-forward portfolio centers NOI, excluding lease termination income, increased 1.2% in the first quarter of 2026 compared to the first quarter of 2025. Winter weather, which resulted in higher SNO removal and related expenses at our East Coast properties negatively impacted our NOI growth by about 50 basis points. As a reminder, we expect go-forward portfolio centers NOI growth for the full year 2026 to be up at least 3% over 2025 and back-end weighted in terms of NOI growth contribution for the year. We then continue to expect go-forward NOI growth to accelerate meaningfully from there in 2027 and 2028 as the SNO pipeline tenants open and begin paying rent. As Jack mentioned, we have a high level of confidence in achieving the total SNO opportunity of approximately $140 million. The estimated annual contribution is $30 million in 2026, back-end weighted, $40 million to $45 million in 2027 and $45 million to $50 million in 2028. This represents a clear visible path to drive incremental growth. Turning to the balance sheet. We continue to make strong progress on the balance sheet initiatives contained in our Path Forward plan. 2026 has already been an incredibly productive year by the team in relation to our various financing activities. In February, we closed on a 4-year loan extension through November 2029 on our South Plains property. This $200 million loan extension was completed at the existing interest rate of approximately 4.2%. With respect to our 29th Street property, this $76 million loan at the company's pro rata share remains in default after its February maturity date. As we are currently in discussions with the lender on the terms of this loan, we do not have any additional commentary at this time. Also in February, we closed an amended and restated $900 million revolving credit facility. We increased the size of the facility from $650 million to $900 million, extended the maturity date from January 2027 to March 2030 and lowered the current pricing grid from a spread range of 200 to 250 basis points over SOFR to 180 to 220 basis points over SOFR. The current spread is 190 basis points over SOFR. Upon achievement of certain performance thresholds, those spreads will be further reduced to a range of 135 to 165 basis points over SOFR. We are very pleased with the execution on this new facility, and we appreciate our bank group's support of Macerich and its path forward plan. In March, we repaid the outstanding balance of approximately $212 million on Vintage Fair Mall with cash on hand and $100 million of borrowings on the line of credit. At Deptford Mall, subsequent to quarter end, our joint venture closed on a new $115 million 5-year mortgage loan. This new loan bears interest at a fixed rate of 6.95% and is interest only during the entire loan term. This execution and interest rate are consistent with what we had assumed for Deptford in our Path Forward plan refinancing assumptions. We're continuing to proactively address our remaining 2026 debt maturities through a combination of potential asset sales, refinancings, loan modifications or if necessary, property givebacks. We currently have approximately $780 million in liquidity, including $650 million of capacity on our revolving line of credit. From a leverage perspective, net debt to adjusted EBITDA at the end of the first quarter was 7.76x, which is a full turn lower than at the outset of the Path Forward plan. And importantly, we've outlined our strategy to further reduce leverage to the low to mid-6x range over the next couple of years. We are making substantial progress in executing on dispositions as part of our Path Forward plan. During the first quarter, we closed on the sale of various outparcels and land for approximately $15 million, which included the land parcel at Washington Square. To date, we have completed approximately $1.3 billion in total dispositions, representing about 2/3 of our initial disposition target and the disclosure we've provided in our supplement includes a summary of these asset dispositions. These sales transactions are consistent with our stated disposition plan to improve the balance sheet and refine our portfolio. Based on our current level of discussions, marketing activities and contract negotiations, we currently expect to sell or give back $300 million to $400 million of additional Eddie assets, outparcels and land by the end of this year. This would increase total dispositions up to approximately $1.7 billion. The ongoing and remaining sales primarily related to certain outparcels and land are likely to carry over into 2027 as we continue to work through various entitlements, re-parcelizations and lender-related activities. These items simply just take some additional time to complete, and we will remain disciplined in our execution to maximize sales proceeds and shareholder value. We'll provide further updates on our disposition activities as we progress through the year. Overall, we are making great progress on our Path Forward plan objectives to reduce leverage, refine the portfolio and strengthen the balance sheet. With that, we'll turn the call over to the operator. Operator: [Operator Instructions] And our first question for today will come from Nishal Shah with Green Street. Unknown Analyst: This is Nishal on for Vince. Maybe just a couple on Annapolis. Could you confirm that there is no mortgage assumed for the mall? And how do you plan to capitalize this asset long-term? Jackson Hsieh: This is Jackson. Yes, there's no mortgage on it. We took -- refinanced it on our line of credit. I'll hand it over to Dan. He can talk about sort of the long-term financing plans there. Daniel Swanstrom: Yes. Thanks, Jack. So, as we -- and for everyone's benefit, we also posted a presentation as it relates to the Annapolis acquisition on our website. So, the initial funding was funded with cash on hand. As part of that, there was $85 million of proceeds that we used on the ATM. And additionally, we put $150 million of borrowings on our revolving line of credit. So that's the initial financing for the asset. As we thought about it, this resulted in a leverage neutral outcome in relation to our 2028 debt-to-EBITDA targets. And obviously, as Jack mentioned, it's $0.04 accretive to 2028 FFO targets. As we think about permanent funding for this asset, I think we'll evaluate that over time. Right now, we just increased the size of our line of credit. So, we have additional capacity and plenty of capacity on there as it relates to the $150 million. For Crabtree, we put in place a term loan and used some ATM. I think as we move forward here, we'll evaluate our options and in the context of those 2028 targets, decide on the permanent funding. But we have time and capacity on our line of credit to kind of figure that out. Operator: The next question will come from Andrew Reale with Bank of America. Andrew Reale: Maybe just another on Annapolis. It's a nice yield year 1, over 9%, which is before the SNO. So maybe if you could just help us think through in some more detail how we get to that 11% plus longer-term target you've laid out. Maybe if you could just discuss sort of what the leasing opportunity, leasing timeline there looks like? And then just any other value-add opportunities that would help drive the yield towards that 11% figure? Jackson Hsieh: Sure. Thanks. So, one of the things that was really attractive about this opportunity, the former owners killed their Partners, Atlas Hill, which is Sandeep, and Centennial have been working on this project for 2 years, and they've generated tremendous leasing momentum and merchandising. So, a lot of those 18 leases that we talked about are effectively rolling in this year and next year as part of that SNO component. But what's really exciting for our team is that 52,000 square feet of prime space that if you look on that leasing map diagram in our deck, that's Center Court, that's opposite Uniqlo, which is soon to open and where Dick's is opening in August. So, we think that, that's going to give us a lot of opportunity to get some really good retailers in that corridor. And then there's also really great opportunity, as you can see in that darker blue section on that diagram where we believe there's an opportunity to increase rent and permanent tenancy from flipping some underperforming tenants into other opportunities as that center starts to stabilize. And then finally, that Sears parcel, we believe, is very valuable. There's already a number of anchor discussions that have been taking place, and there's definitely residential options as well. So, we're going to evaluate that pretty carefully as to the best course of action. Ultimately, we want to have a great thriving shopping center. So, we'll decide very quickly what the best course of action is. Operator: The next question will come from Greg McGinniss with Scotiabank. Viktor Fediv: This is Viktor Fediv on with Greg. So just a question on your same-store NOI for go-forward portfolio for this year. So last quarter, you mentioned at least 3% to be achieved. But based on leasing activity year-to-date and your focus on rent commencement dates and the progress on that, is it still the kind of base case to be at least 3%? Or are you kind of trending better than that? Jackson Hsieh: Dan, why don't you take that one? Daniel Swanstrom: As I mentioned in the prepared remarks, we continue to expect that go-forward NOI for 2026 will be at least 3%. And as we've mentioned before, and I'll reiterate, it's kind of back-end weighted towards the end of 2026. So, we're still on track with that for 2026. And then as we've talked about a lot, obviously, given the overall plan and the ramp in SNO that we outlined at the back half of '26 into '27 and '28, obviously, that NOI growth ramps very materially into '27 and '28. Operator: The next question will come from Floris Van Dijkum with Ladenburg. Floris Gerbrand Van Dijkum: Obviously, the financing of this mall, I'm a little surprised it doesn't entail a little bit more equity because obviously, equity is a lot cheaper than the yields that you're getting here. Maybe talk a little bit about -- because I don't think this is the only mall that's currently being shopped, the only sort of A- mall that could be attractive. Maybe, Jack, could you give a little bit more of an update on what you're seeing in the market in terms of transactions? And how much of it appeals to you and where you think you can actually add value to acquisitions or assets? Jackson Hsieh: Thanks, Floris. I mean just to remind everybody again, acquisition criteria that really is critical for us. And first and foremost, the acquisition has to be accretive to our 2028 FFO per share as part of our plan. Obviously, strong trade area, competitive position and have to enhance our go-forward portfolio. That being said, and also the ability to elevate and transform the property. So, I would say like we have a nice pipeline of things that we've been evaluating. This opportunity was obviously off market. If you saw my -- our press release, which was a real win-win for the seller and for us as the buyer, there's still a lot more to do with the asset. I think you're balancing basically going in yields versus what I call stabilized yields. And if I were to contrast Annapolis to Crabtree, when we acquired Crabtree, the prior owner had secured that Dick Tousseasport, but they didn't really have as much progress on the in-line leasing in terms of elevating and transforming. And so, Annapolis was 2 years forward in our progress. So, as we're looking at these different opportunities right now, we're really trying to evaluate timing, the ability to execute. And look, at the end of the day, we think an asset like Annapolis is going to continue to consolidate the trade area and really begin to draw a lot wider than what it currently does. And we love assets like that, things that can be turned around because the trade area, the competition works in the real estate's favor. So, I would say they got a senior guy focusing on acquisitions, David, we've talked about him before, and he's got a nice pipeline of things that we're looking at. And if we're successful, obviously, we'll be prudent on how we think about financing it. Operator: The next question will come from Michael Griffin with Evercore ISI. Michael Griffin: Maybe a question on leasing. Just on the 1.6 million square feet in the quarter, can you give us the breakdown of mix of new versus renewal leasing? And any commentary you can have on re-leasing spreads, not only on the quarter, but maybe for expectations of deals that you've got in the pipeline that are going to be executed later this year? Doug Healey: Yes. So, the 1.6 million square feet we leased 700,000 square feet of it was to new retailers, some of which were anchor stores, some of which were in line. I think I mentioned in my prepared remarks, we did a Von Mauer deal at Freehold. We did a round 1 deal at Washington Square and Zara at Los Cerritos. So those are the new deals. The remainder were the mall shop stores. But it really speaks to the retailer demand that's out there, that 700,000 square feet of new deals. I mean the retail environment is extremely healthy. Retailers are continuing to reinvent themselves. Our watch list is at an all-time low. It's interesting. The legacy retailers are coming out with all these brand extensions. For example, A&F has Hollister, Abercrombie Kids. American Eagle has Aerie Offline, Gap has Old Navy. We're hearing that Old Navy might come out with an athleisure concept. The emerging brands are strong. You think about Aloe, Beyond Yoga, Ferity. A lot of the retailers are all over this Gen Z consumer. You think about Cider, Addicted, Princess Polly, Randy Melville, and the list goes on. I'm just -- it's the tip of the iceberg. But suffice it to say, given everything that's going on in the macroeconomic environment, what's going on in Iran, we are not seeing any letup at all in retailer demand. Jackson Hsieh: And on the re-leasing spreads, I think I talked on the last call and we certainly communicated at Citi. We're not going to use that metric at this point. When we get through our Path Forward plan, which is -- we're almost done at this point, we'll try to come up with a more thoughtful metric because that was one that, candidly, we inherited here. So, there'll be more to talk about on that in the future. Operator: The next question will come from Haendel St. Juste with Mizuho. Ravi Vaidya: This is Ravi Vaidya on the line for Haendel. I wanted to ask a bit about the K-shaped economy. And how are you seeing sales trend for some of your luxury tenants for maybe some of your non-luxury maybe aim for more of a lower income? And how are you seeing that across your portfolio? Jackson Hsieh: Yes. It's a good question. I'll start with -- I'm sure you've seen this. The National Retail Federation is projecting a 4.4% annual sales increase over '25. And that's primarily related to their projections on income growth, household balance sheets, labor market stability. Getting down, the tax refunds have certainly helped. I mean, I think the average tax refund this year is up about 11% versus last year. And clearly, the middle upper income groups are spending still. If you look at our sales in the first quarter, it was 3.8% comp sales. But that's not really telling the full story. We only had one category group out of 7, which is the shoes that were negative. All of the other categories, fast food, general, home furnishings, jewelry, they all were trending positive to kind of make that composite. So, the sales are -- the consumer is definitely coming to the mall and spending in the mall. And one of the other things that's, I think, sort of an interesting stat for us as we look at and probably more particular to our portfolio as it relates to this K-shaped economy and what we're doing. We talked about 1,000 new leases or tenants being secured in our portfolio, which is about 25% of the entire portfolio that's available to lease. That's a lot of space, obviously, in a lot of units, and that doesn't include remodels and refreshes by tenants where we extend them in place. But -- so what -- the point I'm trying to make is a good example of like what I call later-stage assets that we have that are more mature in their elevation and transformation process would be an asset like Broadway Plaza or Kierland Commons or Scottsdale Fashion Square. The traffic in the first quarter from those 3 properties, which I would consider more mature were all in the double-digit plus traffic first quarter 2026 versus '25. So, what we're seeing is as we continue to complete this plan, get these stores built out, get these environments and anchor stores secured, we believe that we're going to experience what we're experiencing in those centers like those 3 I just mentioned. And like I said, overall sales trend is pretty much unchanged from what we saw last year going into last year. Middle high income is continuing to do what they do and retailers are super focused on having value relevance, newness, innovation and product and marketing. They're kind of taking on AI like with a veracity right now. And that's what you're seeing in terms of their level of commitment to expand, improve their physical stores. I mean they're seeing it in their top line and bottom line. Operator: The next question will come from Ronald Kamdem with Morgan Stanley. Ronald Kamdem: Just a quick one on just the physical occupancy. I think the last presentation talked about bottoming at sort of 89% this year and then start to ramp really forward. Just would love an update on just how you guys are thinking about just those commencement schedules, if you're feeling sort of better or worse, how that's sort of shaking out? Jackson Hsieh: Yes. Thanks, Ron, for asking that. This Path Forward 3.0, it's not going to be a big reveal. The one thing we are going to add, which I think will help is that we're going to put -- we have a speedometer that looks at rent commencement schedules. There's like tenant criteria or gates that tenants have to move through a process for us. And we're right on track right now with that cost of occupancy completion rate and something we're really focused on now as we're transitioning with the completion of the leasing effort as we move forward to kind of getting all these stores open. So, I'd say we're right on track. It's a high level of focus right now with our real estate services team. asset management teams, leasing, on-site mall operation managers, mall managers. It's a really collective effort on trying to bring what is really an unprecedented amount of new stores into our portfolio. And obviously, that's going to impact the physical permanent occupancy increasing it to that 88% to 89% level. Operator: And the next question will come from Alexander Goldfarb with Piper Sandler. Alexander Goldfarb: Annapolis Mall, congrats on the deal. But I have to ask, you keep talking about the 2028. So, it seems pretty clear there are a lot of moving pieces. this year into next as we get towards '28. Where do we stand as far as the target FFO? I think Crabtree elevated it, this elevates it. But I'm not sure if you're planning any more dispositions as you think about debt paydowns. And then obviously, the yield curve has changed versus when you initially laid out as far as where rates may be. So I think we were sort of at that 180 or 185, but can you just refresh us like where you guys see 28 FFO now sort of as the midpoint, if you will, what we should be thinking about? Jackson Hsieh: You're stealing Dan's thunder for our 3.0, but I'll let him take that question. Daniel Swanstrom: Yes, look, I mean, we put out version 2.0, I guess, last summer. As you know, the midpoint was $1.81. And then since then, we've done the Crabtree deal, as you said, and we provided those economics. And now we've done the Annapolis deal, which we said is $0.04 accretive to that. So, we plan to sort of tighten and narrow the ranges in part of version 3.0. But overall, as we've said, we're on track to -- as Jack said in his comments, we're on track to achieve the targets that we put out there for financial and operation metrics. Alexander Goldfarb: Okay. But is there -- I mean, it sounds like you should be closer to $190, right? Jackson Hsieh: We'll be addressing that so we can -- yes, I mean we'll be addressing that when we put out that 3.0 deck by in 3 weeks. Operator: The next question will come from Mike Mueller with JPMorgan. Michael Mueller: Going back to the 88% to 89% permanent occupancy that you talked about being at on the other side. I guess looking at the temp tenants on top of those, can you talk about what those tenants generally are or expected to be? For example, what portion are tenants that are typically there testing out space and really thinking about permanent occupancy versus what, I guess, people usually think of when they think of temp tenants? Jackson Hsieh: Yes. I think tenants -- well, like in my comments, if you have vacant anchors, I can guarantee you have a lot of temp tenants in those wings, and it's anybody and everybody that can go in there and add value. Generally, a temp tenant is someone in our experience that pays gross rent that doesn't necessarily pay CAM and tax. It's just a gross rent number. And more than likely, as a landlord, you're going to be underperforming from a rent capability standpoint. We'll always have some degree of temporary tenants. It's a good thing to have in a center like this because at any given time, a new opportunity for a new tenant will emerge and you want to create that opportunity because you believe or we believe it will drive traffic and overall sales volume in the space. So, I mean, a good example would be like Primark. Primark is now being spun off from associated British Foods next year, they've got growth -- we've got 7 of them already in our portfolio. There's 38 in the United States. Those are great stores. People really love shopping in them. They take up a lot of space, but they've candidly not been expanding rapidly as they've kind of gone through strategic alternatives. When they're spun off, my guess is they'll be starting to roll out that concept from the East Coast to the West. Like you want to be able to have those type of opportunities to bring them into your center. As a result of doing that, typically, you're displacing tenants. So having that buffer, which is typically 7% to 8% on a temp basis when you've got full anchor deployment is really a good thing for us to manage price tension and the right merchandising mix. It's a problem when you have like 30 vacant anchors and you got a lot of temp tenants you really have no pricing power as it relates to the things that we want to do or ability to kind of drive merchandising. So, we're just going to be in a whole lot better place when we get done with this. Like I said, we only have 250 left to complete out of our 1,000, and we're going to be able to be doing some pretty exciting things because there are other tenants. Zara is rolling out its Bershka concept. We just approved a lease in one of our Southern California properties. So, there's some really nice opportunities that are kind of coming up from just domestic brands, international brands, experiential brands and having that temp space and fully occupied anchors is really a good thing for a landlord in our business. Operator: Your next question will come from Caitlin Burrows with Goldman Sachs. Caitlin Burrows: Another question quickly and not another one. But anyways, could you let us know the current physical permanent occupancy rate versus that target of 88% to 89%. But then I was wondering on the pricing side, if you could comment on the occupancy cost. It's at 11.7%. It doesn't seem to move much year-to-year, but wondering how in-place occupancy cost compares to where you're signing leases and how it could move over the next, call it, like 1 to 3 years? Jackson Hsieh: Yes. I mean I think our physical permanent sits at around 84% now. And when all these stores open, it's projected again in that range that we talked about, 88% to 89%. We're actually signing leases. You can see just when we have our disclosure, you can see the lease rates are going up. As we're converting more tenants from gross leases, which has been the case in many cases, to have fixed rent plus fixed CAM and fixed real estate taxes, that's going to drive more occupancy cost and will have obviously an impact on cost of occupancy. So, I think that you'll start to see that increase. And then hopefully, sales will increase as well because more traffic, more productivity, and that sort of sets up the virtuous cycle for us to continue to drive rent and have productivity in these centers. I mean maybe the best way to describe it, just stepping back, 25% new tenants. And that 25% that's being replaced, a lot of that's temp tenants that we've kicked the can on tenants with older stores, tenants that are not mark-to-market, tenants that are on gross leases versus fixed rent with fixed CAM and fixed taxes. So overall, it's going to create a better ecosystem from a merchandising standpoint as well as a more productive financial result for us as a landlord. Operator: And this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Hsieh for any closing remarks. Please go ahead. Jackson Hsieh: Great. I want to thank everyone for joining us this afternoon and thank the number of different colleagues across our platform that are really driving to the finish line, our Path Forward plan. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, everyone. Thank you for standing by. Welcome to the Xperi First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Sam Levenson from Arbor Advisory Group. Sam, please go ahead. Samuel Levenson: Yes. Thank you, Abby. Good afternoon, and thank you for joining us as Xperi reports its first quarter 2026 financial results. With me in today's call are Jon Kirchner, Chief Executive Officer; and Robert Anderson, Chief Financial Officer. In addition to today's earnings release, there's an earnings presentation on our Investor Relations website at investor.xperi.com. We encourage you to download the presentation and follow along with today's commentary. Before we begin, I would like to provide a few reminders. First, I'd like to note that unless otherwise stated, all comparisons are to the same period in the prior year. Second, today's discussion contains forward-looking statements about our anticipated business and financial performance that are predictions, projections or other statements about future events, which are based on management's current expectations and beliefs and therefore, subject to risks, uncertainties and changes in circumstances. For more information on the risks and uncertainties that could cause our actual results to differ materially from what we discuss today, please refer to the Risk Factors and the MD&A sections in our SEC filings, including our Form 10-K for the year ended December 31, 2025, and our Form 10-Q for the quarter ended March 31, 2026, to be filed with the SEC. Please note that the company does not intend to update or alter these forward-looking statements to reflect events or circumstances arising after this call. Third, we refer to certain non-GAAP financial measures, which are detailed in the earnings release and accompanied by reconciliations to their most directly comparable GAAP measures, which can be found in the Investor Relations section of our website. And last, a replay of this conference call will be available on our website shortly after the conclusion of this call. I'll now turn the call over to Xperi's CEO, Jon Kirchner. Jon Kirchner: Thank you, Sam, and thank you, everyone, for joining us on our first quarter 2026 earnings call. Overall, the first quarter results are evidence of the success we're achieving in delivering on our financial objectives and the notable progress we've made in delivering on our monetization strategy that we outlined for the year. Let me first provide an overview of the progress we made during the quarter against our key goals and priorities, progress that gives us confidence in our ability to monetize our growing platform. During the quarter, our TiVo One footprint grew to exceed 5.5 million monthly active users, and our AutoStage footprint grew to over 16 million vehicles globally. In addition to footprint growth, both our product feature set and ecosystem expanded, and we continue to add advertising partners and sellers to the TiVo One platform. Taken together, this progress combined to help us accelerate advertising monetization, resulting in Media Platform revenue growth of 45% year-over-year. We've also started to reap benefits from the strategic investments made over the past few years as evidenced by our results. Turning to our financial results for the quarter. I'm very pleased with the strong start to the year, which reflects both solid execution against our strategic plan and earlier-than-planned contract signings within CE and Connected Car. As I said, I'm particularly pleased with the progress we're making on driving monetization across our business. Given these results, we reaffirm the guidance we gave for the full year. Let me now go through each of our four business areas, starting with Media Platform. We recorded $12 million of revenue for Media Platform in the quarter, reflecting year-over-year growth of 45%, primarily driven by growth in advertising monetization. We experienced progress through our direct sales programs as we continue to execute campaigns across our owned and operated inventory and also began to benefit from our new partnerships. As noted earlier, our footprint also continued to grow as TiVo One monthly active users more than doubled year-over-year to 5.5 million. Just after the end of the quarter, we signed a multiyear partnership with Samba TV, a television technology company that offers real-time insights and audience analytics. Through this partnership, we're adding intelligence and measurement capabilities to TiVo One Connected TV inventory. This collaboration bolsters our TiVo ads business by enriching our connected TV advertising platform with Samba's industry-leading data and analytics, thereby improving ad targeting and campaign performance measurement. The relationship expands TiVo's ad sales and measurement capabilities, and we believe positions the TiVo One ad platform as an even more valuable cross-screen advertising solution for advertisers and agencies seeking better CTV audience targeting and comprehensive campaign insights. Average revenue per user for TiVo One was $7.10, a slight decrease from the fourth quarter as over the trailing 12 months, the number of average monthly users grew faster than monetization revenue. As advertising monetization revenue accelerates, we expect ARPU to advance toward double-digit dollars in the second half of 2026. Moving to Connected Car. AutoStage footprint expanded over 45% year-over-year, reaching over 16 million vehicles across 13 automotive brands. Just after quarter end, we launched AutoStage Broadcast Portal, a subscription service that we believe delivers unprecedented visibility and insights into audience behavior and listening metrics across 300 U.S. radio markets. In addition, we signed multiyear HD Radio renewal agreements and launched HD Radio in new models, including from Audi, Honda, Mercedes and Toyota. We also continue to advance our connected car road map, including advanced sound features and expanding services that are expected to support broadcaster and OEM partner advertising monetization. Moving to our Pay TV business. As noted earlier, our IPTV subscriber base continued to grow, increasing 19% year-over-year to reach 3.28 million subscriber households at quarter end. During the quarter, we signed the first agreements for new service offerings such as programmatic dynamic ad insertion and our native digital rights management. In addition, we delivered an innovative 4K sports experience with multi-view capability to IPTV households for the Winter Olympics and Super Bowl. We also expanded our set-top box partnership with Kaon and executed a multiyear discovery agreement with DirecTV. Moving to our consumer electronics business. During the quarter, we renewed DTS decoder and post-processing contracts with leading TV brands, including Vizio, Xiaomi, TCL and a major U.S. retailer. We also entered into a multiyear partnership with Tencent Music, China's leading music platform for DTS:X encoding of its music catalog, offering immersive audio as a premium feature to Tencent/QQ Music subscribers. Overall, these renewals and partnerships support our focus on expanding the adoption of our consumer audio technologies. As we put our 2026 goals in context, we made strong progress toward our objectives in the first quarter. Our monthly active users on the TiVo One platform continued to grow, reaching 5.5 million at quarter end, more than doubling from the same period last year. We remain confident in reaching our target of over 7 million monthly active users by year-end. On the monetization front, Media Platform's 45% year-over-year revenue growth was driven primarily by growth in advertising monetization. As our ecosystem and advertiser engagement expands, we believe we have a clear plan to reach our goal of doubling revenue to over $80 million. Also, as monetization revenue from advertising and data sales continues to grow in line with our expectations, we expect the TiVo One annual revenue per user, or ARPU, to finish the year above $10. Lastly, we've seen some very exciting progress on AutoStage, our connected car platform. While footprint continued to expand well past all of our original goals, we are now seeing clear demand among broadcasters and advertisers for the data coming off our platform. The first data license agreements are expected in the second quarter with more to follow, and we plan to commence advertising trials with partners in the U.S. and Europe later this year. Overall, we remain very pleased with our start to 2026. Let me now turn the call over to Robert to discuss our financial results in more detail. Robert? Robert Andersen: Thanks, Jon. Let me start by reviewing the revenue results for the quarter. Overall, revenue finished at $114 million, essentially flat year-over-year. Pay TV revenue decreased 8% as expected to finish at $46 million, driven by a decrease in core Pay TV from classic guides and end-of-life of legacy consumer products that was partially offset by growth from our IPTV solution. Consumer Electronics recorded $18 million of revenue, a decrease of 19%, primarily due to nonrecurring revenue from minimum guarantee arrangements and audit settlements in the same period last year as well as memory-related challenges in certain end product categories. Our Connected Car business grew 14% to $38 million due primarily to a multiyear minimum guarantee arrangement signed during the quarter. Lastly, Media Platform grew 45% to $12 million, driven primarily by growth in advertising monetization from a host of sources, including direct sold revenue, new partner revenue and a linear TV campaign spend. Looking at overall financial results, our non-GAAP adjusted operating expense decreased 14% year-over-year due primarily to workforce reductions that have occurred over the past year as we have focused the business on our growth areas. We posted $25 million of adjusted EBITDA or 22% of revenue, an improvement of almost 8 percentage points over the prior year. GAAP loss per share was $0.17 and non-GAAP earnings per share was $0.23. Turning to the balance sheet and statement of cash flow. We finished the first quarter of 2026 with $70 million of cash and cash equivalents. It is worth noting that in early April, we received the final $12 million payment related to the sale of Perceive to Amazon. As expected during our seasonally low first quarter, operating cash flow usage in the quarter was $18 million, an improvement of $4 million from the first quarter of 2025. Cash usage in the quarter was primarily due to the payment of accrued compensation, which occurs in the first quarter of each year, along with $8 million of payments related to employee departures from the workforce reduction announced in November. We had $23 million of free cash flow usage in the quarter, an improvement of $4 million from the same quarter last year. In terms of financial outlook for the year, we are reaffirming our annual guidance that was provided in February. As noted previously, our revenue range of $440 million to $470 million take into account our view of broader market risks across our business. In terms of revenue timing during the year, for Q1, we executed certain agreements earlier than we had planned, and we expect to see a similar trend in Q2. Therefore, we now expect revenue for the first half and second half of the year to be relatively even as opposed to being slightly more back half weighted as previously projected. Let me turn the call back over to Jon. Jon Kirchner: Thanks, Robert. To sum things up, we're very pleased with the results of the first quarter. Customers are engaging with us earlier in the year than anticipated, highlighting our relevance and growing momentum, which positions us for an even stronger start. Further, our results clearly demonstrate the progress we're making against our monetization strategy. That concludes our prepared remarks. Let's now open the call for questions. Operator? Operator: [Operator Instructions] And our first question comes from the line of Jason Kreyer with Craig-Hallum Capital Group. Unknown Analyst: This is [ Thomas ] on for Jason. First, Jon, you called out in the PR that you guys are beginning to see an inflection point in monetization strategy. Can you sort of talk about what the drivers are that are catalyzing this inflection? Jon Kirchner: Well, I think a couple of things. First, we have worked for the last 2 years to begin to build a broad enough footprint to have the scale necessary to begin to attract advertisers and partners to our platform to reach unique audiences. And I think those efforts as we're now at 5.5 million MAUs is certainly a key part. The second is that we have also worked in tandem to continue to build out and connect our TiVo One ad platform to the broader advertising ecosystem. And as that gets continually worked to, if you will, make sure all the plumbing is continually being optimized. I think that also enables more programmatic ad volume to flow. And thirdly, as we are now making a bigger presence known and the uniqueness of some of what our platform offers in terms of audience engagement, that is driving advertiser interest. And through partnerships, we have more sellers out there beyond just our direct sales force. And I think all of which is kind of combining to really begin to drive this business, I think, quite positively, and it's why we expect this year to see Media Platform revenue doubled year-over-year. And so I think while there's still plenty of work, I'm very, very pleased with how this seems to be taking shape. Unknown Analyst: That's great. And maybe one follow-up. When we look at your operating expenses in Q1, does that sort of represent all the cost-cutting initiatives you put in place? Just kind of trying to determine if this is the right cost base to build off of for the remainder of the year as we sort of move forward? Robert Andersen: Yes. Most of our work on the cost cutting is complete at this point. And I would warrant that Q1 is a good representation of the run rate for the remainder of the year. Operator: And our next question comes from the line of Matthew Galinko with Maxim Group. Matthew Galinko: Maybe firstly, can you touch on how unit availability is today in the U.S. market and how kind of that user growth is shaping up between U.S. and Europe? And then I'll ask a follow-up. Jon Kirchner: Sure. So Matt, similar to what was the case last quarter, the majority of our TiVo One Connected devices are in Europe. I think on a relative basis, you're going to continue to see that grow faster than the U.S., the U.S. being a more competitive market, et cetera. We do expect, however, there to be more TV volume in the U.S. later this year. And we have both smart TVs and connected set-top boxes. There are operators that are -- the distinction is not important because they're all connected to our TiVo One ad platform. So this is all about managing the home screen and where content is being aggregated and ultimately being selected and the ability to advertise in stream and on homepage, et cetera, across these platforms. So I would say you're probably looking at a balance, roughly 60% Europe, 40% U.S. Matthew Galinko: And just any thoughts on, I guess, the capital structure, particularly given the kind of the shift in pickup in the Media Platform business and the collection of the received payment. Does that change anything about your position towards debt on the balance sheet? Or how do you feel today? Jon Kirchner: Well I think we continue, like everyone, right, to be operating in an uncertain environment. I think nothing has fundamentally changed with our capital allocation policy. which is we carry a small amount of debt on the balance sheet. Obviously, we want to fund importantly, our growth initiatives as our first priority and then look to opportunistically return capital through buybacks as appropriate as you balance both the need for cash internally along with debt paydown and ultimately, that return of capital. So as we still -- as we sit here today on $80-some million in cash, I don't think our perspective broadly changes as we start to see more material growth as we go forward. Obviously, it's a conversation that we and the Board have regularly. And to the extent that we want to dial up any element of that slightly more than another, certainly a matter of constant conversation. Operator: [Operator Instructions] And our next question comes from the line of Hamed Khorsand with BWS Financial. Hamed Khorsand: Could you just talk about -- you're making good advancement here on how many people are using your AutoStage, but why wouldn't that translate into higher Media Platform revenue for you right now? Robert Andersen: Hamed, certainly, it ultimately will lead to more data and advertising-based monetization. But one of the things we have talked about is that in the course of this year, as we kind of exceeded the 10 million to, let's call it, 12 million units kind of mark that there'd be enough scale to attract both advertisers and people interested in that data more meaningfully. And so it's just simply a matter of timing. It's just where we are. You will, in fact, see, I think, a very, very valuable and interesting platform to both broadcasters and advertisers take shape where there's, we think, a meaningful amount of opportunity. And you'll kind of see it as we lean ahead with our first license -- data licenses happening in the broadcaster space likely this quarter. Operator: And we have no further questions at this time. So I will now turn the conference back over to Mr. Jon Kirchner for closing remarks. Jon Kirchner: Thanks, operator. With a great start to the year, we can see momentum building in our business, and I'd like to personally thank our customers and partners. In addition, I appreciate the commitment of the entire Xperi team as we continue to deliver on our plans and strategies. We look forward to sharing further updates on our next quarterly conference call, and thank you, everyone, for joining today. Operator: And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to the Stem Inc. First Quarter 2026 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Erin Reed, Head of Investor Relations. Thank you. You may begin. Erin Reed: Thank you, operator. Welcome to Stem's First Quarter 2026 Earnings Call. This is Erin Reed, Head of Investor Relations. Before we begin, please note that some of the statements we will be making today are forward-looking. These statements involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. For more information, we refer you to our latest 10-Q, 10-K, other SEC filings and supplemental presentation, which can be found on our Investor Relations website. Our comments today also include non-GAAP financial measures. Additional details and the reconciliations to the most directly comparable GAAP financial measures can be found in our first quarter 2026 earnings release and supplemental materials, which are available on the company's Investor Relations website. Arun Naryanan, CEO; and Brian Musfeldt, CFO, will start the call today with prepared remarks, and then we will conduct a question-and-answer session. And now I'll turn the call over to Arun. Arun Narayanan: Thank you, Erin. Good afternoon, everyone, and thank you all for joining us today. When I spoke with you last during our fourth quarter and full year 2025 earnings call, I framed 2025 as a transformative year and 2026 as the year to demonstrate what that transformation was designed to deliver. One quarter in, I'm encouraged by the progress we are making. Our results are moving in the right direction, and we remain on track against the commitments we've set. Q1 is historically the lightest revenue quarter for us and our industry. And yet this quarter, we delivered our fourth consecutive quarter of positive adjusted EBITDA. In fact, this was our first ever positive adjusted EBITDA in a first fiscal quarter, supported by strong gross margins and continued growth in core software, services and edge hardware revenue. This reflects a cost structure and a margin profile that are now increasingly durable. We remain on track across all 2026 financial and operating targets, and we are reaffirming full year guidance across all metrics today. Now turning to an update on our three key priorities for 2026. Our first priority is to drive operational leverage and ensure that the structural improvements we made in 2025 are sustainable and continue over time. Gross margins for the first quarter were again very strong. With no battery hardware resales in the quarter, our revenue mix was entirely software, services and edge hardware, which drove non-GAAP gross margin to 52%. As we opportunistically layer in battery hardware through the balance of the year, we expect margins to naturally compress towards the midpoint of our 40% to 50% non-GAAP gross margin guidance range. Importantly, the underlying software and services margin engine remains strong. On the operating expense side, we continue to maintain what we have characterized as permanent structural efficiency. Cash operating expenses were down significantly year-over-year and down sequentially versus the fourth quarter of 2025. We remain focused on resourcefulness and driving further efficiency wherever we can, while continuing to invest deliberately in the areas that drive longer-term growth. One area where we are seeing meaningful efficiency gains is in AI adoption. Today, nearly 70% of our employee base is actively using AI tools in their weekly workflows with tangible productivity benefits to our customers. Within our development team specifically, AI is accelerating feature delivery and improving triage and operations. These productivity gains are real, and they are helping us do more with a leaner organization. As a result of our strong execution as well as these achievements and advancements, we delivered $2 million in adjusted EBITDA, our fourth consecutive positive quarter and our first ever positive first quarter performance. This clearly evidences the operating leverage embedded in this business, and we expect it to expand as we move through the year. Operating cash flow was negative $8 million for the first quarter. This reflects expected Q1 working capital timing and scheduled interest payments. As bookings and billings increase and working capital requirements lessen throughout the year, we expect improvements in operating cash flow and remain confident in our full year guidance range of $0 million to $10 million. Now moving on to our second priority, strengthening the core PowerTrack platform. PowerTrack is a critical digital infrastructure platform, which enables our customers to go from data to insight to action. PowerTrack generates data at the customer site with our edge hardware and sends that data to the cloud and ultimately to our PowerTrack software platform, enabling our customers to make meaningful decisions about their portfolios and optimize their assets. We added approximately 1.5 gigawatts of solar assets under management in the first quarter, bringing total solar AUM to 37.5 gigawatts, and we drove 2% growth in PowerTrack ARR. We are committed to maintaining and extending our market-leading position in commercial and industrial solar asset monitoring while extending into additional customer segments, and we continue to invest in the platform's stability, performance and feature depth to achieve these goals. A key part of that investment strategy is a disciplined build or buy analysis. Our acquisition of raicoon, which we announced on April 28th, is a direct and strategic move towards building out that platform capability and improving the actionability from insights and data. raicoon is an Austrian provider of automated fault detection and event management for solar assets. This is a targeted high-impact acquisition, a natural capability extension to our platform that we believe has immediate value across our wide customer base. raicoon's technology provides enhancements to PowerTrack through automated fault detection and alert prioritization. As our customer base scales and portfolios grow more complex, the ability to surface and triage performance issues faster is increasingly important for our customers to drive meaningful actions at scale. We expect raicoon's technology will drive customers to do even more work with PowerTrack, further establishing our product as the platform of choice for solar asset managers. What's more, this is a small, focused tuck-in acquisition that we executed opportunistically and will integrate quickly. We look forward to sharing more on the benefits of this acquisition as product integration progresses. Another way in which we make data more accessible for our customers is with PowerTrack Sage. PowerTrack Sage is now live and available in PowerTrack to our broader customer base. The AI assistant synthesizes live site data, alerts, and performance analytics into plain language briefings, giving operators, performance engineers and asset managers the ability to detect, diagnose and resolve issues faster. The early adoption signals are very exciting. We are seeing consistent daily engagement across multiple customer organizations with integrations into their daily workflows. In the future, as more heterogeneous data appears in PowerTrack, the capabilities of PowerTrack Sage will become more meaningful to our customers. Turning now to managed services. Our managed services business provides software-enabled full life cycle energy storage services, covering design, procurement, commissioning and the ongoing operation and optimization of energy storage systems typically under five- to 20-year contract terms. Managed services brought in approximately $7 million in revenue during the first quarter. Customer satisfaction remains high, and our optimization service continues to exceed the performance targets we have set with our customers. Shifting now to our final strategic priority, building the foundation for accelerated growth in 2027 and beyond, which includes expanding into utility scale deployments, advancing our international footprint and unlocking new market opportunities. I'm particularly excited about bookings momentum we are seeing in the utility scale segment. Bookings more than doubled quarter-over-quarter, and our pipeline in this segment is the strongest we have ever seen. We booked new deals in four different geographies and across various asset types, including stand-alone storage, solar and new build hybrid. While PowerTrack EMS is valuable across our portfolio, including C&I, it is also a key offering for us to drive expansion in the utility scale space, both internationally and domestically. It differentiates us by providing customers with unified controls, cloud monitoring and portfolio level visibility. PowerTrack EMS also helps customers extend the value of existing solar assets by adding storage with minimal disruption. PowerTrack EMS has a longer commercial life cycle than our core C&I business because of the utility scale end market since it requires more time for commissioning. And we expect these bookings to convert to meaningful revenue in late 2026 and into 2027. Our first PowerTrack EMS bookings from Q4 2025 are developing well and are on track to convert to revenue during the second quarter of 2026. One key PowerTrack EMS booking from Q1, I'd like to highlight is with a long-standing PowerTrack solar monitoring customer operating two utility scale sites exceeding 50 megawatts in Hungary. This customer made the decision to hybridize their portfolio and selected PowerTrack EMS to manage a new 50-plus megawatt hour battery system. This is precisely the expansion dynamic we anticipated when we built PowerTrack EMS, an existing customer deepening their relationship with them as their assets evolve. It validates both the platform's ability to grow with our customers and the increasing prevalence of hybridization in the European utility scale market. Just last week, we further strengthened PowerTrack EMS with a co-marketing relationship with Nuvation Energy, a North American provider of battery management and energy control solutions. Together, we will market a cell-to-cloud BESS and hybrid control stack that is exclusively North American designed and manufactured. This collaboration will allow us to deliver real value to our customers as regulatory requirements, including FEOC tighten. Further, this agreement proves we are on our way to building a robust ecosystem of commercial and product partnerships to extend our reach. On the international front, we continue to build out our European presence, anchored by our Berlin office. International revenue represented approximately 5% of total revenue in the first quarter, and we expect that proportion to grow as PowerTrack EMS and other utility scale projects in Europe move through commissioning and into revenue recognition in late 2026 and in 2027. Beyond our core growth drivers, I'd like to briefly update you on the two new offerings we introduced during our Q4 call. Our AI services offering continues to progress with active customer conversations focused on helping organizations identify and implement practical AI use cases that streamline internal processes, improve decision-making and unlock operational efficiency. In parallel, we are exploring how our core strength in energy optimization software and deep energy market expertise can support data center developers and operators as they navigate rising power costs, grid constraints and resilience requirements. Both remain important future growth opportunities, and we will share more substantive updates as customer engagements and market validations advance. To close, I want to reinforce our confidence in the rest of the year ahead. Q1 came in as expected, strong margins, positive adjusted EBITDA and solid progress on all three priorities. As I stated earlier, we are reaffirming our full year 2026 guidance across all metrics, and I'm confident in our team's ability to execute. With that, I'll turn the call over to Brian. Brian Musfeldt: Thanks, Arun, and good afternoon, everyone. Let's walk through the results. As Arun noted, Q1 is historically the lightest revenue quarter for the company, driven by the natural sales cycle of construction projects, which typically begin to ramp in the summer and through the end of the year. Total revenue for the first quarter was $29 million, down 11% year-over-year from $32 million in the first quarter of 2025. The year-over-year decline was entirely attributable to the absence of battery hardware resales this quarter and our expectation that battery hardware resale activity will be weighted to the second half of 2026. Core revenue from software, services and edge hardware was up 4% from the first quarter of 2025. Within that, I want to highlight a few components. PowerTrack software revenue grew 16% year-over-year, reflecting continued strength in our commercial and industrial solar monitoring business and early contributions from utility scale expansion. This is the highest margin recurring revenue in our portfolio, and its growth rate is a meaningful indicator of the health of our core business. Edge hardware revenue grew approximately 1% year-over-year. Project and professional services revenue declined 5% year-over-year and managed service revenue was down 5% year-over-year. First quarter GAAP gross margin was 38% compared to 32% in the first quarter of 2025. Non-GAAP gross margin was a record 52% compared to 46% in the first quarter of 2025. The significant margin expansion reflects the increasing mix of software, services and edge hardware in our revenue base, combined with the structural cost improvements we made in 2025. As battery hardware resales volumes pick up in the second half of the year, non-GAAP gross margin percentage will trend toward the middle of our 40% to 50% full year guidance range, but the underlying software and service margins remain strong. Cash operating expenses were down 30% year-over-year and down approximately 10% sequentially. The workforce and cost optimization actions we completed in 2025 and continue to implement into 2026 have become permanent structural efficiency and the first quarter confirms that characterization. Adjusted EBITDA was $2 million, a $7 million improvement compared to a negative $5 million in the first quarter of 2025. This marks our fourth consecutive quarter of positive adjusted EBITDA and our first ever positive adjusted EBITDA in the first quarter, which has historically been our most challenging quarter for profitability given seasonal revenue patterns. This is strong evidence of the operating leverage that is now entrenched in this business. We ended the first quarter with $37 million in cash and cash equivalents. Operating cash flow was negative $8 million in the quarter, driven primarily by the timing of working capital movements and cash interest expense. I want to be clear about the working capital dynamics. The Q1 outflow reflects timing, not a change in the underlying cash generation of the business. As bookings and billings increase and working capital requirements lessen throughout the year, we expect improvement in our cash position and remain on track to achieve our full year operating cash flow guidance of $0 to $10 million. Turning now to our operating metrics. Bookings were $27 million in the first quarter compared to $33 million in the fourth quarter of 2025. The sequential decline is typical for first quarter seasonality. All bookings this quarter came from core software, services and edge hardware. As Arun noted, utility scale bookings more than doubled quarter-over-quarter, which is one of the key drivers of our long-term growth objectives. While we did not have any battery hardware bookings this quarter, we continue to expect up to $40 million in opportunistic battery hardware sales this year. The battery supply is accessible and can be delivered to customers within 90 days. Contracted backlog was $23 million at the end of the first quarter, up 8% sequentially from $21 million at the end of the fourth quarter of 2025. CARR was $67 million, flat versus the end of the fourth quarter. ARR was $61.2 million, up slightly from $61.1 million at the end of the fourth quarter. Within that, PowerTrack ARR grew 2% sequentially and managed services ARR declined 4% sequentially. Managed services ARR declined modestly, reflecting the impact of a battery supplier bankruptcy, which prevented the renewal of certain recurring warranty management and other services contracts tied to that supplier systems. Importantly, we continue to provide optimization and other core managed services to the owners of those assets and associated AUM remains on our platform. Solar operating AUM grew 4% sequentially to 37.5 gigawatts and storage operating AUM was flat sequentially at 1.7 gigawatt hours. Now turning to guidance. As Arun mentioned, we are reaffirming our full year 2026 guidance across all metrics. Total revenue of $140 million to $190 million with software, services and edge hardware expected in the range of $130 million to $150 million and battery hardware resales of up to $40 million, which, as I mentioned, we expect to be weighted to the second half of the year. Non-GAAP gross margin of 40% to 50%, with the range driven by the timing and volume of battery hardware resales. Adjusted EBITDA of $10 million to $15 million, operating cash flow of $0 to $10 million and year-end ARR of $65 million to $70 million. And I will now pass the call back over to Arun for closing remarks. Arun Narayanan: Thank you, Brian. I'd like to leave you all with three key takeaways from this quarter. First, the transformation we undertook in 2025 is delivering results. We achieved positive adjusted EBITDA in our historically weakest quarter with record high software margins and a cost structure that is both lean and durable. This is not a onetime achievement. It's the foundation we are building on. Second, our core business is strong and growing. PowerTrack software revenue grew 16% year-over-year. Our new products, PowerTrack EMS and PowerTrack Sage are gaining real traction with customers. And the raicoon acquisition demonstrates our disciplined approach to extending our platform capabilities where it matters most. Third, we are making tangible progress on the growth initiatives that will drive through 2027 and beyond. Utility scale bookings more than doubled quarter-over-quarter. Our international footprint is expanding and our partnership with Nuvation positions us to capitalize on the growing demand for secure domestically sourced energy infrastructure. We said 2026 would be the year to demonstrate what our transformation was designed to deliver. One quarter in, we are doing exactly that. We have the right strategy, the right team and the right momentum. We are executing with discipline, investing with purpose, and we remain confident in achieving all our full year commitments. I want to thank our customers for their continued partnership, our team for their exceptional execution and all of you for your support and engagement. With that, I will ask the operator to open the line for questions. Operator: [Operator Instructions] The first question comes from Justin Clare with ROTH Capital. Justin Clare: So I wanted to just start out on bookings. So you've mentioned utility scale bookings had doubled quarter-over-quarter. And so just wondering if you could speak to what drove the strength there? Is that new customer wins? Is it expansion with existing customers? Are you seeing larger project sizes? And then also, just where are you seeing the most traction with utility scale customers in your portfolio? So which products or services are you seeing the most uptake for? Arun Narayanan: Justin, good to hear from you. This is Arun. It's largely driven, I would say, by PowerTrack EMS. PowerTrack EMS is the key differentiator that allows us to provide our customers in the utility scale space with solutions. They bring unified controls, cloud monitoring as well as portfolio level visibility to our customers. And I think this is what's extending the ability to engage with us beyond solar projects into these utility scale projects. Now also one more thing. We have PowerTrack SCADA, which is another product that we offer for monitoring and control in utility-scale solar projects as well. We have a team based in Berlin. The team is working very hard, and they have done a great job in doubling bookings. There are two maybe examples I can cite. In the last quarter, we spoke about Everyray, which was a German customer. That was a 100-plus megawatt hour project. And then in the prepared remarks, we referred to a Hungarian project that went through hybridization that was 50-plus megawatt hour deal as well. And overall, I think we remain confident that this conversion continues. The first CMS bookings from the Q4 2025 cycle, we expect to start seeing that as revenue starting in Q2 of 2026. So we remain very optimistic on this, Justin. Justin Clare: Okay. Got it. Got it. I appreciate that. And then just wanted to ask on PowerTrack. So we did see a pretty good growth, I think, 16% year-over-year revenue growth for that. Though we did see the ARR was flat sequentially. And so I'm just wondering how we should think about the cadence of ARR growth as we move through the balance of the year here, given your target of $65 million to $70 million at the end of the year? And then just what are the drivers that could potentially enable you to get to the higher end of that target? Arun Narayanan: Yes, Justin, I can answer that as well. PowerTrack ARR was up 12% year-over-year, 2% sequentially. And this moderate sequential growth in PowerTrack ARR is just due to seasonality. We expect ARR to ramp up throughout the remainder of the year. And the majority of our ARR growth, as usual, will come from PowerTrack C&I customers. There will be some PowerTrack EMS and utility scale deployments in the ARR, but it won't be a significant portion of ARR this year. And we're very focused and we continue to drive ARR across our business over the long term. And as I said earlier, we're pleased to reaffirm our guidance of $65 million to $70 million for ARR. Justin Clare: Got it. Okay. Great. And then just one more. I wanted to ask on the margins here. So we just see that PowerTrack non-GAAP gross margins that continue to move higher in Q1. I think you're at 75% versus 69% a year ago, 71% in Q4. So just wondering if you could just speak to the improvements that we've seen there? What's been the biggest driver? And then how we should think about the margin profile as you continue to scale that business? Is there further potential for margins to move higher? Brian Musfeldt: Yes. Thanks, Justin. This is Brian. I'll take that one. Yes, I mean, we are always reviewing the supply chain and the macro environment for our PowerTrack product. So you're seeing good growth in a couple of ways. One, our AUM is increasing. And so that is a kind of traditional SaaS product that gains leverage as we get more volume, which is always great, and that's going to improve margin. But also, you do see us -- as we watch the environment in the supply chain this last year, we have been able to increase pricing modestly where we've needed to kind of between tariffs and other things that have kind of driven that environment. So as the volume increases, you'll continue to see margins push up on that space. And then you always -- we're always watching for places where we can increase pricing or need to increase pricing on our customers, and that's what's going to drive that kind of to keep improving. Operator: This concludes the equity research questions. I'd like to turn the floor over to Aaron for retail investor questions at this time. Erin Reed: Thank you, operator. We have a few questions here. Firstly, relating to cash flow. With 2026 operating cash flow guided from $0 to $10 million, what are the key levers that give you confidence that Stem can reach positive operating cash flow for the full year 2026? Brian Musfeldt: Yes. This is Brian again. I'll grab that one. As Arun stated in the call, Q1's negative operating cash flow was really driven by a combination of expected higher working capital requirements in Q1 and it being our traditionally lowest kind of billings and revenue quarter. When you look forward, we expect that bookings and billings will increase with our seasonality and you look at this business and how it operates. And we also expect reduced working capital requirements through the rest of the year. And the combination of that will allow us to build cash going into the second half of the year. I think it's important to note, cash operating expenses have really been optimized to the business and the size today. I think you can see that in the evidence when you see that cash operating expenses were down 30% year-over-year and another 10% sequentially. So with that, we were able to achieve positive EBITDA in our lowest revenue quarter for the first time, which is great. And I think you're just fundamentally seeing that we need significantly less cash to run this business with the new operating discipline that we have in place. So I think that's what really gives us the confidence to reiterate our guidance on all our metrics this year. Erin Reed: Thanks, Brian. The next question is on the recent acquisition of raicoon. Why did you acquire raicoon and why now? Arun Narayanan: I'll take this. This is Arun. Well, I'm very excited that raicoon is joining Stem, and I want to take this opportunity to welcome all of the raicoon employees to Stem. raicoon's technology provides significant enhancements to PowerTrack through automated false detection and prioritization. What this means is as our customer base scales and portfolios are more complex, the ability to surface and triage performance issues faster is increasingly becoming very important to customer retention and satisfaction. This acquisition directly supports our 2026 priority of strengthening our core PowerTrack business, and we saw an opportunity to bring in a proven already deployed technology rather than build it from scratch. And this brings additional value to our existing customer base as well as it's a differentiator as we try to acquire new customers. So we're very pleased that raicoon is joining us. Erin Reed: Thanks. This will be the last question, and it is related to AI. Where is Stem's AI capability creating measurable value for customers today? And how does that translate into retention, expansion or new customer wins? Arun Narayanan: I'll take this. Look, I'm always excited about AI. And I would say that our ability to bring AI to life and to bring value to our customers maybe can be thought of in two different ways. The first way is how we embed AI into our products. AI is baked into PowerTrack as PowerTrack Sage, and this AI assistant provides customers with more fluency to interpret their site data. It expands PowerTrack users beyond the technical users that we have, and it does so by providing plain language briefings to non-technical users. Secondly, we also impact customer value by using AI internally, especially if you think about our development team, their usage of the AI tools, it allows them to accelerate feature delivery. It improves triage in our operations. It allows us to roll out updates more quickly. And ultimately, what this means is we reduce friction for our customers. Erin Reed: Thanks, Arun. This concludes the retail investor question. Turning back to you now for closing remarks. Arun Narayanan: I want to thank everyone for joining our first quarter earnings call, and we look forward to speaking with you next during our second quarter 2026 earnings call this summer. Thanks, everyone. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Alpha and Omega Semiconductor Fiscal Q3 2026 Earnings Call.? [Operator Instructions] I will now hand the call over to Steven Pelayo, Investor Relations. Please go ahead. Steven C. Pelayo: Good afternoon, everyone, and welcome to Alpha Omega Semiconductor's conference call to discuss fiscal 2026 third quarter financial results. I'm Steven Pelayo, Investor Relations representative for AOS. With me today are Stephen Chang, our CEO, and Yifan Liang, our CFO.? This call is being recorded and broadcast live over the web. A replay will be available for 7 days following the call via the link in the Investor Relations section of our website. Our call will proceed as follows today. Stephen will begin business updates, including strategic highlights and a detailed segment report. After that, Yifan will review the financial results and provide guidance for the June quarter. Finally, we will have a Q&A session.? The earnings release was distributed over the wire today, May 6, 2026, after the market closed. The release is also posted on the company's website. Our earnings release and this presentation include non-GAAP financial measures. We use non-GAAP measures because we believe they provide useful information about our operating performance that should be considered by investors in conjunction with GAAP measures. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in the earnings release.? We remind you that during this conference call, we will make certain forward-looking statements, including discussions of the business outlook and financial projections. These forward-looking statements are based on management's current expectations and involve risks and uncertainties that could cause our actual results to differ materially. For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC. We assume no obligations to update the information provided in today's call. Now I'll turn the call over to our CEO, Stephen Chang. Stephen? Stephen Chang: Thank you, Steven. Welcome to Alpha and Omega's fiscal 2026 Q3 Earnings Call. I will begin with a high-level overview of our results and then jump into segment details. We delivered fiscal Q3 revenue results slightly above the midpoint of our guidance, primarily reflecting strength in advanced computing, including AI, servers, and graphics cards, offset by softness in PC markets resulting from seasonality and memory shortage headwinds.? Tablets also showed strong sequential growth. And the Communications segment was also better than expected, driven by year-over-year growth from our Tier 1 U.S. smartphone customers, offset by weaker demand in China.? Overall, total March quarter revenue was $163.8 million, down 0.5% year-over-year and up 0.9% sequentially. Non-GAAP gross margin was 21.7%. Non-GAAP EPS was a loss of $0.28 per share. Our strategy remains consistent, and we are executing well. As we have said, we believe the December and March quarters represent a bottom for both revenue and gross margin, reflecting the impact of near-term market conditions and supporting a more constructive outlook going forward.? March marks the third anniversary of my journey as CEO of AOS.?When I stepped into this role in 2023, my goal was to steer our organization from a component-level supplier towards becoming a provider of application-specific total solutions, a move designed to push us past a $1 billion milestone towards a multibillion-dollar future. At that time, we were just scratching the surface of potential opportunities in front of us. Today, those opportunities have moved to the center of our business.? Over the past 3 years, we have successfully pivoted to higher-performance applications where we can expand BOM content and build durable competitive advantages. This strategy is translating into tangible results, particularly in advanced computing, where demand is broadening across AI data center applications. Specifically, we are gaining traction in high-performance medium-voltage MOSFETs used in hot swap applications and intermediate bus converters with increasing customer engagement and design activity expected to accelerate and contribute more meaningfully as we progress through calendar 2026.? We are actively expanding our medium voltage capacity to support this growth, and our backlog provides us with good visibility. At the same time, we are seeing a broadening of both our solution set and customer base, extending beyond traditional GPU-centric platforms into a wider range of cloud and infrastructure deployments. This reinforces our confidence that advanced computing is becoming a more durable and increasingly important growth driver for the company.? As is broadly reported, memory supply constraints and price pressures represent growing headwinds for the second half of calendar 2026. Against this backdrop, we are using 3 primary levers to protect our growth: steady margin expansion through improved product mix, and further increases in BOM content, where our total solutions approach is enabling us to capture more value as seen in transitions to next-generation PC platforms such as Intel's Panther Lake and higher charging current requirements in smartphones.? Continued disciplined investment to support the opportunities ahead. We have stepped up our targeted R&D investments in areas where we are already seeing success, including power ICs, high-performance MOSFETs for AI and data center applications, and advanced solutions for smartphones. These investments are highly focused and aligned with clear customer road maps and design wins.? While calendar 2026 may reflect some near-term variability, we are confident that the combination of expanding advanced computing opportunities, increased BOM content across key end markets, and our continued execution will position us well for stronger growth as we exit 2026 and accelerate into 2027 and beyond.? With that, let me now cover our segment results and provide some guidance by segment for the next quarter.? Starting with Computing. March quarter revenue was up 2.1% year-over-year and down 0.1% sequentially and represented 49.1% of total revenue. The segment results were slightly better than our original guidance of a low single-digit sequential decline. As I mentioned earlier, seasonal declines in PC markets were likely exacerbated by earlier pull-ins in calendar 2025 and potential demand impacts from rising memory pricing.? Strength in advanced computing, including AI servers and graphics cards, more than offset such decline and combined more than doubled sequentially and increased more than 40% year-over-year. The strong growth resulted in advanced computing representing 25% of the computing segment in the March quarter.? As mentioned before, we are seeing solid demand for our medium-voltage MOSFETs across an expanding list of applications and a customer base that includes power supply providers, module makers, cloud service providers, and major hyperscalers. We are shipping our high-performance MOSFET products into applications, including intermediate bus converters that are now moving into the build phase at some leading ODMs for major hyperscale customers.? Looking ahead to the June quarter, we expect computing segment revenue to increase by low to mid-single digits sequentially, driven by strong AI and server demand in advanced computing. While PC-related revenue is largely stable, tablets declined mostly due to seasonality as well as increased capacity allocation to opportunities in smartphones. We acknowledge that industry forecasts for the PC market continue to be revised lower, and we generally agree with that view, expecting some decline in calendar 2026. That said, we believe our performance should outpace the broader market, supported by continued increases in BOM content driven by our total solution strategy.? Near-term PC demand appears stable for the June quarter, but visibility into the second half of the calendar year remains limited given ongoing macro and component-related uncertainties. In advanced computing, we continue to see strong momentum with demand increasingly centered on our medium voltage solutions supporting server and AI infrastructure.? Importantly, we are seeing a broadening of both our customer base and application footprint with growing engagement across multiple platforms. These solutions are being deployed across both GPU and CPU-based architectures and are benefiting from the ongoing shift towards inference workloads, which are driving higher and more distributed power requirements.? While we continue to view 48-volt to 12-volt intermediate bus architectures as a near-term standard that we are benefiting from today, we see this as a stepping stone towards higher voltage systems, including 800-volt architectures expected to begin emerging around 2027.? In graphics, we expect a more muted environment in calendar 2026, given the current product cycle and allocation priorities, with the next major refresh opportunity tied to future platform transitions. Overall, we expect another quarter of strong sequential growth for advanced computing.? Turning to the Consumer segment. March quarter revenue was down 9.8% year-over-year and up 0.8% sequentially and represented 11.8% of total revenue. The results were below expectations for mid-single-digit sequential growth as recovery in gaming following a sharp inventory correction in the December quarter was offset by softness in home appliances.? On a year-on-year basis, wearables continued to see strong year-on-year growth, driven by market share gains, new customer engagements, rising BOM content, and a broader mix of end applications.? For the June quarter, we expect the Consumer segment revenue to remain relatively flat sequentially. In gaming, demand is tracking in line with our expectations as the current console cycle matures. While near-term production levels reflect seasonality as well, we remain closely engaged with our leading customer on their next-generation platform. We believe our established relationship and strength in high-performance power solutions position us well to participate more meaningfully as that platform ramps, with a greater impact expected beginning in 2028. Home appliance demand remains relatively soft and continues to reflect a cautious consumer demand environment with limited signs of near-term recovery. That said, we continue to see ongoing design activity that supports longer-term opportunities, particularly in emerging markets. Wearables are progressing through their typical seasonal patterns following recent strength, and we continue to benefit from solid customer engagement and a broadening mix of applications. Next, let's discuss the Communications segment. March quarter revenue was up 18.7% year-over-year and up 1.9% sequentially, and represented 20.6% of total revenue. The results were ahead of our expectations for a mid-single-digit decline, driven by strong year-over-year growth from our Tier 1 smartphone customer and BOM content expansion, offset by softness in China due to a weaker market and our prioritization towards premium models in the U.S. Looking ahead to the June quarter, we expect the Communications segment to decline slightly sequentially, but sustain the high year-over-year growth experienced in the March quarter as demand from our Tier 1 U.S. smartphone customers remains robust. As mentioned, we are prioritizing capacity for our Tier 1 U.S. smartphone customers in order to prepare for upcoming product cycles. We continue to benefit from strong positioning in premium models where our differentiated silicon and packaging technologies for battery protection are enabling higher BOM content. In particular, increasing charging currents across new smartphone platforms are driving incremental content opportunities, reinforcing our ability to capture greater value per device. At the same time, we remain mindful that rising memory pricing could impact overall smartphone demand, particularly in more price-sensitive segments and regions. However, we believe premium-tier demand will be more resilient, and our strategic focus on higher-end platforms positions us well to navigate this environment. As a result, we expect continued growth in calendar 2026, driven by both content expansion and continued engagement with leading global smartphone customers. Now let's talk about our last segment, Power Supply and Industrial, which accounted for 17.4% of total revenue and was down 13.1% year-over-year and up 5.3% sequentially. Overall, the results were in line with expectations for mid-single-digit sequential growth as sequential growth in quick chargers and DC fans more than offset continued sluggishness, both sequentially and year-on-year, in solar, power tools, and e-mobility. Looking ahead to the June quarter, we expect Power Supply and Industrial revenue to increase mid-single digits on a sequential basis, primarily driven by momentum in e-mobility, particularly in the Indian market, where we have built a solid backlog heading into the quarter. DC fans also remain an area of strength, benefiting from continued demand tied to data center and AI infrastructure build-outs. Lastly, power tools are also forecast to increase modestly in the June quarter. However, overall tool demand remains subdued. In closing, as we move into the June quarter, we expect a return to sequential growth, along with margin expansion, supported by improving product mix and a greater contribution from higher-value applications, particularly within advanced computing. We are seeing encouraging signs of traction in areas such as AI infrastructure, where demand is broadening across a wider set of applications and customers, and where our solutions are gaining adoption in both GPU and CPU-based platforms. This momentum, combined with increasing BOM content across key end markets, positions us well as we enter the second half of the year, even as overall visibility remains somewhat limited. At the same time, we are executing consistently against the strategy we have outlined. Our focus on becoming a provider of application-specific total solutions is enabling us to expand both our product portfolio and our customer reach. We are seeing tangible progress in advanced computing, where our medium voltage and power IC solutions are addressing a growing range of use cases and where our customer base continues to broaden across hyperscalers, cloud service providers, and platform partners. In parallel, we continue to benefit from structural drivers such as rising power requirements and increasing charging currents, which are driving higher BOM content in both computing and smartphone applications. Looking across calendar 2026, we expect a dynamic environment with some uncertainty in consumer-related demand, particularly given the impact of memory pricing on end markets such as PCs and smartphones. However, we believe these pressures will be partially offset by our increasing exposure to higher performance, less price-sensitive segments, and our ability to capture greater value per system through our total solutions approach. Importantly, we are investing with discipline to support these opportunities with targeted R&D focused on areas where we have clear differentiation, strong customer alignment, and a path to sustainable margin expansion. As we look beyond 2026 and into 2027, we expect the benefits of these investments and design wins to become more pronounced as new programs ramp into production. The combination of expanding participation in advanced computing, increasing BOM content, and a broader and more diversified customer base is expected to drive stronger growth and improved profitability over time. With that, I will now turn the call over to Yifan for a discussion of our fiscal third-quarter financial results and our outlook for the next quarter. Yifan? Yifan Liang: Thank you, Stephen. Good afternoon, everyone, and thank you for joining us. Revenue for the March quarter was $163.8 million, up 0.9% sequentially and down 0.5% year-over-year. In terms of product mix, DMOS revenue was $115.1 million, up 13.9% sequentially and up 7.7% over last year. Power IC revenue was $46.9 million, down 20.3% from the prior quarter and down 14.1% from a year ago. Assembly service and other revenue were $1.8 million as compared to $2.5 million last quarter and $0.4 million for the same quarter last year. Non-GAAP gross margin was 21.7% compared to 22.2% last quarter and 22.5% a year ago. The quarter-over-quarter decrease was mainly impacted by lower utilization and higher operational costs. Non-GAAP operating expenses were $44.3 million compared to $41.3 million for the prior quarter and $39.7 million last year. The quarter-over-quarter increase was mainly due to higher R&D expenses. Non-GAAP quarterly EPS was a loss of $0.28 compared to a loss of $0.16 per share last quarter and a loss of $0.10 per share a year ago. Moving on to cash flow. Operating cash flow was negative $8.3 million compared to negative $8.1 million in the prior quarter and positive $7.4 million last year. In the March quarter, working capital fluctuated by $14 million. EBITDA, excluding equity method investment income and loss, was $5.9 million for the quarter compared to $9.7 million last quarter and $14.7 million for the same quarter a year ago. Now, let me turn to our balance sheet. We completed the March quarter with a cash balance of $190.3 million compared to $196.3 million at the end of last quarter. In the March quarter, we repurchased 214,000 shares for $4.2 million under our share buyback program. We also repurchased 292,000 shares of employee restricted stock units vested during the quarter for $6.2 million. Net trade receivables increased by $9.3 million sequentially. Days' sales outstanding were 20 days for the quarter compared to 25 days for the prior quarter. Net inventory decreased by $1.1 million quarter-over-quarter. Average days in inventory were 139 days for the quarter compared to 140 days for the prior quarter. CapEx for the quarter was $12.1 million compared to $15 million for the prior quarter. We expect CapEx for the June quarter to range from $15 million to $17 million. With that, now I would like to discuss the June quarter guidance. We expect revenue to be approximately $168 million, plus or minus $10 million. GAAP gross margin to be 22.3%, plus or minus 1%. We anticipate non-GAAP gross margin to be 23%, plus or minus 1%. GAAP operating expenses to be $52 million, plus or minus $1 million. Non-GAAP operating expenses are expected to be $45.5 million, plus or minus $1 million. Interest income is expected to be $1 million higher than interest expense, and income tax expense to be in the range of $1 million to $1.2 million. With that, we will now open the call for questions. Operator, please start the Q&A session. Operator: [Operator Instructions] Your first question comes from the line of David Williams with Needham. David Williams: Congrats on the really solid progress there in the advanced computing side. Maybe first, just thinking about the gross margin. We bottomed here in this quarter, it seems like maybe record computing or advanced computing revenue. And my suspicion would be that you would have maybe a little more IC and maybe higher value products going into that segment. So how do you kind of square where the gross margin sits and how we should think about maybe that gross margin in terms of the data center or these AI opportunities for you? Stephen Chang: Thanks, David, for the question. Yes, we are driving margin improvement through our advanced solutions. And those advanced solutions can come in the form of both MOSFETs and ICs. Right now, we are seeing some of our medium-voltage MOSFETs actually gaining traction. And this is going into applications such as hot swap, as well as intermediate bus conversion that go into various data center types and server-type applications. And the margin here actually is quite decent, and many of these medium voltage MOSFETs can actually be higher than some of our power IC products, too. So we are happy to see the contribution of these high-performance MOSFETs contributing as part of the margin improvement. David Williams: And then, as you kind of think about the growth opportunity within that segment specifically, you said it's about 25% of computing revenues today. Where do you think that could grow to? And what would be a good mix that you would be targeting, perhaps, in that segment? And potentially, when could you split that out and call it its own segment? Stephen Chang: Yes, it's a good question. It is becoming a sizable portion of our computing segment. It is something that, when we look at advanced computing, just as a reminder, it includes AI, it includes servers, as well as graphics. The reason we group those together is that the solution set for those ends up being quite similar. There's quite a bit of synergy when it comes to the products and the technology, as well as the end markets and applications that we serve. So yes, we're happy to see it jump to becoming 25% of computing. This was faster than our original expectations for this because, again, of the traction that we're seeing with our medium voltage devices. We do expect that this will continue to grow in the June quarter and in the coming quarters. This is something that we have been investing in as a company. Some of the R&D that we've been investing in, as we talked about in the previous quarter, is going into these markets. So it's for all types of high-performance solutions for AI, including these medium voltage devices. David Williams: And maybe one more, if I may. Just thinking about the capacity, you talked about expanding that for the medium voltage side. Can you talk, maybe about where you're putting that capacity in? Is that in your domestic facility? Or is that in your third party you're building out there on that capacity? Stephen Chang: It's a little bit of both. We do use a mix of both internal and external. So we are investing internally, and for some of the packages that are being done internally, as well as working on expanding on other options for diversifying our supply chain. So it's both. Operator: Your next question comes from the line of Tore Svanberg with Stifel. Tore Svanberg: This is on for Tore Svanberg. So, regarding the memory supply constraint you previously cited, are you seeing Tier 1 customers in PC and smartphone segments trimming a bit of the build forecast for the second half of the year in anticipation of these rising costs? Or is the headwind primarily a risk to end consumer price sensitivity? And just any color on how you see this memory situation play out throughout the year, and any strategies on offsetting the situation would be great. Stephen Chang: Sure. For us, at least, when we say the consumer-facing, we're talking about mainly PCs and smartphones. Those are the biggest impacts for us. And the PC side, yes, over there, they are seeing the impact of memory shortages. And for now, we're seeing some of our customers trying to build out sooner just in order to get products out. But from market reports as well as speaking to our customers, there's a lot of uncertainty about the second half about where the PC forecast will go. So we've also had similar views on this, and that's reflected in our outlook, too. And our story on the PC side is this is something that the industry will have to work to resolve, but our path here is still focused on how to grow share as well as to grow our BOM content in that application. On the smartphone side, our business tends to be more on the premium phone side. And at the end of the spectrum of smartphones, we are anticipating that it will be a little more resilient to memory shortages. We are prioritizing, again, towards the makers of those premium phones. So we actually still expect to grow our business in the smartphone side, mainly because it's not only because of the premium phones, but more specifically because those phone designs are increasing the charging currents. So we are seeing BOM content increasing because we are introducing new products to serve those sockets with higher ASP that can help to make up for any challenges on maybe the lower end of the market for smartphones. Tore Svanberg: As a follow-up, for next quarter, you're guiding a bit of a sequential gross margin recovery in the June quarter. And given that March utilization was a tiny bit of a headwind, how much of this sequential improvement is driven by maybe an uptick in loading versus an improvement in product mix, perhaps from higher performance applications? Stephen Chang: Sure. Yes, we guided the June quarter margin quarter-over-quarter, like a 130 basis point improvement. I would say half of it is anticipated to be utilization improvement, and the other half is from our improved product mix. Operator: [Operator Instructions] Your next question comes from the line of David Williams with Needham. David Williams: Just want to ask, maybe on the pricing side. I know a few of your peers or competitors are certainly pressing pricing, it seems, on the MOSFETs and resetting those prices. Just wondering what you're seeing in the marketplace and what your opportunity set is in order to reprice? And are you getting the benefit of maybe some more positive, favorable tailwinds there? Stephen Chang: Sure. In the March quarter, we saw a slower ASP erosion than in the December quarter. It looks like the pricing environment is improving. So that's definitely a plus. However, we count more on the product mix improvement and also our new product development to capture more high-performance and high-value sockets that Steven just talked about. So that will probably contribute more to our margin improvement. David Williams: And maybe just the last one for me. Stephen, if you think about the progress you've made, you've clearly made a lot of progress in this total solutions approach and even in driving these higher value, higher-margin products. Where do you think you are along that road map? And are you where you thought you would be? Are you maybe better or maybe not as far along? And if we look back in a year from now, how do you think we'll see that success having played out? Stephen Chang: Sure. It can never be fast enough. I'm always anxious to celebrate this. And this is, again, why we are investing to accelerate that. But there is a clear difference in the types of products that we are shipping now compared to a few years ago. And that's also reflected in our customer base, the type of applications that we go after, the Tier 1 customers that we are serving.? The reason why we can build better traction with these customers is because of the higher performance, and that has to come through differentiation. So application-specific is working. We are investing to accelerate that. This is going to be our path, part of our reason for how we get to our $1 billion milestone, and that's definitely worth investing in to see the results. Operator: [Operator Instructions]? Your next question comes from Craig Ellis from B. Riley Securities. Craig Ellis: I did miss the prepared remarks, so excuse me if you covered this, but I wanted to understand some of the strength that you saw in the compute segment. It seemed like there was acceleration in the compute supply chain quarter-to-date, similar to the smartphone supply chain about where we were last year in 1Q and early 2Q. To what extent was that at play in the results? And what do you think it means for the year's linearity, first half versus second half calendar? Stephen Chang: If we're talking about computing, I think we should talk about maybe the subcomponents of that. The PC portion, I think overall, was a little bit of -- we really saw the correction in this quarter from the last quarter, mainly because of memory challenges. But the growth area that we see is particularly in what we call the advanced computing, and that's comprised of AI, server, as well as graphics.? And in particular, we're seeing our solutions, particularly our medium voltage solutions for AI that's going into like hot swap applications, intermediary bus conversion. Those are products that are really starting to take off and have started to ramp in the March quarter. And as we commented in the prepared remarks, the demand for computing represents about 25% of total computing, which is really exciting for us.? We are expecting that this momentum will continue further going into the coming quarters as we continue to ramp our business. We talked a little bit about it. We are also expanding some of our capacity to support this growth as well. Craig Ellis: Congratulations on the mix shift, Stephen, but that also would imply that there must have been a pretty steep falloff in either the traditional compute business or the gaming card business in the quarter if mid-voltage surged. So, can you speak to what happened elsewhere in the segment and how it all netted out, given the significant rise in mid-voltage, hot swap, and other things? Stephen Chang: Sure. As we mentioned, the standard PC industry is undergoing challenges due to memory shortages. And it's also a low season and seasonally regular for the March quarter, but we do just see some correction due to that. And that was already anticipated from the previous quarter. The graphics card has also actually grown a little bit from the last quarter.? But overall, that segment is not as robust as it was maybe a year ago when those graphics cards were first launched. We're expecting that graphics cards are also going to have some challenges in procuring both memory and GPUs that can limit total industry shipments for cards. But overall, our share still remains strong, and it's still a good core part of our business. So this is why we see that and are excited that the advanced computing portion of the business can offset drops and challenges on the PC side, and a little bit of slowdown on the graphics side. Craig Ellis: And just to understand the dynamics in the advanced computing side, can you speak to the OEM diversity that you have within that business? To what extent is it more GPU-related systems, versus maybe x86 systems, that are seeing a resurgence as we see rising agentic workloads? Stephen Chang: Sure. And we're happy that our solutions are going into, as you mentioned, a more diversified customer base. This is going into data center server makers as well as cloud service providers. The solution right now is generally serving the 48-volt to 12-volt conversion. And this architecture is pretty common in many servers, just general server applications. So our solutions there can be generally used in many of those applications. Craig Ellis: So traditional server applications.?Got it. And then just moving on to gross margin dynamics. One of the things we're starting to hear from companies' guys is that rising input costs are putting pressure on packaging and chip costs. As we think through the course of the year, and this is more of a question for you, Yifan, but how do we think about the give and takes between what could be rising chip costs and potentially your ability to either offset those or pass those through, and then the potential for volume to benefit overhead absorption? Yifan Liang: Sure. The March quarter ASP erosion was a little bit better compared to the December quarter. So, since the pricing environment is improving. So we definitely welcome that. So we're monitoring the market and managing our own pricing and product mix. And yes, we count more on those new products and getting into those high-performance, high-value sockets. So we want to grow that part of the business, which can definitely help us to improve gross margin. Craig Ellis: So, Yifan, it's not clear to me if you're seeing rising input costs and to what extent or not? Can you just speak to that point specifically and the degree to which that is something that you're able to mitigate with cost pass-throughs, or if that's something we should be aware of as we think about COGS impacts later this year? Yifan Liang: Yes. We are seeing some increases in input costs. Yes, definitely, I mean, some material costs and then some foundry subcontractors' prices. Yes. So managing the product mix and then digesting some, and then managing our pricing environment. So Yes. Those increases in input costs and the pricing environment are already reflected in our guidance for the June quarter. Operator: There are no further questions at this time. I will now hand the call over to Steven Pelayo for closing remarks. Stephen? Steven C. Pelayo: Thank you. Before we conclude, I'd like to highlight a few upcoming investor events. The management team will be participating in the B. Riley Securities 27th Annual Institutional Investor Conference on May 20 in Marina Del Rey, California; the Stifel 2026 Boston Cross Sector One-on-one Conference on June 3 in Boston, Massachusetts; and the Jefferies Semiconductor IT Hardware and Communications Technology Conference on August 26 in Chicago. If you wish to request a meeting, please contact the institutional sales representative at the sponsoring bank.? With that, this concludes our earnings call today. Thank you for your interest in AOS, and we look forward to speaking with you again next quarter. Operator: This concludes today's call. You may now disconnect.