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Operator: Hello, and welcome to Oatly's First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that today's call is being recorded, and I'll be standing by. It is now my pleasure to turn the meeting over to Blake Mueller. Please go ahead, sir. Unknown Attendee: Good morning, and thank you for joining us today. On today's call are our Chief Executive Officer, Jean-Christophe Flatin; our Global President and Chief Operating Officer, Daniel Ordoñez; and our Chief Financial Officer, Marie-Jose David. Please review the cautionary statement regarding forward looking statements and other disclaimers on Slide 3, which are integrated into this presentation and includes the Q&A that follows. Please refer to the documents we have filed 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. Also, on today's call, management will refer to certain non IFRS financial measures, including adjusted EBITDA, constant currency revenue and free cash flow. Please refer to today's release for a reconciliation of non IFRS financial measures to the most comparable measures prepared in accordance with IFRS. In addition, Oatly has posted a supplemental presentation on its website for reference. I'd now like to turn the call over to Jean-Christophe. Jean-Christophe Flatin: Thank you, Blake, and good morning, everyone. Slide 5 are the key messages I want you to take away. First, we have delivered a solid performance in quarter 1, both on top line and bottom line. This continues to build our confidence in our journey to accelerate profitable growth. Second, we continue to see clear signs that our growth playbook is working. It's already driving real impact in Europe and International as well as increasingly so in North America. We are, therefore, focusing on executing against this playbook more broadly in order to continue to drive further incremental demand. And finally, we are reaffirming our 2026 guidance in a context where the impact of the conflict in the Middle East is already visible in our costs from March onwards and brings further uncertainty for the rest of the year. Turning to Slide 6. Here, you can see our solid quarter 1 scorecard on our most important KPIs. Our revenue grew by 15.6% and 8.1% in constant currency. Our gross margin reached 33.4%, which represents an improvement of 188 basis points as compared to last year, while our adjusted EBITDA reached positive $5 million, which represents 2.2% of our net sales and an improvement of $8.7 million versus last year. This combined improved performance on top line and bottom line confirms that we remain focused on driving growth and impact in a disciplined and profitable way. We believe that this is a winning recipe for our company. Finally, our free cash flow in the quarter was a negative $11.7 million, which is an $8.8 million improvement versus last year. Our business plan remains fully funded and bringing the company to structurally positive free cash flow is important to us. We fully intend to drive the business to that milestone, not just from improvements in the P&L, but also from putting on all available levers, including working capital. Slide 7 confirms our focus areas for 2026. As Daniel will outline, we are seeing very positive traction on our refreshed growth playbook, and we will be doubling down on its execution. While we do not have a detailed update for you today, in 2026, we plan on completing the strategic review of the Greater China segment. We continue to evaluate a range of options, including a potential carve out with the goal of accelerating growth and maximizing the value of the business. We will update the market on our progress as necessary. Finally, we are navigating the context of uncertainty and volatility created by the conflict in the Middle East with a clear objective to minimize as much as possible its impact on our performance. We are permanently adapting our end to end supply chain choices to ensure we could serve consumers and customers. When it comes to the global cost impact, they are so far mostly fuel prices related, either directly in logistics or indirectly like in packaging. We are mobilizing our culture of efficiency and frugality in order to mitigate those and continue to adapt with agility to this pretty unpredictable context. In this context, Slide 8 reaffirms our guidance. In 2026, we expect the continued rollout of our refreshed growth playbook to drive an acceleration in our profitable growth. Specifically, we expect to drive constant currency revenue growth of 3% to 5%. And with what we know today about our ability to mitigate the cost impact of the Middle East conflict, we expect to deliver adjusted EBITDA towards the low end of the range of $25 million to $35 million. With that, Daniel, over to you. Daniel Ordonez: Thank you, JC, and good morning, everyone. I will start my discussion on Slide 10. Over the past 2 years, we have methodically deployed this new playbook with the objective to attack barriers to consumption, drive relevance and increase availability. We are confident it is working, as we see continued positive results in Europe and increasingly so in North America, as we will discuss today. Staying true to what makes Oatly, this playbook change is founded on the strategic choice to be relevant to a much broader population, a decision not just to aim at growing consumption within our historical consumer base, the lactose intolerant and the environmentally conscious, but to also expand our target market to the upcoming younger generations to drive true incremental consumption growth. That means we're focusing on our strength within beverages. This is taste and health instead of trying to mimic dairy in all its forms. In this exciting space, the room for penetration growth is enormous, and it is precisely where our strengths and assets are rooted. As you heard us say, an alternative to dairy no more, but an experience canvas for the beverages market, working with customers to renovate their menus and shelves to be more relevant, more provocative and more on trend with today's consumer. Taste & Health defined a clear high ground for the new generations, in particular for this category, but we have also adapted how we communicate to them. They are digital natives, and we have migrated from analog heavy individual advertising to a more relevant, integrated and digital first approach, always blended with iconic culture making life events. So as we say we're doubling down on the playbook, let me show you some examples of what we mean by that and in which specific areas we do invest. On Slide 11, you see how we're doubling down on our taste leadership in beverages. Our iconic Barista product remains our top selling item and continues to grow very fast. And the flavored Baristas such as the caramel, vanilla and popcorn flavors keep showing healthy growing velocities, proven to be a hit with consumers. As anticipated last time, we have launched in the last few days additional flavors in selected markets such as churros or coconut, and we're expanding the matcha range with the addition of a strawberry flavor, which is the most popular combination in foodservice. This will enable customers to create an even wider range of drinks. I am particularly excited to say that our Cold Foam Barista has already reached the menu of many of our top customers. It can be added on top of any beverage, hot or cold. Plant based cold foam options weren't widely available in the market thus far. So this is a breakthrough product that delights consumers and elevates the experience for our foodservice customers. See, taste is a new platform for Oatly and for the category. This is not just random innovation. Slide 12 shows the foundation of our unique and differentiated model. We have over 60 beverage market developers around the world who spend over 1,500 hours a week with our out of home customers, deploying our lookbooks and designing recipes to make our customer menus more on trend and therefore, more relevant to their customers. We are doubling down. We continue to steadily increase coverage across this space, considering every different customer type and adapting our route to market accordingly. As you can see on this slide, I am particularly proud to see how we are sophisticating our service package to be relevant on and offline and deploying a tailored neighborhood attack approach with our already famous Oatly Week concept, like you see in the Barcelona example here. Finally, I am very excited to see how this is working in the U.S., having experienced it myself in the streets of Brooklyn and the Lower East Side in Manhattan or Venice and the Arts District in L.A. Slide 13 shows you selected examples of the types of outdoor communications we do, in this case, in the streets of Warsaw in Poland, so Oatly, but the new Oatly in its essence. Slide 14 shows you another example of the sort of culture creating experiences we do. In this case, a collaboration with AVAVAV, one of the most talked about indie fashion brands at the Fashion Week Milan some weeks ago. While guests and models could enjoy Oatly signature drinks live, the social media impact of this collaboration spread across Europe and North America at the very same time as a true global event. On Slide 15, you can see the latest and greatest of our social media presence, where most of our brand investment is being deployed, both with brand generated but also user generated content by our brand ambassadors. Finally, on Slide 16, we demonstrate how the new strategy is helping us to make shelves more exciting and relevant, occupying more space than before, but not only for Oatly, but also for the category as customers start sensing a new momentum. I am particularly excited to see the first in store executions of the new strategy in Canada. Our team there are doing a phenomenal job anticipating what we're capable of doing in North America. When we look at the growth trajectory on Slide 17, we see accelerating growth, which gives us additional confidence that the strategy is working. Europe and International keeps on strengthening with another quarter at 14.5% growth in constant currency. That's a stellar performance and a very healthy mix of growth in both the established and in the new markets. I am very pleased to say that at the back of strong performance across all channels, the North America segment has seen growth in the quarter of 12.3%, excluding the segment's largest foodservice customer, or 3.8% total net growth when you click through to Slide 18. So step by step, we're bringing this segment into its growth path following the European model footsteps. As we said, we expect it will take longer than in Europe because of the time lag in retail, but we are mildly optimistic that we're reaching a tipping point in this segment.Moving forward, we will continue to focus on the controllables and the deployment of the growth playbook. Slide 19 shows that we continue to consistently outperform our competition in the tracked channel data, more than ever before. We continue to expand our retail market share in every single European market that we measure, whether it is an established or an expansion market. And in the U.S., as we continue to lap last year's portfolio delistings, our drinks portfolio consolidated the growth trajectory we started in the fourth quarter at the back of sustained strong velocities and strong distribution gains in the core portfolio, showing record highest TDPs and ACV. Slide 20 shows that when we look at the European markets in aggregate, since the implementation of the new playbook last year, oats keeps gaining momentum, showing its decisive role in driving the overall category upwards despite most other crops that continue to lose traction. Slide 21 shows 2 important dynamics that prove the core objective of the new strategy, generate incremental consumption from new younger consumers. First, switching analysis in the core European market shows the ability of the new portfolio to drive incremental sales. Second, as we dig into the data, we see that consumers that are coming into the category via the new portfolio tend to be younger consumers, which we find very encouraging. As we move into Slide 22, many of you might be thinking how fast can we replicate this in the U.S. Well, first things first, controlling the controllables, we have progressively taken this segment into positive growth and profit. Out of home continues to grow steadily, 12.4% growth outside the largest customer and at the back of the identical model we've implemented in Europe, enamoring the new coffee and beverages space with Oatly's Magic. Having signed a partnership with Onyx, recently named one of the most notable coffee specialty brands in the world, is a concrete sign of what's happening in the U.S. Excluding that large customer, this channel represents over 25% of this segment, and we expect it to continue to grow by increasing coverage and by driving more customer diversification. In retail, our core beverages portfolio now represents over 95% of the channel's revenue. We continue to gain strong distribution points within this portfolio, taking the measured retail channel to 10.5% growth in the quarter and to the record highest market share, breaking the 30% for the first time. To this, we should add the 150% growth in clubs with opportunities to continue to expand velocities and regions. So the outlook is good. So while category softness in the measured retail channel continues, we expect that will start changing the moment we are able to list the new portfolio. And I'm happy to say that early customer conversations for the upcoming reviews seem promising. Now that we have discussed the past, I want to give you a preview of our future plans, as you see on Slide 23. And this is simply a confirmation of the last discussion. You should not expect any significant change, but a relentless consolidation of the new playbook execution. First, we will be decisively leveraging our fiber credentials by campaigning about the fiber content of our product. Many global health authorities estimate that people have a fiber deficiency of about 10 grams per day. As a company that is rooted in science, our visionary founders have historically advocated for the benefits of fiber in people's diets. So what you see here is just the first step, and you should expect to see more from us in the near future. Second, step by step, we are working to accelerate the introduction of the new portfolio in the U.S. retail during the upcoming range reviews. While we expect the new listings to start taking place at the back of this year, we also expect that the full rollout will move well into next year. On Slide 24, I will refer to the progress we're making in China. Consistent with previous discussions, the general context and the price pressure in the foodservice business continues. At the same time, I am pleased to report that the strong development of the retail channel accelerated, doubling in quarter 1 year on year and representing already close to 1/3 of the segment's revenue. Finally, as JC mentioned, we intend to complete the strategic review during this year. To finish this business update, I would like us to step back and pay attention to the trajectory of the key business metrics of the year since JC and I joined the business, taking quarter 1 as a reference to make the comparison like for like with today's results disclosure. Here, you can see how the growth evolution is yielding a direct positive effect in cost absorption and muscle building margin. This has allowed us to continue to reinvest in growth while steadily reducing SG&A, and in so doing, building a more resilient business able to better navigate one off effects like the volatile context we described during the introduction. Way further to go, but we're confident we're making significant decisive steps in the right direction. With that, I will now turn the call over to Marie-Jose, MJ? Marie-Jose David: Thank you, Daniel, and good morning, everyone. Slide 27 highlights our ability to execute globally with continued strength in the European and International segment and increasingly so in North America. As an illustration, this quarter marked our first period of positive volume growth in North America since Q4 2024, an encouraging signal our growth playbook is working. In Q1, we grew revenue 15.6% and 8.1% on a constant currency basis. Gross margin was 33.4%, which is an increase of 188 basis points compared to last year's Q1. This was a result of efficiencies across the organization, including facility optimization, volume absorption and ongoing productivity improvements, in addition to a strong mix in Europe and International. Adjusted EBITDA was a positive $5 million in the quarter, which is $8.7 million higher than last year's Q1. The significant increase in adjusted EBITDA was a result of strong top line growth and gross margin expansion. I will now provide more detail about our financial performance. Slide 28 shows the bridging items of our revenue growth. In the quarter, volume grew 5.6%, price/mix increased by 2.5%. Foreign exchange was a 7.5% tailwind compared to 4.8% last quarter. The increase in revenue comes from the execution of our growth playbook, which includes increased consumer relevance through new flavors and formats. Moving into Slide 29 and the year over year gross margin bridge, which shows the 188 basis points year over year improvement. This improvement is explained by 110 basis points from fixed cost absorption and supply chain efficiencies, 110 basis points from product and channel mix, 40 basis points from foreign exchange currency tailwinds, partially offset by a negative impact of inflation for 80 basis points. Slide 30 shows the Q1 year over year improvement in our adjusted EBITDA. The $8.7 million improvement was driven by a $14 million increase in gross profit, partially offset by a $5.3 million increase in SG&A and overhead. In SG&A, our ongoing cost savings actions in areas such as indirect procurement were more than offset by $7.2 million year over year FX headwinds as well as customer distribution costs, mostly linked to higher volumes sold. As a volume driven business, our cost structure scales with growth, and we remain focused on delivering profitable growth over time. Slide 31 shows segment level detail. Europe and International grew net sales by 14.5% in constant currency, which is another proof that the growth playbook is working. This helped drive a $16 million increase in the segment adjusted EBITDA versus first quarter of 2025. North America's revenue grew 3.8% in the quarter. The segment adjusted EBITDA decreased by $0.5 million to $0.7 million, driven by higher cost of goods sold, explained by an increase in freight and warehousing costs. Greater China constant currency revenue declined by 6.4% in the quarter. The decline was explained by strong competition in the out of home channel and partially offset by growth in retail. The segment reported negative $0.8 million in adjusted EBITDA. Despite these challenges, our team continues to work together to navigate the macroeconomic headwinds in the region while managing the ongoing strategic review. In the quarter, corporate declined by $4.5 million, mostly as a result of FX headwinds and timing of global branding and advertising expenses. These expenses were partially offset by the ongoing efforts to increase efficiency of spend. Turning to our cash flow on Slide 32. First, I want to remind everyone that our business plan remains fully funded, and we are focused on bringing the company to structurally positive free cash flow. For the quarter, free cash flow was a net outflow of $11.7 million, which is $8.8 million better than last year. It is worth highlighting that the free cash flow in the quarter includes annual bonus payments, which would not occur again this year, as well as $3.5 million payments linked to the exit from our production facility in Singapore, which will finish in first quarter of 2027. I continue to see good progress throughout the company on all levels of cash flow, and I believe we still have room for improvement. While we do not anticipate delivering positive free cash flow for the full year 2026, we do expect that the biggest drivers of our improvement will come from higher adjusted EBITDA and working capital improvements. We will continue to maintain discipline in our investment choices. Turning to our 2026 outlook on Slide 33. As Jean-Christophe mentioned at the top of the call, we are reaffirming our outlook for 2026. We expect constant currency revenue growth in the range of 3% to 5%. Based on recent FX rates and assuming no change for the rest of the year, we estimate FX to add approximately 100 to 200 basis points to full year net sales growth. On adjusted EBITDA, as we navigate the impact of the Middle East conflict, we now expect to deliver towards the low end of the range of $25 million to $35 million. As we stand today, we anticipate Q2 to be lower than our first quarter with visible negative impact from the Middle East conflict, combined with a strong brand investment season. As we move through the year, we expect performance to improve meaningfully in the back half. This is supported both by a normalization of near term volatility and by the continued rollout of our growth playbook, where investments in selling, branding and distribution, which are front half weighted, are building benefits over time. As a reminder, this is, of course, only based on what we know today. Importantly, we do not currently view any change in the underlying health of the business. The fundamentals remain strong, and we are continuing to execute against our growth playbook while remaining agile in our ability to adapt when necessary. Lastly, our guidance for CapEx remains unchanged, which we expect to be in the range of $20 million to $30 million for the full year. This concludes our prepared remarks. Operator, we are now prepared to take questions. Operator: [Operator Instructions] Our first question will come from John Baumgartner with Mizuho. John Baumgartner: Maybe first off for MJ. I'm wondering if you can touch a bit on Europe, the EBITDA delivery there in Q1, how much of that strength was driven by maybe beneficial timing shifts from reinvestment as opposed to delivery that's more structural and more sustainable in nature from operating leverage or product mix? Marie-Jose David: Yes. So thank you for your question, John. The way to look at Q1, to be clear, and I'm sure you'll recall prior conversations where we always explain our phasing between first half and second half. So if you look at how we invest, which was your question, we usually weight more on first half than second half. That's point number one. As we continue as well, if I go below just the branding investment, there is as well investment when it comes to the business and the way that we operate for our initiatives. So if you have to think about the full year, Q1 is weighted more when it comes to investment, branding, selling expenses, initiatives when it comes to SG&A will go more for the year. Did I answer your question, John? John Baumgartner: Yes. Perfect. And then, Daniel, a follow up. The prepared comments noted that the brand communications are emphasizing taste and health. And I'm curious how you think about the health component. If plant based no longer needs to be positioned as an alternative to cow's milk because the category can stand on its own, well, that overlaps now non plant beverages trying to differentiate by including the prebiotics and fiber that's already core to oats. So the trends seem to be coming to oats overall. It's obviously early days, but how expansive do you think these health efforts can be? Does it open additional opportunities in products like yogurt? Is it possible to leverage health organizations for product claims? Just how do you think about communicating or scaling the health benefits going forward? Daniel Ordonez: Very good. So I could notice 3 questions in one, John, and I would love to take a double click on MJ's answer as well to give you comfort about how we're building EBITDA in Europe. Listen, 3 things to unpack there. First, as far as Oatly is concerned, we don't see a shift in terms of communication focus. Taste & Health has been part of the brand's voice and vision from the very beginning, at least since the 2012 inception of the contemporary brand vision, right? That's absolutely number one. Number two, there is no either/or when it comes to the focus on target market, right? It is true, however, as we have said for many quarters to date that there was a bit of a limitation when it comes to lactose intolerant target audience and environmentally conscious, you would say, the epitome of the alternative to cow's milk target audience. When we look at the young generations, both Gen Z and Alpha, we see that they look at this with a much broader perspective. It's not that being an alternative to milk to cows is irrelevant. It's that they look at taste and health combined as the primary area of attraction to our appeal to consumption, right? And of course, with a double click on sustainability, if you want, or being an alternative to dairy. And then when it comes to health, we do see momentum. We discussed with you in these discussions before. There is a significant momentum growing in both sides of the Atlantic when it comes to fibers, prebiotics, gut health, and we really, really welcome that with open arms. So there is an incrementality on that. Definitely, yes. But there is also an incrementality when it comes to the whole combination of taste and health. Mind you, when you see the results that we have just posted, both in the U.S. and in Europe, you see the new consumers coming into the category. And that is not just taste, but it's both taste and health combined, John. So yes to that, but the incrementality will not only come from health, but from taste and health combined. Operator: Our next question will come from Max Gumport with BNP. Max Andrew Gumport: It's nice to see the continued momentum in Europe and the improved growth in North America. And along those lines, with the growth playbook clearly working and gaining traction, I was hoping to get an updated view of how you think about the long term top line growth for both your North America business and your Europe and International business. Daniel Ordonez: Thank you, Max. Is that -- you have a second question, you want to double click on that one? Max Andrew Gumport: I will have a second. Let me start with that one. Daniel Ordonez: Very good. Thank you. Just checking. Listen, let me unpack that to you. You saw first on Europe, we do see the momentum continues to build, right? So before going into the outlook, allow me 1 minute to focus on the now. We have just posted, as you saw, 2 consecutive quarters on the mid teens, and we're clearly generating new incremental demand. So the important thing here is that we see growth consolidating at Oatly. It's doubling the growth of oat milk and almost tripling the growth of plant based milk. And you see that is a platform that makes us look into the future with different parties. This combined is giving us a sustained growth momentum in plant based milk of mid single digits, which is strong compared to where we were a couple of years ago. So that sets you already for a trend. Going into the future, the first thing we look at is that very, very important data point, which the growth comes from younger generations of consumers entering the category. We now have abundant evidence that, that is the case. So then definitely looking into the future, we look at the 70% penetration headroom we have in front of us. And that's why we believe the opportunity is enormous. In terms of where we see the growth coming from, number one, a much stronger portfolio, which is fully focused on beverages. And in a way, I'm using this question from you to come back to something that John was asking before. We will remain for the foreseeable future focused on drinks because it's where we have our assets, where we have our strength, where we have our superiority and where we're winning. And there's a lot of opportunity. And the other thing to give you a lever for Europe, Max, is the new markets, what we call the expansion markets of the International markets, whether it's France or Poland or Mexico in this segment. You're talking about markets that are large, large in their potential and are building really critical mass. So the 2 of them combined, a new portfolio and channel expansion in the established markets and the expansion in the new markets, gives you a real, real sweet spot for us to think on a second revolution for plant based drinkers in Europe. If I now move the attention to North America in the now, I am very encouraged. We are very encouraged by how things are developing in the U.S. First, what we see happening in coffee and foodservice. We're spending a lot of time with the teams there, and I'm very encouraged to report the progress that you see. For us, why this is important is because it's the best marker for category momentum. This channel is where habits are created. And excluding the largest customer, this channel represents already over 25% of the segment's revenue and has been growing in double digits for some quarters now. So when we look ahead, we only see opportunities, Max. And finally, just to round up on the U.S., on North America, the category remains soft, but there is a very significant part in traditional retail only. And it is strengthening. If you have checked the latest scanning data, the more Oatly gains traction, the more the category strengthens. And now we're winning, we're outperforming market and competitors with crossing the line of 30% share in oat milk for the first time. So as the outlook for North America, I would say controlling the controllables. And at the top of the controllables, we put the category development. Now we do put the category development. And for that, you will see 2 things. First, more visible brand investment, step by step, of course, because you know how we manage, how rigorous we are about our financial equation. And secondly, a step change in the U.S. traditional retail adopting the kind of portfolio you see in Europe. And I have to underline, step by step, you will see some this year, but the progress will go well into 2027. Hopefully, that gives you a full picture, Max. Operator: Our next question comes from Tom Palmer with JPMorgan. Unknown Analyst: It's Elsa on for Tom. So you now expect EBITDA to be at the low end of the full year range, just given some cost headwinds related to the Middle East conflict. Can you walk us through how those cost headwinds have impacted results in the first quarter? And what impact do you expect to see going forward, including any levers you potentially have to offset those costs as we move throughout the year? Jean-Christophe Flatin: Thank you. It's Jean-Christophe. I'll take this one. I mean it's a very important topic, as you can imagine. So I'll take the time to unpack that. Starting by the key statement that to date, we don't see an impact on demand because of the Middle East conflict. This is why I'm only answering on cost and EBITDA. So quickly, if we step back, what's the context of this guidance? Remember, everything we discuss today is only with what we know today. We continue to face daily unpredictability and volatility, and we really need to mobilize our agility to react and adapt. So now going to the heart of your question, when you look at the COGS, what do we see? On one hand, some of our COGS benefit from the fact that we have hedging on a number of energy contracts in our Europe factories. We have a number of advanced contracts on raw materials, and we have some structural advantages, which are related to choices we have made, like we have a pellet boiler in our Landskrona factory. We have an electric truck fleet in our Europe and International freight to warehouse network. All of that is helping us. However, on the other hand, the Middle East conflict has brought impacts into our P&L from the month of March onwards, and these costs are specifically fuel price related. The biggest one, shipping and logistics costs, both in Europe and International as well as North America. The second noticeable one is packaging costs worldwide. So when we do the net of the advantages we have and the new costs we see from the conflict, the net of the 2 is showing a total COGS and logistics net increase, which is already visible in March P&L and that we now expect to be fully at play in quarter 2. And honestly, too early to be much more precise than that for what could come after quarter 2, which is why when we had to review the full year outlook for this conversation, beyond the normal course of business, it means we have to evaluate both the potential full year cost impact of the conflict on one hand and our a bility to mitigate that on the other hand. And having done that, we now expect to deliver adjusted EBITDA towards the low end of the range of $25 million to $35 million. Operator: Our next question will come from Samu Wilhelmsson with Nordea Markets. Samu Wilhelmsson: A few questions from my side. I could start with North America. You mentioned that North American EBITDA was pressured by warehousing and transportation. So I was just wondering, is there a timeline or any measures in place to structurally fix the distribution economics? And do you project that it requires any additional CapEx? Daniel Ordonez: Sam, would you like to add to your list? Or is that the only -- you suggest that you have more questions? Samu Wilhelmsson: Yes, there are a few related to the cash flow. I can take them combined with. Daniel Ordonez: No, I'll take that from a business operation standpoint. I mean, listen, warehouse and transport, there are 2 ways to discuss that. There is the ongoing business as usual. We are dealing with that, and this is part of both the reports you have seen of quarter 1 and how we expect for the outlook of the market. There is -- of course, there is progress, but it has to do with the business as usual, nothing to highlight, to be honest with you. And then, of course, we're dealing with some of the consequences of the context that JC was just describing. All of that is blended on the guidance. So there is nothing structural and to be concerned about when it comes to the actual business operation in North America to highlight in this earnings call. Jean-Christophe Flatin: And to the double click of your question, Samu, there is no specific CapEx required or considered to deal with that. Samu Wilhelmsson: All right. Got it. Then on the free cash flow, first of all, maybe like thinking that how should we think about the Greater China strategic review's impact on free cash flow? Obviously, you can't comment on investment proceeds, but maybe from a point of view of the restructuring cash costs and from potential working capital release, is there anything relating to those that you would be willing to elaborate further? And then on the follow up, have you tracked what kind of revenue gross margin improvement levels you would need to get to a structural free cash flow, of course, excluding the effect of Greater China from that? Jean-Christophe Flatin: Thank you, Samu. I'll start with the context of your question, which is the strategic review. And here, as you know, our answer, our messaging is exactly the same as the last quarters. We continue to evaluate a range of options, including a potential carve out, with the very clear objective to accelerate growth and maximize value. As we work on that, we remain committed to our team, customers and suppliers. And it's a great opportunity for us, I think, to pay tribute to our great China team, who have remained focused on the business and continue to fight every day as we execute the ongoing strategic review. So a shout out to them at this occasion. MJ, I think you want to double click on the specifics. Marie-Jose David: Yes. The only specific, Samu, is on the allocation. We do not allocate any corporate costs to any individual segment. So just keep that in mind as well. Samu Wilhelmsson: All right. Then perhaps last question, a follow up with previous analysts regarding the guidance. You mentioned some rationale behind the guidance and what you have done there. But what kind of uncertainties would you see around the guidance, given that if the situation continues as planned, does that support your ongoing guidance? Or what would need to happen in order you to go back to the table or revise your guidance assumptions? Jean-Christophe Flatin: Thank you, Samu. Perhaps let me first repeat, to date, we are not seeing a demand impact from the Middle East conflict. So the question so far, with what we know today, the answer to your question is only on cost and therefore EBITDA. And when it comes to that, I think, honestly, I cannot predict the unpredictable or be any certain on the uncertainty. I think we flagged to you, like a lot of industries, most of the cost impact is fuel, so oil leading to fuel and then fuel leading to a few categories. These are the areas we are currently and constantly looking at and monitoring. So if there is one space we need to continue to pay attention daily to see what could happen, it is that. Operator: We'll take our last question from Andrew Lazar from Barclays. Samu Wilhelmsson: You mentioned that so far, you've not seen any impact on demand from the Middle East conflict. Organic sales were up 8% in the first quarter, and you're still looking for 3% to 5% for the full year. So I'm curious if there is something sort of discrete that you know of that will cause organic sales growth to decelerate from here to get into that 3% to 5% range for the full year? Or you're just being, I guess, prudent and thoughtful in case you see some impact on demand going forward? Jean-Christophe Flatin: Thank you so much, Andrew. And I think you just provided me with 2 great objectives that I will use again. But first, positioning ourselves on guidance is a balancing act. So let me unpack that for you. On one hand, as you can imagine, our recent quarter's performance definitely gives us confidence in our sales guidance. We just posted Q1. We drove very good growth in Europe and International. We see a return to positive volume and sales growth in North America. All of that are great signs of progress. It means our growth playbook is working, reinforcing the strategy, and therefore, we really focus ourselves on execution, controlling the controllables. That's on one hand. On the other hand, there are 3 considerations I want you to have in mind. First, you know better than me, 1 quarter does not make the year. Second, Europe and International sales strongly picked up in the second part of last year, which means we will compare ourselves to a stronger comp base in H2. And finally, as you said, even if to date we don't see a demand impact from the Middle East conflict, we all know how volatile and dynamic the current environment is and remains. And therefore, as you very well highlighted in your second option, we choose to be conservative and maintain our current outlook for the moment. And we will, of course, continue to monitor the conditions closely and come back to you. So I think you used prudent. I totally subscribe to that. Samu Wilhelmsson: Great. And then one last quick one. You mentioned that EBITDA in Q2 likely below the level that we saw in Q1. This might be getting too prescriptive, but would -- is your expectation that EBITDA could still be positive in Q2? Or based on what you know today, we should be thinking it's potentially even a bit negative year over year? Marie-Jose David: Andrew, this is MJ. So what we said is that Q2 will be lower than Q1. And what you've just heard is that we are managing current situation with all levers that we have. I'm not going to say more than that. We are definitely confirming our guidance. So I think with those 3 topics, you can take it. Operator: That does reach our allotted time for Q&A. I'll now turn the call back over to our presenters for any final or closing remarks. Daniel Ordonez: Thank you very much. Jean-Christophe Flatin: Thank you, everyone. Thank you for joining, and have a great day. Have a good day. Marie-Jose David: Thank you very much. Operator: Thank you. That brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the First Quarter 2026 Agios Financial Results and Business Highlights. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to hand it over to our first speaker, Morgan Sanford, Head of Investor Relations at Agios. Please go ahead. Morgan Sanford: Thank you, operator. Good morning, everyone. Thank you for joining us to discuss Agios Pharmaceuticals First Quarter 2026 Financial Results and Business Highlights. You can access the slides for today's call by going to the Investors section of our website, agios.com. Please note, we'll be making certain forward-looking statements today. Actual events and results could differ materially from those expressed or implied by any forward-looking statements because of various risks, uncertainties and other factors, including those set forth in our most recent filings with the SEC and any other future filings that we may make with the SEC. On the call with me today from Agios are Brian Goff, Chief Executive Officer; Cecilia Jones, Chief Financial Officer; Tsveta Milanova, Chief Commercial Officer; and Dr. Sarah Gheuens, Chief Medical Officer and Head of Research and Development. Following prepared remarks, we will open the call for questions. With that, I am pleased to turn the call over to Brian. Brian Goff: Thanks, Morgan. Good morning, everyone, and thank you for joining us. Next slide, please. At the start of the year, we outlined our 2026 strategic priorities, which are designed to drive both near-term execution and long-term value creation. We are off to a strong start entering another catalyst-rich year with clear momentum across these priorities. Turning to first quarter highlights on the next slide. We delivered $20.7 million in net revenues, representing 138% growth year-over-year. The first quarter marks the U.S. commercial launch of AQVESME in thalassemia with the REMS fully operational as of the end of January. And already, we have shown strong initial demand. We continue to expect 2026 operating expenses to be approximately flat versus 2025, and we ended the quarter with a strong balance sheet, including over $1 billion in cash, cash equivalents and marketable securities. Importantly, we've advanced two priorities that are key to our growth inflection. First, the U.S. commercial launch of AQVESME in thalassemia is off to a strong start with 242 prescriptions written as of March 31st by REMS-certified physicians, building significantly on the 44 prescriptions we reported as of the end of January. This early progress reflects solid execution as the launch continues to broaden. Tsveta will provide additional details shortly, but the early momentum highlights the strong work and rare disease capabilities of the Agios commercial team. Second, following our pre-sNDA meeting with the FDA in the first quarter, we now plan to submit an sNDA for mitapivat in sickle cell disease in the second quarter under the U.S. accelerated approval pathway, marking an important step toward expanding our PK activation franchise into a significantly larger indication. I also want to underscore the caliber of our team whose ability to respond rapidly and rigorously to FDA feedback reflects the deep regulatory and scientific expertise we've built at Agios. Next slide, please. Stepping back, our strategy is to build a sustainable rare disease company, anchored by a foundation in rare hematology. In the near term, our focus is on executing the AQVESME U.S. commercial launch in thalassemia and advancing the mitapivat sNDA filing in sickle cell disease. In parallel, we are preparing for important mid-term catalysts, including Phase II top line data for tebapivat, our next-generation more potent PK activator in both lower-risk MDS and sickle cell disease this year. And over the longer term, we continue to advance our early-stage clinical programs and selectively evaluate expansion into other rare hematology diseases rather to support our sustained growth. With that, please advance to the next slide, and I'll turn the call over to Cecilia to discuss financials. Cecilia? Cecilia Jones: Thank you, Brian. The next slide summarizes our first quarter financial results. As we have previously shared, we will report mitapivat net revenues with U.S. and ex-U.S. components. In the first quarter, we delivered $20.7 million in worldwide mitapivat net revenues with $18.8 million from sales generated in the U.S., driven by the recent launch of AQVESME in thalassemia. Outside of the U.S., we reported $1.9 million in sales, reflecting expected quarterly fluctuations. We reported $81 million in R&D expense in the first quarter, an increase of roughly $8 million from prior year due to workforce-related expenses supporting pipeline advancement efforts as well as increased mitapivat process development expenses. We also reported $48 million in SG&A spend, up approximately $7 million from the prior year due to an increase in activities to support the U.S. commercial launch of AQVESME in thalassemia as well as an increase in stock compensation expense. We ended the quarter with over $1 billion in cash, cash equivalents and marketable securities, positioning us well to remain disciplined as we invest to maximize portfolio value and build a pipeline for long-term growth. Turning to our approach to capital allocation on the next slide, our priorities remain clear. First, we will continue to maximize the U.S. commercial launch of AQVESME in thalassemia. Second, we are managing operating expenses in a way that is aligned with our long-term value creation. Based on our current plans and accounting for the mitapivat confirmatory clinical trial in sickle cell disease, we anticipate 2026 operating expenses to be approximately flat compared to 2025. Finally, we will continue to diversify our pipeline, leveraging both internal capabilities and external innovation as we continue to execute our 2026 priorities with a disciplined approach to long-term growth. Please advance to the next slide, and I'll turn it over to Tsveta to cover commercial highlights and early AQVESME's use thalassemia launch dynamics. Tsveta Milanova: Thank you, Cecilia. Next slide, please. Our commercial performance in the first quarter reflects exceptional execution as we transitioned the focus of our field force from PK deficiency to thalassemia. In the U.S., net revenues were $18.8 million, driven by strong early AQVESME launch demand. Outside the U.S., we reported $1.9 million in net revenue, driven mainly by thalassemia utilization in the GCC. This is in line with our expectations given early market access dynamics ahead of securing government procurement. As in prior quarters, we expect to see continued variability quarter-to-quarter, driven by ordering patterns, inventory dynamics and gross to net. Please move to the next slide. I'm very encouraged by what we are seeing from the AQVESME U.S. launch so far, and I want to start by acknowledging the tremendous work of our commercial, medical and patient support teams. Launch execution in rare diseases is complex and the early progress we are seeing reflects both strong preparation and the depth of rare disease commercialization expertise we have built at Agios, supported by close coordination across the organization. 242 prescriptions were written in the first quarter by REMS-certified physicians, serving as an important early indicator of strong demand, keeping in mind the REMS became operational in late January. Here are a few points that are worth highlighting to help frame how we're thinking about these early signals. As we exited the first quarter, early adoption was concentrated among highly engaged patients, including transfusion-dependent and motivated non-transfusion-dependent patients. This is consistent with expected early launch dynamics. In the first quarter, time from prescription to initiation was shorter than expected. This was due to early engagement by patients with stronger motivation to initiate treatment, physician readiness to prescribe as well as effective REMS coordination. However, we continue to expect average initiation time lines of approximately 10 to 12 weeks in the coming quarters as we advance deeper into patient segments with less frequent clinical engagement. We are encouraged by the geographic breadth of early prescriber adoption, which has been driven by community-based hematologist oncologists. What we're seeing so far gives us confidence in our launch readiness and the quality of demand in the early days of launch. That being said, we do not view early prescription volumes as translating into a steady run rate at this early stage of launch, particularly as demand moves more towards non-transfusion-dependent patients and adoption progresses beyond the most motivated, highly engaged patients. The next slide captures both, the strong early reception of AQVESME and how we're building towards sustainable growth. Feedback from the field has been very encouraging. Physicians and patients recognize AQVESME's meaningful clinical profile. REMS onboarding is running smoothly, and our patient support services are helping patients initiate therapy. As we look ahead, our focus is on three things: first, expanding prescriber engagement across both academic and community settings; second, broadening adoption into non-transfusion-dependent patients who represent most adult diagnoses; and third, advancing payer access to support timely treatment initiation. Taken together, we are encouraged with how AQVESME is being received in the early days of launch, and we are focused on executing against the key levers that will drive durable adoption over time. I'm very proud of the team's execution to date. The performance in the first quarter reinforces the team's launch readiness and deep understanding of this market. We believe this strong foundation positions us to deliver on both the launch of AQVESME in the U.S. as well as potential future launches as we look to expand our rare disease portfolio. Please move to the next slide. And with that, I will hand the call over to Sarah to cover key R&D highlights from the quarter. Sarah Gheuens: Thank you, Tsveta. Next slide, please. We continue to advance a robust pipeline anchored by our PK activation franchise and complemented by differentiated early-stage clinical programs. In the first quarter, we announced plans to initiate two pediatric mitapivat trials in thalassemia, ENERGIZE-KidsT in transfusion-dependent patients and ENERGIZE-Kids in non-transfusion-dependent patients. We look forward to the potential to expand access to this transformative medicine into pediatric populations. Finally, we are looking ahead to upcoming second quarter readouts, including Phase IIb top line data for tebapivat, our next-generation PK activator in low-risk MDS. This study evaluates 10-, 15- and 20-milligram dose levels across a broad patient population with eight consecutive weeks of transfusion independence as the primary endpoint. While this represents a higher risk opportunity, we see meaningful potential for an oral therapy in this setting. Please move to the next slide. In the first quarter, we completed a pre-sNDA meeting with the FDA and aligned on a path towards U.S. accelerated approval for mitapivat in sickle cell disease. Since that meeting, we've had a series of informal and formal engagements to gain official alignment on the confirmatory clinical trial required under this pathway. We are pleased with the progression of these discussions and now expect we will file an sNDA in the second quarter. We look forward to sharing additional data from the RISE UP Phase III trial at an upcoming medical congress, including analyses that informed our selection of the confirmatory clinical trial's primary endpoint. Taking a step back, as we consider development of the confirmatory trial design, we emphasized operational feasibility, including enrollment time lines and time to completion while looking to maximize probability of success and the potential to further enhance the mitapivat label should U.S. full approval be granted upon results of confirmatory trial. Next slide, please. In parallel, we are advancing tebapivat, our next-generation PK activator in Phase II studies across low-risk MDS and sickle cell disease. Tebapivat was intentionally designed to go beyond first-generation PK activators. It is structurally differentiated with potent dual activation of PKR and PKM2 and PK and PD properties that support once-daily dosing without the need for a taper. Importantly, the early clinical data reflect these design features. In sickle cell disease, tebapivat demonstrated a long half-life of approximately 87 to 93 hours, dose-dependent reductions in 2,3-DPG and increases in ATP and pharmacodynamic effects that remain durable for up to four weeks after the last dose. We also observed a mean hemoglobin increase of 1.9 grams per deciliter at the 5-milligram once daily dose. Beyond red blood cell metabolism, tebapivat shows broader biological activity driven by PKM2 activation. In preclinical models, this translated into antifibrotic effects, including reduced glomerular injury and myofibroblast signaling, supporting the potential for disease-relevant activity beyond mature red blood cells. In low-risk MDS, we observed early clinical signals, including transfusion independence in the low transfusion burden cohort. However, we observed 60% lower drug exposure relative to healthy volunteers, which prompted investigation at higher doses. The ongoing Phase IIb study, which is evaluating higher doses in a broader lower-risk MDS population will test the hypothesis that deeper PKR and PKM2 activation may extend biological activity into erythroid maturation in the bone marrow. In sickle cell disease, our Phase II study is designed to rapidly assess hemoglobin response and key markers of hemolysis to confirm whether this deeper biology translates into broader clinical benefit. We look forward to reporting top line Phase IIb data in low-risk MDS in the first half of this year, followed by top line Phase II data in sickle cell disease in the second half of 2026. With that, please move to the next slide, and I will hand the call back to Brian for closing remarks. Brian Goff: Thank you, Sarah. Next slide, please. As you've heard today, 2026 is shaping up to be a growth inflection and catalyst-rich year for Agios, with meaningful progress across our commercial business and our pipeline. In the first half of the year, we advanced the regulatory path for mitapivat in sickle cell disease, and we expect Phase IIb top line data for tebapivat in lower-risk MDS, along with Phase I healthy volunteer top line data for AG-236. In the second half of the year, we anticipate Phase II top line data for tebapivat in sickle cell disease as well as Phase Ib proof of mechanism data for AG-181 in phenylketonuria. And throughout the year, we remain focused on executing the U.S. commercial launch of AQVESME in thalassemia with the goal of building a strong and sustainable commercial foundation. Next slide, please. Stepping back, we believe Agios is differentiated by the combination of a growing commercial base and a pipeline increasingly weighted towards later-stage high-value opportunities. As shown here, our current pipeline represents greater than $10 billion in potential market opportunity in 2030. Most importantly, everything you've heard today is grounded in our commitment to the patients we serve, patients living with serious and often underserved rare diseases who are still waiting for better treatment options. I also want to recognize and thank our employees. Their focus, expertise and dedication are what make this progress possible from advancing critical clinical and regulatory milestones to executing a complex commercial launch with care and discipline. With that, we appreciate your continued interest in Agios. And I'd now like to open the call for questions. Operator, please open the line. Operator: [Operator Instructions] Our first question comes from the line of Samantha Semenkow from Citi. Samantha Lynn Semenkow: Congratulations on the early launch progress for AQVESME. And just sticking with that theme, first question then is just a little bit about the demand of AQVESME you're seeing thus far in the second quarter. I'm wondering if there is a bit of a bolus component in the first quarter from those highly motivated patients. But as you look into the second quarter prescription performance, are you seeing a similar cadence in those prescriptions coming in as well as an increase in REMS-certified health care professionals? And I have a follow-up. Brian Goff: Sure. Thanks, Sam. I'm going to let Tsveta comment. And of course, we're going to stick to the first quarter dynamics, but there's obviously good momentum that we were proud to report today. So Tsveta, you want to take over? Tsveta Milanova: Absolutely. So as I said, we are very excited with the early launch and the progress we've made. We said we had 242 prescriptions from REMS-certified physicians as of March 31st. The early uptake is really driven by the highly engaged and motivated patients, which included both the transfusion-dependent patients and the motivated non-transfusion-dependent patients. I wouldn't take Q1 to be the run rate for upcoming quarters. But what I can tell you is that we still expect very strong demand and uptake as the team continues to execute very strongly and the reception from both patients and physicians on the AQVESME profile has been very, very positive. Brian Goff: And Sam, you had a follow-up? Samantha Lynn Semenkow: I did. Yes. That was helpful. A couple of follow-ups on tebapivat. Just first on the timing of the MDS data. I'm wondering if there's any additional clarity you could share there on when that data will come this quarter? And then just secondly, on sickle cell disease, I'm wondering how you're thinking about the market opportunity for mitapivat given some recent competitor's data? And then just how do you think about developing mitapivat? And obviously, you're moving towards accelerated approval filing, but you have tebapivat in the second half, that could have potential best-in-class efficacy based on those early data signals you walked through in the prepared remarks. Just how are you thinking about that market developing as we go forward? Brian Goff: So we'll go in sequence. Sarah can comment on tebapivat for MDS and basically, given the timing that we're expecting. Sarah Gheuens: Exactly. So Sam, the timing that we've highlighted is the first half of this year. And so that is what we're sticking to. And then for sickle cell disease, the timing is the second half of the year and the teams are making great progress towards those deliverables. Brian Goff: And then I'll turn it back to Tsveta to comment on -- we're clearly, Sam, in a position of strength, having mitapivat and all the progress that we talked about this morning for our accelerated pathway for sickle cell disease and then the benefit of having tebapivat, the next-generation more potent PK activator that we're looking for to Phase II data. But Tsveta, perhaps you can talk about the overall franchise goal that we have. Tsveta Milanova: Yes, absolutely. We see a very significant commercial opportunity in sickle cell disease, including both mitapivat and tebapivat. When we think about mitapivat, we see sickle cell disease as a disease that can support multiple treatment options, and we will be looking to maximize the commercial opportunity, assuming that we have a label. And that's driven by the fact that we've seen a very strong response and positive response from the KOL community on the strength of our hemoglobin responder data. They are communicating about the need of antihemolytic agent, especially an agent that can -- with hemoglobin responders can demonstrate a potential benefit in other meaningful endpoints such as quality of life and potential reduction in pain crisis. So we haven't seen the HIBISCUS data yet to be able to comment more on but we're starting from a position of strength when you think that this is our third indication in the market. There is a strong familiarity of that community with the product. We have over 1000-patient years of data and a strong market experience, and we will see that as a good anchor for our franchise building. When it comes for tebapivat, of course, we'll need to see the Phase II data. We'll need to see how the competitive environment moves forward, but we'll be looking to have a best-in-class positioning with that product, and we'll provide more information as we get the data. Operator: Our next question will come from the line of Alec Stranahan from Bank of America. Alec Stranahan: Congrats on all the early launch progress this quarter. Two questions from me, one on sickle cell and one on the launch in thal. I guess, first on thal, in patients transitioning from the clinical study to commercial drug, is covering costs of therapy part of ensuring continuity of treatment? Just trying to think through how many of the 242 scripts for patients moving from the clinical trial and how they might translate to revenue this quarter and going forward? And then on the sNDA for sickle, curious when you expect to get feedback from the regulator on the proposed design of the confirmatory study and whether that's an update you'll share or if the next we'll hear on the program is just that the sNDA has been submitted. Brian Goff: Yes. And I think Sarah can -- we'll take them in sequence, starting with thalassemia and maybe just comment on the open-label extension and the studies. Sarah Gheuens: Exactly. So Alec, so patients are in open-label extensions on the thal clinical program. So those are still ongoing and of course, help us to continue to highlight the maintenance of effect in this patient population. And in addition, the proportion of U.S. patients in those studies is small because it's a big global study. In regards to sickle cell disease, we are very pleased with the progression of the engagements we've had and the pace of the engagements we've had with the FDA, which, of course, allows us to further fine-tune the time line for submission. So we've updated to say that we would file in Q2. More details on the clinical trial, we will highlight before it goes on clinicaltrials.gov. And then, of course, we've stated that we will also present data at or around EHA and that data did inform us in this trial. I do want to take a step back here and just highlight that, as I stated in my prepared remarks that the trial, of course, is also designed in such a way that we prioritize operational feasibility and probability of success here. And so that is going to be our focus with this. Alec Stranahan: Okay. Maybe I could just follow up just on the continuity of treatment piece. I guess of the 242 scripts, I guess, how many of those were booked as revenues in the quarter? And I guess, how do you see that evolving sort of as payer access comes online over the coming quarters? Brian Goff: Cecilia, do you want to comment on the metrics? Cecilia Jones: Yes. So as we stated, we split U.S. and ex-U.S. revenues. So it's probably U.S. revenues, the way to think about it is we guided PKD to be about $45 million to $50 million for a year, and the quarter has been in line with that with the rest coming in from thalassemia. There is a lag on the prescriptions to when patients get on therapy, and that's what Tsveta was saying. We've seen it be a little faster than what we thought, but we think it's going to eventually be in that 10- to 12-week range. Operator: Our next question comes from the line of Emily Bodnar from H.C. Wainwright. Emily Bodnar: First one, with your conversations with the FDA about the sNDA for sickle cell disease, are you also expecting a REMS for sickle cell disease? Or is that only for thalassemia? And then a follow-up question. With the Phase II sickle cell data for tebapivat expected later this year, can you maybe give us some expectations about what you'd like to see relative to Phase II data from mitapivat and etavopivat to kind of get confident in that best-in-class profile? Brian Goff: So Sarah, we'll start with continued encouraging interactions with the FDA and the question on REMS. Sarah Gheuens: Yes, of course. And as you know, we now have optionality because we have PYRUKYND and AQVESME. Both of these are options, each having different pros and cons. Either way, our teams would be able to execute on any of those options. And as it relates to the Phase II data, it's a dose-finding study. So of course, we're looking for a dose in Phase II to bring forward, but we're also looking for depth and breadth of hemoglobin response. Operator: Our next question comes from the line of Eric Schmidt from Cantor. Eric Schmidt: Congrats on a terrific launch. Maybe on this 242 prescription number in the first quarter, that's obviously an enormous number. I think, Tsveta, you told us back in February that through January 31, you had 44 prescriptions. So it looks like there's been a pretty meaningful acceleration in February and March. Maybe you could just confirm whether my math there is correct. And maybe square the circle relative to the comments you made about not extrapolating forward the current run rate because if anything, it seems like you're on an accelerating path. Tsveta Milanova: Yes, we are very excited about the progress, Eric. And the 242 prescriptions from REMS-certified physicians of January 31st reflect the totality of the first quarter. As a reminder, we started actually actively promoting the drug as we got label. So the demand was generated throughout the whole quarter. The REMS became operational at the end of January, but the demand was generated throughout January as well. So I'll look at the quarter as a totality. And that's what I mentioned, I wouldn't take these two numbers and kind of extrapolate from there in the future quarters and wouldn't take that run rate. But we are still expecting to see a strong demand moving forward as the team is executing and the patients and physicians are very positive on the profile and looking to engage further. Brian Goff: And Eric, maybe I'll just take this opportunity to reinforce adding to your comments that what's so special about the AQVESME launch is we have 3 key ingredients. First is AQVESME addresses a significant unmet need with thalassemia. Secondly, the community, i.e., physicians as well as patients are already reflecting enthusiasm for the profile. And as you just said, third, Tsveta and the Agios team are very well prepared, and they know how to execute, and we're very proud of their early progress. Eric Schmidt: Terrific progress indeed. Do we have a sense of what percent of the initial REMS-prescribing patients are likely to convert or what the conversion ratio is? Tsveta Milanova: So in the initial quarter, as I mentioned, we really kind of captured some of the most motivated and engaged patients and our conversion from prescription to treatment initiation was actually faster than expected. As the quarters progress over time, we still expect the initiations to be 10 to 12 weeks always. We'll try to shorten it. But the primary driver for that is that we'll be moving into patient segments that have less frequent interactions with the health care system as we go deeper into the NTDT segment as we've spoken in the past. Eric Schmidt: Maybe asking in a different way, have you lost any of the 242 patients that you now no longer think are likely to convert? Brian Goff: So far, I think we could characterize, Eric, that the REMS has been well embraced by both the physician community as well as, as Tsveta says, the motivated patients. And we feel very confident with the high conversion, I'll call it, of those early patients that have started on or were prescribed AQVESME and then converted on to therapy. Tsveta Milanova: Yes. Sorry, Eric, maybe I didn't get exactly your question, but the REMS is not a hurdle to treatment initiation at all. What we see in terms of a conversion rate and it's very typical for rare disease launches. So we're not out of the extraordinary because of the REMS. Operator: Our next question comes from the line of Marc Frahm from TD Cowen. Marc Frahm: Congrats on the progress with AQVESME. Maybe just following up on some of the answers to Eric's questions. It sounds like at least some of these -- the extra kind of 200 prescriptions that you're kind of talking about now versus the end of January, I guess, maybe were even written before January. Is that right? They just weren't by a REMS-certified physician and kind of what's changed is the REMS certification status. Is that the right way to kind of square the commentary? And then some of this kind of caution around that trajectory of TRx maybe slowing or the fill time pushing out a little bit. Have you actually seen that yet? Or you're just cautious that, that may happen as we move into future quarters? Brian Goff: So thanks, Marc. Maybe what will help here is so that I can just like take a step back to the launch timing and what occurred in the first quarter because there was an initiation of demand and then there was the operationalization of the REMS. Do you just want to talk through that and then reflect on the source of the 242 prescriptions. Tsveta Milanova: Yes, absolutely. So the 242 prescriptions are reflective of all of the work that we've done in excellent launch preparation. We had a lot of clarity of where likely the prescriptions are going to come first, and we initiated these interactions and promotional activities as soon as we got the label. So they're a reflection of the work that we've done for the whole quarter. In the first month, we didn't have the REMS operational, and the team still did an excellent job to get prescriptions from REMS-certified physicians in that phase of the launch. And we continued on that journey once the REMS was operational. Obviously, more physicians who are waiting for that operational date to start prescribing, they did start prescribing. We are very pleased with what we are seeing right now because the prescriptions are coming from a very healthy geographic breadth. They are coming from the community prescribers, where the majority of the patients are managed right now. And we see this kind of highly motivated and engaged patients starting therapy, which is fantastic for us because we know that the thalassemia community is actually very well connected and that early launch experience with the patients will actually support the kind of the positive feedback and the profile of the product as well. So what I can tell you is that moving forward, I wouldn't take the two data points in Q1 and extrapolate from there, but I'm very confident that we'll have a strong uptake and penetration moving forward as we continue to the launch, typical with non-life-threatening rare disease conditions. Brian Goff: And Marc, on the second part of your question about the 10 to 12 weeks that Tsveta had commented on in her prepared comments, we have been encouraged that these motivated patients have translated to therapy faster than that in some cases. But again, this is relative to the motivation of both the physician and the patient. And the reason to guide on average, that's an expectation going forward is as we penetrate further into the non-transfusion-dependent patient population, we expect there will be perhaps a mitigating factor on the enthusiasm aspect, and it might take a little bit longer for those patients to convert to therapy. Marc Frahm: Okay. I completely understand that, but maybe just to push on it a little bit, presumably also as you get further into the launch, you also have a dynamic of more payers kind of having regular processes and things that tends to kind of shorten the time lines within a given payer, but I guess, it sounds like you expect it to be more than counteracted by that kind of difference in enthusiasm from the patient itself. Tsveta Milanova: Yes. We'll definitely -- the team is doing an excellent job right now, and we haven't had any payer hurdles so far. Of course, we'll continue to look for ways to shorten the time from prescriptions to treatment initiation. We'll look to advance. It takes about six months on average to get the payer policies in place. But as of now, similar to patients and physicians, payers have been very receptive of the profile and market access has not been a hurdle. Operator: And our next question comes from the line of Salveen Richter from Goldman Sachs. Lydia Erdman: This is Lydia on for Salveen. Congrats on the launch updates here. Maybe just another question on the launch. Could you maybe just speak to the treating physicians and treatment settings that you're seeing here? And are you still seeing a majority of prescriptions coming from the community hem-oncs? And is the team starting to engage with physicians beyond those who were targeted ahead of the launch? Tsveta Milanova: Yes, absolutely. So we see a very healthy start of the launch when we think from a prescriber base. We've seen prescriptions coming both from the academic and community setting, but the majority of the prescriptions are coming from the community setting, which is exactly as we expected it. And that's driven by the fact that patients with thalassemia are actually managed mainly in the community setting. We see prescriptions coming from across the country, which is fantastic. And as we move forward, the patients will continue to increase the breadth of prescribing. And of course, we'll focus on that as well, but the majority of the business is going to continue to grow breadth. Operator: And our next question comes from the line of Tessa Romero from JPMorgan. Tessa Romero: I just wanted to double-click back here to one of the initial questions on the call here. Ultimately, what do you see as the implications of Novo's recent results to next steps at Agios? And how does this change your view of what you need to see to drive tebapivat forward in sickle cell disease as well? Brian Goff: Maybe Sarah can start with our focus on mitapivat and then we can comment on tebapivat as well. Sarah Gheuens: Sure. So we haven't seen the full HIBISCUS results yet. So as Tsveta highlighted, I mean, we see a clear commercial opportunity in sickle cell disease with mitapivat. And as she highlighted as well, there are multiple players given the prevalence and the disastrous nature of this disease. And of course, we'll look to maximize commercial opportunity with mitapivat. That is possible with our data sets in RISE UP. We have, again, a very strong antihemolytic profile in our data set. The strength of the hemoglobin responder data is definitely there because as we've highlighted, we have seen impact on VOCs, but sickle cell disease is more than VOCs. We've seen impact on hospitalizations, fatigue, quality of life. So there is really a lot of excitement for our drug in the community, both by patients and physicians. And of course, we are also -- as we highlighted in our prepared remarks, very pleased with the progression of the engagements we've had with the FDA so that we're now able to update our expected filing into Q2. So we are very pleased with where we are. Tessa Romero: Okay. Great. And Sarah, if I can just follow up quickly on that point. Is there anything that you would like to better understand in the fuller HIBISCUS data set when we do see it? Sarah Gheuens: Well, yes, obviously, like the data is very limited right now that we have to our availability. So anything as it relates to standard study metrics, I would love to see. Operator: And our last question comes from the line of Greg Renza with Truist. Unknown Analyst: This is [indiscernible] on for Greg. Congrats to the launch, Tsveta. One question on AQVESME. So with the momentum continuing to build, you have 242 prescriptions in the first quarter. Are you starting to see any early signals of patient persistence, patients staying on therapy, given that this is a chronic setting? And any differences in the patterns between transfusion-dependent versus non-transfusion dependent? And I have a follow-up. Tsveta Milanova: Absolutely. As we said, we are very early in the launch, and there is a time lag between a prescription and treatment initiation and then the patients need to go from a month of therapy to start seeing what the continuation rate. But we've seen PYRUKYND in PK deficiency performing extremely well in the real world. We expect to see the same strong performance in thalassemia as well. Sometimes we talk about the REMS as kind of paperwork and work, but actually, it helps with the frequent interactions between patients and physicians and actually can support continuation of therapy as well. So we'll wait and see. That's one very important factor we'll continue to monitor. Unknown Analyst: Got it. And a second question on mitapivat in sickle cell disease. So assuming accelerated approval, how do you think about the opportunity for early uptake based on hemoglobin as a surrogate endpoint and potentially on the label while additional outcomes data are being generated in the confirmatory study and especially in light of etavopivat hitting the VOC endpoint? Brian Goff: Yes. This is a little bit reflective of what Sarah had commented on as well that sickle cell disease has very high unmet need. And as Sarah said, it's a multi-dimensional disease. There are many things to address clinically within sickle cell disease. And we stand proud and tall with the RISE UP data that we've seen, particularly as well the responder analysis. And Tsveta and her team are, of course, already preparing commercially for that potential opportunity ahead with the accelerated approval pathway. Sarah Gheuens: And just if I may add, the data from RISE UP that we've highlighted to physicians and patient communities has been very well received. Unknown Analyst: And if I may, could you maybe expand a little bit on the confirmatory study? What are you thinking in terms of the confirmatory endpoint? And how might that compare to the potential VOC data that we might see in HIBISCUS just when it comes to treatment selection? Sarah Gheuens: Yes. So thanks. So the endpoint, as highlighted, is informed by the RISE UP data set in which we've collected data systematically prospectively. So we've had also great engagements with the FDA, and that has progressed very nicely. So again, we are now able to speak to our intent to file in the second quarter. We've also highlighted before that we will be presenting data at or around EHA around all of the data, so including the data that informs this confirmatory trial and that we will also share more ahead of our posting on clinicaltrials.gov. The last thing I wanted to stress, and this is really important, this is a confirmatory trial. So we really have prioritized the operational feasibility as well with probability of success to be able to deliver meaningful data that then, of course, would allow us at that time to hopefully be able to put that data into label at the time of full approval when the results allow. So we are very excited about where we currently are. We have really great confidence in our data and the path that we are on. Operator: And this concludes the question-and-answer session. I would now like to turn it back over to Brian Goff for any closing remarks. Brian Goff: Well, thanks a lot, Victor. Thanks, everyone, for joining. The first quarter clearly reflected solid execution across our strategic priorities from the early progress with the U.S. commercial launch of AQVESME in thalassemia, as we've discussed, to continued advancement toward mitapivat sNDA filing in sickle cell disease and to maintaining a disciplined financial approach with multiple meaningful catalysts ahead this year, we believe Agios is well positioned as we move through 2026, and we look forward to continuing to update you on our progress, including at our planned investor event during the 2026 EHA Congress. So thank you very much, everyone. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
Operator: Good morning, and welcome to the Fiverr First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the conference over to Ms. Emily Greenstein. Thank you, and over to you. Emily Greenstein: Thank you, operator, and good morning, everyone. Thank you for joining us on Fiverr's earnings conference call for the first quarter that ended March 31, 2026. Joining me on the call today are Micha Kaufman, Founder and CEO; and Esti Levy Dadon, CFO. Before we start, I would like to remind you that during this call, we may make forward-looking statements and that these statements are based on our current expectations and assumptions as of today, and Fiverr assumes no obligation to update or revise them. A discussion of some of the important risk factors that could cause actual results to differ materially from any forward-looking statements can be found under the Risk Factors section in Fiverr's most recent Form 20-F and other filings with the SEC. During this call, we'll be referring to some key performance metrics and non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin and free cash flow. Further explanation and a reconciliation of each of the non-GAAP financial measures to the most directly comparable GAAP measures is provided in the earnings release we issued today and our shareholder letter, each of which is available on our website at investors.fiverr.com. And now I will turn the call over to Micha. Micha Kaufman: Thank you, Emily. Good morning, everyone, and thank you for joining us. Let me start with the headline. Q1 was a solid quarter of execution with both revenue and adjusted EBITDA coming in at the high end of our guidance range. Esti will walk through the details shortly, but the underlying message is this, we are focused on executing the strategic transformation while being methodical in managing the existing business across both top and bottom lines. Maintaining financial discipline and transparency throughout this transformation is critical, and we are committed to doing that consistently and credibly. Let me now turn to the transformation or as we mentioned last quarter, we are in the early stages of a multiyear journey to reposition Fiverr from a transaction-oriented marketplace into a trusted work platform for complex high-value outcomes. This is not a cosmetic shift. It is a fundamental evolution of how work is matched, delivered and orchestrated on our platform. Our North Star is clear: to become the most trusted platform for completing high-value, high-trust work. This means enabling businesses and talent and increasingly AI-driven workflows to collaborate effectively on complex outcomes. Two months into the transformation, the early signals across all pillars of this transformation are consistent with our plan. First, we are strengthening the high-end talent flywheel and expanding into more complex, higher-value projects. Projects over $1,000 continue to grow at a strong double-digit rate with clients completing $1,000-plus projects, up 18% year-over-year. We are also seeing increasing participation from talent delivering these engagements. What's important here is not just the growth. It's the nature of the work. We are seeing businesses come to Fiverr not for isolated tasks, but for multiphase mission-critical projects. For example, one, a global health care company is working with talent on Fiverr to produce over 30 multilingual animated assets for a product launch with ongoing spend across multiple engagements. Two, a C2C sports platform in New Zealand built a full mobile application through multiple development phases on Fiverr. Three, a European entrepreneur is building an AI-enabled invoicing SaaS platform to comply with regional regulatory standards. These are not one-off gigs. They are sustained high-value engagements that require coordination, iteration and trust. This is exactly the segment we are targeting and exactly where the market is moving towards more strategic outcome-based engagements. Second, we are investing heavily in matching infrastructure and experience. This is our main differentiator and the key to driving trust and quality, which are the core primitives of the market. Our research and internal data confirm this. The primary differentiator in hiring platforms is not price. It is talent, quality and trust. Historically, Fiverr has won on ease of use and speed. Winning upmarket means extending that advantage into quality and trust, and that is exactly what our infrastructure investments are designed to deliver. That is why we are rebuilding our matching infrastructure from the ground up. We are moving from keyword-based matching to context-aware, outcome-driven matching powered by a knowledge graph that captures not just who the talent is, but what they have delivered in what context and with what results. At the same time, we are shifting ranking from optimizing for conversion to optimizing for expected project success and buyer satisfaction. The data is already moving. Recent tests in Fiverr Pro show mismatch rates down nearly 10%, and we are consistently seeing higher value engagements, leading to stronger repeat behavior. These are the early proof points of a durable trust mode. Third, we are evolving Fiverr into a comprehensive work platform. Today, most high-value projects on Fiverr run on infrastructure built for a different era of the platform. We are addressing this by building an end-to-end fulfillment layer that includes visibility into project progress, early detection of risk, structured feedback loops and active orchestration by Fiverr. This is a fundamental shift in responsibility and perception of responsibility. We are becoming an active partner for our clients and talent, not just a passive connector. Over time, this infrastructure will also allow Fiverr to integrate seamlessly into agentic workflows, where AI handles coordination and humans provide judgment and accountability. Fourth, we are expanding our go-to-market capabilities to scale more aggressively into high-value work. We are now building 3 new growth engines. First, talent-led growth engine, driving high-quality demand directly to high-performing freelancers. Second, industry-led growth engine, building tailored experiences for specific industries such as e-commerce and early-stage start-up companies. And third, partner-led distribution, embedding Fiverr directly into workflows and platforms where high-value demand already exists. These initiatives expand beyond traditional performance marketing and are designed to create scalable, durable growth engines aligned with our upmarket strategy. Finally, we are improving execution across the organization. We are optimizing production workflows through better telemetry, identifying bottlenecks and increasing discipline in delivery. At the same time, we are rebuilding how work is executed with AI agents at the center and human judgment where it matters most. This approach enables faster decision-making, reduces handoffs, improves product quality and drives efficiency across the organization. Mastering this as a company will also allow us to generate a reusable blueprint for our customers and talent to replicate and enjoy. Stepping back, the fundamental dynamics of this market are moving in our direction. AI is increasing, not reducing, the complexity of matching the right talent to the right work. The demand for trusted outcome-based platforms is not a future possibility. It is already showing up in our data, in our customer examples and in the infrastructure we are building. Fiverr has a differentiated model, a compounding data advantage built on real transaction outcomes and an end-to-end platform that no point solution can easily replicate. We are executing with urgency and discipline, and we are confident in where this leads. With that, I'll turn it over to Esti for the financial details. Esti Dadon: Thank you, Micha, and good morning, everyone. We delivered a strong first quarter with both top and bottom lines exceeding the midpoint of our guidance. Revenue was $105.5 million, down 1.6% year-over-year, reflecting continued growth in high-value work, offset by headwinds in low-value transactional activity on the marketplace alongside a continued growth of service revenue. Adjusted EBITDA was $22.6 million, up 16.3% year-over-year and representing an adjusted EBITDA margin of 21%. This is an improvement of 330 basis points from a year earlier as we continue to execute with strong financial discipline. Turning to our revenue segments. Q1 marketplace revenue was $67.1 million, driven by 2.9 million active buyers, $356 in spend per buyer and a 27.7% marketplace take rate. The continued momentum in our upmarket strategy and shift towards more complex engagement is clearly showing in our cohort behavior with spend per buyer growth of 15% year-over-year. Projects over $1,000 grew at a strong double-digit rate, driven by 18% growth in clients completing these engagements. This growth is coming from both new adoption and repeat behavior as buyer expand into larger use cases, along with increased usage of dynamic matching and managed services. Looking ahead, macro conditions remain largely unchanged. Based on current trends, we expect marketplace growth for the remainder of the year and on a full year basis to track broadly in line with Q1 performance. Service revenue in Q1 was $38.4 million, up 30% year-over-year and accounted for 36% of total revenue. Services revenue came in slightly higher than expected as AutoDS ran a successful campaign at the start of the year, pulling certain user sign-ups and revenue forward from Q2 to Q1. Overall, our expectation for services revenue for this year remain largely unchanged with growth moderation in Q2 and continuing into the second half of the year. As Micha mentioned, 2026 is a transformational year for us as we make critical foundational investments to strengthen our high-end talent flywheel. Our decisions are centered on improving marketplace quality and trust, prioritizing high-value work and driving more focused execution with strong financial discipline. On capital allocation, we continue to take a disciplined and balanced approach. Our strong balance sheet allows us to invest in growth, returning capital to shareholders and remain opportunistic on M&A. We generated $21 million in free cash flow in Q1, and we expect to continue executing our buyback program in a thoughtful manner. As of March 31, 2026, we had $59.5 million remaining under the current authorization. Now on to guidance. For the full year 2026, we expect revenue to be in the range of $380 million to $420 million, representing a year-over-year growth of negative 12% to negative 3%. We are raising our full year adjusted EBITDA guidance and now expect it to be in the range of $64 million to $80 million, representing an adjusted EBITDA margin of 18% at the midpoint. For the second quarter of 2026, revenue is expected to be between $95 million to $103 million, representing year-over-year growth of negative 13% to negative 5%. Adjusted EBITDA is expected to be between $16 million to $20 million, representing an adjusted EBITDA margin of 18% at the midpoint. Our revenue outlook reflects solid execution in Q1 and the continued uncertainty in the market conditions. Our adjusted EBITDA guidance reflects the strength of our core marketplace profitability and our continued commitment in maintaining disciplined margin profile while investing in the transformation. As we look at the rest of the year, we are staying focused on our core priorities, driving progress in higher-value work, improving trust and quality and building scalable growth engine. We believe these are the right indicators to evaluate the business as we transition to the next phase. With that, we will now turn the call over to the operator for questions. Operator: [Operator Instructions] We have the first question from the line of Eric Sheridan from Goldman Sachs. Eric Sheridan: Maybe 2, if I could. One, just coming back to the transformation strategy. I want to know a little bit more about the duration of sort of completion of what you call sort of the infrastructure layer and putting the pieces in place, and how we should be thinking about when you exit that phase of the transformation and some of the execution shifts more predominantly to go-to-market or what the mix is of building blocks relative to execution on the transformation strategy, that would be one. And then the second one would just be, you talked a little bit about partners and evolving the go-to-market strategy. I want to know if you could go a little bit deeper in terms of what those types of partners might look like and what market opportunity they might open up that maybe you're under-indexed to today? Micha Kaufman: Essentially, the transformation is an ongoing process, and since we just started it mid last quarter, we are anticipating to see results over the remainder of the year with more emphasis, because it takes time between the things that we develop and release until they show up in the numbers, to see this more in the second half of the year and definitely towards the end of the year. And as we said, we will continue to be transparent on what we're seeing and the progress there. As the transformation, my belief is that the entire market is in a transformational moment where every business needs to adapt to a new reality where AI plays a critical game, not in just making products better and more efficient, but also being able to connect with agentic realities where agents are actually using the platform. This is not limited to this year, I think that this is going to be a transformation that every business out there will have to implement in the coming years. It's very similar in my mind to the digital transformation when businesses went from the offline to the online and now are seeing a new reality. Now we are already seeing some initial signals that we called out in the opening remarks of areas where that transformation has started, and we started rolling out experiments and new products and how they influence a higher quality matching and focuses on better conversion and better retention around high-end talent and larger scopes. So over the next few quarters, we will continue to report on what we're seeing. The progress, and obviously, the more history we have in doing this, the results should accumulate. And as we said, this is going to be a turnaround year where the next years are going to be years of growth. In terms of the other question regarding partners and go-to-market strategy. Again, we very much focus on this idea of human-in-the-loop partners where the requirement for a skilled talent network to make judgment calls on AI's work and on calibrating models and checking integrity and ensuring accuracy is paramount, and I think that this is an area where Fiverr can play a major role. That together with agents that we're developing to automate some of this work to make sure that the experts are actually focusing only on things that humans need to focus is a very important and critical role in what we're doing. It is still early, there's a lot of AI automation use cases. We're running successful pilots with some initial customers, and we see that there's a lot of demand for Fiverr to become a fulfillment partner for SMBs to adopt automation. So again, early in the process, but we will have more things to call out in future quarters. Operator: We have the next question from the line of Jason Helfstein from Oppenheimer. Jason Helfstein: Kind of like a 2-part question, but on the same theme, so obviously, you've had a front row seat to this whole evolution of how agents are evolving the business. As you're seeing kind of even these more cutting-edge frontier models coming out, how is that further evolving your view on kind of how both you will leverage this technology, how your companies -- how your customers will leverage it? And then there's also been discussion among investors that AI agents are like lowering the barriers to new business creation. There's like more -- new domains coming online, I think a record number of apps being submitted to the app stores. I guess like how do you think about that, like is that a positive for Fiverr or a negative for Fiverr? Can you leverage that? Just kind of broadly all bring those topics together. Micha Kaufman: So essentially, the way we're thinking about how agents are becoming a part of what we're doing, essentially, agents are very much learning from human -- skilled people on how to run workflows much, much faster, much more efficient, 24/7. But at the same time, a lot of what agents are doing require ongoing judgment. And it's much like everything else with AI. Everybody has the access to the same AI which means that also everybody has access to the same agents that are available out there. Just having access to this technology doesn't give you a competitive edge, it just flattens everything and it -- maybe it elevates the floor. But on top of what agents are doing and how you create skills for agents, how you create workflows that combine multiple skills, multiple agents, that is an art. And that is what a lot of companies are actually focusing in and providing their employees, their expert skills onto agents. Now in the case of businesses, not all businesses have the talent to actually train an agent and oversee what the agent is doing and providing judgment and calibration and fine-tuning. We see this on Fiverr. The implementation of agents across our system internally require tremendous amount of calibration to overcome hallucinations, inaccuracies or just moderate execution. So definitely, the role of an expert, of an employee, of a freelancer is changing, but it is highlighting the uniqueness of what they can build, bring to the table to provide an advantage. Now, when we think about lowering the barriers, or agents lowering the barriers for business creation, this is amazing news for us. I've seen lately staggering numbers on the launches of new products in recent months. I believe April was the highest month with over 19,000 new announcements on product and company releases. On the one hand, the signal to noise is extremely complex because it makes everybody a builder, but building something gives you nothing. It's all about the deployment, it's all about taking you to the market. It's getting noticed, it's validating and then it's scaling. These tasks are largely unresolved yet by AI. Can AI help in this? Yes. But generically speaking, because it provides the same help for everybody else, again, flattening everything. What gives you that competitive edge when you create something or you almost create something and you want to improve it and then you want to deploy it and then you want to scale it, this is where experts come in. Now the reason why I believe that this is not still showing up in the numbers is this is a transformative period. I remember the digital transformation from 2000. It took time for businesses to understand that if you don't have a website, you're going to be out of business over time. The same goes with AI, and the same goes with experts that need to come with AI to make your AI or your execution better than your competitors. And I think that we're in the early innings. It's going to take some time. But all in all, I actually think that this is really a great upside for us. And when I look at the marketplace, we see AI consulting, business formation, all grow really strong double digit. So this, to me, I think it's an early sign of what would come. Also AI-related categories continue to be super strong. AI development up 118% year-over-year. Marketing automation, also growing really strong double digits, and I can go into -- my answer is really long, so I'll stop here, but I can give more color around this. Jason Helfstein: I guess it hasn't automated us doing this earnings process yet, but maybe someday. Operator: We have the next question from the line of Ron Josey from Citi. Ronald Josey: Automation is the future, right? Can't wait. I wanted to ask a little bit more -- 2 questions. First is on just attracting the talent to the marketplace as we go to more upmarket projects -- upmarket and towards these multiphase projects. We're clearly seeing continued strength on spend per buyer. We're seeing that growth reaccelerate. So talk to us just about the talent on the marketplace as we go more upmarket and these multiphase projects. And then one of the things that struck me, matching is a key part of the marketplace. And I think I heard the team talk about mismatch rates being down 10%. So during this transformation era, talk to us just about the ability to continue to execute on some of the key tenets of the marketplace like dynamic matching and the results that you're seeing. Micha Kaufman: On the first question, talent is super important. As we know from research, quality is core and the ability to match quality, drive quality perception is super critical, and this is very much in the center of this transformation for us. Now getting access or getting talent to the platform has never been an issue. Actually, we always had, I would say, an abundance of talent. What we're more adamant right now is really understanding on the meta skill level, what does it mean to be a talent and for what type of customer and what type of an outcome, and creating this skill graph is super critical. In other words, what this means is, a, we're more picky about talent. But two, by improving the algorithm, improving the matching, we can create -- we can anticipate better outcomes, better happiness, and as a result, we also anticipate better retention in our customers. Those are the key things. So when we call out the reduction in mismatch, this is key because this actually means -- and it's like hiring for any job, right? Some people that you hire turn out to be amazing, some you later on figure out that there is something that you missed or they missed, which makes the match not optimal. We don't want to tolerate this. And we actually think that if there's one huge advantage based on data that we've accumulated over 16 years, billions of interactions, tens of millions of transactions, is being able to take that data and actually make matching like anything that was done before by anyone. And this is a reason to win, this is a reason to exist. So we're putting a lot of pressure there and seeing numbers, seeing the amount of actual matches that were mismatched in hindsight, getting down is a very positive signal, and we're far from that. We're just starting right now. And obviously, over time, as we accumulate more signals, deeper signals, we will continue sharing it with you guys. Operator: We have the next question from the line of Bernie McTernan from Needham. Stefanos Crist: This is Stefanos Crist calling in for Bernie. I wanted to follow up on Ron's question on the matching, could you maybe give us any more details on what a baseline mismatch rate is or maybe what the revenue impact is of that 10% reduction? And then I also wanted to ask on the AutoDS pull forward, could you talk about what went right with that campaign? And is the pull forward just a dynamic of annual subscriptions? Or is there anything else? Micha Kaufman: In terms of matching, we haven't publicly shared any specific numbers, but with this transformation, we're really focusing on trust and quality as core primitives, so to us, mismatch is really about making sure that we have this deep understanding of what are the things that will drive a perfect match between a customer with their specific circumstances and needs and the very specific skill and validated experience of a talent to do this task, okay? And again, as we move forward to do this restructure and refocus, we are going to be able to provide more color, more specific color as we really focus on those KPIs. And this nuanced understanding is super important. It's not just driving revenue today, but it is driving the flywheel and driving the repeat rate. Now on the AutoDS, essentially, we had a very strong influencer campaign that we found great timing to do. In Q1 -- essentially, we were kind of focusing this on Q2, but we were able to actually execute this slightly earlier, not something that we plan to replicate, but -- which is baked into the numbers, which that has drove strong sign-ups at the beginning of the year, okay? So we called it out because this was a great opportunity for us to move something from Q2 to Q1 and do it earlier. Operator: We have the next question from the line of Doug Anmuth from JPMorgan. Douglas Anmuth: I have 2. Micha, can you just talk about where you are in terms of hiring AI native personnel within your own company and how you're thinking about that? And then Esti, can you just help us bridge the EBITDA margins from the 21% in 1Q to the 18% or so for the full year? Micha Kaufman: In terms of hiring AI native, we're on track. We continue to do this, and it's -- obviously, the -- I think the competition over talent is pretty brutal, but we've added incredible people into the team. And what's interesting is that if you really can find, identify and attract the right people, it's really different than it used to be before in terms of the amount of people that you need to do this because essentially, those are really AI natives are very much what I found in common, and I actually wrote about this. It is really this idea that they have this founder mentality, this entrepreneur mentality. And what's really common around them is that they're 10xers. Essentially, there are people that can do 10x, and a lot of what they do is really put up these systems, these agents, these workflows and be able to connect them for the rest of the company and continue evolving this, tweaking, calibrating, validating. It's incredible. And this is really, I think, also points to future corporates being leaner, smaller, but having people that can actually multiply the work. And talent strategy is important, not just for us, but for all companies, top of mind, in my opinion. I'll let Esti address the EBITDA question. Esti Dadon: So as for the 18% full year margin guide, so that actually reflects the hiring and the investment that we're doing in the transformation, and that picks up over time during the year, so it's consistent with our expectation at the beginning of the year. As you know, overall, we're very committed to execute the transformation and -- but that is with a strong financial discipline, so we are planning to execute that together with higher profitability and to continue to generate healthy cash flow. Operator: We have the next question from the line of Brad Erickson from RBC Capital Markets. Bradley Erickson: I guess all this transformation talk, larger buyers, et cetera, I wonder, do you think about adjusting the economics or take rates or pricing or how you merchandise your services at all to kind of serve that type of customer? And then along those same lines, what would you say you want to kind of be signaling here this morning on overall marketing intensity as you pursue, again, this kind of maybe different customer profile than you have historically? Micha Kaufman: As for the first question, there's nothing to call out at the moment. The -- what we see from the dynamics is as expected. I don't want to speculate on future models. Obviously, it's a very dynamic company. We look at it all the time, but I don't have anything to call out at the moment. In terms of similar to the market with the customer profile and marketing, so we gave some example of use cases in the prepared remarks, and these types of examples are rising. That portion of the business is growing. It is taking a larger size of our overall activity, and as it continues to grow, it will drive the business for growth. Now as we create more efficient, higher trust, higher quality solutions with everything I've outlined, again, I'm happy to go through it, but I was pretty long in my opening remarks about what we're doing with the transformation. What we're doing with acquiring customers, with creating the flywheel will become more efficient, allowing us to also invest more aggressively in marketing to feed this flywheel as it grows. That's the plan. This is why we said at the beginning of the year, and I'm reiterating this, we're building ourselves for growth in the next couple of years. And this is really important and the foundational work that we're doing is not -- are not buzzwords, it is really the essence of the business. Operator: We have the next question from the line of Matt Condon from Citizens Bank. Matthew Condon: My first question is just on as we look at the green shoots that you're seeing in success moving into more complex projects, can you just talk about what you're seeing today as far as the product launches or go-to-market that's really driving that success in the transactions of $1,000-plus growing, clients purchasing projects $1,000-plus growing? And then my second question is just you talked in the letter a lot about this comprehensive work platform, can you just talk about the specific products that you are really focused on today is really enabling that end-to-end platform, as you called it? Micha Kaufman: The truth is we're only 2 months into the transformation, so what we've progressed so far is not big product launch yet. What we're doing is really dealing with the fundamentals of the business, the infrastructure of the business, the data infrastructure, the matching algorithm, the quality improvements, all of these. It's not really about new product launches, but it is very much about how we enhance everything we do. In some cases, we completely rewrite those solutions. Now we -- I called out job post as an example, dynamic matching, managed services, and they're driving large engagements on Fiverr. And we highlighted a few examples in the prepared remarks, but more broadly, we're seeing a clear shift in how customers use the platform. These products are fundamentally changing Fiverr from a place to complete isolated task into a platform to execute multiphase high-value projects. So again, 2 months into it, it's not about shiny, new launches and creating promises. It's about going back to the basics and making sure that we provide a level of service, a quality of service that is unmatched. That is the focus, and this is where we're starting to see the numbers provide signals. Operator: Does that answer your question, Matt? Matthew Condon: Yes, that's great. I just had another question just on the comprehensive work platform, just the end-to-end platform that you're launching, like what are the capabilities that you really need to launch to enable this end-to-end service? Micha Kaufman: Sorry for skipping this. So on the product front, we talked about investing in an end-to-end fulfilling layer, which we think is key to identifying and increasing the value of Fiverr as an active partner in ensuring that the customers and the talent is engaging efficiently, and if there's anything in the process that we need to identify to course correct, we're there. This is really important because as you go to more bespoke, more complex types of projects, being there and being a part of that transaction and making sure that you understand the scope, you understand the progress, you can create transparency. You identify early on if things are on track or are deviating from track is super important. And this is a whole new layer that we are creating, and it's important as we think about changing the perception of Fiverr as a high-end solution for high-end scope and talent. And as we -- I can talk about those core pillars. I just don't want to reiterate the -- my opening comments, but it's all about the matching and the brain behind things. It's about the product itself. It's about the go-to-market and how we entertain, how we engage with customers, and it's all about this idea of operational excellence where we're creating this extremely high execution capability, which we want to also provide for our customers. The learnings that we have as a team on how to be more efficient, where do you need to have a human-in-the-loop and where can Fiverr help with both providing you with the right tech, but also with the human-in-the-loop is critical. And all of these learnings are transforming from our internal execution into the tools that we are and we will provide for our customers and for talent. Operator: We have a last question from the line of Josh Chan from UBS. Joshua Chan: I guess with your move upmarket, what's the profile of the customer that you're ultimately targeting? You mentioned projects above $1,000, so is that the benchmark of what you're targeting? And then secondly, on free cash flow, could you talk about whether the Q1 level of free cash flow is roughly sustainable for the rest of the year and then your willingness to more aggressively buy back the stock at these levels? Micha Kaufman: So in terms of focus, it's still largely focused on SMBs, probably larger than the micro businesses, but still SMBs. There's a lot of untapped demand, both into larger customers and larger use cases. If every business and definitely midsized businesses and up are building their own new tech stack that includes agents, APIs, MCPs, all of these use cases require a tremendous amount of validation to check accuracy, integrity, compliance, security, all these things require the mix of both technology and human-in-the-loop to continue calibrating, validating, in some cases, building, fixing. Those are areas that Fiverr is a perfect fit. And so we'll see those -- more of these use cases as we continue exploring this. But largely speaking, it's SMBs. And the projects of $1,000 and more is a proxy, it's a way to identify the spend capacity and willingness on digital services, and so that has provided us with a good point. Now it's $1,000 and above, and within our marketplace, we have everything in ranges of hundreds to tens and sometimes hundreds of thousands of dollars on transactions. But that's kind of a reference point to help us identify the seriousness and willingness to invest in your business. Esti Dadon: As for cash flow, we generated $21 million free cash flow in Q1, and we plan to continue to generate strong cash flow and to be consistent and disciplined on capital allocation. Obviously, our capital allocation priorities remain the same. First and foremost, we are investing in the business, and we will continue to invest in the transformation and generating cash flow. Now as for buyback, we have authorization of $59.5 million, and we will use it and act on that thoughtfully over time. Operator: This concludes our question-and-answer session. I would like to turn the conference back to the management for any closing remarks. Micha Kaufman: Thank you, Marin, for moderating the call today. And for everyone joining, wishing you a great day and looking forward to speaking soon. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to the Amarin Corporation's First Quarter 2026 Results Conference Call. [Operator Instructions] And please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Devin Sullivan. Sir, you may begin. Devin Sullivan: Thank you for your time and attention this morning as we discuss Amarin's 2026 first quarter financial results. On the call today are Aaron Berg, President and Chief Executive Officer; and Pete Fishman, Chief Financial Officer. Other members of the senior management team will be available as needed during the Q&A session that will follow these prepared comments. Turning to today's agenda. Aaron will provide a state of the company, and Pete will walk through the numbers. Before we begin, I'd like to remind everyone that today's press release and related quarterly report on Form 10-Q are available on the Investor Relations section of the company's website, www.amarincorp.com, as will a replay of this call shortly after its completion. Please be aware that during this call, we may make certain statements related to our business that are deemed forward-looking statements under federal securities laws. These statements are not guarantees of future performance, but rather are subject to a variety of risks and uncertainties. Our actual results could differ materially from expectations reflected in any forward-looking statements. Additionally, we assume no obligation to update these statements as circumstances change. For a discussion of the material risks and important factors that could affect our actual results, please refer to our SEC filings, which are available either on our company website or the Securities and Exchange Commission's EDGAR system. With that said, I'd now like to turn the call over to Amarin's President and CEO, Aaron Berg. Aaron, please go ahead. Aaron Berg: Thanks, Devin, and thank you all for joining us today. The momentum that started to build in late 2025 continued in the first quarter of 2026. Our results and cash generation in the quarter demonstrate our progress in advancing our new business model and expanding the global market for VASCEPA through our new and more efficient operating platform. We've substantially completed our previously announced global restructuring, and we remain on track to achieve the estimated $70 million in total operating expense savings by June 30, 2026. Our financial position continued to improve. Our cash balance of $308 million rose from year-end 2025. We reported a second consecutive quarter of positive cash flow and ended the quarter with no debt. 2026 will be the first full year in which we've employed our new and more efficient operating model comprised of 2 distinct but complementary businesses, a well-established and durable commercial business in the U.S. that continues to generate meaningful revenue and cash flow and a fully partnered commercial strategy for all other markets. I'll now provide some high-level commentary on each business. Our growth engine is comprised of a fully partnered international commercial strategy that's anchored by our exclusive license and supply agreement with Recordati. This relationship is focused in Europe, where we have IP protection through 2039 and covers 59 countries. European revenue in Q1 2026 rose significantly from Q4 2025, reflecting the promise of this partnership. As of March 31, 2026, Recordati had commenced sales of VAZKEPA in 10 countries, including a Q4 2025 launch in Italy. Overall, commercial momentum in Europe continues to build, driven by growth in in-market demand in key launch markets. We remain encouraged by these early performance trends. Lipid management in Europe is an increasingly important area of focus given the combination of aging populations, significant unmet need, evolving treatment standards and attractive long-term market potential. The potential for VAZKEPA to address the significant unmet need in cardiovascular disease beyond LDL lowering is similar to what we saw in the U.S. when we launched VASCEPA for cardiovascular risk reduction based on the strength of the REDUCE-IT trial. Recordati recognizes this as well and has prioritized the rollout of VAZKEPA in its active markets and those targeted for commercialization. We're also seeing continued growth in the rest of the world outside of Europe with our additional international partners, in China, Australia, Canada and the Middle East. Also, as we discussed on our fourth quarter call, we're preparing for early 2027 launches in South Korea and Singapore, are monitoring regulatory reviews of previously submitted applications in Thailand and the Philippines. And following the submission of Vietnam in Q1 2026, we're on track to submit a new filing in Malaysia in Q2 2026. Our U.S. team continues to operate the core business, which serves as a cash-generating base. As we've stated, while our U.S. franchise continues to see revenue declines due to the pressures of generic competition, VASCEPA remains the clear U.S. market leader across all available icosapent ethyl products more than 5 years after the introduction of a generic product. The overall IPE market based on third-party data rose by 3% in Q1 2026 compared to Q1 2025. Our share of the market rose to 48% at March 31, 2026, up from 42% in the same period last year. Most impressive is that VASCEPA branded prescriptions rose by 17% in Q1 2026 versus Q1 2025. The steps we've taken to rightsize our U.S. operations continue to allow our U.S. franchise to deliver efficient and profitable revenue. To that end, we expect to maintain our exclusives with key payers through the end of 2026, while also retaining coverage in our nonexclusive accounts. This remarkable achievement is a testament to the hard work of our team members, the reputation of our brand and the growing library of supporting scientific evidence that validates VASCEPA's ability to reduce cardiovascular events by 25% when added to a stat. In summary, both of our businesses are performing well. I ended last quarter's call by emphasizing the progress we've achieved to date and the important work that remains ahead. That message has not changed. What has changed is the building momentum behind our execution and the tangible progress we've delivered. We intend to continue to advance our organic growth initiatives and execute with a high level of financial and operational discipline. Additionally, we continue to collaborate closely with our exclusive adviser, Barclays, and exploring additional potential pathways to further enhance shareholder value. Now let me talk about some additional VASCEPA developments. In late 2025 and early 2026, we highlighted new post-hoc analysis from the REDUCE-IT study of statin-treated patients with elevated triglycerides and known cardiovascular disease or with diabetes and other risk factors. In these analyses, treatment with VASCEPA on top of statin therapy significantly lowered cardiovascular risk across a diverse range of patient subgroups in the REDUCE-IT study, including in patients with cardiovascular kidney metabolic or CKM syndrome, in patients with common risk factors like hypertension, diabetes, smoking and hypercholesterolemia as well as in patients at extreme or very high risk for cardiovascular events. Another analysis of REDUCE-IT showed that patients treated with VASCEPA on top of statin therapy experienced fewer total hospitalizations and fewer days lost due to hospitalizations and death during the study, providing additional insights on the effects of VASCEPA on patient-centered measures of total disease burden. Everything we do as a company is guided by our commitment to reduce cardiovascular disease as the leading cause of death. We're encouraged to see increasing momentum around the importance of addressing the numerous risks associated with elevated triglycerides, driven by the growing body of clinical evidence linking elevated levels to cardiovascular risk, independent of LDL and by evolving guidelines that formally integrate triglyceride treatments into cardiovascular risk assessment and treatment pathways. In March of this year, the American College of Cardiology, the American Heart Association and 9 other leading U.S. medical associations jointly issued an updated 2026 guideline for the management of lipids, including cholesterol and triglycerides. This updated guideline includes new recommendations based on high-quality evidence from major randomized controlled clinical trials that have been completed and published since the prior 2018 guideline, including our REDUCE-IT cardiovascular outcome study in VASCEPA. Within this updated ACC/AHA clinical treatment guideline, icosapent ethyl is positioned as the only primary triglyceride-lowering medication that reduces cardiovascular event risk in combination with statin therapy in individuals at high risk of cardiovascular disease with moderate triglyceride elevations after achieving sufficient LDL lowering. This reinforces that patients on statin therapy can continue to experience residual cardiovascular risk driven by elevated triglyceride levels and underscores the need for complementary therapeutic approaches beyond LDL-lowering therapy alone in these patients. Importantly, the guideline distinguishes therapies intended for pancreatitis prevention from those proven to reduce atherosclerotic cardiovascular disease events, reinforcing that cardiovascular outcomes, not biomarker changes alone must be the focus of and guide treatment decisions. For patients who remain at elevated cardiovascular risk despite optimized LDL therapy, the guideline supports the addition of evidence-based therapies specifically proven to reduce cardiovascular events such as icosapent ethyl. This position is consistent with guidance from other cardiovascular societies, including the 2025 ESC EAS dyslipidemias guideline focused update, which states that high-dose icosapent ethyl as in the REDUCE-IT trial should be considered for high-risk or very high-risk patients with elevated triglyceride levels despite statin therapy to lower cardiovascular events. Together, these guideline updates reflect growing global consensus around the importance of addressing residual cardiovascular risk beyond LDL lowering alone. Against this backdrop, and as we've highlighted previously, the introduction of promising new therapies is also elevating awareness of triglyceride-associated risk, catalyzing doctor-patient conversations, changes in behavior and in some cases, prescribed therapies. As a result, we believe VASCEPA is well positioned to benefit from the continued evolution of the lipid management landscape, specifically as it relates to the increasing attention on risks and unmet needs in patients with elevated triglycerides. I want to take a moment to explain why these developments may very well benefit sales of VASCEPA by strengthening its inclusion in the treatment flow from physician to formulary to patient. More than 500 peer-reviewed publications validate the science behind VASCEPA, including its ability to reduce major adverse cardiovascular events across diverse patient populations, and this groundbreaking therapy has been prescribed more than 30 million times by over 250,000 health care professionals. For new patients, treatment often begins with an established lower-cost therapy that has proven effectiveness with newly approved premium-priced, sometimes injectable therapies typically reserved for patients who need additional options or fail initial treatment. Coverage approval can reinforce this sequence through step edits requiring documentation that the preferred therapy was tried first before a costly alternative is authorized. VASCEPA taken orally is widely available, well established and supported by a clinically proven efficacy and safety profile. While the treatment landscape continues to evolve, our view remains straightforward. Therapies that are accessible today and backed by strong evidence should not be overlooked simply because newer options are gaining attention. Again, we applaud these new discoveries that may over time add to the array of options available to address this widespread health concern in patients at risk. I ended last quarter's call by emphasizing the progress we've achieved to date and the important work that remains ahead. That message has not changed. What has changed is the building momentum behind our execution and the tangible progress we've delivered. We intend to continue to advance our growth initiatives and execute with a high level of financial and operational discipline. With that, I'll now turn the call over to Pete to take us through the numbers. Peter Fishman: Thanks, Aaron. Our results for the first quarter of 2026 reflected the continuing traction of our new business model and our global restructuring plan. Given the adoption of our new agreement with Recordati, I will, in some cases, also compare consecutive quarterly results, Q4 2025 to Q1 2026 to highlight recent progress. Total net revenue in Q1 2026 rose to $45.1 million from $42 million in last year's first quarter. By geography, U.S. was consistent with Q1 2025. While volume was higher due to regaining exclusive status with a PBM beginning in Q3 2025, this was offset by pricing based on annual changes for payers. First quarter product revenue in Europe was $4.9 million under our new partnered model as compared to $5.4 million in the first quarter of 2025 under our previous sales model. Notably, Q1 2026 revenue was generated at a significantly lower cost with improved operating margins when compared to first quarter of 2025. On a consecutive quarterly basis, Q1 2026 European revenue more than doubled, up 113% from Q4 2025 revenue of $2.3 million. European product revenue in the first quarter included $3 million of supply shipments to Recordati compared to $900,000 of such shipments in Q4 2025, reflecting initial stocking from the transition of our international commercial activities. With the transition now complete, going forward, Europe product revenue will come entirely from supply shipments to Recordati. Rest of World revenue in Q1 2026 was $2.8 million, whereas there were no supply shipments to our other partners in Q1 2025. As a reminder, our partnered model will result in revenue variability quarter-to-quarter, driven by the current scale of operations as well as the impact of launch timing, end market demand and the structure of individual partnership agreements. Cost of goods sold rose by $10.5 million or 62%, reflecting increased product volumes associated with regaining an exclusive PBM relationship in the U.S. and the effect of shipments to our rest of world commercial partners, both of which did not exist in last year's first quarter. Looking ahead, on a comparative quarterly basis, we expect our cost of goods sold to continue to be higher until Q3 2026, the anniversary of regaining this exclusive relationship. Our expense profile continues to reflect the success of global restructuring we commenced in mid-2025. In the first quarter, total operating expenses declined by 31% or $12.8 million to $29.1 million. Excluding the restructuring charge of $3.3 million, total operating expenses of $25.8 million declined by 38% from last year's first quarter. Q1 2026 operating expenses were relatively stable compared to Q4 2025 of $25.4 million. SG&A declined by 42% and represented 47% of total net sales compared to 87% of total net sales in last year's first quarter. R&D expenses were in line with our ongoing commitment to global regulatory support and to the science underlying our global branded product. As noted above, restructuring expenses were $3.3 million, down from $4.1 million in Q4 2025, bringing our total restructuring expense to $39.6 million. We incurred the majority of these restructuring expenses through March 31, 2026, with the remaining nominal expense to be recognized in Q2 2026. Our operating loss in the first quarter narrowed to $11.3 million from an operating loss of $16.8 million in last year's first quarter. Excluding restructuring charges, operating loss in Q1 2026 was $8 million. I also want to point out that despite the increase in cost of goods for the quarter, we were still able to drive down our total OpEx by 31% and excluding restructuring costs, cut our operating loss by more than 32%. I'll emphasize that it is early, but the Europe partnership model we adopted in 2025 is working. Turning to the balance sheet. We ended the quarter with cash and investments of $308 million, up from $303 million at year-end 2025, no debt and working capital of $450 million. We generated positive cash flow from operations of $6.4 million in the first quarter, the second consecutive quarter of positive cash flow. I would like to reiterate that we expect to generate positive cash flow for 2026. The business continues to evolve and improve, driven by key achievements realized over the past year. Under our new operating model, we rightsized the company to support both our U.S. business and our global partners in generating long-term international sales growth with an expense profile that is significantly lower than in prior years, reflecting the approximately $70 million in annualized savings to be achieved by the end of Q2 2026. Thank you again, and I now ask the operator to open the call to questions. Operator: [Operator Instructions] Our first question is coming from Jessica Fye with JPMorgan. Jessica Fye: I was hoping you could talk about the right way to think about the trend in U.S. net price over the remainder of the year. And then also related to the expectation for positive cash flow in 2026, can you talk about the degree to which you see that as sustainable beyond '26? Aaron Berg: Sure. Good morning, and thanks for joining us this morning. Pete, why don't you cover both the questions, the net price and cash flow beyond '26. I know we have confidence going forward and touch on those. Peter Fishman: Right. Thanks, Aaron, and thanks for the question. For the U.S. NSP, as you've seen in past years, the bulk of our year-over-year change occurs in Q1. And as we look forward to the rest of the year, we'd expect the NSP volumes to be relatively consistent. As we've said in the past, this is driven by our exclusive contracts. We expect to keep them through the rest of 2026. However, if there are changes, that would have an impact there. For the cash flow expectations beyond 2026, we are confident that as we've turned into a cash flow positive position that, that will continue into the future. But that -- again, that is driven by how we retain those exclusive contracts. But we feel confident that we will continue this trend going forward. Jessica Fye: Great. And can I ask just a couple of follow-ups on the expense side, and I appreciate the commentary you gave on the COGS trend. So I guess maybe the other side of that is just like the gross margin percentage over the remainder of the year that be kind of stable? Is that going to be a little lumpy depending on supply shipments, is that a good way to think about that? And then on SG&A, sort of if we exclude the restructuring charges, is that a good run rate from here? And I know you mentioned restructuring expense would be kind of nominal in 2Q. Does nominal mean a similar size to 1Q or is that something different? Aaron Berg: Yes. So starting on the COGS, as mentioned, a piece of that is the -- regaining that exclusive. So as you look into Q2, that will have an impact on the comparative for our COGS amount. And you're right on overall COGS and gross margin. It will be in part dependent on the supply shipments to our partners. As you know, in that partnership model, it does have a different margin point than the U.S. business and will have an impact in that. And you saw that again in this quarter as we had greater supply shipments compared to Q1 of 2025 and saw that lower margin percentage compared to that comparative year. On the SG&A side, excluding the restructuring, yes, this is a good way to look at that ongoing run rate. We'll continue to have the remainder savings as we've talked about in the past, but this is a good way to look at that run rate going forward. And finally, as far as the restructuring, you should look at that as a pretty nominal amount compared to past quarters and would not be at the same levels that you saw in the Q1 of the $3 million. It will be lower than that. Operator: Our next question is coming from Paul Choi with Goldman Sachs. Kyuwon Choi: I know it's early days since the most recent guidelines were issued. But Aaron, can you maybe just comment on physician feedback and any change in thought processes with regard to utilizing VASCEPA in light of the guideline changes? And then I have a follow-up as well. Aaron Berg: Sure. So the guidelines, and it's also combined with news we've had over the last -- really over the last year, which saw -- the fibrate change. As you'll recall, we've spoken about, Paul, previously, where the label change and the emphasis on the fact that fibrates do not provide cardiovascular risk reduction yet. They're widely used in combination with statin for cardiovascular risk reduction. So that's one thing. That was also noted in the guidelines. And then this increasing focus around triglycerides, patients with elevated triglycerides and the risks of those patients. And as you know, there's a significantly increasing focus, and that also is noted in the guidelines. So qualitatively, what we're seeing from all of this and what we're hearing is very positive. Right now, it's qualitative. It will take time as these guidelines do and as news does for it to actually impact growth. And there are a number of dynamics that are related to all of these that are impacting growth, in particular, also, as we've noted previously, now with some of these newer triglyceride-lowering agents, these very good agents for FCS and severely high triglycerides, a lot of the payers are stepping them through existing triglyceride-lowering drugs, proven effective approved drugs like VASCEPA. So that will also wind at our back a little bit. So it will take time for all these to play out. Hard to quantify exactly what it will be, but it's all very timely. It's all happening at once, and it's very positive. I've got Steve Ketchum here with me as well. And Steve can speak to the guidelines and what the scientific community is saying about the impact as well. Steven Ketchum: Yes. Thanks, Aaron. Yes, we do see, Paul, these updated guidelines, both in the U.S. from the American College of Cardiology, American Heart Association, that were issued in March 2026. And of course, they're also consistent with the European equivalents that were issued last August. And although our REDUCE-IT results have been published back in 2018, 2019 time frame, that's when the prior version of this guideline, this dyslipidemia guideline was released, and it had not yet incorporated the REDUCE-IT results in other landmark cardiovascular outcomes trials such as those that showed that fibrates did not add any benefit on top of statin therapy. So we see these, as Aaron mentioned, as important, timely and major updates that position icosapent ethyl as an important consideration for patients with elevated triglycerides and that cardiovascular risk. So we see it as an exciting development. Aaron Berg: [indiscernible] Kyuwon Choi: Yes. My follow-up is, as you transition to consistent cash flow profitability over the coming quarters, just with the stock price where it is, can you maybe just provide your -- maybe your high-level thoughts or maybe the Board's thoughts on -- in the future, returning some of this cash to shareholders as it starts to accumulate either in one form or another possibly? Aaron Berg: Sure. That's a topic we talk about on a regular basis. As we've mentioned previously, we have -- we've been working with Barclays as our exclusive adviser and looking at strategic opportunities to capitalize on the value of the company. We feel like we've put the company on very sure footing, cash flow positive moving forward and sitting on that cash. But clearly, there are some things we can do to extract value. What shape or form that is yet to be determined because we're not in any type of desperate situation. We are being opportunistic, and we're focused on value for shareholders. In that context, cash -- buyback, cash back to shareholders, of some sort is a concept that is being discussed and could possibly happen at the right time. But we're thinking more holistically, strategically about the total value of the company. And when we have something tangible to report, we'll certainly do so. Operator: Our next question is coming from Michael Ahn with Leerink Partners. Byunghyun Ahn: This is Michael on for Roanna Ruiz at Leerink Partners. I have two questions today. The first one is, do you have any update on your strategy around launching an authorized generic and what would trigger that decision? And the second question is, what's the underlying growth demand in the rest of the world market? And are there any milestone payments from rest of the world market that you're expecting in 2026? Aaron Berg: Michael, so regarding the authorized generic, we've been -- we've done very well maintaining our branded business profitably in the U.S. We're incredibly efficient, maintaining the lion's share of the IPE category, and we're doing so with the strategy that we implemented a number of years ago, which is focusing on payers and the exclusives. That's proven to be very beneficial. And given that we've been able to maintain the exclusives and we believe we're maintaining those exclusives at least through 2026, then we don't believe that it's in our best interest to launch an authorized generic at this time, even though we're ready to do so when the opportunity arises. Once we find we can't compete any longer with this strategy, then that would be the opportunity to launch an authorized generic. But we've said this over the last couple of years, and being prepared to do so, but the strategy has paid off. We've been very patient. We haven't overreacted to the market, and that's turned out to be a very wise approach given how our financial results are and the revenue we're generating in the U.S. by investing very little in the U.S. So that's where we are with the AG. Once we feel the market dynamics turn, then we'll certainly do so. We see that as an opportunity to generate revenue, generate cash into perpetuity, frankly, as long as there's an IPE category and we have an authorized generic that can be distributed. Regarding growth in rest of the world and milestone payments, I'll let Pete address what's going on there and tied to into those partnership agreements. Peter Fishman: Thanks, Aaron. We have been pleased with the end market demand growth within each of the regions and our partners. We have seen that consistent growth throughout. It is early stages in most of these markets. So we'll continue to monitor that, and we have been working very closely with each of our partners to support them in that growth. As far as the milestone payments go, we haven't been providing specific guidance around those growth. And there are milestones, as we've talked about with Recordati, for example, based off of in-market sales for them that will trigger milestones. But at this time, haven't been providing specific guidance on that outside of just that we've been pleased with what -- with each of our partners and what they've been able to accomplish to date. Aaron Berg: And we're at the early stages, too, right? I mean it's -- again, as you said, it's kind of the tale of two companies. The U.S. is at one end of the life cycle. But in so many of these other regions, we're just getting going. And we've got very good partners. They've made VASCEPA/VAZKEPA a priority. We're really fortunate to have these partners, and our job is simply to execute and support them, but we look forward to what they can do, and they're certainly committed. Operator: As we have no further questions in the queue at this time, this will conclude our question-and-answer session. And I would like to turn the call back over to Mr. Berg for any closing remarks. Aaron Berg: I'd just like to thank everyone for participating today. I hope that we've been able to communicate the progress that we've made and our confidence about Amarin moving forward. We look forward to keeping you updated about our progress. And again, thank you for the continued interest in Amarin. Have a good day. Operator: Thank you. Ladies and gentlemen, this concludes today's call, and you may disconnect your lines at this time. And we thank you for your participation.
Operator: Good morning, and welcome to Quad's First Quarter 2026 Conference Call. [Operator Instructions] Please note this event is being recorded. I will now turn the conference over to Julie Fraundorf, Quad's Executive Director of Corporate Development and Investor Relations. Julie, please go ahead. Julie Fraundorf: Thank you, operator, and good morning, everyone. With me today are Joel Quadracci, Quad's Chairman and Chief Executive Officer; and Tony Staniak, Quad's Chief Financial Officer and Treasurer. Joel will lead today's call with a business update, and Tony will follow with a summary of Quad's first quarter financial results, followed by Q&A. I would like to remind everyone that this call is being webcast, and forward-looking statements are subject to safe harbor provisions as outlined in our quarterly news release and in today's slide presentation on Slide 2. Quad's financial results are prepared in accordance with generally accepted accounting principles. However, this presentation also contains non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted diluted earnings per share, free cash flow, net debt and net debt leverage ratio. We have included in the slide presentation reconciliations of these non-GAAP financial measures to GAAP financial measures. Finally, a replay of the call will be available on the Investors section of quad.com shortly after our call concludes today. I will now hand over the call to Joel. J. Joel Quadracci: Thank you, Julie, and good morning, everyone. I'll begin with key highlights shown on Slide 3. Our first quarter results were in line with our expectations, and we are on track to achieve our full year 2026 guidance. During the quarter, we maintained steady profitability and expanded margins compared to Q1 2025. Our strong balance sheet enabled us to return $7 million to shareholders, including $6 million in regular cash dividends and $1 million in share repurchases. We continue to make strategic investments in our expanded marketing solutions and are seeing strong momentum in our audience strategy services, which are powered by Quad's proprietary household-based data stack. Quad's MX offering shown on Slide 4 includes a suite of integrated solutions across creative, production and media supported by intelligence and technology and spanning both digital and physical channels. As we invest in our growing solutions portfolio, we are maintaining cost discipline while navigating dynamic macroeconomic challenges, including continued postage rate increases and cost pressures in our supply chain stemming from the ongoing conflict in the Middle East. In late Q1, oil and gas prices increased sharply, driving up distribution costs and raising input costs tied to petrochemicals used in certain manufacturing processes, most notably ink. In response, Quad implemented a temporary surcharge on ink. We are continuing to proactively manage the situation should volatility persist, including diversifying suppliers, optimizing inventory planning and taking targeted pricing actions where appropriate. Postage remains a significant macroeconomic challenge for many of our clients, representing the single largest marketing expense for our mailers and a key factor shaping marketing spend decisions. The USPS continues to rely on price increases as one of its primary levers to address its financial challenges. Earlier this month, the Postal Service announced the details of its next rate increase expected to take effect on July 12. We estimate this will result in an average postage increase of up to 10% for many of our Co-mail clients. In March, Postmaster General, David Steiner, testified before Congress stating that absent federal intervention, the USPS is expected to run out of cash in 2027. The Postmaster General attributes this in large part to the USPS' universal service obligation, which requires it to deliver mail 6 days a week to every address, a number that grows by more than 1 million delivery points each year. The Postmaster General emphasized that to continue executing its universal service obligation, the USPS must either be federally compensated for the public service or provided the pricing and operational flexibility necessary to sustain it. It should be noted that since the Postmaster General's testimony before Congress, the USPS has been granted additional financial flexibility that will now provide it with liquidity beyond 2027. As this situation evolves, Quad's Postal Affairs team remains actively engaged with policymakers in Washington as well as the Postal Service, advocating on behalf of our clients and the broader mailing ecosystem. To help mitigate ongoing rate increases, we continue to deploy the same 2-pronged approaches we have had for decades, focused on maximizing postal cost savings while improving response rates. Small reductions in the cost of postage can translate into substantial savings when applied across millions of pieces, and this is where Quad continues to deliver measurable value for our clients. As shown on Slide 5, our postal optimization solutions work together to reduce clients' mailing costs. This example demonstrates how a layered optimization approach led to significant savings for our client across 1 week of mailings. To start, the client reduced its overall postage cost by 20% by participating in Quad's main optimization program of Co-mail. The client realized an additional 3% savings per piece in high-density delivery areas by utilizing advanced Co-mail sortation capabilities. We help the client capture further savings through our Household Fusion program, which combines multiple publications or catalogs into a single mail piece where eligible. In parallel, our postal experts help the client qualify for USPS promotions, lowering its cost even further. Taken together, these solutions cut the client's postage costs by 27%. This is a notable savings considering postage accounts for up to 70% of the cost to manufacture and deliver print mail pieces. It is also important to note that savings generally increase as the size of our weekly Co-mail pool grows. Today, there is still a fair amount of clients who do not optimize their mailings in our programs. As more clients adopt our postal optimization programs, we expect to generate higher savings for all participants. We also continue to invest in innovation -- innovative solutions that improve the efficiency and effectiveness of direct mail, including At-Home Direct, our self-service direct mail automation platform. Launched last year, the platform enables personalized mail with timely, scalable delivery, greater speed and operational simplicity. It also enables trigger-based mail informed by online consumer interactions or special life events to drive consumers further along the purchasing journeys. On Slide 6, we show an example of how Fidium, a rapidly growing fiber Internet provider, is using the platform to streamline workflows and get into market faster, consolidating multiple segmented direct mailings into a single weekly execution. With At-Home Connect, Fidium reduced its mail cycle from 2 weeks to just 5 days, eliminating approximately 45 labor hours per month and reduced direct mail production costs by 33%. As one Fidium executive said, switching to At-Home Connect has been a game changer for our direct mail program. It saves us time and reduces print and postage costs without sacrificing volume. Overall, it's been a seamless and highly effective solution. Beyond driving operational efficiencies, we are always working to identify and invest in solutions that improve marketing effectiveness and generate stronger response rates for our clients. Slide 7 highlights our work with Monogram, a Boston-based financial services firm as it scaled its new private student loan product, Abe. Monogram needed a partner to help increase booked loans while establishing credibility in a competitive, mature market. Quad partnered with the client from strategy through execution, leveraging our team's industry insights and experience to develop the brand's first-ever direct mail effort. The program launched during the peak lending season, running 6 campaigns from late April through September 2025. The strategy used Quad's proprietary household-based data stack to identify high potential borrowers and cosigners. Campaigns incorporated premarket testing, audience modeling, creative optimization and response analysis with insights continuously applied to improve performance over time. The program delivered strong results. Abe achieved its 2025 growth objectives with booked loans increasing sixfold year-over-year while maintaining its target cost per application. This example reflects the value of our integrated approach, which combines data, strategy, creative and execution. The program also earned industry recognition with Quad receiving a Financial Services Strategy award in the personal finance category from the Gramercy Institute, the world's largest network for senior marketers from leading financial institutions. As an industry thought leader, Quad partners with some of the nation's most respected researchers to better understand emerging market trends. As shown on Slide 8, we have continued our partnership with the Harris Poll, one of the longest-running survey firms in the U.S., releasing findings from a new national study that examined how AI is shaping the consumer shopping experience. The studies show shoppers are primarily turning to AI for practical reasons. When we ask why AI appeals to them, 2 in 3 shoppers said they like how the technology can spot pricing inconsistencies and 3 in 5 said it helps them stay on budget and narrow choices more quickly. Findings also underscore that AI complements physical shopping experiences versus replacing them with a majority of Gen Z and millennials saying they use AI in store for real-time help. As AI continues to influence how consumers discover, evaluate, engage with brands, Quad is helping clients adapt. For example, AI-based search has significantly disrupted traditional paid search and search engine optimization marketing strategies. In response, Rise has developed a proprietary AI referral agent reporting system that enables clients to track, measure and optimize performance across large language models. By monitoring metrics like AI citation rate, depth and engagement quality, the system helps clients understand if AI LLMs are surfacing their brand content, whether those appearances are driving site traffic and which platforms are delivering the strongest results, allowing them to continuously refine their strategy and improve market effectiveness. Before I turn the call over to Tony, I would like to recognize our employees and thank them. Their hard work and commitment to urgently innovate is helping solve our clients' most complex marketing problems, drive Quad's diversified business and advance our long-term strategic goals. With that, I'll turn the call over to Tony. Anthony Staniak: Thanks, Joel, and good morning, everyone. On Slide 9, we show our diverse revenue mix. During the first quarter of 2026, net sales were $581 million, a decrease of 4.3% compared to the first quarter of 2025 when excluding the February 28, 2025, divestiture of our European operations. The decline in net sales was primarily due to lower print volumes and lower agency solutions sales. Our agency solutions sales were impacted by a pullback in spend from certain existing clients and our ongoing evolution from project-based work toward agency of record engagements. Comparing our net sales breakdown between first quarter 2025 and 2026, our revenue mix as a percentage of total net sales increased in our targeted print offerings of direct mail, packaging and in-store and also in our logistics business due to increased volume and additional list services provided through our enhanced Co-mail operations. These increases were offset by declines in the print product lines of magazines and catalogs and also agency solutions. Slide 10 provides a snapshot of our first quarter 2026 financial results. Adjusted EBITDA was $45 million in the first quarter of 2026 as compared to $46 million in the first quarter of 2025, and adjusted EBITDA margin increased from 7.2% to 7.7%. The increase in adjusted EBITDA margin was primarily due to cost realignment actions taken due to print volume declines and benefits from improved manufacturing productivity. Adjusted diluted earnings per share was $0.25 in the first quarter of 2026 as compared to $0.20 in the first quarter of 2025, an increase of 25%. The increase was primarily due to higher net earnings, including lower interest expense due to reduced debt and lower depreciation and amortization as well as the beneficial impact of a lower share count. Beginning in 2022, we have repurchased 7.6 million Quad shares at an average price of $4.16 per share, representing approximately 13.6% of our total outstanding common stock as of that time. This includes 167,000 shares repurchased year-to-date for approximately $1 million. Quad's Board of Directors authorized a share repurchase program of up to $100 million of our outstanding Class A common stock in 2018. As of March 31, 2026, there were $68.4 million of authorized repurchases remaining under the program. Free cash flow was negative $107 million in the first quarter of 2026 as compared to negative $100 million in the first quarter of 2025. The $7 million decline in free cash flow was primarily due to a $5 million increase in net cash used in operating activities, mainly from higher inventories and a $2 million increase in capital expenditures. We show the seasonality of our free cash flow and debt leverage on Slide 11. We typically generate negative free cash flow in the first 9 months of the year, followed by large positive free cash flow in the fourth quarter with higher collections after our production peak. In 2026, we anticipate a similar pattern for our free cash flow and debt leverage. When removing the impact of seasonality, our net debt has reduced by $36 million from March 31, 2025, to March 31, 2026. As previously reported, we completed the divestiture of our European operations to Capmont in February 2025. The total sales price included a 3-year note receivable. As of March 31, 2026, we did not receive payment of principal and interest for the first annual installment of the note receivable totaling $6 million, which was due to be paid to us on February 28, 2026. As a result, our net debt balance as of March 31, 2026, was $6 million higher than we expected. We are working with Capmont on this past-due payment. Slide 12 presents our balanced capital allocation strategy, which is fueled by our free cash flow in addition to our ability to generate proceeds from asset sales. We expect to generate future cash proceeds from buildings we currently have for sale in Waukee, Iowa, and Thomaston, Georgia. With this strong cash generation, we intend to continue to increase our growth investments as a marketing experience company, maintain low debt balances and return capital to shareholders through our quarterly dividend and share repurchases. In the first quarter of this year, we increased our quarterly dividend by 33% to $0.10 per share or $0.40 per share on an annual basis. We are pleased to return capital to shareholders through the quarterly dividend and opportunistic share repurchases. Slide 13 includes a summary of our debt capital structure. At the end of the first quarter, our debt had a blended interest rate of 6.6% and our total available liquidity, including cash on hand under our most restrictive debt covenant was $177 million. Our next significant debt maturity of $205 million is not due until October of 2029. Given uncertainty regarding interest rates, we hold 4 interest rate swaps with notional value of $130 million and one interest rate collar agreement with notional value of $75 million. Including all interest rate derivatives, we have 49% of our interest rate exposure capped if interest rates rise. And with the interest rate collar, we would pay lower interest expense on approximately 68% of our debt if interest rates decline. We reaffirm our 2026 guidance as shown on Slide 14 and are pleased that our guidance represents another step on our way to our 2028 outlook for revenue growth. We continue to expect 2026 net sales to decline 1% to 5% compared to 2025, excluding $23 million of 2025 net sales from the divestiture of our European operations. The 3% sales decline at the midpoint of the guidance range reflects the continued ongoing improvement trend from a 5% net sales decrease from 2024 to 2025 and a 10% decrease from 2023 to 2024, excluding the European divestiture. Consistent with the seasonal pattern from last year, net sales in the second quarter are expected to be the lowest of the year, followed by sequentially increasing net sales in the third and fourth quarters during our seasonal production peak. Full year 2026 adjusted EBITDA is expected to be between $175 million and $215 million, with $195 million at the midpoint of that range being essentially equal with the 2025 adjusted EBITDA of $196 million. We anticipate lower adjusted EBITDA in the second quarter of 2026 compared to the first quarter, and then we expect sequentially higher adjusted EBITDA in the third and fourth quarters, consistent with the projected net sales seasonality. Our adjusted EBITDA margin is expected to increase by 30 basis points from 8.1% in 2025 to 8.4% in 2026 due to continued disciplined cost management and margin-enhancing changes in our revenue mix. We expect 2026 free cash flow to be in the range of $40 million to $60 million, with $50 million at the midpoint of that range, also essentially equal with the 2025 free cash flow of $51 million. We expect increased net cash from operating activities due to higher cash earnings and the timing of working capital despite an additional week of payroll payments for 53 Thursday paydays falling in the 2026 calendar year. We will have a year-over-year cash flow benefit as we return to 52 weekly payrolls in 2027 and the next time we will pay 53 payrolls in a calendar year will not occur until 2032. The projected higher net cash from operating activities is expected to be offset by higher capital expenditures, which are expected to be in the range of $55 million to $65 million. Over many years, we have invested in robotics and automation on the plant floor and across our postal optimization solutions to have what we believe is the most technology-advanced platform in the industry. We intend to continue investing in growth and automation, both in our print platform, such as digital presses and direct mail as well as in our service lines, including In-Store Connect by Quad. And finally, our net debt leverage ratio is expected to decrease to approximately 1.5x by the end of 2026, achieving the low end of our long-term targeted net debt leverage range of 1.5x to 2.0x. As a reminder, we may operate above this range at certain times of the year due to the seasonality of our business, investments or acquisitions. We are closely monitoring the current business climate, which continues to present uncertainty, driven by factors, including persistent inflationary pressures, evolving global trade dynamics, geopolitical tensions and cautious business spending. These factors, in addition to postal rate increases, could affect print and marketing spend. We will remain agile and adapt to the shifting environment. Slide 15 includes a summary of our 2028 financial outlook and long-term financial goals as we continue to build on our momentum as a marketing experience company. We continue to expect the rate of net sales decline to improve as it has since 2024 and then reach an inflection point of net sales growth in 2028. In addition, by 2028, we expect to improve adjusted EBITDA margin to 9.4% and are planning to achieve progress towards that goal in 2026 by improving the adjusted EBITDA margin by 30 basis points. Regarding free cash flow, we expect to improve our free cash flow conversion as a percentage of adjusted EBITDA from approximately 26% based on our 2026 guidance to 35% by 2028, primarily due to lower interest payments on decreasing debt balances and lower restructuring payments. Finally, we expect to maintain our current long-term targeted net debt leverage ratio in the range of 1.5x to 2.0x as part of our balanced capital allocation strategy. We believe that Quad is a compelling long-term investment, and we remain focused on achieving our financial goals and providing strong shareholder returns. With that, I'd like to turn the call back to our operator for questions. Operator: [Operator Instructions] The first question comes from Barton Crockett with Rosenblatt Securities. Barton Crockett: Let me see. One of the things, I guess, just to look a little bit kind of big picture for the moment. Could you talk a little bit about the degree to which you're seeing all of the macro pressures, including the war pressures and the inflation pressures that prompted you to put in the surcharge, and the return of kind of postage rate hikes. To what degree is that dampening demand from your marketing clients? Or to what degree are people kind of looking past that and continuing the pace? J. Joel Quadracci: Yes, I'd say so on the sort of the disruption of the supply chain, there's a lot of petroleum-based products that go into some of the things that we do, but primarily impacting ink, whether it's pigments or some of the underlying other components. And so that's why we put a surcharge on. It's a meaningful number in our pricing, but nothing close to like what postage does to our customers. And so we have a surcharge on that, that we will monitor the situation and ebb and flow as it goes forward. I will say that one of the other challenges in this is those components we compete with other industries on as well. So it's like they have choices on where to put those components. And so ink is just one of the areas that those components go in from a global perspective. Postage, as you know, has been sort of a cumulative effect of multiple years of double inflationary increases. And I would say that with this postal increase, and it depends who you are. It's anywhere from 3% to 10% increase for clients in July. I'd say that they generally expected in their budgeting process an increase somewhere in that range. And so I'd tell you that I don't expect like a big pullback through the end of the year. The question will be is how does that cumulative impact adjust their planning for 2027, and that's what we focus on now. So I think in general, we don't see people kind of adjusting plans significantly at this point because of postage. And like I said, we added this sort of waterfall slide for you all to kind of understand the impact of the different layers of Co-mail and optimization that we've built. One example I could tell you is we just had our postal conference a couple of weeks ago where all our clients come together, one very large customer really kind of didn't do a lot of optimization out of their own volume because they had significant volume. They were going to get hit by about a 10% increase, which was a bit of a surprise to them. But they ended up within days saying that they're going to join our optimization program to a bigger degree than they were, which is allowing them to suddenly come back down to more of the expected return that they're going to have or rate increase that they're going to have. So all in all, I'd say that it's -- as we said, we sort of are as expected for the year, don't see volumes at this point changing significantly from what we're expecting, but it's also a crazy world. Barton Crockett: Okay. All right. Now one of the things also is in your long-term outlook, aspiring to growth in 2028, when you guys at your Investor Day had talked about the road there, you talked about some growth areas bracketed largely within services becoming big enough to tip the kind of top line into positive and outweighing kind of the pressure in the products that are more secularly challenged. To what degree do the results that you're seeing in the first quarter and year-to-date, are they consistent with that kind of long-term aspiration you have to return to growth? Anthony Staniak: Yes, Barton, this is Tony. So yes, I would say in our services offerings, we still think that those are growth areas for us. We saw a decline in agency in the first quarter compared to last year. We view that more due to our change from project-based to agency of record engagements. So we expect growth in 2027 and beyond in agency. I also would remind that targeted print, direct mail, packaging, in-store, those are also expected for growth in our model. And we've seen that as a percentage of our revenue mix in Q1 and even dating back to last year, we've seen those areas continue to grow. So we believe we remain on track for the 2028 inflection point. J. Joel Quadracci: Yes, just to add to that, again, I always talk about the print tangible projects -- products as being really big invoices, really big engagements, whereas as you're up in the services side, smaller invoices more profitable. And they sort of impact each other by flowing revenue back and forth. But In-store, packaging, direct mail are all places we're going to grow that have those girthy things. The catalogs and publications is where we see a lot of the -- I'm sorry, in retail are where we see the bigger declines that we have to offset. Catalogs probably would have been a lot less so over the years if they're probably the most sensitive to these postal increases. So if we can kind of -- if the Postmaster General can kind of get control of this thing, I feel better about it. But again, we still have good girthy product lines here that we expect to grow and In-store was significantly up in the first quarter as an example. Barton Crockett: Okay. And one of the things that you had mentioned was the delayed payment from Capmont. Can you give us more detail of what's going on? Was there some inability on their part to pay? Or was there some performance benchmark that was not hit by the business you sold? I mean, can you give us some sense of what's going on there? Anthony Staniak: I'll start by, Barton, saying that we expect to be paid in full on the note receivable. We're actively working with Capmont to achieve that. There is no performance benchmark as it relates to the note receivable. It's very clear on being due at certain periods. And so we are fully anticipating to receive those payments. I wouldn't want to speculate beyond that. Barton Crockett: Okay. And then just the final thing here, just to step back again on the Postal Service. With Steiner beginning to -- his regime, we're beginning to see what they do, how they flex kind of the business versus DeJoy. Does this -- Joel, do you still have hopes that under Steiner, we're going to see a less aggressive rate hike regime over multiple years than we saw with DeJoy? Or is the jury still out on that? J. Joel Quadracci: Well, look, I think he's -- if you watch his testimony, it's a good hint. And I'd say that he's doing a very good job of simplifying the problem for Congress and trying to simplify it and get people more on the same page in general. What people forget is when you talk about the Post Office, it's a big organization. But if you talk about the postal system, which is the economy around the Post Office, it's a $2 trillion economy that uses the Post Office. And so there is significant impact to the economy about what happens with the Post Office and people forget that. And so what he's clarifying is, look, we have this mandate that started in 1971 that we have to deliver to every household 6 days a week. Every time it's been pushed to kind of pull back from some of those mandates, politically, it hasn't been able to happen. Now in 1971, as a little history, when they did this, Congress anticipated that there had to be some public sharing of cost to be able to create that ongoing delivery. And so they subsidized the Post Office by the tune of about $460 million a year that ultimately kind of went down into the '80s because they saw that the Post Office through its postage could start sustaining itself without that. They didn't anticipate the Internet. They didn't anticipate all this, but they did anticipate that there may be funding from time to time. So he's reminding them of that. And today, that equivalent would be somewhere in the neighborhood of about $10 billion to help support it. And I have always believed that at some point, the taxpayer has to step in because there's no business that can have their hands handcuffed to be able to do what they have to do and the infrastructure cost to do it in and pay it through your other users. And so I think he's got a lot of attention, and I think there is some momentum there to kind of look at it from the standpoint of what's good for America, what's good for the consumer. And again and again, the consumer has weighed in on wanting to have a Post Office. And you think about the things in that economy, the $2 trillion economy, things like getting your prescription drugs when you're in a rural area, that goes through the Post Office. And so I actually have a renewed optimism that if there's a time where maybe a Postmaster General like David Steiner as opposed to DeJoy, who is very good to work with, works well with Congress, can crystallize the problem and try and bring a realistic solution to it once and for all. And so I actually have a little bit of optimism, but that's also enhanced by the fact that our additional investments we've done in Co-mail with Enru and getting to high density, that waterfall of different opportunities we've created for the clients to offset these costs will help bridge until we figure out what way the Post Office is going to go. I don't think it's politically viable to let the Post Office fail. Operator: The next question comes from Mark Zgutowicz with Benchmark. Mark Zgutowicz: Just looking at your agency business, down 18% year-over-year and the underlying growth that we're seeing coming from Rise generally in that business. Just curious how you anticipate or when you anticipate a visible acceleration there. You've obviously got macro pressures, but curious, as you look at Rise and the initiatives that you talked a bit about there, how that may offset some of those pressures. And if we're looking at next year, first half versus second half in terms of realizing some of those growth benefits from Rise? J. Joel Quadracci: Yes. And I'd say in the quarter, we saw -- we did see some pullback from existing customers just with some of the macroeconomic types of things that are going on. We certainly are spending a lot of time continuing to enhance what Rise does. As a reminder to people, we really came from performance media to now full stack media. And one is a little bit more transactional, whereas the other has a longer sales cycle. And so part of this is the transition to that, that I feel good about ramping up as we get into -- towards the end of the year, but it's certainly into '27. Our expectations are to continue to ramp that part of the agency solutions side, but as well as ramping up the other parts of agency solutions, which is Betty creative, et cetera. But the question is a good question because, again, you're sort of switching from a little more transactional to more holistic and those cycles are longer. So that combined with some of the macroeconomic stuff and your regular -- some you win, some you lose, kind of explains where we are. Mark Zgutowicz: And then Tony, just one last one for me. Tony, in terms of the free cash flow range, obviously, you're reiterating that guidance. But just as we look at that range, $40 million to $60 million, it's obviously a wide one. Just if you could maybe talk about some of the puts and takes on that range, including perhaps CapEx trajectory there, which is up a couple of million dollars this quarter. But just some of the puts and takes there as you look at potentially coming in at that low end versus high end of that range. Anthony Staniak: Great. Mark, first I want to say welcome to the call and excited to have you covering the stock. So thanks for picking us up. And on the CapEx side, I mean, we've guided for the year to $55 million to $65 million, midpoint of $60 million. I mean we will spend that amount if we think there's opportunities that further enhance our growth and automation possibilities. But last year, as an example, we didn't spend the full CapEx range that we had as we looked at timing of investments and where we wanted to put our money. So it's possible that in puts and takes, that CapEx could be an area that causes that -- within that range to go towards either a higher or a lower end. The other 2 components that kind of walk us from adjusted EBITDA down to free cash flow, interest expense, we can predict that pretty well and restructuring. We think we've got a good hold on that for the year. I would say, consistent kind of from a cash payment standpoint from where it was last year. So CapEx and then ultimately where the adjusted EBITDA lands are the 2 biggest drivers that will flex us within the range. Operator: The next question comes from Kevin Steinke with Barrington Research Associates. Kevin Steinke: Just to maybe wrap up on the discussion about the Postal Service. You mentioned that the Postal Service had been granted additional flexibility that will keep it solvent. I know there had been some discussion about raising, I think, the debt limit for the Postal Service and also giving it the ability to actually be able to raise prices more. Just any more insight into the flexibility that they now have... J. Joel Quadracci: Yes. I mean, part of this, my belief is he's purposely trying to create a crisis because none of this is really that new. I mean everyone knows that the Post Office has been sliding and struggling. They're getting relief on some of the pension to create that liquidity. Their debt limit hasn't been raised in years. And so to most of us, it's like a logical ask to be able to raise it to something that's more realistic from where it is. So there's -- it's always been the problem that there's structural challenges with how the Post Office is set up. They do have a regulatory oversight group with the PRC that regulates how they can do pricing. His belief is he wants more flexibility in how to do pricing. Like he would probably tell you that a first-class stamp, are you really not going to use a first class -- buy a first-class stamp if it's $0.95 versus $0.85. And if you look at relative to the rest of the world, our stamp price is significantly lower. And if you look at Europe, most of the time, they're delivering these letters a couple of hundred miles for a significantly lower stamp price, you're delivering across an entire continent. So these are not new things, but it's how do you fix the structure so that it has a fighting chance. And the big one is the mandate. Look, it's like if everybody wants a gas line at their house in the United States, the United States government is going to make sure that we put the gas lines in, almost like a utility, right, it is a utility. For the Post Office, people believe that they deserve to have the Post Office coming every day. I think that there's been debate in the industry, could we do with less dates -- days of a week. I think most of the industry would say, yes. But every time you try and do that, the political nature of this where everybody in their own constituents start complaining that you're going to close my post office, it doesn't happen. And so his very frank comment to Congress is we can do this. We can deliver 6 days a week. We can increase the number of addresses we have to go to by $1 million. But if that's the case -- 1 million addresses, but if that's the case, you have to pay for it because the rest of the infrastructure, the rest of the users of the Post Office can't make it work. The only way that it will make the Post Office work is a short-term thing of raising the rates by more than inflation, which is what's been happening. That's a death spiral because it kills the hand that feeds you while not solving the problem of giving the taxpayer what they want. And so that's really the simplistic approach I think he's taking, and I'm supportive of it. Kevin Steinke: Great. That's helpful color. Just also following up on the temporary surcharge. It doesn't sound like it's that meaningful, but just can you give us a sense of just how much of your cost base that applies to? And is there any meaningful benefit to just your reported revenue from that temporary surcharge flowing through? Anthony Staniak: Yes. I don't think you should think of this as a material or significant benefit to revenue. From a bottom line standpoint, it is just an offset of the increase in costs. So it doesn't make us better or worse off. And as far as a percentage of our cost after the print and paper itself, the ink is a relatively lower component of the cost structure. So this is not a highly significant item. J. Joel Quadracci: The place where -- which we did talk about, I'll just mention is with diesel fuel being up significantly, obviously, our freight side is impacted by the significant increases in rates. But for years now, we've had a weekly surcharge that bounces around with diesel. And so we're not impacted from that from a freight standpoint, which is really important. So we almost -- it's like we already have that surcharge structure in place on a weekly basis on the diesel side, which would have been more impactful. Kevin Steinke: Okay. Understood. So just again, to circle back on the agency solutions, you mentioned a pullback from some existing clients. Do you expect that to pick back up again? Or have you had discussions with those clients about why they pulled back and again, when it might come back? Just any more color on, I guess, on that side. J. Joel Quadracci: I think, it kind of say it depends who you talk to and reasons for pullback are kind of in all various different places. But as I talk to people, I think one of the things that people believe will be one of those good things is just the tax returns that people are expecting refunds at a different level this year. So some of the industry will talk about that, that's a positive coming. But again, I think that you're just living in this time where you wake up and suddenly we're in a war, you're having this disruption in supply chain. These surcharges are coming across the board to pretty much all our customers from their products. And so I think it's just a matter of people trying to figure it out, and you're early in the season here, and that's when people kind of are sort of ebbing and flowing. What comes, again, I think that -- I don't feel that it's significantly disrupted to the point where we're going to see in our product lines a huge disruption. So there may have been some pullback in the agency side. But that didn't necessarily reflect a pullback in the higher revenue side of print. We didn't see people pulling back because of those issues. Kevin Steinke: Okay. Understood. That's helpful. You highlighted some momentum in audience strategy services and tying that to the data stack. Just, I guess, any more comment on that? And one of your best assets is that household-based data stack and maybe more commentary on how that continues to benefit you? J. Joel Quadracci: Yes. I'd say that it benefits us through other product lines mostly, which is like if you talk about direct mail, DM and the concept of the DM agency we have, what the DM agency heavily does is, yes, we set up direct mail for them. But more importantly, it's what's the audience you're going to. That's what the agency does. It's helped them at the beginning of how do you find a really good audience. And that's one of the biggest challenges in marketing today is getting audience, new audience, people who are confirmed recent transactors who fit your profile of the product you're selling. And so the data stack helps us with that to really sift through and find out who is the right audience for you in combination with other data sets. We think ours brings another level to it because of the nature of the household personalities we can see. And that's where it really starts and then it equates into, okay, if we use that audience and we do a direct mail piece for you, did it work better or not. And what we're seeing is we're enhancing the effectiveness of the print piece, and that's allowing us to win more of the big invoice products and allowing us to gain trust to be the adviser as its agency to people who are using some of our other product lines. Operator, anymore questions? Operator: No. This concludes the question-and-answer session. I would like to turn the conference back over to Joel Quadracci for any closing remarks. J. Joel Quadracci: Okay. Thanks, operator. Thank you, everyone, for joining today's call. I just want to close by reiterating that Quad remains committed to our strategic vision, leveraging our integrated marketing platform to drive diversified growth, improve print and marketing efficiencies and create meaningful value for all of our stakeholders. With that, thank you, and we'll see you next quarter. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Thank you.
Operator: Greetings, and welcome to the Chefs' Warehouse First Quarter 2026 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Alex Aldous, General Counsel, Corporate Secretary, and Chief Government Relations Officer. Please go ahead, sir. Alexandros Aldous: Thank you, operator. Good morning, everyone. With me on today's call are Chris Pappas, Founder, Chairman, and CEO; and Jim Leddy, our CFO. By now, you should have access to our first quarter 2026 earnings press release. It can also be found at www.chefswarehouse.com under the Investor Relations section. Throughout this conference call, we will be presenting non-GAAP financial measures, including, among others, historical and estimated EBITDA and adjusted EBITDA as well as historical adjusted net income, adjusted earnings per share, adjusted operating expenses, adjusted operating expenses as a percentage of net sales and as a percentage of gross profit, net debt, net debt leverage and free cash flow. These measures are not calculated in accordance with GAAP and may be calculated differently in similarly titled non-GAAP financial measures used by other companies. Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release and first quarter 2026 earnings presentation. Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements, including statements regarding our estimated financial performance. Such forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Some of these risks are mentioned in today's release. Others are discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q, which are available on the SEC website. Today, we are going to provide a business update and go over our first quarter results in detail. For a portion of our discussion this morning, we will refer to a few slides posted on the Chefs' Warehouse website under the Investor Relations section titled First Quarter 2026 Earnings Presentation. Please note that these slides are disclosed at this time for illustration purposes only. Then we will open up the call for questions. With that, I will turn the call over to Chris Pappas. Chris? Christopher Pappas: Thank you, Alex, and thank you all for joining our first quarter 2026 earnings call. First quarter 2026 business activity displayed typical seasonal cadence as revenue trends coming out of January increased steadily into February and March. Despite some volatility in business due to extreme weather events and the start of the conflict in the Middle East later in the quarter -- our team's exceptional execution and the strength of our North American business allowed us to continue to grow market share, delivering strong year-over-year growth in volume, product penetration, unique customer growth, revenue growth and profitability growth. Momentum continued into April, and we currently expect double-digit top line growth to start the second quarter. Regarding the current situation in the Middle East, our teams and operations in the region, the immediate focus has been the safety and security of our people. We have followed safety protocols instituted by governing bodies and are effectively navigating volatility in supply chains and customer demand. Our leadership and team members have done an amazing job managing both personally and professionally through the volatility and uncertainty and we hope for a resolution to the conflict soon. Jim will provide more color on the financial impact in a few moments. I would like to thank all of the Chefs' Warehouse from sales and operations to all the supporting functions for delivering a great start to 2026. Our regional leadership and their teams continue to execute our strategy to leverage our investments and train the next generation of sales and operational talent. They are accelerating our long-term plan as they grow deeper understanding of our customer base and become the ultimate specialty ingredient professionals, marrying technology with industry know-how to become trusted advisers to the best chefs in the world. With that, please refer to Slide 3 of the presentation. A few highlights from the first quarter include organic net sales grew 10.4%. Organic specialty sales were up 6.8% over the prior year, which was driven primarily by unique placement growth of 6.2%, specialty case growth of 5.7% and price inflation. Unique customers grew 1.9% year-over-year. Reported unique customer growth was impacted by the attrition related to our transition out of noncore customer business in Texas. We fully lapped this impact starting in the second quarter this year. Excluding this impact, first quarter year-over-year unique customer growth was approximately 4.3%. Pounds in center-of-the-plate were approximately 6.2% higher than the prior year first quarter. Gross profit margins increased approximately 53 basis points. Gross margin in the specialty category increased approximately 43 basis points as compared to the first quarter of 2025, while gross margin in the center-of-the-plate category increased approximately 110 basis points year-over-year. Jim will provide more detail on gross profit and margins in a few moments. For an update on certain of our operating metrics, including continued improvement in year-over-year gross profit per route and adjusted EBITDA per employee, please refer to the slide provided in the appendix of our first quarter 2026 earnings presentation. With that, I'll turn it over to Jim to discuss more detailed financial information for the quarter and an update on our liquidity. Jim? James Leddy: Thank you, Chris, and good morning, everyone. I'll now provide a comparison of our current quarter operating results versus the prior year quarter and provide an update on our balance sheet and liquidity. Please refer to Slide 4. Our net sales for the quarter ended March 27, 2026, increased approximately 11.4% to $1.059 billion from $950.7 million in the first quarter of 2025. The growth in net sales was a result of an increase in organic sales of approximately 10.4% as well as the contribution of sales from acquisitions, which added approximately 1% to sales growth for the quarter. Given the start of the conflict in Iran occurred in the last month of the first quarter, the impact to our first quarter aggregate year-over-year revenue growth was not material. We estimate it reduced overall organic growth by approximately 50 basis points. Prior to the start of the conflict, our Middle East business grew approximately 11% in January and February versus the prior year. While there remains variability in demand and customer buying patterns week-to-week, these past few weeks, our business located in the region has been operating at approximately 75% of prior year. The primary impact has come from low occupancy in hotels and resorts. Our operations in Qatar and Oman are performing much closer to plan than prior year as they are less reliant on tourism than Dubai and Abu Dhabi. As I just discussed, our North American operations, which represent over 90% of the Chefs' Warehouse continues to grow well above our guidance while generating operating leverage and compelling year-over-year adjusted EBITDA growth. As the situation in the Middle East currently remains uncertain, we have run multiple scenarios of performance and factored in a range of possibilities as it relates to our forward guidance. At this time, we are keeping our full year guidance unchanged with the potential for upward revision should the situation in the region normalize. Net inflation was 4.1% in the first quarter, consisting of 1.5% inflation in our specialty category and 8.2% inflation in our center-of-the-plate category versus the prior year quarter. Center-of-the-plate inflation when adjusted for the impact of the Texas attrition was approximately 4.5% versus the prior year quarter. Gross profit increased 13.9% to $257.4 million for the first quarter of 2026 versus $226 million for the first quarter of 2025. Gross profit margins increased approximately 53 basis points to 24.3%. Selling, general and administrative expenses increased approximately 10.5% to $224.1 million for the first quarter of 2026 from $202.8 million for the first quarter of 2025. The increase was primarily due to higher costs associated with compensation and benefits to support sales growth, higher depreciation driven by facility and fleet investments and higher self-insurance-related costs. Adjusted operating expenses increased 10.5% versus the prior year first quarter. And as a percentage of net sales, adjusted operating expenses were 18.6% for the first quarter of 2026. Operating income for the first quarter of 2026 was $33.1 million compared to $22.7 million for the first quarter of 2025. The increase in operating income was driven primarily by higher gross profit, partially offset by higher selling, general and administrative expenses. Our GAAP net income was $17.4 million or $0.40 per diluted share for the first quarter of 2026 compared to net income of $10.3 million or $0.25 per diluted share for the first quarter of 2025. On a non-GAAP basis, we had adjusted EBITDA of $60.1 million for the first quarter of 2026 compared to $47.5 million for the prior year first quarter. Adjusted net income was $17.2 million or $0.40 per diluted share for the first quarter of 2026 compared to $10.2 million or $0.25 per diluted share for the prior year first quarter. Turning to the balance sheet and an update on our liquidity. Please refer to Slide 5. At the end of the first quarter, we had total liquidity of $278.3 million, comprised of $122.7 million in cash and $155.6 million of availability under our ABL facility. During the first quarter, we made prepayments of $5 million on our term loan maturing in 2029 and purchased $10 million equivalent shares under our share repurchase program. As of March 27, 2026, total net debt was approximately $522 million, inclusive of all cash and cash equivalents, and net debt to adjusted EBITDA was approximately 1.9x. As noted earlier, we maintain our previously provided full year guidance for 2026 as follows: we estimate that net sales for the full year 2026 will be in the range of $4.35 billion to $4.45 billion, gross profit to be between $1.053 billion and $1.076 billion and adjusted EBITDA to be between $276 million and $286 million. Please note, for the full year 2026, we expect the convertible notes maturing in 2028 to be dilutive, and therefore, we expect the fully diluted share count to be between approximately 46 million and 46.7 million shares. Thank you. And at this point, we'll open it up to questions. Operator? Operator: [Operator Instructions] The first question is from Alex Slagle from Jefferies. Alexander Slagle: Yes. I know, like, the Middle East is always -- it's hard for us to figure out everything that's going on. So I appreciate everything you provided. I guess, kind of, curious on -- you gave some color on the top line. What else can you tell us about sort of the profitability implications for the Middle East business specifically and kind of what's baked into the outlook, I guess, sizing it up, also, I guess, it sounds like the top line is less than 10%. And I'm not sure on the EBITDA side, if you could provide some color. James Leddy: Yes. We don't necessarily disclose the percent of EBITDA that they contribute. But just to go back to what we said, it's less than 10% of our overall business. It's a very profitable company. We've made some pretty significant investments, and we feel really good about the medium- to long-term prospects of the market and our business there. Obviously, there's a little bit of a short-term bump in the road right now. But as I mentioned in our prepared remarks, we haven't adjusted our top line or our adjusted EBITDA guidance as a result. So like I said, we've modeled in a bunch of different scenarios. We generally don't change guidance after the first quarter, but the first quarter was so strong and the trends are continuing that, obviously, if the Middle East thing wasn't happening, I believe we would have adjusted our guidance this quarter. But I think given the uncertainty, we're just going to wait a little longer and see how things play out. Alexander Slagle: Okay. In terms of the scenario, it sort of assume recent trends continue through the rest of the year or several months? Or what's the kind of rough time frame? James Leddy: I'm sorry. Basically, we would adjust guidance as things materialize. But I think the key point that we made in our prepared remarks was that over 90% of our business is more than making up for the minimal impact that we're seeing so far from the Middle East. Alexander Slagle: Okay. And just a second question on expectations for the summer and maybe potential for more domestic travel. I don't know maybe that will be a positive tailwind for Chefs' and sort of how you're looking at that important time period as we get up to the -- some of the celebration holidays and then the travel. Christopher Pappas: I mean, Alex, I mean, it looks really strong. Again, I mean, we didn't really see the war coming, but things start settling down in the Middle East. I mean, the -- I think all our investments for the last 15 years are starting to bear fruit, and we're getting that acceleration of sales and leverage with the massive investments we've made to build this thing and a little up or down with travel or more people going out, but we just see a very, very strong field ahead of us. And I think we're taking market share, and we're just continuing to mature as obviously the small public company in foodservice, dominating, really, the good, better, best part of it. So we don't see a slowdown. Operator: The next question is from Mark Carden from UBS. Mark Carden: To start, just another follow-up on the Middle East. Glad to hear your team is holding up okay out there. For the 75% number, it sounds like that's stabilized over the course of the past few weeks. Is that correct? And then just as you think about the course of March, that build in a meaningful acceleration post-ceasefire? James Leddy: Yes. I think the best way to put it, Mark, is, yes, we mentioned that the last few weeks, our business has been trending at about 75% of prior year. We've factored that into multiple scenarios going forward, different levels of percentage should the bombing start to re-escalate and they're sending drones into Dubai. We understand that there might be a downward impact. There could be an upward impact if things settle down. So I think we've modeled that in and decided to leave the guidance unchanged. That's probably the best way to think about it. Mark Carden: Got it. That's helpful. And then any shifts to how you're thinking about inflation over the course of the next few quarters just on the back of some of the recent commodity price fluctuations and then, of course, changes in the price of oil? James Leddy: No. I think our teams have done an incredible job really the last couple of years, but especially with our team maturing and the collaboration between our sales and operations, procurement and pricing, the work that we've done with our diverse portfolio of suppliers. And as Chris mentioned, a lot of that is just that maturity and training and experience is all coming to fruition. And they've become very good at managing through inflationary and deflationary environments. And I'll just go back to the diversity of our product portfolio. When you have 90,000 products flowing through your distribution centers for a company our size and our customer base that demands quality and diversity of product sourced from all around the world, you've become very good at managing through dairy is deflationary year-over-year. But sequentially, the prices in dairy and eggs and other dairy products have been within a range that's very manageable that you can provide your customer with high-quality products at a good value and still manage the gross profit dollars to what we need to meet our targets. So I think it's just -- I'll go back to what Chris said, the investments that we've made in talent, systems, technology and infrastructure are all continuing to pay off and allowing us to manage through those type of price environments. Operator: The next question is from Kelly Bania from BMO Capital Markets. Kelly Bania: Just to follow up a little bit on the CME business, if I'm just doing the math right here, you said it was a 50 basis point drag on top line for Q1. And if I'm doing the math right, I think it's around a 200 to 300 basis point drag into April so far. But for your sales to be tracking at double digit, I'm not sure if they've accelerated or stayed kind of steady in total. Obviously, your North American businesses is kind of more than offsetting that. Just can you just clarify that math for us? Just trying to make sure we're thinking about that right so far. James Leddy: Thanks, Kelly. Yes, look, I think we're growing well above our guidance and actually double digits with the impact of -- in the first quarter, both the 2 storm events as well as the 1-month impact of the Middle East. Those 3 things combined cost us about 150 basis points on the quarter. So if you look at our organic growth at 10.5%, you have the 1% ramp of mainly Italco. You could add 150 basis points to that if we didn't have those 3 events in the quarter. So I don't know where you got to 200 or 300 basis points that's not what is happening right now. I think about it, if they continue to operate at 75% as we mentioned in April, we're still growing double digits with the impact of the Middle East. Obviously, we didn't have any storms that hit us in April. But so I think you can just get from that, that our North American business is so strong. The team is executing at a very high level. I think you look at the Amex data that comes out, the high-end consumer is still spending. So what's happening in the Middle East, we're overcoming. But obviously, we're hoping that the conflict is resolved soon and they can get back to some sort of normality. Kelly Bania: Okay. Very helpful, Jim. Can you also just elaborate a little bit more color on kind of your different markets, your more mature markets and then some of the earlier stage growth markets? And if anything is changing on how they're contributing to the really strong North America top line, whether it be Florida or Texas or New York or California? Just any color on kind of how that split is contributing to the strong North America growth? Christopher Pappas: Yes. I think, Kelly, we've been kind of consistent with our observations that all our markets are growing. And I think the obvious are growing even faster, new markets like Florida, which, still, we're pretty -- we're not new here, but we built our new facility. I think it's 3 years ago, and that has been over 20-plus percent growth, and we expect that to continue for many years to come as we continue to add salespeople and expand throughout all of Florida and become more of a specialty broadliner. It will start to mimic our classic business, which is New York. And the West Coast continues to mature towards that New York model. We still think that it's going to double even though we're getting to a pretty good size out there. Texas, we think, is going to be a top 3 that's starting to have great growth and becoming more of a Chef Warehouse, the same in New England. So the smaller markets, even though they can grow 20%, 30%, 40% a year, they're still smaller markets. And the big markets are still going to drive our march towards our next goal is $10 billion. And we see a lot of that coming from the major, major markets, Texas, California, all of New York, New England, Florida, where the density of, obviously, the populations are. Kelly Bania: Very helpful. And can I just add one more on just the gross margin. You touched on it a little bit, but I guess, the center of plate margin seemed quite strong in light of the magnitude of inflation. Maybe you can just help us understand what drove that, how you're thinking about that going forward? And just inflation overall, how your customers are handling that? It sounds like the sales force is managing that very well, but just any color that you're getting from your customers? James Leddy: Yes. Look, I don't think -- I'll just go back to what I said to an earlier question that the diversity of our product portfolio, the expertise of -- and maturity of our teams that are collaborating to manage through that. They've done an amazing job. I mean center-of-the plate year-over-year had some inflationary. But during the first quarter, the sequential changes in prices are actually deflationary coming out of December into January, February and March. It's just a seasonal impact that happens every year. So that played out and is actually a little more pronounced. So I think the improvement in margin was really our teams really managing very effectively through that environment, through that sequential pricing environment. And it's just a testament to how they've been managing their business. Christopher Pappas: Yes. And Kelly, it's a little confusing just to look at margin. You get some deflation. We expect margin to go up just because of the volatility. Usually when prices really shoot up, we're managing towards gross profit dollars versus margin because really, our basic overhead is kind of fixed. So it's really the gross profit dollars we take to the bank. And the mix starts to change. And this is why the way the protein team manages again, is towards figuring out how they can hit the gross profit dollars they need to run their businesses and the profitability that we need. So it gets a little fuzzy because the mix starts to change a lot when you have a lot of inflation. We always say people start to eat more premium hamburgers than steaks, maybe at the non-steakhouse kind of dining out, you sell more chicken, you sell more sausage. So it's a big mix of products. But again, the demand for the premium products that we sell, even to -- I don't want to say to my surprise, but it kind of plays into what we're seeing with the higher-end consumers are not going to not order a great steak because it's $5 more. So I've always thought that, that consumer base, I think it's my 41st year. I have not seen that trend change, right? So gas prices going up $0.30, $0.40, $0.50 a gallon doesn't change a lot of that behavior. And I think we're just consistently seeing that. Operator: The next question is from Peter Saleh from BTIG. Peter Saleh: Great. Congrats on a great quarter. I did want to come back to the conversation around margin. Your EBITDA margin this quarter was exceptionally high and much higher than what we were modeling, highest on record. Just I know you guys have talked about maybe 20 basis points or so of EBITDA margin expansion every year. But if you flow through these numbers to the year, you kind of get there without any more expansion. Just can you help us out a little bit in terms of -- do you think that 20 basis point number is kind of still the good number going forward? Or have we hit kind of an inflection point where we should start to see a little bit more EBITDA margin flow through to the bottom line? James Leddy: Yes. Thanks for the question, Peter. Yes, look, I'll go back to what I said. If we didn't have the uncertainty in the Middle East right now, I think we would -- we usually don't this early in the year, update our guidance, but I think we would have. If we had some sort of certainty around what's going to happen in the Middle East. Once again, it's less than 10% of our business, but we don't know how it could play out the rest of the year. If it stays where it is or gets better, I would imagine we would be adjusting up. And '25 over '24, we delivered more than 20 or 25 basis points of EBITDA margin improvement. And I think to what Chris mentioned earlier, we're really starting to see the operating leverage from all the investments that we've made. So there's certainly a really strong possibility that we will -- we can deliver more. It's just early in the year and the uncertainty around the Middle East is preventing us from adjusting that up right now. Peter Saleh: Yes. And then can I just ask on the capital structure and share repurchase? You guys repurchased $10 million in the first quarter. Your leverage is just naturally delevering. Should we expect more share repurchase as we go through the year? I mean, how do we think about that for the balance of '26? James Leddy: Yes. I think we haven't really changed our outlook. We want to remain with some dry powder to take advantage of some potential acquired growth that may present itself that could be strategic and accretive important for our growth plan. We want to continue to repurchase some shares opportunistically. And we may continue to very gradually pay down some debt. So I think we're going to continue kind of the way that we've been operating in the last year or two. I don't see a major change, but we certainly could allocate more towards share repurchase should the opportunity present itself. Operator: The next question is from Brian Harbour from Morgan Stanley. Hilary Lee: This is Hilary Lee on for Brian Harbour. Congrats on the quarter, guys. Just wondering, outside of the Middle East improving, do you guys see any other potential tailwinds for the consumer? Christopher Pappas: We're really happy with what we're seeing at this point. I think a real possibility uptick right now is what we're hearing with the World Cup, right, being in the United States and a lot of our major markets. So we don't build these things in, but I think with -- I forget how many millions of people coming in for the cup in our major cities, I think it's going to be really good for our customers. So we think the consumer of our -- the restaurants and hotels that we supply, the spending, what we see is strong, and we have not heard of anything really changing. We think bookings are strong and our customers are optimistic. So we like the way the year is -- besides the Middle East, we are really enjoying what we have set up to supply for the next X amount of years really lining up in our favor. Hilary Lee: Got it. And kind of just a follow-up on that. Like have you guys ever seen or are you able to quantify any impact that you've seen from any other major events like the Olympics a couple of years ago? James Leddy: We don't really quantify it. Obviously, when there are events, whether it's F1 or something like the World Cup or the Olympics or other types of events, we do see a temporary bump, but it's not something we model in for the long term. Operator: The next question is from Todd Brooks from Benchmark Company. Todd Brooks: Obviously, strong results in Q1 in the U.S. And Chris, you talked to the typical seasonal acceleration. Jim, you pointed to kind of normalizing maybe kind of 12% organic growth if you take out weather and CME. You talked about double digits in April. I know we're also going into a strong period here with graduations, Mother's Day, return of outdoor dining and then you just pointed out the World Cup. Are we still accelerating as we go into Q2? And Chris, when you're talking to clients, just what's their outlook on kind of the -- how the table is being set for them for the next couple of quarters here? Christopher Pappas: Cautiously very cautiously optimistic, Todd. I mean the Middle East, obviously, was not in our plans because, I mean, the business is really strong. Nobody has a crystal ball, but we don't really see a change in behavior. I think that we've invested for more -- to take more market share and be the premier high-end partner for the world's greatest chefs. And there's been a shift, and it's I don't see that shift of consumers willing to give other things up, except for they're extremely affluent that nothing really is going to change their behavior as far as dining out and travel. I just think it's -- the acceleration is, I think, more consumers are choosing to -- for the experience for the travel, for the dining out for those sports experiences versus other things in the past, maybe things they would have bought or spent more money on. So I don't see that changing. And I think our customers are benefiting for it. We see a consistent investment in more restaurants, more hotels opening, more parties, lots of catering and more people visiting the United States on the high end, obviously plays in our favor. Todd Brooks: That's great. And then, Jim, just a question for you. And Peter was asking the question about the EBITDA margin expansion and the profitability of the business. How much of this now is kind of related to the existing facilities that you've stood up just putting more volume through those facilities versus how much is due to the investments that you've made around technology and process and people that you guys highlighted at the Investor Day. If you were attributing the gains that we're seeing in EBITDA margin, how would you kind of parse it between the 2? Christopher Pappas: Goldilocks. James Leddy: Todd, we don't necessarily put a dollar amount or percent of our accretion of either adjusted EBITDA dollars or margin to a particular bucket. But what I would just go back to kind of what Chris has talked about in his prepared remarks and also what we talked about earlier in the call, and that is all of these things coming together. I think the investment in training in our salespeople, especially in the nascent high-growth markets that we've put infrastructure in to give them capacity and folded in acquisitions. And then you start off with a young maturing sales force and as they grow with the leadership team that we have regionally, very experienced leaders that have run distribution businesses, food distribution businesses themselves before joining us and know every area of the business from sales, operations to procurement to pricing, they benefit from that. And as Chris mentioned, just marrying technology with knowing our customers better, that together with the infrastructure investments and just the experience and growth of our teams that are managing pricing and procurement and operations, it's all coming together. It's all -- there's not one thing that we would point out that says this is driving our EBITDA margin higher. So I would say that, and I'd ask Chris to add anything that he might want to add. Christopher Pappas: Yes. I think, Todd, when I look back, I think it's what we -- it's a 15th year being public. I thought it would be easier at that point. But I think lessons learned is that to build something like Chefs' Warehouse, it just doesn't get built overnight. You got to have all the technology in the world. And of course, it really helps, but it's just so much more complicated. Like as you just said, it takes the buildings. It takes the maturity. It takes years to develop a team to win the Super Bowl. It's not put up overnight, even though you might have the talent, it just takes that long. So I think it's really Goldilocks. If I wrote a book, it just takes -- it takes a lot longer every time we go on a new path to build a new territory, it always takes a lot longer to master a new category, it takes a lot longer. So I think what we're seeing, obviously, the consumer is -- our customer is able to spend for the better things in life, we sell good, better, best, right? So I think people are really appreciating the mastery of these great restaurants and their talented chefs that are putting the food together. And I think it's like an orchestra, right? It has to learn how to play together and just get better and better. And I think the Chefs' Warehouse complete business, whether it's produce, whether it's groceries, whether it's dairy, protein, I think it's just getting better and better, and I think we're seeing the results. Todd Brooks: Congrats to you and the whole team. Operator: [Operator Instructions] The next question is from Margaret-May Binshtok from Wolfe Research. Margaret-May Binshtok: I just wanted to ask on the placement growth, the 6.2% you guys saw seems to be accelerating. I guess which lever is doing the most work here from your sales force and new hires or digital penetration? Christopher Pappas: I think, again, it's all the levers that are contributing. So I think it's a little bit of everything, getting leverage on the new facilities, right? The more volume, more profitable volume we pump in, you get a bigger bottom line. The technology adding placements is giving us an uptick, growing into facilities in new territories. we're getting leverage. So it's a little bit from a lot of different parts of the business that is giving us that bigger bottom line at the end of the day. Margaret-May Binshtok: Super helpful. And then I just wanted to ask on the M&A environment. Given what we were seeing with the macro and some volatility, has that changed valuations that you guys are seeing out there at all or the pipeline or sellers more motivated? Christopher Pappas: The pipeline is frothy, but again, years ago, we had to do more M&A to get into the markets faster to build a national business and now an international business. So we're just -- we're not in need of a lot of M&A. So we're just very patient. And we've seen some multiples come down in some deals that have hit our table. But we think that at a certain point, we'll have some good M&A to add to what we're building, but we're just very, very patient at this point. Operator: There are no further questions at this time. I would like to turn the floor back over to Chris Pappas for closing comments. Christopher Pappas: We'd like to thank everybody who joined the call today and take time to learn a little bit more about Chefs' Warehouse, and we're really proud of the last quarter and what the team was able to accomplish. And we remain very optimistic about the future. And, hopefully, this conflict in the Middle East settles down. And we look forward to everybody joining our next earnings call. Thank you. Operator: This concludes today's teleconference. You may disconnect your lines at this time.
Operator: Hello, everyone. Thank you for joining us, and welcome to Smith Douglas Homes First Quarter 2026 Earnings Call and Webcast. [Operator Instructions] I will now hand the conference over to Joe Thomas, SVP of Accounting and Finance. Joe, please go ahead. Joe Thomas: Good morning, and welcome to the earnings conference call for Smith Douglas Homes. We issued a press release this morning outlining our results for the first quarter of 2026, which we will discuss on today's call and which can be found on our website at investors.smithdouglas.com or by selecting the Investor Relations link at the bottom of our home page. Please note, this call will be simultaneously webcast on the Investor Relations section of our website. Before the call begins, I would like to remind everyone that certain statements made on this call, which are not historical facts, including statements concerning future financial and operating goals and performance are forward-looking statements. Actual results could differ materially from such statements due to known and unknown risks, uncertainties and other important factors as detailed in the company's SEC filings. Except as required by law, the company undertakes no duty to update these forward-looking statements. Additionally, reconciliations of non-GAAP financial measures discussed on this call to the most comparable GAAP measures can be found in our press release located on our website and our SEC filings. Hosting the call this morning are Greg Bennett, the company's CEO and Vice Chairman; and Russ Devendorf, our Executive Vice President and CFO. I'd now like to turn the call over to Greg. Greg Bennett: Good morning, and thank you for joining us today to review our results for first quarter of 2026 and provide an update on our operations. Smith Douglas Homes generated $4.3 million in pretax income for the quarter, net income of $0.06 per share. We delivered 624 homes, which came in at the high end of our guidance range, while home closing gross margin exceeded expectations at 19.6% on a GAAP basis. For the quarter, we generated 981 net new orders, up 28% from a year ago and a new quarterly record for the company. While order activity remained choppy throughout the quarter, we experienced a sequential improvement in our sales pace each month of the quarter, culminating in a sales pace of 4 homes per community in the month of March. Financing incentives continue to be a key selling tool as buyers remain motivated to own a home, provided they can secure a monthly mortgage payment that fits their budget. We are encouraged by the price elasticity we experienced during the quarter as incremental adjustments in pricing led to an uptick in demand. We view this as an indicator that underlying demand remains intact across our markets despite broader macroeconomic uncertainty. From an operational standpoint, we remain focused on pace over price philosophy, which means maintaining a consistent cadence of starts, driving efficient inventory turns and driving towards a more presale oriented backlog. Our average build time was 57 days during the quarter, consistent with prior period, and we continue to view our ability to deliver homes quickly and reliably with an offering of home choice and personalization as a key competitive advantage. Our land-light strategy also remains central to how we operate. By relying on third-party lot developers, we're able to allocate capital efficiently and maintain flexibility through varying market conditions. We believe this approach positions us well to manage risk while continuing to scale the business. We also made progress on our growth initiatives during the quarter. Community count expanded to 108 active communities across our markets, up 24% from a year ago, and we continue to ramp operations in our new markets such as Dallas, Chattanooga, Greenville and Alabama Gulf Coast. Our experience in Houston continues to demonstrate that our operating model translates well beyond our legacy footprint, and we remain focused on executing a disciplined and opportunistic expansion strategy over time. As we move through the spring selling season, we are encouraged by sales orders generated during the quarter, which helps rebuild backlog and provide momentum heading into the second quarter. We have continued to see encouraging traffic and order activity early in the second quarter, although demand remains variable week-to-week. We will continue to evaluate pricing and incentives at the community level and adjust as needed to maintain the pace required to support our operating model. While macro conditions remain dynamic, employment trends have been relatively resilient, and we continue to see motivated and engaged buyers in our markets. We believe our focus on attainable pricing, personalization and value put us in a good position to compete for these buyers and drive market share gains over time. Finally, I'd like to thank all of our team members for the hard work during this quarter. We challenged everyone to focus on getting off to a strong start this year, and our results this quarter showed they were up to the challenge. With that, I'd like to turn the call over to Russ, who will provide more color on our financial results this quarter and give an update on our outlook. Russ Devendorf: Thanks, Greg, and good morning. I'll highlight our results for the first quarter and then conclude my remarks with an update on what we are seeing so far this year and our outlook for the second quarter. We finished the first quarter with $206.4 million in revenue on 624 closings at the high end of our guidance range with an average sales price of $331,000. Our home closings gross margin was 19.6% on a GAAP basis and adjusted home closing gross margin was 20.3%, which adds back impairments, interest and cost of sales and purchase accounting adjustments. During the quarter, gross margin benefited by 170 basis points from the reduction of land development accruals on the closeout of several communities. Our margins continue to reflect the use of incentives and targeted pricing adjustments to support affordability and maintain sales pace. During the quarter, closing costs, price discounts and the cost of forward commitments totaled 730 basis points, which compared to 430 basis points in the year ago period and 680 basis points sequentially from the fourth quarter of 2025. Selling, general and administrative expenses for the quarter were $35.9 million or approximately 17.4% of revenue, up $2.9 million compared to the same period last year, reflecting continued investment on our growth markets as well as the impact of lower average sales price. Pretax income for the quarter was $4.3 million, resulting in net income of $0.06 per share. Given the nature of our Up-C organizational structure, our reported net income reflects the allocation of earnings between Smith Douglas Homes Corp. and the noncontrolling interest of Smith Douglas Holdings LLC. Because a significant portion of our earnings is attributable to LLC members and not taxed at the corporate level, the income tax impact reflected in our financial statements can differ from more traditional C corporations. For that reason, we also present adjusted net income, which assumes a blended federal and state effective tax rate of 26.6% as if we operated as a fully public C corporation, which we believe provides a more meaningful comparison to peers. For the quarter, adjusted net income was $3.2 million compared to $14.7 million in the same period last year. Turning to orders. We generated 981 net new home orders during the quarter, an increase of 28% versus the year ago period. We ended the quarter with 869 homes in backlog with an average sales price of $332,000. In addition to backlog, we also had 42 home reservations at the end of the quarter. These reservations allow our buyers to take advantage of buying a built-to-order home while also benefiting from a guaranteed mortgage rate when they close. We expect most of these reservations to convert to new home orders in the second quarter. Turning to the balance sheet. We remain in a strong financial position. We ended the quarter with $28 million of cash and $68.5 million of total debt with approximately $195 million available under our revolving credit facility. Our debt-to-book capitalization was 13.6% and net debt to net book capitalization was 8.5%, reflecting our continued conservative approach to leverage. Our land-light strategy remains a core component of our operating model with the majority of our lots controlled through option agreements, allowing us to maintain flexibility and deploy capital efficiently. As Greg previously mentioned and I explained on our fourth quarter call, I want to reiterate that our pace over price philosophy continues to guide how we manage the business. In the current environment, our focus remains on maintaining absorption and inventory turns even if that requires some pressure on margins in the short term. We believe maintaining sales pace allows us to preserve market share, generate cash flow and continue investing in our community pipeline, which ultimately drives scale and stronger returns over the full housing cycle. From a broader macro perspective, the housing market continues to operate in a challenging environment, driven primarily by affordability pressures and elevated mortgage rates. Recent economic data has been mixed and geopolitical developments continue to contribute to uncertainty. We are also monitoring labor market trends closely as employment remains a key driver of housing demand. Our capital allocation priorities remain unchanged. We will continue to prioritize investing in our land pipeline and community growth while maintaining a conservative balance sheet, and we will also remain opportunistic with share repurchases. During the first quarter, we began executing on our share repurchase authorization and continue to repurchase shares into the second quarter. Including repurchases completed in April, we have repurchased approximately $10 million of stock at an average price of $13.28 per share. We believe these repurchases represent an attractive and disciplined use of capital without limiting the financial flexibility to support our long-term growth strategy. For the second quarter, we currently expect closings between 725 and 800 homes, average sales price between $325,000 and $330,000 and gross margin between 17% and 17.5%. Given the continued variability in demand conditions, we are not providing full year guidance at this time. We believe the primary risk to our outlook remain tied to macroeconomic conditions, including mortgage rates, consumer confidence and employment trends. That said, we believe our affordable product offering, land-light strategy and disciplined operating model position us well to continue gaining market share over time. With that, I'll turn the call over to the operator for instructions on Q&A. Operator: [Operator Instructions] Your first question comes from the line of Michael Rehaut with JPMorgan. Nisarg Kalra: It's Nick Kalra on for Michael. I wanted to start by asking on the gross margin piece, you called out some moving pieces, but would really appreciate any extra color that you have either on the incentive environment and pricing considering like ASPs for the first quarter toward the lower end of your guide as well as on the cost side would be really helpful. Any color you can provide on construction costs, labor, et cetera. Russ Devendorf: Guidance on a GAAP basis -- came in at the high end of guidance on a GAAP basis and we had 170 basis points, as I mentioned, that -- and it's the way land development works. So when we close out communities, we typically have a reserve in land development for anything that over the next 3 to 6 months may come in from a cost perspective. We had closed out some communities in the fourth quarter towards the end of last year. And so those accruals that we had got reversed in the quarter. So that contributed to 170 basis point positive impact to margin. So if you back that out, we would have been right around, I think, 18.1% was -- which I think still was right in line with guidance or in the high end of our guidance range. And then from just some additional costs, as we mentioned, there's 730 basis points that were impacted by, like I said, impairment -- not impairments, excuse me, closing costs, the incentives for forward commitments, so the cost there and price discounts. And just to remind everybody, the price discounts and the forward incentives, that's a reduction to revenue. So ASP, that kind of drives ASP down a little bit and then closing costs run through our cost of goods. So that was up sequentially, as I mentioned, and up year-over-year. And then just from a cost perspective, we're actually getting some benefit on the direct cost side. So that's coming in a little bit better year-over-year. But the big driver still for us in kind of margin degradation is the lot cost. So lot costs were as a percentage of revenue, it's up about 300 basis points versus last year. So that's just the impact of the higher basis for land deals that we entered into in the last couple of years. Nisarg Kalra: Got it. Helpful. And then on anything you could provide? I think you mentioned in your prepared remarks that demand is still looking a little choppy week-to-week. Any color you can provide on that, either on a sequential basis, just a couple of weeks in, but relative to March? Or anything you could provide on April to date, that would be helpful from a demand perspective. Greg Bennett: Yes. Thanks for the question. We're seeing seasonal traffic. We had good strong traffic through March. April has been a slight decline, but still seasonally good as we've gone through all the spring break and all the disruptions there, it's held pretty steady, maybe down of 6% to 8% over what we were seeing earlier. Operator: Your next question comes from the line of Mike Dahl with RBC Capital. Stephen Mea: You've actually got Stephen Mea on for Mike Dahl today. I was hoping we could talk a little bit on the SG&A side of things. I totally understand you all are in a kind of growth phase and there's life cycle charges in there as you're opening up your new divisions and kind of getting all heads in place in there. I was just kind of wondering if you could give us a little more of an overview on where you are in that -- are in those life cycles? Is that good to keep ramping? Or is that something that might start to moderate a little bit in the coming quarters, just kind of a qualitative overview there. Russ Devendorf: Sure. Yes, I think as a percentage of revenue, it should definitely start to moderate because when you look at the gross dollars, we were only up $2 million, $3 million in that range. So it's more a reflection of our ASP is coming down. And again, part of that is increased incentives, like I mentioned, forwards and price discounts are pushing that ASP down, and so it's pushing that top line revenue. So some of that percentage increase is because of the top line revenue. But it is -- the gross dollars, the increase is actually not that bad in my -- from our perspective because we did open, as you recall, so Dallas was a new division last year. We divisionalized Chattanooga. We're opening up the Gulf Coast, which we hope to have some sales here in the next few months. And so we've got a lot of new fresh G&A that's hitting the books without any volume. And so that, again, just reflects our continued growth and scale. And so when you start to see some of that revenue come through, I think it will moderate, right? And again, even if you go back a couple of years, Greenville is a fairly new division. We centralized -- we divisionalized Central Georgia. And so we have expanded the footprint, again, in the drive for additional scale. So it's just -- it's kind of a timing thing. Stephen Mea: No, totally makes sense. I appreciate the response. And secondly, understanding that you're not providing full year guidance, but if there's anything you all could share with us on areas where you may have a little more visibility like your thoughts on your perhaps pace or cadence of community counts and how you're looking at kind of hopping on the previous question, incentives kind of within the guide and just kind of more broadly going forward would be helpful. Russ Devendorf: Sure. Yes, we don't like to give full year now. I mean maybe as we wrap up the second quarter and we're kind of halfway through the year, we will give some more clarity in this. Not like we don't have our internal targets. It's just given the environment, we just don't think it's prudent to provide any full year guidance. I mean, again, especially when it comes to margin or income, I mean, that's -- it's such a wildcard. We're going to continue to push pace. We feel pretty good, especially coming off of March and the quarter. I mean we had a really good beat, exceeded our internal expectations on sales. That's a reflection of us doing some additional price discovery in our communities, really driving our sales folks, credit to them in the field for really pushing on pace. And so it turned out to be a good quarter in sales, which obviously, the increase in backlog, it's going to set us up for -- hopefully, it starts to set us up for a good back half of the year in terms of closings. I think I mentioned on the last call, we were expecting anywhere from 10% to 20% in community count growth for the year. And so you can kind of translate that into what you might expect or as you run your model, what you might expect for closings. But clearly, we're focused on growing closings year-over-year. So we've got some pretty good internal targets, but you can kind of back into the numbers based on what I just told you. Operator: Your next question comes from the line of Trevor Allinson with Wolfe Research. Trevor Allinson: First one is on your expectation for vertical costs going forward. Obviously, oil prices up, quite a bit of fuel prices up, some building products materials have seen price increase announcements. So what are you expecting for vertical costs going forward? And then in terms of some of these price increase announcements from the manufacturers, are you currently taking on any of those price increases? Or have you been able to successfully push back against those? Greg Bennett: Yes. Thanks for the question. We've been pretty successful in pushing a lot of those increases off. We're -- our costs are down year-over-year. We know that if this fuel situation stays higher for longer, we're going to get hit with fuel surcharges and some of those things. But we show up diligent every day to work on our cost and our efficiency. So we'll continue to do that. And the market is not allowing us price, and that message is going through to our trade and our suppliers to say, look, we don't have ability to take price, and so we can't pass that through. So we're holding a pretty tough line on that. Trevor Allinson: Okay. Makes sense. I appreciate that color. And then on your lot portfolio, I mean, clearly, the majority of your lots are held off balance sheet. Can you talk about what portion of those lots are held by land banks and then shed any light on the structure of your land bank agreements perhaps in terms of deposit rates, option maintenance fees as well as your ability to potentially walk away from deals that no longer pencil? Russ Devendorf: Sure. So of the total portfolio, we have about 30% of our lots under option are with land bankers. Then there's about 40% of our lots under option are with developers. And so they're 70%. And then the balance, the other 30% are still deals that are with the underlying land seller. So where we have a contract that we may be in various stages of due diligence, but we control it with varying deposits. And usually, those are pretty small. But just from a land bank perspective and a structure perspective, so we are pretty much on average, it's about a 10% deposit that we have with the land bankers. And then there's typically like a walkaway fee that if you bust out of the option, then you pay another 10% walkaway fee, and that -- we disclosed that in our financials. But we don't -- on all of our new land bank deals, we do not cross-collateralize. We have some finished lot bank where we'll stick some lots when we have some bulky takedowns on active communities that we will put into a finished lot bank, and we may, within a division, cross-collateralize. But honestly, it's -- that's -- we don't view that as any real issue. So it's pretty simple the way we think about it. Operator: Your next question comes from the line of Ryan Gilbert with BTIG. Ryan Gilbert: On the 2Q '26 margin guidance, can you talk about how much of the step down is from higher incentives in the quarter versus higher lot costs or if there's anything else that we should call out? Russ Devendorf: It's -- we're assuming the incentives are probably about flat sequentially, maybe up or down 10, 20 basis points. We're still seeing the same -- and it's been pretty consistent. We're seeing the same percentage of forwards, the use of forwards. So that's probably pretty consistent. But then it's really -- I think there's a little step down in ASP. That again is probably coming from the forwards. But it's lot costs. Again, I think lot costs, you're going to continue to see that trend year-over-year where that's about 300 basis points up. So it's -- lot cost is driving it. And then part of the variable in there is how much -- to the earlier question, what Greg said, how much are we able to hold on vertical costs. Right now, we've done a pretty good job year-over-year. The average sticks and bricks costs are down a bit, but there's some variability there. Ryan Gilbert: Okay. Got it. And can you update us on what you're seeing in terms of, I guess, spot land prices for the deals that you're signing up today? And then if you're getting any relief on pricing, how long that would take to flow through into your income statement? Russ Devendorf: Yes. We're -- it's starting to turn. I think we've been mentioning this for the last couple of quarters. We're definitely seeing land prices start to moderate. We're starting to feel like we have more negotiating power, right, starting to flip from a seller's market to a buyer's market. And that obviously, any new deals that we put under contract in the typical fashion, excluding where we can pick up some finished lots from others that have walked, but it takes 18 months to flow through typically, right, because you've got development for a year and then you've got several months of vertical construction. So it takes some time. So we don't expect the increase in lot cost to moderate for at least a couple of years, right, at any material level. And we -- when we went public, we knew we were guiding everybody. I mean, lot costs were going up just because we knew what we were doing deals at. But now you're starting to see that reverse a little bit. But that's also as we talked about on our call and our pace over price philosophy, that's why it's really important for us to continue to move inventory through the pipeline so that we don't get gummed up with these lots. We can continue to move it through the pipeline so we can start taking advantage of a reset in land basis, land prices. And so that's kind of how we're thinking about it. Ryan Gilbert: Got it. Makes sense. Just one more... Russ Devendorf: One last thing there, and Joe just pointed it out, and he's right, like this is part of the reason why we think it's a reasonable opportunity to enter some of these new markets. Because we're able to start fresh and take advantage of some of these reset bases. So... Ryan Gilbert: Got it. Yes, that makes sense. Yes, just one more for me. It seems like you and the other publics and I guess the industry overall based on the starts number earlier this morning, it seems like there's a reacceleration in starts. I'm just wondering how inventory looks in your markets and if you're seeing any impact from, I guess, the recent increase in starts volume? Russ Devendorf: There hasn't been anything that we've seen materially different that we're hearing from our divisions. I know some of the builders, I mean, I think when you look year-over-year, a lot of the publics spec counts are down. They may be starting, and that could just be relative to maybe some better -- slightly better sales. I mean we had better sales than expected in this first quarter. We were up pretty good. So obviously, our starts are going to be up. But no, from an overall pure inventory standpoint, not seeing any real impact there. Operator: Your next question comes from the line of Natalie Kulasekere from Zelman & Associate. Natalie Kulasekere: So could you talk a little bit about how your incentives trended as the quarter progressed? I know you said it was 730 basis points for the whole quarter on average, but I'm just wondering if March was higher than January and February and if you had to kind of push incentives to achieve that pace of for sales per community? Russ Devendorf: Yes. And I don't have the exact numbers in front of me. And keep in mind, the 730 basis points, that's incentives and discounts that would have mostly come through in Q3, Q4 of last year that are hitting the books. And then from incentives on sales through the quarter, yes, I would just generally say that as we ramped up our pace and pushed for a little bit more price discovery, we probably saw it up a little bit. But honestly, we were -- I think we were pleasantly surprised that it didn't -- it wasn't a huge hit. But it does show that there is some price elasticity. It does -- you can see it ties into increase in volume. So... Natalie Kulasekere: All right. And what share of your closings this quarter were driven by spec sales? And where are you in terms of getting to a more presale heavy business? Russ Devendorf: Yes. I mean that -- presales is a huge driver or a huge focus of ours because traditionally, you're going to make more money on presales. And because of our business model, we really focus on personalization and choice for our buyer, and we have a quick turn from a cycle time perspective. So really for us, we're trying to drive that message to the divisions -- and because we do think that ultimately, that's going to help drive higher margins, but it also gives our buyers a different buying experience than when you go to some other entry-level builders that are more, "hey, you get a vanilla, chocolate, strawberry" type of choice. But we've been averaging -- it's probably still 40, 60 presale versus spec every week. But more importantly, we're getting the contract. We saw an uptick in getting a sale on a spec home before it hits what we call line in the sand, so kind of before it hits drywall stage. So that's really, today, very important because we're still using forward commitments, incentives. And to put an interest rate lock out there for more than 60 days is almost cost prohibitive. So the incentives are still a big driver for some of these buyers in figuring out payment. So even if we have those starts, as long as we're within kind of 60 days and they can get some choice before we hit drywall stage, getting that sale before drywall stage is important. So we're doing a pretty good job there. I'd say we're probably 70%, 80% before drywall stage has got a sale and our spec inventory has been coming down. So it's still a battle, but that's our focus is driving more presale going forward. Operator: Your next question comes from the line of Rafe Jadrosich from Bank of America. Rafe Jadrosich: Just can you -- I know you walked through it a little bit, just the gross margin, it's good to see the backlog sort of stabilize and step up here. The gross margin sequentially flat quarter-over-quarter in 1Q, like just can you help me just understand the accrual call out that you had there and bridge like maybe on a like-for-like basis, 1Q to 2Q? Russ Devendorf: Yes. So if you -- so we had 170 basis points roughly of a benefit because we reversed some land development accruals on closeout communities. So these were several communities that closed out in kind of Q3, Q4. And so our internal policy is we keep -- we start to ratchet down accruals over 3 to 6 months just in case there's any stragglers or any costs out there once we close a community. And so that was 170 basis points to margin. So basically, if you just look operationally, take our margin for the quarter, back out 170 basis points, and that's kind of where you would start with your gross margin, to take out the noise. We had a little bit of impairment in there. So strip that out. I think that was 30 -- I don't know how many basis points that accounted for... Joe Thomas: 70. Russ Devendorf: 70 basis points. So there was 70 basis points of impairment that was a negative impact to margin. Again, you want to strip that out. So when you see our filing, you'll be able -- and I think it's in the notes, it's in the back half of the press release. But when you look at the adjusted margins, you'll be able to see some of that stuff. So that's why when you strip out all the noise, I think sequentially, we're basically calling for about a 50 basis point decline in margin from Q1 to Q2. And again, there was a lot there, but we can walk through any detail if it's -- once you see the numbers, it's -- you have any confusion? Rafe Jadrosich: Okay. That actually -- that's very helpful and makes sense. And that's the sequential from 1Q to 2Q, that you still have land inflation, but incentives sort of flattish and that's getting to it. Russ Devendorf: That's right. Yes. Rafe Jadrosich: Okay. And then on the SG&A side, you said it was really interesting. And obviously, the dollars have stepped up here and continue to grow, but you're expanding communities. You're also moving into new markets. Of the markets that you operate in today, what would you consider to be like at scale versus what you're still trying to get the scale up and are sort of below where you'd expect it to be longer term? Greg Bennett: Yes. Thanks, Rob. I'll take that. We're in still infancy, I would say, in Greenville. -- the same in Dallas, Fort Worth, Gulf Coast. And we're kind of over that hump in Chattanooga, made a lot of growth strides there in the last year. And then Central Georgia would be another that we're still building scale in. It's just kind of a spin-off of Atlanta, but without any real community count as we spun that off. So those are, again, not the scale would be Central Georgia, Greenville, Dallas, Fort Worth and Gulf Coast. Russ Devendorf: Yes. And the only -- what I'd add to that as well is while we have -- we always are targeting a minimum of 2, what we call R-teams, and that's roughly 208 starts per our team. We want to have a minimum 2 R-teams in every division. And so we're not quite there in a couple of our legacy divisions like Charlotte, it's Nashville, we're not there yet. So at a minimum, we want to get there. And then that's just the minimum, but we really feel like in some of those legacy divisions, we should be closer to 3 R-teams, 600 closings specifically Raleigh. I do think Charlotte can get there, 600 plus. We're not there yet. Nashville should be 400 plus. And then obviously, Atlanta and Houston right now are too big from a permit count, right, 2 of the largest markets that we're in. Atlanta, because we peeled out Chattanooga, which was really kind of North, Georgia, pulled back a little bit. But again, Atlanta proper should be close to 1,000 units on a run rate. And then Houston for us, we entered that. We're making a lot of good strides in getting them what I would say is like Smith Douglas-ized from a turns and they've been great. But we're only doing 400 plus or minus closings there. I mean that should be double, right? Within 5 years, we need to -- I mean, that's such a big market. We've had some headwinds, but that should be double. And then what's really shining for us is our Alabama division. They're at pretty good scale between Birmingham and Huntsville, kind of plus or minus 600. So we've got some work to do in scaling up some of the legacy divisions. But like Greg said, a lot of these new ones are just getting going. But that's why you see the G&A, right? When you look at the G&A relative to the community count increase, right, our community count was up 24% and our G&A was only up $2.9 million on a gross dollar basis. So to me, that's pretty efficient. Operator: Your next question comes from the line of Jay McCanless from Citizens Bank. Jay McCanless: First question I had, we've seen some articles in the mainstream press about affordability being even worse than some of the larger cities now, which is forcing some migration out. So I guess my question is, are you guys seeing better demand in your smaller markets, whether it's absorption, traffic, however you want to measure it versus maybe some of the larger markets like Raleigh and Atlanta? Russ Devendorf: Yes. Look, Alabama has done really well. And I would consider that relative, obviously, Birmingham, Huntsville relative to Houston, for instance, yes, we've seen some better demand trends. And again, Texas is its own animal. So yes, I think it's also just -- we're so used to in the Alabama markets. They didn't have the kind of spike up post-COVID. I mean it was good, but it wasn't like you had some of these other markets. So it's -- I almost feel like we're just used to hand-to-hand combat there, and it's just the way we operate. So yes, we saw some better demand there. But it's -- outside of that, like there's nothing that I would say really sticks out with our footprint. I think we're in some pretty good markets kind of in the Southeast and Central U.S., which is -- that's by design. But nothing really that I can say sticks out. I don't know, Greg, if you... Greg Bennett: The only thing, Jay, I'll add to that is the in-migration in some of the bigger metro locations we're in is down. I mean that's been a lot. And so you feel that a little more and some of those smaller markets are not as sensitive to that. Jay McCanless: Got it. Okay. And then the second question I had, ARMs, are you guys still trying to push on those? Is that still having good success with customers? And maybe what your ARM percentage was this quarter? Russ Devendorf: Yes. We shifted really towards the end of the quarter and into April, we moved from a 4.99% incentive that we're kind of marketing across the footprint, a 30-year fixed. We moved to -- just to change it up a little bit and the costs were kind of almost in line. We moved to a 3.99%, 5/1 ARM towards the end of the quarter and really into April. And if you go to our website, I think that's what you'll see at the top of the page. So we're offering -- we're really -- we're still offering both. We're marketing the 3.99% and a lot of that is -- a lot of it really is -- it's more a traffic driver, but it's also designed to give our salespeople as much flexibility, right, when -- because with a 3.99%, 5/1 ARM, the buyers can qualify off of that payment that calculates off the 3.99%. So for our buyer, that's definitely helpful. So we kind of give them some optionality there. But it's -- we're just trying -- seeing what the market is doing, trying to at least compete at that level and give buyers as much affordable options as possible. Joe Thomas: And we're seeing more usage of the 4.99%. Russ Devendorf: Yes. 4.99%, the 30-year fixed 4.99% is probably taken the most of the incentive. Operator: We have reached the end of the Q&A session. I will now turn the call back to Greg Bennett for closing remarks. Greg Bennett: Thank you for joining us on our Q1 results call. I hope everyone has a great day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, and thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the LXP Industrial Trust First Quarter 2026 Earnings Call and Webcast. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to Heather Gentry, Investor Relations. Please go ahead. Heather Gentry: Thank you, operator. Welcome to LXP Industrial Trust First Quarter 2026 Earnings Conference Call and Webcast. The earnings release was distributed this morning and both the release and quarterly supplemental are available on our website in the Investors Section and will be furnished to the SEC on a Form 8-K. Certain statements made during this conference call regarding future events and expected results may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. LXP believes that these statements are based on reasonable assumptions. However, certain factors and risks, including those included in today's earnings press release and those described in reports that LXP files with the SEC from time to time could cause LXP's actual results to differ materially from those expressed or implied by such statements. Except as required by law, LXP does not undertake a duty to update any forward-looking statements. In the earnings press release and quarterly supplemental disclosure package, LXP has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures. Any references in these documents to adjusted company FFO refer to adjusted company funds from operations available to all equity holders and unitholders on a fully diluted basis. Operating performance measures of an individual investment are not intended to be viewed as presenting a numerical measure of LXP's historical or future financial performance, financial position or cash flows. On today's call, Will Eglin, Chairman and CEO; and Nathan Brunner, CFO, will provide a recent business update and commentary on first quarter results. Brendan Mullinix, CIO; and James Dudley, Executive Vice President and Director of Asset Management, will be available for the Q&A portion of this call. I will now turn the call over to Will. T. Wilson Eglin: Thank you, Heather, and good morning, everyone. Following the successful execution of our key strategic initiatives in 2025, including strengthening our balance sheet, increasing occupancy and resolving our big box vacancy. This year, we are focused primarily on creating value in our land bank and addressing our near-term expirations and existing vacancy. We've executed 3.2 million square feet of new leases and lease renewals year-to-date, highlighted by the successful outcome at our 1.1 million square foot facility in the Greenville-Spartanburg market. Additionally, we leased over 300,000 square feet of vacancy and extended the lease on an 850,000 square foot facility in San Antonio for 10 years. Industrial fundamentals continue to trend in the right direction with first quarter U.S. net absorption of approximately 40 million square feet, representing the strongest first quarter in 3 years. Our target markets made up approximately 29 million square feet or 72% of U.S. net absorption, demonstrating continued strength in our markets, particularly in Phoenix, Indianapolis, Houston, Dallas-Fort Worth, Atlanta and Columbus. These positive trends are reflected in our strong leasing momentum year-to-date as well as our forward pipeline in which we are in active discussions on 7.4 million square feet of development and redevelopment leasing vacancy and expirations through 2027. Leasing activity continues to be the strongest for large-format facilities, especially for those of 1 million square feet or more. We are also seeing increased demand from data center-related tenancy and manufacturing suppliers and industries in our markets. Leasing volume of 1.8 million square feet during the quarter included the extension at our 1.1 million square foot facility in Greenville-Spartanburg, which added considerable value. We renewed this lease for an additional 4 years to 2031, following the initial 2-year lease signed in May 2025. This extension enhanced the 8% initial cash stabilized yield on the development project with the new cash rent representing a 5% increase over the prior rent and 3% annual rental bumps. On the remaining 700,000 square feet we leased during the quarter, we achieved base and cash-based rental increases of 34% and 24%, respectively. Construction is underway at our 1.2 million square foot Phoenix development project that we announced on our last quarterly call. Since then, the remaining 2 million square feet in the West Valley has been leased, leaving no million square foot buildings currently available in the market. We are in discussions with a prospective tenant, and we are well positioned if they proceed with a lease in the West Valley market given the limited supply of million square foot buildings. We are evaluating other development opportunities in our land bank, including in Columbus, where we have 69 acres at our Aetna land sites, which can support 3 facilities totaling roughly 1.25 million square feet. In the last 12 months, net absorption in the Columbus market was 10 million square feet, resulting in a decline in vacancy of over 300 basis points. Columbus continues to be a strong distribution market with increasing demand across product sizes, particularly in the large format space and has seen an influx of tenant activity that supports data center and advanced manufacturing facilities. To the extent we move forward with future development projects, we intend to fund them through opportunistic asset sales in our nontarget markets. As we have noted previously, acquisition activity will be selective and will be funded via 1031 exchange transactions to defer gains on dispositions. I'll now turn the call over to Nathan, who will provide a more detailed overview of our financials, leasing activity and balance sheet. Nathan Brunner: Thanks, Will. Our adjusted company FFO in the first quarter was approximately $47 million or $0.80 per diluted common share, representing 2.6% growth over the first quarter 2025. Same-store NOI growth was 2% for the quarter, which was in line with our expectations. Our stabilized portfolio was 96.6% leased at quarter end and 97.1% leased proforma for new leases signed in April, in line with year-end 2025. We are maintaining both our 2026 adjusted company FFO guidance range of $3.22 to $3.37 per common share and 2026 same-store NOI growth guidance range of 1.5% to 2.5% with regard to the cadence of same-store growth for the remainder of the year, we anticipate that second quarter same-store NOI growth will be lower than the first quarter, reflecting the impact of first quarter move-outs and timing of lease commencement for new leases signed year-to-date. These new leases are expected to contribute to higher same-store NOI growth in the second half of the year. G&A in the first quarter was approximately $10.3 million, with full year 2026 G&A expected to be within a range of $39 million to $41 million. Turning to leasing. We continue to make good progress on 2026 expirations and have addressed approximately 3.7 million square feet or 57% of our total 2026 lease roll with an average cash rental increase of approximately 25%, excluding 2 fixed rate renewals. Will highlighted some of the larger leases that we executed year-to-date, and I'll touch on a handful of other notable leasing outcomes. During the quarter, we renewed 352,000 square feet at our 640,000 square foot facility in Charlotte, North Carolina for a 3-year term with 3.5% annual escalators, representing a 42% cash rental increase. We are actively marketing the remaining 288,000 square feet of the property, which expires in October 2026. Subsequent to quarter end, we extended the lease with the tenant that occupies 270,000 square feet at our multi-tenant facility in the Savannah market, which was a July 30 expiration. The 10-year lease extension with 3% annual escalators represents a cash rental increase of 19% over the prior rent. With respect to 2027 expiration, post quarter, we extended the lease at our 850,000 square foot facility in San Antonio for a 10-year lease term with 2.75% annual escalators. The lease extension commences in May 2027 with a 25% cash rental increase. We're encouraged by the active discussions underway on 4.6 million square feet of the 2026 and 2027 lease roll, including several of our larger facilities. We've leased 330,000 square feet of vacancy year-to-date. During the quarter, we leased 85,000 square feet in Indianapolis to a tenant involved in data center development, achieving a 34% cash rental increase. Post quarter, we leased our 250,000 square foot facility in the Houston market for a 7-year term with 3.75% annual escalators. The new Houston lease commences in June and represents a 25% cash rental increase. LXP's balance sheet remains in great shape with net debt to annualized adjusted EBITDA of 5.1x at quarter end. We had $1.3 billion of cash on the balance sheet at quarter end, and our $600 million revolving credit facility was undrawn and fully available. As we highlighted on our last call, the recast of our $600 million revolving credit facility and $250 million term loan in January extended the company's debt maturity profile and reduced interest costs, further strengthening the balance sheet and providing financial flexibility. Finally, we repurchased 325,000 shares in the quarter at an average price of $48.70 per share. With that, I'll turn the call back over to Will. T. Wilson Eglin: Thanks, Nathan. In summary, we're pleased with first quarter results and our strong leasing outcomes year-to-date. As we move through the year, we will remain focused on executing our strategic priorities, including disciplined capital deployment, pursuing value-enhancing growth opportunities, leasing our Phoenix spec project and remaining vacancies and driving mark-to-market rent growth. As the leasing market continues to improve, we're confident that our forward leasing pipeline of over 7 million square feet will result in numerous attractive leasing outcomes that produce strong mark-to-market results. With that, I'll turn the call back over to the operator. Operator: [Operator Instructions] Our first question comes from the line of Todd Thomas with KeyBanc Capital Markets. Todd Thomas: A couple of questions. One, on the -- you talked Will, about the lack of big box space in some of your major markets, including Phoenix, where you broke ground. Can you talk about how that's impacting the market? Are you seeing that translate into pricing power, better discussions around prospective rent growth or urgency from tenants? And then would you look to sort of derisk and pre-lease that development project? Or do you think it probably affords better return opportunities to hold off until it's closer to completion and delivery? T. Wilson Eglin: Yes, sure. Thanks, Todd. I think as we expected in Phoenix since our last call, the last 2 million-foot competitive buildings have leased. So we're essentially in a great position on that facility that we've started. We do have a prospect that we're working fairly closely with, but nothing to report today. I think we would prefer to pre-lease and derisk the investment and lock in a profit and then move on because there are other good opportunities in the land bank. You mentioned Columbus, that's another one that we think sets up pretty well for us. The big box demand is doing very well. And at the moment, we're quite optimistic about the outcome on Phoenix for sure. Todd Thomas: Okay. And then, Nathan, you indicated 57% of the 26 expirations have been addressed. I think that included some of the activity that occurred in April. Can you just provide an update on the remaining 26 expirations in terms of your expectations there, if there's any known move-outs? James Dudley: Todd, this is James. I'll take it. We've got really good activity on the remaining 2026 and the majority of which we're expecting to renew. We do have a few small known move-outs that are remaining. We've got a 97,000 square foot space in our multi-tenant building in Columbus, where we're expecting the tenant to move out. We're marking that to lease. We've got good activity on that one. And then I guess touching on a couple of the new vacancies that we had, too. We had the Tampa move out, the 230 that we've got some decent activity on recently and also the 120 that just moved out in the first quarter as well in Greenville-Spartanburg that we've got really good activity on. And then we've also got a very small lease in Greenville-Spartanburg of 70,000 square feet that we expect the tenant to potentially move out of and another one for 163,000 square feet in Greenville-Spartanburg that move out. So small move-outs, good activity in a strong market and the Greenville-Spartanburg stuff is concentrated mostly around the park that we own. So we've got a lot of different things we can do there from a size perspective and moving tenants around, we're talking to the tenants that are in or around in that space in the park currently trying to figure out if some want to expand. So again, good activity on that upcoming vacancy and the vacancy that we had in the first quarter. Todd Thomas: Okay. That's helpful. And just lastly, I guess, the 1.8 million square feet of vacancy, that opportunity in the portfolio, you estimate it to be about $0.32 a share. Is there anything embedded in guidance related to the lease-up of that vacant space that would hit or that's included in the guidance this year? Brendan Mullinix: Yes. Todd, maybe the way I'd frame that is back to kind of the underlying drivers of the guidance. And they're pretty much unchanged versus our Q4 earnings call. That is average occupancy for the portfolio at the midpoint is about 96.5% which is essentially in line with where we finished Q1 or a little above that with some of the activity we had in April. At the high end of guidance, average occupancy be 97% and at the low end, average occupancy would be 96%. Operator: Our next question comes from the line of Anthony Paolone with JPMorgan. Anthony Paolone: Given the comments on Columbus, what's the likelihood that you start a project or two this year? Brendan Mullinix: It's Brendan. Nothing to announce today, but as has been noted, the fundamentals in Columbus are very positive today. We've been seeing a lot of demand from both data center-related uses and manufacturing as well as the demand drivers that have existed in that [indiscernible] market for some time. At the moment, we can -- we're -- in order to position ourselves with the most flexibility, we're doing predevelopment work, including design work on 3 different sized buildings there. We can build a total of 1.25 million. And that will just allow us the maximum flexibility to respond to where we see the most favorable supply and demand. Anthony Paolone: Okay. And is the pipeline outside of what you have on your balance sheet right now for things like build-to-suits and development? Has that changed much? Is there much activity there with any other developers that you might be working with right now? Brendan Mullinix: Well, I should have also added too, just with respect to the existing land bank, we are additionally responding to build-to-suit interest at both our Columbus sites and our Phoenix sites. So there's that build-to-suit opportunity in the land bank as well as considering speculative development if the fundamentals are there and remain there. With respect to other opportunities, yes, we do have conversations with the merchant builder relationships that we have from time to time about build-to-suit opportunities outside of our land bank as well. But nothing imminent to report on today on that front. Anthony Paolone: Okay. And then just last one, the stock buyback, just you've done a little bit there. What's the appetite at current levels? And just how does it fit into the capital allocation right now? T. Wilson Eglin: Development is a better investment from our standpoint with respect to creating shareholder value. So we have some liquidity that we can use for buyback opportunistically. But what's happening in the development there, especially in Phoenix is a much larger driver of value creation. Operator: Our next question comes from the line of Vince Tibone with Green Street. Vince Tibone: A question for Nathan. I'm curious within guidance, how much new leasing is kind of baked into the low end, high end? Because it sounds like you have a pretty good pulse on known move-outs and retention rates. So just trying to get a sense of do you need to lease another 300,000 square feet of existing vacancies or move-outs to hit the midpoint? Or is it lower? Just trying to get a sense of the kind of different outcomes besides just move-outs on the new leasing side that could move the numbers within guidance, whether it be same-store or FFO. Brendan Mullinix: Yes, Vince. So going back to James' answer a little earlier in the Q&A here. We have 3 known move-outs essentially in the second half, which is roughly 550,000 square feet. So in the context of our earnings guidance at the midpoint, we're essentially saying that on average during the year, including Q1, occupancy will be 96.5%, which is in line with Q1. So the guidance at the midpoint essentially assumes that we have new leasing activity with regard to all of that move-out activity. And then so if you look to the high end of guidance where average occupancy is 97%, there's obviously incremental new leasing beyond the 550 of move-outs. Vince Tibone: No, that's helpful. And just a follow-up. It looks like just some quick math. It looks like the retention rate is going to be higher than we previously projected. Is that fair? I think on the last call, you indicated it would be about 70% and it looks like just given the first quarter move-outs and the 500 you mentioned there, it looks like retention will be yes, closer to 90%, if my math is right, in the 80s. Is that -- is my logic correct there? Brendan Mullinix: We're building in some buffer for unknown situations that they come up. There's always something that comes up in the back half of the year that you're expecting. So there's some buffer. Our guidance is still based on 70% to 80% retention. Vince Tibone: Got it. And then just last one from me. Just on the -- you mentioned if you're going to proceed with any new developments, you would likely fund it with dispositions -- is there any chance you look to sell out of the cold JV or the remaining net lease office JVs? Or kind of what's the strategic rationale to hold on to those joint venture assets that are now very different from the rest of the portfolio? T. Wilson Eglin: Well, yes, there's not much left in the office JV, Vince, and we have been sort of liquidating that as quickly as the market will bear. In the other industrial joint venture, we're a 20% partner there. So it's -- with the majority partners entirely up to us. We do have some opportunities to make some good sales in that portfolio. So we do expect that it will shrink modestly over time. But it's an investment that produces a pretty high return on equity for us, and it keeps us with a modest exposure to the manufacturing business, which gives us some insights into the logistics demand in some of those manufacturing hubs that we're invested in. Operator: Our next question comes from the line of Jim Kammert with Evercore. James Kammert: I think, Nathan, you mentioned 4.6 million square feet or so of lease renegotiations for new lease expirations. How much or does any of that encompass you guys two big Nissan deals in early '27 and then 1 million square footer in Jackson, Tennessee. Any color or updates on those would be appreciated. I didn't know if that was in your 4.6 million square feet. James Dudley: Jim, it's James again. I guess I'll touch on the 2027. Yes, we've got a number of chunky leases in 2027, and we're in advanced negotiations in some cases and definitely talking to all the tenants for these large boxes and expect a very high rate, if not 100% renewal on the big boxes that we have that includes Nissan. Operator: Our next question is from the line of Mitch Germain with Citizens Bank. Mitch Germain: I think, Will, you mentioned any new development would be matched with -- or new potential development would be matched with asset sales. Is that -- are you going to sell ahead of the project commencement and kind of sit on those proceeds like you've done at the end of 4Q with Phoenix? Or how should we think about the cadence regarding how that process could play out? T. Wilson Eglin: No, I think it's preferable to match fund sales with stabilized outcomes for development. So we had some disposition activity last year that left us in a very strong cash position to fund the project in Phoenix. But I think we would prefer to hold on to the income from the assets that we might sell to fund development and try to match things better. Mitch Germain: Got you. And then last one for me. Obviously, a significant amount of demand acceleration happening in the industrial sector. You mentioned a 7-plus million square foot pipeline. Any sort of themes, industries that you're seeing that are driving more demand versus others? James Dudley: Brendan touched on it a little bit. We've seen a big uptick in data center adjacent demand in a number of our markets, and we're fortunate to be placed well for those potential tenants as well. You've seen a couple of big leases get done for Meta and for AWS in Phoenix that took down a couple of the big boxes there. There's been a lot of new activity in Columbus that's data center related as well. And then we've got our Richmond redevelopment where there's a big Google data center campus going in next door. So I think that's one of the things I would point out. There's also continue to be growth in supplier demand for advanced manufacturers that we're seeing continue to grow and develop their different opportunities. I'll bring Phoenix up again with TSMC moving along and some of the ancillary demand that's popped up there. So we're starting to see a pickup there. So manufacturing and data center adjacent, I think, has definitely been the recent theme and a big pickup in the demand. Operator: [Operator Instructions] Our next question comes from the line of Jon Petersen with Jefferies. Jonathan Petersen: Just one quick question for me. The senior notes that are due in '28, the $160 million with a 6.75% interest rate. Can you remind us, are those callable early? Like should we think about you taking those all the way to maturity? Or should we assume you're able to refinance those early? Brendan Mullinix: They have a make call structure. So they're technically callable, but it requires the payment of premium. Operator: Thank you. And at this time, we have no further questions. I will now turn the call back over to Will Eglin for closing remarks. T. Wilson Eglin: We appreciate everyone joining our call this morning, and we look forward to updating you on our progress over the balance of the year. Thanks again for joining us today. Operator: This concludes today's conference call. You may now disconnect your lines. Have a pleasant day.
Operator: Good morning, and welcome to Bausch + Lomb's First Quarter 2026 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to George Gadkowski, Vice President of Investor Relations and Business Insights. Please go ahead. George Gadkowski: Thank you. Good morning, everyone, and welcome to our first quarter 2026 financial results conference call. Participating on today's call are Chairman and Chief Executive Officer, Mr. Brent Saunders; Chief Financial Officer, Mr. Sam Eldessouky; and President of Consumer, Mr. John Ferris. In addition to this live webcast, a copy of today's slide presentation and a replay of this conference call will be available on our website under the Investor Relations section. Before we begin, I would like to remind you that our presentation today contains forward-looking information. We would ask that you take a moment to read the forward-looking legend at the beginning of our presentation as it contains important information. This presentation contains non-GAAP financial measures and ratios. For more information about these measures and ratios, please refer to Slide 1 of the presentation. Non-GAAP reconciliations can be found in the appendix to the presentation posted on our website. The financial guidance in this presentation is effective as of today only. It is our policy to generally not update guidance until the following quarter unless required by law and not to update or affirm guidance other than through broadly disseminated public disclosure. With that, it's my pleasure to turn the call over to Brent. Brenton L. Saunders: Thanks, George, and good morning, good afternoon and good evening to everyone joining us today, including my colleagues from around the world. Before we get into the quarter, I want to address the question we hear most from investors. It's not whether our markets are growing or whether we have the right portfolio. The real question is, when will our earnings consistently reflect the strength of this business? Let me start there. Bausch + Lomb is a durable growth company. We operate in a category with long-term tailwinds, aging populations, rising myopia and a move toward premium products in cataract surgery. That demand is not in question, and you see it in our performance. We're growing consistently across Pharmaceuticals, Surgical and Vision Care. What is changing and what matters most for shareholders is the quality of that growth. Over the past 3 years, we focused on building a strong and lasting foundation, simplifying the organization, driving cost discipline, improving execution. It's a fundamental shift that started to translate into operating leverage and margin expansion in the second half of 2025. You're seeing it in our mix as higher-margin categories like dry eye and premium IOLs become a larger part of the portfolio. You're seeing it in how we manage expenses with a much sharper focus on accountability, and you're seeing it in the consistency of our execution. We understand investors' focus on earnings consistency and leverage. We're addressing both through disciplined execution and continued adjusted EBITDA growth that supports deleveraging over time. 6% year-over-year constant currency revenue growth demonstrates the consistency I referenced earlier. More importantly, what we're proving quarter-by-quarter is that we can convert that growth into high-quality earnings with 59% adjusted EBITDA growth and 16.1% adjusted EBITDA margin in Q1, thanks to enduring structural changes. The patterns and proof points we're establishing position us well to deliver sustainable value for shareholders. Three years ago, we set a clear plan, and we've executed against it with discipline. We're not making heel turns or concentrating risk in one area. We're doing exactly what we said we would, driving sustainable growth and margin expansion, improving how we sell and operate and continuing to invest in a pipeline that will carry us forward. On the growth front, I'd highlight an outstanding first quarter performance from Pharmaceuticals with 12% constant currency revenue growth and 14% reported revenue growth. That's a prime example of selling excellence. AI is becoming an increasingly important driver of operational excellence across the business. We're embedding it into how we work from improving sales effectiveness and enabling more targeted customer engagement to streamlining operations and reducing reliance on external vendors and utilizing AI in drug discovery. Just as importantly, we're continuing to invest in our people, making upskilling a priority so teams can use these tools in practical and impactful ways. This is not a stand-alone initiative. It's a fundamental shift in how we operate and create value. As we said before, our pipeline isn't theoretical. It's active and progressing. We continue to deliver concrete milestones that show execution, not just ambition, which I'll touch on shortly. Our 3-year plan for growth and meaningful margin expansion we presented at Investor Day in November is advancing with significant year-over-year improvements. One call-out is a more than 300 basis point improvement in adjusted SG&A margin, a direct result of company-wide buy-in to our Vision '27 initiative and the muscle we continue to build around financial discipline. Keep in mind, these are part of an enduring structural change I referenced earlier. The plan calls for steady acceleration of revenue growth and margin expansion through 2028, and we remain confident in our ability to meet or exceed the targets we set. This is a pipeline that's moving. In the first quarter, we filed the NDA for LUMIFY NXT, formerly LUMIFY Luxe, and completed CE Mark submission for seeLYRA, while trial recruitment remains on track. These advancements demonstrate both development and regulatory progress. Commercialization is on full display as well, with both PreserVision AREDS3 And Blink Triple Care preservative-free shipping in the first quarter. We'll cover both later, but I can tell you anecdotally that the buzz for both products is real based on my own conversations with eye care professionals at various industry gatherings. This is what pipeline momentum looks like, consistent, visible and building. It's important to note that we delivered an impressive financial results while increasing our R&D investment by 17% in the quarter, which shows that growth and innovation are moving forward together. The dynamics in eye health are evolving, and that's clearly working in our favor. We're the most diversified eye health company in the world with broad-based growth across key brands. It's a simple formula. The broadest portfolio leads to deeper customer, patient and consumer relationships, which drive more consistent and long-lasting performance. I referenced our standout Pharmaceutical first quarter performance earlier, but would also note that our Vision Care segment, which includes both contact lenses and consumer products, continues to deliver. Contact lens growth was a particular bright spot as it appears will once again outpace the industry, thanks in large part to 25% growth in our daily SiHy portfolio. Our Surgical business delivered growth in the quarter, though the results came in below expectations, primarily due to temporary factors, including weather-related disruption to cataract procedures and reimbursement pressures in select markets. This also reflects a challenging comparison to Q1 2025 when the business grew 11% on a constant currency basis. More importantly, we took deliberate action to strengthen our competitive position by rebuilding our U.S. surgical field force. This was not a reactive move, but a strategic reset to ensure we have the right structure, capabilities and focus to fully capitalize on our expanding portfolio of premium products and upcoming launches. While there is some near-term transition impact, early signs are encouraging with improving execution, rising productivity and sales trends moving in the right direction. What gives us confidence is the underlying trajectory of the business. Our premium strategy continues to gain traction. In the U.S., premium products represented 26% of Q1 sales, up from 19% last year, with global mix increased to 13% from 10%. enVista U.S. sales grew 16%, with Envy up 88% year-over-year as we continue to build momentum post recall. In addition, U.S. system placements were nearly 3x higher than the prior year, position us well for future procedure growth. These are clear leading indicators of improving performance. As the new commercial structure scales and our premium mix continues to expand, we expect the Surgical business to strengthen sequentially through the year and beyond. I'll now turn it over to Sam to unpack first quarter financial drivers and update guidance. Sam? Osama Eldessouky: Thank you, Brent, and good morning, everyone. Before we begin, please note that all of my comments today will be focused on growth expressed on a constant currency basis, unless specifically indicated otherwise. In addition, all references to adjusted EBITDA will exclude Acquired IPR&D. Q1 was a strong quarter with robust top line growth and margin expansion. We delivered meaningful operating leverage with adjusted EBITDA reported growth of 59% on a year-over-year basis. The performance highlights the structural changes we have made to drive operating leverage, which are now translating into P&L flow-through. We have simplified our operating model, streamlined indirect support to better align resources with growth opportunities and started implementing productivity initiatives across manufacturing and supply chain. Taking a step back, we are building on our 2025 momentum and continuing to execute against the targets we outlined at Investor Day. This marks our third consecutive quarter of delivering on our priorities, and Q1 results reinforce that our focused execution is keeping us well on track to achieve our 3-year targets. Turning now to our financial results on Slide 9. Total company revenue for the quarter was $1.244 billion, up 6% year-over-year, reflecting strong underlying demand. Foreign exchange was a tailwind of approximately $42 million in the quarter. Now let's dive into each of our segments in more detail. Vision Care first quarter revenue of $711 million increased by 5%, driven by strong growth in both consumer and contact lenses. Let me go over a few highlights. The consumer business delivered 5% growth in the quarter. LUMIFY generated $55 million of revenue, up 15%. The consumer dry eye portfolio delivered $114 million of revenue in the first quarter, up 16%. Growth was driven by Artelac, which was up 25%; and Blink, which was up 5%. Eye vitamins, PreserVision and Ocuvite grew by 2% in the first quarter. Contact lens revenue growth was 5% in the first quarter. The growth was led by Daily SiHy and our Ultra franchises. In the first quarter, Daily SiHy was up 23% and Ultra was up 3%. The contact lens business grew in both the U.S. and international markets, with the U.S. up 6% and international up 4% in the quarter. Moving now to the Surgical segment. First quarter revenue was $228 million, an increase of 1%, lapping 11% growth in the prior year. As Brent mentioned, the Surgical business was impacted by, among other things, onetime weather-related disruption and a rebuild of the U.S. field force, which is a strategic action designed to strengthen our execution as the year progresses. In Q1, implantables were up 3%. Our Surgical portfolio continues to transition to higher-margin premium categories with growth in premium IOLs up 27% for the quarter. Consumables were up 2% in the first quarter. Equipment revenue declined 4%, driven by a greater mix of system placements that position us well for future pull-through sales. Revenue in the Pharma segment was $305 million in Q1, an increase of 12%. Our U.S. Pharma business was up 14% in the quarter with strong execution across Miebo and Xiidra. Miebo delivered $76 million of revenue in Q1, up an impressive 33% year-over-year as it continues to scale in line with normal seasonality. Consistent with our commitment, Xiidra delivered revenue growth in the quarter. Xiidra revenue was $87 million, up 30% on a year-over-year basis. As we've discussed, the dry eye portfolio has moved beyond the launch phase and is now in growth mode. With the platform established, we expect increasing bottom line leverage while continuing to invest behind the highest return opportunities. We are confident in the portfolio's trajectory and expect sustained revenue growth and margin expansion from both Miebo and Xiidra. Finally, our International Pharma business was up 7% in the quarter. Now let me walk through some of the key non-GAAP line items on Slide 10. Adjusted gross margin for the first quarter was 61.2%, which was up 170 basis points year-over-year. In Q1, we invested $101 million in adjusted R&D, an increase of 15% year-over-year as we continue to focus on advancing the pipeline to drive the substantial opportunity ahead of us. In the quarter, we saw approximately 340 basis points of adjusted SG&A margin improvement and delivered meaningful operating leverage. This highlights the structural changes implemented in 2025, which have been in place and effective for the last couple of quarters. We are driving SG&A efficiencies and delivering growth with a lower fixed cost structure. That discipline is translating into meaningful operating leverage, which is an outcome we expect to continue. First quarter adjusted EBITDA was $200 million, up 59% year-over-year on a reported basis. And adjusted EBITDA margin was 16.1%, expanding 500 basis points year-over-year. Adjusted cash flow from operations was $45 million in the quarter, and CapEx for the quarter was $100 million, including capitalized interest of $7 million. This reflects the normal first half cash generation cadence. As we move through the year, we expect operating cash flow to increase driven by earnings growth and working capital efficiencies with a lighter CapEx profile in the second half. Net interest expense was $93 million for the quarter. We remain focused on progressing towards our 3.5x net leverage target by the end of 2028. Our net leverage improved in the quarter and we expect to make continued progress over the course of the year. Adjusted EPS, excluding Acquired IPR&D, was $0.08 for the quarter compared to a loss of $0.07 in the prior year. Now turning to our 2026 guidance on Slide 13. The fundamentals of our business and the eye care market remain strong, and the momentum we're seeing reinforces our outlook. We delivered a strong start to the year, and the Q1 results further strengthen our confidence in our ability to execute through the remainder of 2026. We are raising our full year revenue guidance by $45 million to a range of $5.42 billion to $5.52 billion. The updated revenue guidance reflects constant currency growth of approximately 5.3% to 7.2%, up roughly 30 basis points versus our prior outlook. Turning to adjusted EBITDA. We are raising our full year guidance by $10 million to a range of $1.01 billion to $1.06 billion. This reflects a margin of approximately 19% at the midpoint of the guidance range and adjusted EBITDA growth of approximately 16% on a year-over-year basis. We are executing our margin expansion strategy with discipline and momentum and continue to expect meaningful operating leverage in 2026, with adjusted EBITDA growing at a rate of nearly 3x that of revenue. In terms of the other key assumptions underlying our guidance, based on current exchange rates for the full year 2026, we estimate currency tailwinds of approximately $50 million to revenue. We expect adjusted gross margin to be approximately 62% and investments in R&D to be in the range of 7.5% to 8% of revenue. Below the line, we continue to expect interest expense to be approximately $365 million and our adjusted tax rate to be approximately 19%. Full year CapEx remains unchanged and is expected to be approximately $285 million. As mentioned, CapEx is weighted to the first half of the year and spend is anticipated to be lighter in the second half of the year. In conclusion, Q1 was our third straight quarter of delivering on our strategy, and we are firmly on the right path. We are executing against our priorities, driving operating leverage and margin expansion and seeing that discipline convert into tangible P&L results. As we move through 2026, execution will remain our top priority and the momentum we have established reinforces our confidence in achieving our 3-year targets. And now I'll turn the call over to Brent. Brenton L. Saunders: Thanks, Sam. We'll now hear from John Ferris, President of our Consumer business, who will explain how we're leveraging leading brands to drive performance while broadening our reach through new product rollouts. John Ferris: Thanks, Brent. Bausch + Lomb is the #1 consumer eye health company globally, anchored by our strength in the U.S., where we've built a durable portfolio of hero brands. From PreserVision, the gold standard in eye vitamins to LUMIFY, the #1 redness reliever to Blink and dry eye, we've continued our track record of growing faster than the market and winning share in the categories that matter most. And that strength extends globally, where we're building an international consumer powerhouse led by Artelac, our high-growth dry eye franchise now available in more than 40 countries. A few call-outs on first quarter performance. Artelac delivered 34% reported revenue growth with no signs of slowing as our geographic footprint continues to expand. Blink has now grown for 7 straight quarters under Bausch + Lomb management. And with the newly available Triple Care preservative-free offering, we expect to attract new users as we continue to infuse the brand with clinically meaningful innovation. We grew 2% in eye vitamins, a category we built and have led for decades. PreserVision increased market share during the quarter, and we're extending that leadership by significantly expanding the addressable market in AMD with the introduction of our AREDS3 formula, which incorporates B vitamin science. More on that in a moment. And finally, LUMIFY, 15% reported revenue growth nearly 8 years after launch with a 6% share gain in the quarter. We now hold close to 70% of the U.S. redness relief market. That's what a true power brand does. It keeps building. In consumer, innovation is the engine behind the enduring brands, and our pipeline reflects exactly that. PreserVision AREDS3 is now available nationwide on retail shelves and online with distribution continuing to build. This launch changes the game for us in the AREDS formula eye vitamin category. With the addition of our unique B vitamin complex, we're no longer limited to serving the 11 million intermediate to advanced AMD patients. We can now meaningfully address an additional 17 million early-stage patients. That's a significant expansion of our addressable market and we're building toward it the right way with professional endorsement first. We've hosted educational events at major industry meetings, completed dedicated field force training and began detailing and sampling more than 8,000 targets earlier this month. It's early in the launch, but initial retailer orders in the first 60 days have exceeded expectations and the sales velocity on Amazon is tracking well with a 4.7 star user rating. Turning to LUMIFY. LUMIFY is beloved by over 3 million highly satisfied users with a commanding 95% share of U.S. eye care professional recommendations. And yet we believe we've barely scratched the surface of what this brand can become. The core audience for LUMIFY, beauty enthusiasts is 100 million strong. That's a significant and largely untapped runway for growth. We've built a highly differentiated durable brand with the scale, premium positioning and professional credibility that make it increasingly difficult to displace. Later on LUMIFY NXT, expected to launch in the first half of 2027, and we believe we have a clear path to continue building one of the most enduring brands in consumer eye health. Brenton L. Saunders: Thanks, John. Let's turn our attention to the biggest revenue drivers in Pharmaceuticals. You'll notice that we've moved from highlighting prescription growth to focusing on revenue, aligned with our strategy as Miebo enters the next phase of growth and our refreshed Xiidra market access approach takes hold. The acceleration we're seeing in Miebo revenue, which saw a 33% increase, shouldn't come as a surprise. It's consistent with the trajectory we've been building, strong uptake, growing familiarity among prescribers and increased confidence in the product. The same is true for Xiidra, which grew 30%. We said revenue growth was a priority, and that's exactly what we delivered and [ then some ]. There's nothing sudden or unexpected here. It's the result of steady, disciplined execution against a clear plan. This is the strategy working as designed. Together, Miebo and Xiidra continue to anchor our dry eye portfolio, providing a strong and complementary foundation for growth. And with seasonality working in our favor, we expect that momentum to build as the year progresses. Our contact lens business continues to deliver, reflecting the strength of our portfolio and reinforcing our position as a reliable performer. As noted earlier, 5% constant currency revenue growth in the category was driven by continued outperformance from our Daily SiHy lenses. We expect that momentum to continue as we execute a disciplined strategic rollout of planned SiHy offerings across the globe over the next few years. As we continue to build momentum with our current portfolio, we remain focused on what's next. Beginning in 2028 with Project Halo, we have a new wave of disruptive lenses progressing through the pipeline that we believe position us to capture additional market share in a highly cost-effective way. It's a clear example of how we're pairing near-term execution with long-term innovation. While the overall Surgical business performance in the first quarter wasn't quite up to our standards, our premium IOL portfolio remains a bright spot with 27% constant currency revenue growth. Our desire to develop a premium heavy IOL portfolio has been no secret, and the transition is well underway. With the early April launch of enVista Envy in Europe, our first attractive premium IOL in the region, our expansion into the higher-margin segment continues. Envy will complement our European LuxLife offering, giving surgeons optionality to meet their evolving needs. We expect continued momentum in premium IOLs as we expand globally and drive a greater mix of higher-value offerings. We've talked about our pipeline potential. Now you're seeing the reality. Advancement is happening across multiple programs and stages with a steady cadence of milestones being achieved. Importantly, this is not a near-term peak. It's a sustained profile. This is the pipeline built to deliver year after year well into 2030 and beyond. Now let's open things up for questions. Operator? Operator: [Operator Instructions] And the first question today is coming from Matt Miksic from Barclays. Matthew Miksic: Great. Congratulations, Sam and Brent and team on a really strong start to the year. So I wanted to maybe start with just a question about the strategic -- some of the strategic elements that are coming together to sort of drive the leverage that you've talked about and the drop-through that you're seeing. Operator: Apologies. We seem to have lost Matt. We will bring Matt back in when he reconnects. In the meantime, we'll move to Robbie Marcus from JPMorgan. Robert Marcus: Congrats on a good quarter. Maybe I'll just ask my two upfront. I wanted to ask about two different markets, dry eye and contact lenses. Miebo was good. Xiidra was a lot better than expected. Maybe speak to what you're seeing there, particularly with Xiidra and what drove the pretty substantial year-over-year growth. And then I'll just ask second, contact lenses that was in line. What are you seeing there from a market perspective? We've seen over the past few quarters, the market decelerating as pricing has moderated. You put up 5% growth, 6% in the U.S., 4% outside the U.S. Just what you're seeing there in the market and how you think you're faring? Brenton L. Saunders: Yes. Thanks, Robbie. So let's take dry eye first. The way I think about it and really the important part of our strategy we started implementing a few years ago was to be an absolute leader in dry eye, both on the prescription and the OTC side. And strategically, the point was to be able to provide the full continuum of care for the patient wherever they are, whether that be in the OTC channel or in the prescription channel. As you know, it's a very large and underpenetrated market. And having -- and it's a multifactorial disease. And so being able to offer both the only anti-evaporative and the best anti-inflammatory treatment in the prescription market really complements one another. And so the first 2 years or so of Miebo and Xiidra, we were really focused on adoption, right? That's the launch phase that we talk about a lot. And so we made a lot of investments in making sure that prescribers and patients really understood the mechanisms, the benefits and risks of each medicine and how they work together. We had to get adoption and trial. We had to make sure clinical and medical information was well understood and of course, consumer activation with DTC and the like. As we look at what we're doing now, and I've talked about consistently through last year was shifting from launch to growth in 2026. And what I meant by that, and I think I said it on every earnings call last year was we were going to focus on revenue growth and profitability of these franchises. And I think you're seeing that play out in the quarter. I know you described Miebo as being okay, but 33% revenue growth to me is better than okay, Robbie. Maybe you and I have a different point of view. And Xiidra at 30% growth for a brand that's been on the market for several years is very impressive. And so we have a lot of momentum in dry eye. The category still is very underpenetrated from a prescription perspective. We're seeing the market expand. Even with some limited competition that launched last year, we're seeing more than our fair share. We're seeing market expansion. And so the market is reacting exactly as we'd expect. And given our pipeline with the dual action R&D program we have, we're committed to this category and driving innovation in it. So I think you're going to see this momentum continue to build. And the last thing I would say is, remember, there is a lot of seasonality in the dry eye market with the first quarter being the weakest and the fourth being the strongest, largely due to the way reimbursement and insurance plans work. And so to put up those kind of numbers in the first quarter, in particular, is a real testament to the team's execution and our ability to drive growth. I think you're going to see that momentum only improve as seasonality becomes a tailwind and execution continues to sharpen. On contact lenses, data is a little harder to come by than it is in the prescription world, right, in the pharmaceutical world. But I think I told folks on the fourth quarter earnings call that we anticipated that 2025 market growth was around 4% and that I thought it was going to improve in 2026, somewhere between 4% to 5%. And I think when you look at our growth, and we know at least one competitor reported and we're more than about double their growth in the quarter, a little less than double their growth in the quarter. I think you're going to see us lead the market in growth. And what's interesting, and you pointed this out, the growth was much higher in the U.S. than outside. And the reason is we offer all the modalities in the U.S. We have the full portfolio. And it's much easier to become the lens of choice when you have the full lineup of modalities. It's much more difficult to get a prescriber to offer a lens when you don't have a toric or a multifocal in that line. And that's exactly what we're doing now. We're starting to launch the other modalities in other markets around the world. And so I do think you're going to see the rest of the world look more like the U.S. in time. And then lastly, I would say there's always a little seasonality, not as much -- not as profound as in Pharmaceuticals, but the first quarter is always a bit slower in contact lenses as we saw first quarter of last year as well. And if you look at the pattern from last year, Robbie, our growth increased sequentially throughout the year, and we anticipate that happening this year as well. So I feel like the contact lens market is modestly improving and our performance -- our goal is to outperform the market. Robert Marcus: Really helpful, Brent. I always talk relative 33% is a good absolute year-over-year growth. Brenton L. Saunders: Robbie, when you put up a 33% growth on a year 3 or year 4 of a product, that's still pretty impressive. Operator: The next question will be from Joanne Wuensch from Citibank. Joanne Wuensch: I'll put my questions upfront. I'm curious what you're seeing globally as we think about the impacts of world order on the consumer. And I'm also coming closer to home, sort of curious what you're seeing in terms of implementation of your strategy and what gives you confidence as you go through the year? Brenton L. Saunders: Yes. So Joanne, just to clarify, you're talking about the Middle East and the repercussions when you say consumer sentiment or... Joanne Wuensch: Middle East repercussions, consumer sentiment, inflation, I'm just going to put it in the new world order. Brenton L. Saunders: All right. Yes. No problem. Look, I would say this, and I'm going to ask John Ferris, our Head of Consumer, who's with us here to also weigh in because he tracks this very closely as well. And then maybe, Sam, if he has any comments as well. Look, the one thing I would say that gives me great confidence to navigate through some of the world uncertainty is this team is tested and prepared and focused. And I think if you watched us deal with many different obstacles throughout the last 3 years, I hope it gives you some sense of confidence that we can do that. You look at let's just take the Middle East as an example. We have a dedicated team that focuses on looking at transportation, supplier negotiations, cost efficiencies on a weekly basis. So we plan for them. We don't react to them. I think when you look at oil and freight costs, it's probably a little too early to quantify the impact, but we don't see an impact in our numbers in the first quarter. It was quite minimal. And it wasn't really -- the impact we saw wasn't demand related. It was really logistical and making sure that we were able to get our products where they needed to be at the right cost. I think in fairness, the fix is somewhat straightforward for us on that regard. It's more planning and making sure we have inventory in the right location at the right cost with the right shipping frequency, and that's what the team is very focused on. I think finally, I'd say that being said, if we see oil costs remain persistently elevated, it could become a bit of a headwind for us. But I think it's too early to call. And if you recall, at this time last year, we were talking about tariffs and folks were asking us to quantify tariffs. And we really pushed back saying that we could manage through that. It was too early to call, and we navigated through that disruption quite well, I think. And I think we'll be able to do the same with higher energy costs as well. Finally, I would say in terms of my view on consumer confidence, I think it's fine is the best way to say it. I think some markets are different. I think the U.S. is holding up more resilient than perhaps China and Southeast Asia at this moment in time. But overall, globally, I would say it's exactly as we predicted it to be and exactly how we think the year will play out is playing out so far. But John, any other -- you're much closer to the consumer. John Ferris: Yes. I'd say we're always mindful of consumer sentiment. But that being said, our business has proven resilient through multiple cycles of macro headwinds that we think post pandemic. Brent mentioned inflation and tariffs, and now we talk about affordability. Part of that resilience comes from the need-based categories that we compete in, but a larger part comes from our execution and really the strength of our brands. So I think we've shown we can consistently grow our business faster than the market, even in challenging environments with some macro headwinds. So that gives us confidence moving forward. But I will say, hey, we're always mindful of the health of the consumer and keeping a close eye on it. Operator: And the next question is coming from Matt Miksic from Barclays. Matthew Miksic: So maybe a follow-up on Surgical here and just one quick one on contacts. The really great growth sort of as expected. I don't want to take away from the credit, but... Brenton L. Saunders: Or maybe a wrong expectations. Matthew Miksic: But that's good. It's probably right. I mean at ASCRS, it seems like there was a lot of interest and traction and feedback from doctors has been very good on your lenses, your ATIOL lenses and on equipment. And so maybe just to round out some of the success you're seeing in this time last year, you had to pull some products, you got them back into the market and they're now sort of regaining that momentum. On the equipment side, I mean, the numbers would say equipment is down, but that wasn't the feedback that I got from clinicians and -- or from the conference that there was some sort of share shift in equipment. Maybe if you could talk a little bit about that. And then I had one quick follow-up. Brenton L. Saunders: Yes. So I think you're right. As I mentioned in the prepared remarks, there was a focused rebuild of our Surgical U.S. field force, much like we did in Pharma and in contact lenses. So we have a lot of experience in making sure that our frontline salespeople are the best in the industry, and we're doing that in Surgical as well. And so when you think about what I said in the prepared remarks, our system placements were 3x higher than they were Q1 of last year. That's probably the strongest leading indicator to support what you saw at ASCRS. And so we feel very confident that equipment and the consumable pull-through will continue to strengthen sequentially throughout the year. Our team is doing an excellent job in placing and getting trial, and that will result to higher sales as time goes. So I feel very good. I think on the premium side, 27% constant currency growth there. And very impressive, Envy up 88%. And so you see the momentum that we had in that tough first quarter comp last year where prior to recall is back, right? I think I can fully say Envy is the best trifocal in the market, providing the best outcomes for patients and doctors and surgeons are recognizing that. So I feel very good. And the last thing I would just say, the momentum and part of my optimism of sequential improvement in surgical is while we focus on the U.S., we just launched in April in this quarter, Envy and Aspire in Europe. We're just launching our new Bi-Blade for retitrectomy in Europe this month. We're launching it in the U.S. in the third quarter. We're upgrading the entire portfolio globally to preloaded from the enVista line, which is very important to surgeons. That's just happening this quarter. And then, of course, in the second half, we expect to launch Elios within our -- and assumed approval in the second half. So a lot of really positive momentum in the surgical business to be seen throughout the year. Matthew Miksic: That's great and super helpful. And then just on some of the geographic performance in contact lenses, really strong, yes, 6% U.S., international also 4%. But I guess heading into the quarter, we had heard or maybe from some of your competitors' results to more uneven performance, particularly in Asia Pac and maybe around Japan or some of the other markets. Can you talk a little bit about what you saw there and whether that's -- you're just offsetting that with strong growth elsewhere or whether you're seeing anything like that and what it looks like in terms of trends? Brenton L. Saunders: Yes. So I think from a market perspective, and let's talk about our performance in that market because they do bifurcate a bit. I think in fairness, the market in the U.S. is the strongest followed by Europe and then Asia. And Asia, it's more of a China, Southeast Asia kind of softness that I'm not worried about long-term trends. I think it's more of an economic muting of the market. But I do think it will come back and long term, I think, is a very important market for us. Japan has been a flat to declining market for the last few years. But in fairness, this is where I think we bifurcate, our Japanese business was up 4% in the year. And remember, as I mentioned in the first question, we're just starting to launch the new modalities or additional modalities of our Daily SiHy portfolio into these markets. So if we can kind of perform better than the market in those even troubled or softer markets, and we're doing that organically and the new products are still on the come. I feel very good about where we're positioned to grow faster than the market and take more than our peers. Operator: The next question will be from Young Li from Jefferies. Young Li: I guess maybe a follow-up on the [ Nigel ] question earlier that we looked at the monthly script trends for Miebo, January and February were a lot lower sequentially. March rebounded pretty strongly. I think the April weekly numbers are also looking pretty good. I think you did address some of the dynamics driving that. But I just wanted to put a finer point on it since we did get some attention from investors on that topic. I guess what drove the big decel -- sequential decel in scripts in January, February and then the subsequent rebound in March and then your confidence level on the sustainability of those improving trends for the rest of the year, especially with a big dry eye launch still ramping? Brenton L. Saunders: Yes. No, great question. Look, I think this is the new normal. And what I mean by that is as we've moved away from launch mode and we're a much bigger product, we're going to see the impact of true seasonality in this business for the foreseeable future. And it's all driven by the way insurance works. It's going to be totally normal. You're going to see it again next year and the year after that and the year after that. With higher co-pays, higher deductible plans and everything else, you're always going to see the January, February period be lower prescription volume as a result of people having higher co-pays and more abandonment at the pharmacy counter. And that's just the way these markets work. And that's how we plan for it and that's how we model for it. So in fairness, I -- we believe that our team is executing with excellence. You're seeing the rebound in March. I actually thought it was going to happen in April. So we're a bit ahead of what I thought would happen. And so I feel very good and optimistic about the trends we're seeing. And Miebo and Xiidra are going to be strong growth drivers throughout the year and for the foreseeable future. Young Li: Great. Very helpful. I guess another question just on the Surgical side. So you have PanOptix Pro ramping, Unity out there, PureSee is launching. I heard the 1Q comments on weather and tough comps. But just wanted to get a sense about your feeling of your product portfolio and how that compares with all these new launches. We're assuming some level of trialing from PureSee. Just wondering if you are expecting that as well in your numbers? Brenton L. Saunders: Yes, we are. I mean I think, look, on Unity, I don't really see any impact to us. I think they're really focused on upgrading their existing customer base. They did do some trials last year, but we don't see that as common this year so far. And so nothing I'm really worried about there. I think seeLYRA and our next-generation seeNOVA are very competitive. In fact, I hear many times that once people try seeLYRA, they view it as the most stable and best phaco machine in the marketplace even when compared to Unity. I think as we look at our next-generation equipment, it's really going to be best-in-class. And the R&D team is -- I meet with them every other week. We review the project plan. We are progressing very nicely there. So very competitive with our existing portfolio, I think poised to break out with the next generation. I think on the IOL side, yes, we'll probably see some trial. But again, we're poised for growth. Envy is incredibly well received. There's -- a lot of times with IOLs, people wait, surgeons wait to see full year or more of results after implant, and we're seeing our data to show that we have an excellent product. And that word is spreading. I said 88% growth for Envy in the quarter, against a tough comp in the first quarter of last year. Remember, the recall is in the second quarter, not the first quarter. And so I feel very confident given the outcomes, given the penetration, given the growth opportunity and our rebuilt Surgical field force, we are primed for sequential improvement in growth throughout the year. Operator: The next question will be from Larry Biegelsen from Wells Fargo. Lei Huang: It's Lei calling in for Larry. Good start to the year. Just two questions. First, you raised your sales growth guidance, looks a little bit conservative. Your EBITDA raise of $10 million is slightly below the beat in Q1. So can you just talk about how much conservatism is built into that outlook? And if there's anything to call out in the marketplace that you want to flag concerning, for example, contact lens in China, Southeast Asia, cataract reimbursement change, any of those things affect your outlook -- your updated outlook? And my second question, I'll ask that as well, just phasing for the rest of the year in terms of sales growth and EBITDA. You had a pretty easy comp in 2Q in terms of the top line growth, but that does get tougher in the second half of the year. Brenton L. Saunders: Yes. Great question, Lei. Look, honestly, I expect that -- expected that question because I think investors look at the quarter and look at how our team has executed and have higher expectations, and that makes sense to us. But the fact is, look, we're raising guidance. We feel good about that. But I'll be pretty direct on this. We raise guidance when we have conviction, not when we have optimism alone. And so we're only 1 quarter into the year, and I agree, our momentum is real. I think 6% constant currency revenue growth and 59% adjusted EBITDA growth. Margin expansion of 500 basis points on a year-over-year is a real sign that the team is executing, and we intend to keep that up. But I also think we have to recognize that it's a -- I think Joanne raised this, there are a lot of other variables. We're early in the year. And so I think we have to take this one step at a time. But I'll say this, we have a lot of momentum. We expect that momentum to continue. I think you can tell by my answers, I'm very excited about what the rest of the year looks like. And so just stay tuned as we continue to deliver, we'll adjust the guidance appropriately. Sam, do you want to? Osama Eldessouky: Yes. And no, you covered it pretty well here, Brent. And I think also maybe to add to what Brent said and give you a little bit more color. I think one of the things that when we think about the guidance, again, as Brent said, we're excited about what we put forward in the initial guidance and also with the upgrade to our guidance right now. I think you have to keep in mind that there's a fundamental shift also we're taking within the company right now with our operating leverage, right? We've seen the improvement on the -- both the product mix and the gross margin. We're seeing it also with the 340 basis points in the SG&A and really pulling that through into where we expect from a full year guidance is really something we're very excited about. This gives us the confidence not only in this guidance for this year, but also in the 3-year targets that we put out on Investor Day. I think you had another question regarding the phasing. So let me take the phasing question as well. So as we think about the phasing, I would say that the phasing for us in '26 is very similar to what we saw in 2025 from a cadence perspective. So when you think -- and maybe I'll just focus on Q2 here to just give you a point of reference. You saw Q2 last year was roughly about 25% on the revenue achievement from the midpoint, from the revenue. That's probably in line with what we expect if you take that as a 25% over achievement from the midpoint of our guidance for revenue. When it comes to EBITDA, I think we are adding the benefit of all the work that we're seeing in terms of the leverage pulling through with a higher achievement rate on the EBITDA. So last year it was roughly about a 21.5% achievement. In Q2, we expect this year to be probably about 22.5% achievement if you take off the midpoint of our guidance. So we're seeing that progress and the pull-through and the leverage in the P&L playing out also in the phasing. Operator: The next question will be from David Roman from Goldman Sachs. Marco Espaillat Bermejo: This is Marco on for David. I wanted to ask more on the sales force rebuild. I appreciate that this is a deliberate action, but can you help us frame this more concretely? How should we think about the magnitude of reps being added versus current headcount and I guess, expectations for the new productivity? Brenton L. Saunders: Yes. So the principle -- I think we said last year that we had brought in a new head of the U.S. He came in and very -- he's a pro, he quickly diagnosed that we needed to organize the field force differently and really focus more on account management as you think about the breadth of the portfolio, and really partnering with practices to ensure more -- better outcomes and better productivity in the office and ASC. And so what that caused us to do is realign territories, and that always means breaking and renewing relationships and surgical is still very much a relationship business. But Sam and I track it weekly with our leadership team. And I would say, as we look 1 month into the second quarter, we're seeing really positive signs of productivity improvement among that field force. We will continue to look at adding to that and in particular, as we get ready to launch Elios in the second half of the year as well. And so it was not just about adding more, it was also making sure we had the right structure to best service the customer. Operator: The next question will be from Doug Miehm from RBC Capital Markets. Douglas Miehm: I'd like to expand on the Xiidra outperformance for the quarter, up over 30% or so. And I'm just curious, you had guided that product given the changes that were occurring on the insurance front and reimbursement to about mid-single digits. And while we may expect the 30% to moderate. Number one, I'm wondering if there was any onetime benefit in Q1 due to inventory changes. And then as we think about the rest of the year, how should we be thinking about gross to nets and the growth for this product because it could have a material impact on your operations? And if this is a new norm, I'm curious as to why you didn't do it earlier? And I'll leave it there. Brenton L. Saunders: Great question, [ Marco ]. So look, Xiidra was a great performance and great execution from our team. The biggest change for us was walking away from the CVS contract. We discussed that last year, and we told you it was going to happen. and that you would see TRxs decline, but revenue increase. So it played out exactly as we had told everyone last year we would do. And the reason we didn't walk away from it earlier, it was a contract that we inherited from Novartis and it lasted until this year. And so we had to wait for the contract with CVS to end. We did try to renegotiate, but we couldn't get to an acceptable rate with them. Our relationship with CVS is good, and we'll revisit it again next year. If we can get to a good spot, we would. But I would remind you, coverage for both Xiidra and Miebo still remain industry-leading in the mid-70s percent coverage. So most patients are covered. And so it was the right decision to make. I think the other part of your question was what's the future of Xiidra. I think you're right, we're comping a softer quarter. Q1, because of the seasonality, I've said several times on this call, shows Xiidra at 30% growth. I wouldn't expect that level of growth throughout the year. But I do think low double-digit growth should be the new norm for the rest of the year, and then we'll see where we are to set guidance for the following year. But Xiidra will be a revenue and profit driver as will Miebo, and that's just the new phase we're in. Osama Eldessouky: Yes. And Doug, just to follow up on the last part of your question on the gross to net, we're expecting -- we said it should be about the low 70s from a gross to net. Brenton L. Saunders: So it switched from high -- when we got rid of CBS, we moved from high 70s to low 70s, which is why you see the revenue growth. Douglas Miehm: Yes, yes. Okay. Great. And then just the last question as a follow-up. Around PreserVision and Ocuvite, an important portfolio for you. And with the introduction of AREDS3, I'd expect growth to accelerate certainly from what we saw in Q1. Is this something that could be mid- to high single-digit type of business portfolio for you? Or would you expect it to stay in the lower single digits? Brenton L. Saunders: Yes. I'll ask John to weigh in, but I would just say that I think AREDS3 is a big opportunity for us. It will take some time to build because it's a -- unlike a lot of our other consumer brands, it's very reliant on physician recommendation. And so we need to get a build of medical communication, medical information, sales reps, samples and the like. But John, do you want to take it from there? John Ferris: Sure, Brent. So we're very excited about the long-term potential of AREDS3. But as Brent said, it's important to emphasize that this is going to be a multiyear opportunity. As I said in my remarks, we've built and led this market for over 20 years. So we understand both the science and how to execute here. So we are confident that we'll deliver on that opportunity. That being said, it does start with the eye care professionals first, and that's where we're focusing our efforts today. I would -- we've seen one data point that's very encouraging. We've seen already 12% of eye care professionals in the U.S. reporting that they're recommending PreserVision AREDS3 to their patients. That's a really strong number this early in the launch. I've launched multiple consumer products, including PreserVision AREDS2, and that number really reflects strong interest and is really impressive for us. I'd say we're on shelf in retailers now and that distribution is continuing to build, and that will build and ramp up through second quarter. And it's at that point that we'll layer on our consumer marketing efforts on the back half of the year. And that's when we anticipate we'll see ramp-up in our consumption, which will be then reflected in our results. When we think about the long-term potential for this brand and we think about the growth we've seen in our eye vitamin franchise, mid-single digit to slightly higher growth is certainly within our expectations, and we're confident in our ability to deliver upon that. I just say it's going to take some time to ramp this up, but we're starting with the eye care professional and again, seeing some really good early indicators. Operator: And we have time for one last question today, and that's coming from Tom Stephan from Stifel. Thomas Stephan: I wanted to go back to Miebo -- Xiidra. Brent, can you talk about the script growth you're seeing year-to-date? Just as we think about underlying fundamentals of that product, particularly as we try to consider growth beyond '26? Brenton L. Saunders: Yes. So when you look at prescription growth, it's actually declining, and we knew that as a result of the CVS contract termination. We told you that last year, but that to expect revenue growth. And so it's playing out exactly as we thought. Our goal is to stabilize that throughout the year. I think we -- our team is best-in-class. And so I think we'll get there. But we've pivoted to really focus on revenue and profitability versus just trying to get broad TRx growth. And I think that's given the life of where we are and the fact that we have the combination coming, I think we're doing this the right way. And I think we're poised for being a leader and a growth driver of this market for more than decades ahead, given our portfolio. So playing out exactly as we expected, and we're very confident for a strong year. Thomas Stephan: That's great. And then one quick follow-up, if I can. Just on contact lens performance, Brent, to go back to an earlier comment, I think you said that you expect sequential acceleration throughout the year. Is that right? And if so, what drives that notably as 1Q was the easiest comp of the year? Brenton L. Saunders: Yes. So I think if you look at -- so let me back up. So yes, I did say that you'll see sequential improvement. In part, some of that is just seasonality. It's not again as profound of seasonality as we see in the prescription market, but there is some seasonality in contact lenses. But I think for us, more importantly, it's a focus on selling the whole portfolio, making sure that we obviously lead with our daily SiHy, but that we pull through our Ultra and our FRP offerings as well. There are different markets throughout the world that have different needs and different economics. And we have the full portfolio to sell the right product to the right consumer in the right market. The other thing I mentioned a few times is we're launching other modalities in other markets around the world. And we know based on what we saw in the U.S., our Daily SiHy portfolio performs best when we have the full portfolio of modalities. That is not true in other parts of the world. And so as those launches come online this year, we're going to see much better performance of our Daily SiHy in the markets with more modalities. And so just net-net, I think the best way to look at it, Tom, is look at the pattern that we had in 2025, the sequential growth of the contact lens business, and I expect that to play out more or less the same this year, which would show sequential improvement. So I believe that was our last question. So let me just conclude with a couple of thoughts to wrap up the call. First, thanks, everyone, for participation. Most importantly, I want to thank my colleagues around the world for delivering a great quarter, and we're excited to watch what the team can do throughout the year. When I joined here 3 years ago, I talked a lot about selling excellence and creating revenue growth. And I think we've shown that over the last 3 years, we've created a very durable revenue growth story with 6% constant currency revenue growth in the quarter. We talked about pipeline innovation being important. We've really invested in the talent and capabilities of our R&D team. And now we have 60-plus programs advancing through the clinic. We didn't get a lot of questions for Yehia, who's here on the call, but we have a lot of data readouts in the second half of the year. We're very excited to see how our products are performing in clinical trials, and we'll release that information as soon as it becomes available in the second half, but expect a pretty steady cadence of news in the second half of the year related to the pipeline. We actually are doing an R&D Teach-in on contact lenses on June 1, as you can see on the screen. So hopefully, everybody can join us there. We also talked about operational excellence and making sure that our supply chain was reliable and of high quality. And I think we've hit every metric there. And now we're pivoting to gross margin improvement and efficiency in the supply chain. And then lastly, at Investor Day, we announced financial excellence as the fourth pillar of our strategy. And I think this is the third quarter where we've shown financial excellence on full display. When you see 6% constant currency growth and 59% EBITDA growth, and you see that leverage in the P&L. I think it's another proof point that we're focused on executing financial excellence quarter-by-quarter. As our new guidance suggests, you're going to see adjusted EBITDA grow at 3x that of revenue. And we do expect that we'll meet or exceed our financial goals that we outlined at Investor Day in November with nearly -- or more than 600% -- 600 basis points EBITDA margin improvement by 2028. Everything is on track. There is a lot of momentum inside the business. The team is focused and executing. And so we feel very good about the year, and we look forward to keeping you all updated, and we thank you again for joining us. Thank you, operator. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and welcome to the First Quarter 2026 Earnings Conference Call for Amphenol Corporation. [Operator Instructions] At the request of the company, today's conference is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to introduce today's conference host, Mr. Craig Lampo. Sir, you may begin. Craig Lampo: Thank you very much. Good afternoon, everyone. This is Craig Lampo, Amphenol's CFO, and I'm here together with Adam Norwitt, our CEO. We would like to welcome you to our first quarter 2026 conference call. Our first quarter results were released this morning, and I will provide some financial commentary, and then Adam will give an overview of the business and current market trends, and then, of course, we'll take your questions. As a reminder, during the call, we may refer to certain non-GAAP financial measures and make certain forward-looking statements so please refer to the relevant disclosures in our press release for further information. The company closed the first quarter of 2026 with record sales of $7.6 billion and GAAP and adjusted diluted EPS of $0.72 and $1.06, respectively. First quarter sales were up 58% in U.S. dollars, 57% in local currencies, and 33% organically compared to the first quarter of 2025. Sequentially, sales were up 18% in U.S. dollars and in local currencies and up 4% organically. Adam will comment further on trends by market in a few minutes. Orders in the quarter were a record $9.435 billion, up a strong 78% compared to the first quarter of 2025 and up 12% sequentially, resulting in another very strong book-to-bill ratio of 1.24:1. This impressive book-to-bill was driven by robust bookings in all of our end markets with every end market having a positive book-to-bill this quarter. GAAP operating income was $1.8 billion in the quarter and GAAP operating margin was 24%. GAAP operating margin included $249 million of acquisition-related costs primarily related to the acquisition of CommScope, which closed at the beginning of January. These acquisition-related costs included $179 million of noncash amortization related to the value of acquired backlog and inventory step-up costs as well as a $70 million charge related to external transaction costs. Excluding acquisition-related costs, adjusted operating income and adjusted operating margin were $2.1 billion and 27.3%, respectively. On an adjusted basis, operating margin increased by a strong 380 basis points from the prior year quarter and was down 20 basis points sequentially. The year-over-year increase in adjusted operating margin was primarily driven by robust operating leverage on the significantly higher sales volumes, which more than offset the dilutive impact of acquisitions. On a sequential basis, the decrease in adjusted operating margin was primarily driven by the dilutive impact of acquisition, partially offset by robust operating leverage on the higher organic sales volumes. I'm very proud of the company's operating margin performance in the first quarter, which reflects continued strong execution by our team. Breaking down the first quarter results by segment compared to the first quarter of 2025, sales in the Communications Solutions segment were $4.5 billion and increased by 88% in U.S. dollars and 47% organically and segment operating margin was 30.6%. Sales in the Harsh Environment Solutions segment were $1.7 billion and increased by 34% in U.S. dollars and 23% organically and segment operating margin was 28%. Sales in the Interconnect and Sensor Systems segment were $1.4 billion and increased by 23% in U.S. dollars and 17% organically as segment operating margin was 20.2%. The company's GAAP effective tax rate for the first quarter was 42.7%, and the adjusted effective tax rate was 27%, which compared to 22.7% and 24.5% in the first quarter of 2025, respectively. As the typical practice, our adjusted tax rate excludes the tax effect of acquisition-related costs and the excess tax benefit from stock option compensation as well as other discrete tax items. Specifically, the first quarter includes $130 million tax accrual related to the previously disclosed tax matter in China. The company recently received unfavorable tax determinations from certain relevant tax authorities in China, and this accrual, together with the $100 million accrual, the company booked in the fourth quarter of 2025 covers the full amount of the tax payment notices received. In addition, as a result of this matter together with the continued shift in income to higher tax jurisdictions amidst the company's high levels of growth, the company increased its effective tax rate to 27% in the first quarter and expect that rate to remain for the remainder of 2026. The recent developments with respect to the China tax matter also resulted in the company reassessing certain tax-related assumptions applied to prior period results, not subject to the China tax inquiries. This reassessment resulted in an adjustment to our tax provision of $160 million, which is recorded in the first quarter. The $130 million accrual together with the $160 million additional tax provision have been excluded from the company's first quarter 2026 adjusted tax rate and adjusted diluted EPS. GAAP diluted EPS was $0.72 in the first quarter, up 24% compared to the prior year period. And on an adjusted basis, diluted EPS was a record $1.06 and increased by 68% compared to $0.63 in the first quarter of 2025. This was an outstanding result. Operating cash flow in the first quarter was $1.1 billion or 120% of net income and free cash flow was $831 million or 89% of net income. These were strong results for first quarter, which typically has somewhat softer cash generation. We continue to expect strong cash flow generation in 2026 with free cash flow conversion remaining within our typical range over time. From a working capital standpoint, inventory days, days sales outstanding and payable days were all within a normal range. During the quarter, the company repurchased 1.3 million shares of common stock at an average price of approximately $140. And when combined with our normal quarterly dividend, total capital returned to shareholders in the first quarter of 2026 was approximately $485 million. Total debt at March 31 was $18.7 billion, and net debt was $14.2 billion. Total liquidity at the end of the quarter was $7.6 billion, which included cash and short-term investments on hand of $4.6 billion plus availability under our existing credit facilities. As previously noted, we expect quarterly interest expense net of interest income to be approximately $200 million for the remainder of 2026. First quarter 2026 EBITDA was $2.3 billion and our net leverage ratio was 1.6x at the end of the first quarter. We are very pleased with the company's financial position. I will now turn the call over to Adam, who will provide some commentary on current market trends. R. Norwitt: Well, thank you very much, Craig, and I hope it's not too late to extend my welcome to all of you on the call today from a beautiful spring day here in Wallingford, Connecticut. As Craig mentioned, I'm going to highlight some of our achievements in the quarter with our very strong start here to the year in 2026. I'll talk about our trends across our served markets. Then I'll comment on our outlook for the second quarter. And of course, we'll have time for questions at the end. Look, I just want to say that our organization, the Amphenol organization drove outstanding performance here in the first quarter. Our results were stronger than expected, exceeding the high end of guidance in sales and adjusted diluted earnings per share. Our sales grew from prior year by 58% in U.S. dollars, 57% in local currency reaching a new record of $7.6 billion. On an organic basis, our sales increased by a very strong 33% with growth across nearly all of our served markets, and I'll talk about those markets here in a few moments. The company booked a record $9.4 billion in orders in the first quarter and that represented a robust book-to-bill of 1.24:1. Orders grew by a very strong 78% from prior year and were up 12% sequentially. I'm very pleased that our order growth in the quarter was broad-based with all of our end markets realizing book-to-bill of at least one, and this was driven in particular by strength in IT datacom, defense, commercial air and industrial. We're also pleased to have delivered adjusted operating margins of 27.3% in the quarter, an increase of 380 basis points from prior year and down just 20 basis points sequentially. These impressive results were achieved despite the margin dilutive impact of the CommScope acquisition in the quarter. I would just add, though, that we're very pleased with the CommScope acquisition, and we do expect the business' performance to continue to improve as part of the Amphenol family. Adjusted diluted EPS grew 68% from prior year and reached a new record of $1.06. And finally, as Craig mentioned, the company generated operating cash flow of $1.1 billion and free cash flow of $831 million in the quarter, both clear reflections of the quality of the company's earnings. I can't express enough how proud I am of our team here in this very strong start to 2026. Our results this quarter once again reaffirm the value of the drive, discipline and agility of our entrepreneurial organization as we continue to perform well amidst a very dynamic environment. Now turning to our served markets. I just want to comment that we're pleased that the company's end market exposure remains diversified, balanced and broad. And this diversification continues to create great value for Amphenol, enabling us to participate across all areas of the global electronics industry. All while not being disproportionately exposed to the volatility of any given application or market. I will say that there's no doubt that with the extraordinary investments being made in artificial intelligence, or AI, coupled with our team's outstanding work and capturing a significant share of this unique interconnect opportunity that this has resulted in the IT datacom market in the quarter, representing just over 40% of our sales. Nevertheless, we remain committed to continuing to broaden our portfolio across markets, customers, applications and products as we build on the company's momentum and we further strengthen Amphenol's position across all areas of the global electronics industry. The defense market in the quarter represented 8% of our sales, and sales grew from prior year by a strong 44% in U.S. dollars and 25% organically. I will say this is driven by really broad-based growth across virtually all segments of the defense market and all of our served geographies. Sequentially, sales grew by 2%, which was in line with our expectations coming into the quarter. And as we look into the second quarter, we expect sales in the defense markets increased in the high single-digit range sequentially. We remain encouraged by the company's leading position in the defense interconnect market, where we continue to offer the industry's widest range of high-technology products. Amidst the current dynamic geopolitical environment, countries around the world are increasing their investments in both current and especially next-generation defense technologies. With our expanded product offerings, both in discrete connectors as well as value-add interconnect, as well as the significant capacity expansions we've made in recent years, we're positioned better than ever to capitalize on this long-term demand trend. The commercial air market represented 4% of our sales in the quarter, and sales in this market increased by 22% in U.S. dollars and 20% organically from prior year and that was really driven by broad-based strength across commercial aircraft manufacturers. Sequentially, our sales moderated by 3% from the fourth quarter, which was better than our expectations coming into the quarter. As we look to the second quarter, we expect a slight sequential -- a slight further sequential moderation in sales. I'm truly proud of our team working in the comm air market. With this ongoing growth in demand for next-generation aircraft, our efforts to expand our product offering, both organically and through our acquisition program continues to pay real dividends. And we look forward to further capitalizing on our expanded range of product solutions for the commercial air market long into the future. The industrial market represented 20% of our sales in the quarter, and our sales to industrial increased by 52% in U.S. dollars and 16% organically as we continue to see accelerating demand across most segments of the diversified industrial market. In fact, virtually all of those areas of the industrial market that we service grew organically in the quarter, and we also saw organic growth in all three major geographies. On a sequential basis, our sales were up 29% from the fourth quarter as we benefited from the addition of CommScope's building connectivity business. Organically, sales were up a strong 6% from the fourth quarter, better than our expectations as we entered the quarter. Looking into Q2, we expect sales in the industrial market to increase in the high single digits from these already strong first quarter levels. I would just comment that we remain encouraged by the company's strength across the many diversified segments of the important industrial market. And with the addition of CommScope, we're now seeing new opportunities for growth in the exciting building connectivity market. Over the long term, I'm confident in our strategy to expand our high-technology interconnect antenna and sensor offerings, both organically and through continued complementary acquisitions. This strategy has enabled Amphenol to capitalize on the many electronic revolutions that continue to occur across the diversified industrial market thereby creating continued opportunities for our outstanding team working in this important space. The automotive market represented 11% of our sales in the quarter. Sales in automotive grew by 7% in U.S. dollars and 2% organically, as organic growth in North America and Europe was somewhat offset or partially offset by somewhat softer sales in Asia. Sequentially, our sales declined by 7% from the fourth quarter, which was a bit better than our expectations coming into the quarter. For Q2, we expect sales to increase modestly from these first quarter levels. I remain very proud of our team working in the global automotive market. While there are clearly some areas of demand uncertainty, our team continues to be focused on driving new design wins with customers who continue to increase the content of new electronics being integrated into their next-generation vehicles. We look forward to benefiting from our strengthened position in the automotive market for many years to come. The communications networks market represented 12% of our sales in the quarter, and sales in this market grew from prior year by 91% in U.S. dollars and that was really driven by the additions of ANDREW and CommScope. On an organic basis, our sales were flat from prior year as growth in wireless applications was offset by some moderations in broadband demand. Sequentially, our sales in the quarter grew by 57% from the fourth quarter, driven by the addition of CommScope. On an organic basis, sales were flat to prior year -- or to prior quarter, which was better than our expectations. As we look into the second quarter, we expect sales to remain at these first quarter levels. With our expanded range of technology offerings following the acquisitions of both CommScope and ANDREW, we are very well positioned with both service provider and OEM customers across the communications networks market. Our deep and broad range of products coupled with our global manufacturing footprint, have positioned us to support customers around the world. As the accelerating volume of data traffic drives demand for expanded and upgraded networks in the future, we look forward to enabling these systems for many years to come. The mobile devices market represented 4% of our sales in the quarter, and sales in this market grew by 2% in U.S. dollars and 1% organically from prior year as growth in laptops and accessories was somewhat offset by moderating demand in handsets and wearables. On a sequential basis, our sales actually -- while declining by 22% was a better-than-expected decline compared to the fourth quarter as we had expected. Looking into the second quarter, we expect a modest sales decline from these levels on typical seasonal patterns. I'm very proud of our team working in the always dynamic mobile devices market as their agility and reactivity has once again enabled us to outperform our expectations in the quarter. I'm confident that with our leading array of antennas, interconnect products and mechanisms that are designed in across a broad range of next-generation mobile devices, we are well positioned for the long term. And finally, the IT datacom market represented, as I mentioned earlier, 41% in the fourth (sic) [ first ] quarter. Sales in this market grew by a very strong 99% in U.S. dollars and 81% organically. And this was driven by the continued acceleration in demand for our products used in AI applications, together with continued strong growth in our base IT datacom business. On a sequential basis, our sales increased by 27% from the fourth quarter, which was substantially better than our expectation for a low double-digit increase. On an organic basis, our sequential growth reached 16%, a very strong number. And virtually all of this organic sequential sales growth was driven by growth in AI-related products. Looking ahead, we expect a further sequential sales increase in Q2 in the low teens level as investments in AI data centers accelerate and its enterprise and cloud customers continue to expand their demand for traditional IT datacom products. Just want to say that we're more encouraged than ever by the company's position in the global IT datacom market. Our team has just done an outstanding job, both of securing future business on next-generation IT systems with a very broad array of customers but also in executing on these exciting programs. The revolution in AI continues to create a unique opportunity for Amphenol, given our leading high-speed and power interconnect products. And now with the addition of CommScope, we have the industry's broadest range of high-speed copper, power and fiber optics interconnect products, all of which are critical components in these next-generation systems and in the next-generation architectures of our customers. This creates a continued long-term growth opportunity for Amphenol. Turning to our outlook and assuming current market conditions as well as constant exchange rates, for the second quarter, we expect sales in the range of $8.1 billion to $8.2 billion and adjusted diluted EPS in the range of $1.14 to $1.16. This would represent strong sales and EPS growth of 43% to 45% and 41% to 43%, respectively, compared to the second quarter of prior year. I remain confident in the ability of our outstanding management team to adapt to the many opportunities and challenges in the current environment and to continue to grow Amphenol's market position all while driving sustainable and strong profitability for the long term. Finally, I want to take this opportunity to thank our entire global team for their truly outstanding efforts here in this very special first quarter. And in particular, I just want to express my gratitude to the folks working in our factories around the world. This growth doesn't come easy. And the folks working on our factory, those amazing Amphenolians, they continue to amaze me and delight our customers with their extraordinary and hard work. And with that, operator, I'd be very happy to take any questions that there may be. Operator: [Operator Instructions] We have a question from Mark Delaney with Goldman Sachs. Mark Delaney: Congratulations on the strong results. I appreciate that Amphenol is able to address data center customer need, both for copper and optics, especially post the CommScope acquisition, and that's certainly apparent with the orders and revenue that you reported for the IT datacom segment. However, I'm hoping, Adam, you can help investors better understand implications for Amphenol as CPO plays a bigger role over the next 2 to 4 years. And specifically, as Amphenol is engaged with customers on designs that will utilize CPO, what does that mean for Amphenol's revenue and profit potential on a directional basis relative to current designs, especially now that you have CCS. R. Norwitt: Yes. Thanks so much, Mark. I appreciate the question, and thanks for your kind words here. Look, I mentioned earlier, and I'll just reiterate that we now have the broadest range of products for customers in the IT datacom market. And that starts with high-speed products. It continues on with power products, which are very, very important products for all architectures, current and next and the next after that generation. And now with CommScope, together with previous and prior capabilities that we already had in optics, we now have a very, very broad suite of products in optics and capabilities, capacities. And so we now sit in a unique position with customers where we're really a leader across the board in all the technologies that they're thinking about for the future. And I can just tell you we're working with all the players here up and down the stack of the AI ecosystem from the folks who are spending the money and outfitting the data centers and also in many cases, designing their own architectures to the systems manufacturers, the equipment makers who are participating very strongly all the way down through to the chip makers who are also creating their own unique architectures. And we worked very strongly across that entire ecosystem on current next and next generation thereafter. Very specifically, as you allude to CPO and the potential evolution of things towards higher speeds and towards optical solutions. And you can imagine, we're working with customers on a broad array of solutions, including CPO for the future that create great opportunities for Amphenol in the long term. What are our customers trying to achieve? Our customers are trying to achieve higher bandwidth, lower latency, higher density, higher transfer speeds so that ultimately, these AI systems can operate much as a human brain can do. Comparing everything to everything else and doing that in extremely fast time periods. And when you see the evolution of how these AI systems are, we're really enabling those systems today, and we're working with our customers on future generations, years and years from now, kind of generations both on copper and on optical solutions. And what does that mean in terms of the quantum of the business? I mean, that all, I think, remains to be seen, but what's very clear is as we talk to our customers and even as our customers speak publicly, our customers are not talking about these kind of either/or solutions. What they're talking about is more interconnect, no matter what. And so as we approach them with now that broader suite of products, we also approach them with another advantage in our back pocket, and that is the proven ability to execute. I mean what you see this quarter, growing 81% organically. What you saw last year with us growing our IT datacom business by 124% year-over-year. And obviously, AI growing even faster than that. These have not been trivial initiatives to ramp up and meet the moment for our customers. And we have proved that time and time again with customers up and down the stack. And so you can imagine that as our customers, think about the future, whatever that architecture may be, Amphenol is going to have a very strong seat at the table in all of those architectures, not just because we have the suite of products but also because we have the proven capability of executing and making sure that they can hit their incredible aspirations and that our products don't become a bottleneck in that. And so that combination of the suite of products, the proven execution capability, we think puts Amphenol in a very strong position for the future. And look, who knows what the cadence of AI investments will be and when and whether it will be ups and downs, of course, there will be ups and downs. But I think the long-term prospects for this industry and for this market and for Amphenol's position are very strong. Operator: We have a question from Andrew Buscaglia with BNP Paribas. Andrew Buscaglia: I just wanted to, along the lines of the discussion, hear a little bit more about what these customers, the hyperscalers are saying to you intra-quarter and as the year progresses, do you think you should see continued acceleration of growth in that segment as presumably you have increased share or content in future generations. And then maybe project out to '27 or so and talk about what you think the implications are of your fiber portfolio will be on the next generation. R. Norwitt: Yes. Look, I mean I'm going to be careful not to give guidance beyond the quarter that we've talked about here in the second quarter. But you can imagine, I mean, we've had very strong orders, really strong across-the-board orders here in Q1, I mean, interestingly, you can imagine we had strong IT datacom orders, but they actually weren't much stronger than, for example, the orders we had in defense in terms of the book-to-bill. But we have had strong IT datacom orders. We had strong orders also in the fourth quarter where we had a book-to-bill even higher than this very unique 124 that we had here this quarter, I think 131 in the fourth quarter. And so we have good momentum really across the board and including in IT datacom. And all I can tell you is when we talk to our customers across the board in the IT datacom market, in particular, those customers who are heavily focused on these next-generation AI build-outs, they want more product. And I think our team's ability to satisfy that has really been a fabulous asset to the company. Look, in terms of 2027, I'm not going to try to give a prognosis for 2027, except what I will say is this. We look at the CommScope business today and its performance. And it's also performing as a company very, very strongly. I mean I would just tell you that obviously, we bought the company, not right on January 1. But on a like-for-like basis, in the first quarter, CommScope growth was largely similar to the organic growth that we had across Amphenol. And that's a business that is a diversified business across data center and communications networks and industrial. So they have very, very strong performance here in the quarter, and we're really pleased and proud with their performance. And that's performance really in the here and now because they're opening up to us, a complementary part of the data center opportunity that we hadn't participated as strongly in before. And that's connecting from rack to rack and across the data center and even, of course, between data centers through the networks and that's really exciting for us. And again, going back to sort of how I talked about the first question, that makes us again more important to our customers because as soon as the signal gets into the building, we're helping our customers move that signal around, across and within the racks and ultimately helping to create these unique AI architectures. So I think CommScope puts us in a very strong position going forward. And I'll just reiterate, our customers make a lot of trade-offs as they think about their architecture, and we can sit with them at the table and help them make those trade-offs with expertise and a breadth of an expertise that's really unique in this industry. Operator: We have a question from Amit Daryanani. Amit Daryanani: Really impressive set of numbers here. Adam, one of the things we're starting to see a lot in the AI ecosystem is hyperscalers are engaging in these long-term capacity expansion plans with the suppliers to really ensure they can get whatever capacity they need across the tech stack. And I think you've seen this from a lot of companies, I think Corning talked about three such large deals on their call. As you look at this unprecedented growth you're seeing in IT datacom, I think you said 81% organic growth. How do you think about funding the capacity for these ramps as you go forward? And to the extent you can talk about it, are Amphenol, CommScope being approached for these multiyear capacity agreements, how do you view them? And would they ever make sense for Amphenol? R. Norwitt: Yes. Thank you very much, Amit. I really appreciate the comments and the question. I mean, look, you know that in our company, you followed us for a very long time. We pride ourselves on agility and the ability to react quickly to our customers. And that generally means that our customers can rely upon us, whether or not they give us kind of a long-term agreement, so to speak. Now all that being said, and we've talked about this in the past, we have talked about the fact that there are more meaningful investments, and you've seen that in our capital spending, which still is very reasonable as a percent of our sales. But our sales run rate has doubled here over a 2-year period from Q1 of '24 to Q1 of this year, we've more than doubled in our size. And so our CapEx has also increased substantially. And so you can imagine that we work with customers when we make these kind of investments to make sure that we have security around those investments and that can mean participating in the investments, and we're very grateful to our customers for their willingness. To do that in certain cases, it can also mean opening the aperture of orders and the commitments that they make to us. So are those long-term supply agreements, I wouldn't call it that, but I would call it more commitments that our customers are making, which then give us the confidence to make the capacity increases that we have, the massive increase in automation for these ultra high-precision products for example, that we are making. And so I would say that there's more of that going on today than there has been in the past. I mean you're probably not going to hear us talk about it very explicitly, but no doubt about it. We're working hand-in-hand in partnership with our customers as they do this incredible thing called enabling AI. Operator: We have a question from Joe Spak with UBS. Joseph Spak: Maybe I wanted to build on some of that prior commentary, Adam, because just as the entire value chain for data center expands and matures, I'm just wondering how you're sort of thinking about a desire from some, ultimately, customers to sort of really bring in new players, maybe diversify some of their risk. So how are you thinking about that? How does your relationship change there? I know you're in there helping them sort of design that and maybe, in some cases, that leads to licensing opportunities for you. But does that meaningfully change your sort of profit opportunity here as that ecosystem expands? R. Norwitt: Yes. Thanks very much, Joe, and I will correct your name, Joe Spak. We all know that very well. Sorry for the mispronunciation of your surname there. Look, this is not a new phenomenon. I mean we have always worked in this market and many others in a world where our customers want to mitigate risk. And that's no different. That's -- we have been doing that all along here as we prosecute these unique opportunities that have arisen through AI. I mean we are not a sole source in any respect. But what we are is we're very uniquely able to execute. We do have a lot of unique technology that creates value for our customers. And so we welcome actually other participants in the market. And again, there are plenty of participants in the market. We partner with those companies. And yes, sometimes we have licensing agreements with them. But the end of the day, that unique Amphenolian ability to execute is ultimately what our customers value equally to the technology that we offer them. And so we don't see any meaningful change to that. This is no different from how we've always prosecuted our business. We've always gone out and had to win business. We've always had to go out and out-execute our competition and thereby satisfy and even delight our customers, and we can just continue to do that. You can imagine, we've also built extraordinary capabilities right now. Over the course of these last 3 years, as we've been managing through these extraordinary ramp-ups and 81% organic growth here in this quarter, 124 last year, we have built an extraordinary capability around the world to support customers in these unique technologies. And fortunately, we're in that virtuous cycle where the company does generate strong profitability. We convert that profitability into cash, and we reinvest that cash into product development, number one, capability development, number two, and capacity, number three, that ultimately allows us to be more important and to meet the moment for our customers. And so look, we welcome more participants. We also welcome that when you have more participants, that also mitigates in some ways, the risk of volatility for everybody, and that's a good thing. And that's how this industry has worked for a long time, and we've prospered in that environment for many, many, many years, decades really. Operator: We have a question from Samik Chatterjee with JPMorgan. Samik Chatterjee: Adam, if I can just ask you more specifically around CCS. Obviously, you sounded pretty positive in terms of what you're seeing for demand there. If you go back to the time when you announced the acquisition and gave some guidance around it, I think you were assuming more sort of mid-teens growth for this year. How are you seeing sort of that demand progress relative to those early milestones that you gave us? And are you seeing any supply constraints when it comes to sort of bare fiber or preform in relation to your ability to sort of meet some of the customer demand that you see for the CCS business? R. Norwitt: Well, thanks very much, No, you're absolutely correct. When we announced this deal, I think we did talk about it at the time as roughly a $3.5 billion, maybe $3.6 billion business with sort of mid-teens growth expectations. And as I mentioned, here at least here in the first quarter, they achieved a growth level, largely at the same pace of Amphenol's own organic growth, which is really impressive and really outperforms what we would have thought back when we signed the deal. And we continue to expect the company to deliver this year, as we said, roughly $4.1 billion in sales and $0.15 of accretion. I can tell you the team, this is a team of fighters. I mean it's so amazing. I mean they came from a very different culture, obviously, a very different corporate background over the 50 years that CommScope has been around. But the thing they have in common is this just desire to win. I mean this is a team of extraordinary capable individuals who want to win. And that means knocking down whatever impediments may come along, along the way. And look, you mentioned there's no doubt a lot of demand for fiber right now around the world. And I can tell you that our team is doing a fabulous job of supporting their customers' demand, meeting kind of the expectations that we had growing the company by a very significant extent. And they're doing that by being real entrepreneurs. And that's a phenomenal thing. And it's really satisfying to see that for a group of people who've only been part of Amphenol for now less than 5 months. And so I have really high expectations for them in the future. There's no doubt that they will manage through whatever dynamics arise in the marketplace. And now I will just say this, they're now part of a company that has a very different balance sheet, a very different approach to growth than what they may have had in the past. And so we are very much willing to support their growth with investments as we always have in Amphenol, getting them on that same virtuous cycle that our organization has been on for so many years, what I described earlier and no doubt about it, the folks at CommScope are really excited to have such a supportive -- to be part of such a company that's so supportive of their growth aspirations and their growth aspirations are pretty significant. Operator: We have a question from William Stein with Truist Securities. William Stein: Congrats on the great results and outlook, really excellent as we've grown accustomed to from you. But the question I have is that it's not just co-package optics we tend to hear about from some of the bigger customers in the AI data center supply chain. It's various trade-offs between passive copper, active copper. And then within optical, we hear all the buzzwords about pluggables, near package optics, silicon photonics, co-package optics, even optical interposers and then some of these technologies being used in scale up, some in scale out. Should Amphenol have -- should we think about the company as having similar ability to succeed in all of those technologies? Or are there certain ones of those where your opportunity will be more limited or would potentially accelerate? R. Norwitt: Thanks, Will. Well, look, let's -- we'll talk about this one more time, and I think you alluded to one aspect of it that we haven't talked about, which is the active aspect. We certainly have a broad array of active and passive product offerings in both copper and optics. And I think I didn't mention the active piece of that with the other several questions on this topic. But there's no doubt. I mean, we have developed that active capability both on copper very strongly and also through our acquisition program on optics. And so when I talk about the breadth of products that we have to offer to our customers, it's not just that we offer high-speed copper, power and passive optics, but we also offer active copper. We also offer active optics. Now do we have every single part number that exists in the universe? No, of course, not. But we have a breadth of capabilities across those -- all of those categories, if you call them sort of the two categories of copper and optics in the subcategories of passive and active. And I would just say that there's really no company, at least that I can think of here on the spot who can say that, who can say that they have that breadth of offering to help the customers as they face this sort of amazing smorgasbord of different choices that they're facing. Now is each sort of dish on the smorgasbord going to have the same impact to our company. Are we going to have the same part numbers, that's very hard to give a prognosis about that. But what I do know is what I said earlier. No matter what, there's going to be more interconnect. There's going to be more connections, more synaptic connections across these neural networks. And that's going to lead to a higher degree of interconnect products, which is going to be good for the whole industry. And then it's up to us to continue to execute with the breadth of our products to take more than our fair share of that. And so far, we've been able to do that. And the building blocks of why we've been able to do that are still very strongly, if not more strongly than ever in place. And so that gives me a dose of confidence for however these architectures evolve. And then the last thing I'll say is, I think we should be very careful that there is not just going to be a single architecture, a single moment. Customers are looking at lots of different things. They're looking at lots of different directions, and we'll have a lot of different customers doing a lot of different things architecturally in the future which is, again, why we believe it's very important to be with those customers with the full breadth of offerings for them as they approach these next generations. Operator: We have a question from Asiya Merchant with Citigroup. Asiya Merchant: Great set of results here. If I can, there's been a lot of talk about component, energy, inflation. You guys delivered very strong margins here. If you could talk a little bit about prices -- pricing ability to pass through those costs. And if you saw, there was more ability to raise prices here relative to historical. And if I can squeeze one more on just the book-to-bill in orders and lead times here. Very strong book-to-bill again, similar to last quarter. Are we seeing like extended lead times here? Just help us understand on the book-to-bill, what's driving that. Craig Lampo: Yes. Thanks, Asiya. I think I'll take the first part and maybe let Adam talk about the book-to-bill here. But I think in regard -- certainly, we're super happy with our margins here in the quarter, 27.3%, just slightly under kind of record margins we had in the second half of last year. And that's inclusive of CommScope, which had a great quarter, but ultimately, certainly still as a margin -- has some margin dilution. And as we would expect. And over time, we certainly are very confident that we'll get them closer to the company average. But this 27.3% in the quarter was just an outstanding result, given some of that pressure. That resulted in a few things, and I'll talk about costs in a second. But I mean, certainly, we just executed really well in the quarter on that really strong growth we continue to have. And that execution, combined with the cost discipline we have within the company, has just enabled us to leverage at a pretty impressive level from a margin perspective across our business, including places like that serve the defense market, industrial, otherwise, I mean you see this across our segments and the improvement in the margins we've had there. So it's really just been kind of, I would say, almost across the board margin improvement story here. And certainly, the ones that are growing faster than some of these markets are certainly contributing strongly as well. The cost environment certainly hasn't been supportive. I mean, I wouldn't say -- I would say on the margin, that's been, I guess, forgive the term there. I mean kind of on the -- to a lesser degree, that's been some impact. But I think we've done a great job of offsetting most of that through things we do in the factory productivity, things with our vendors. And certainly, as we kind of drive those other levers, the last lever is pricing. And pricing is just a function of ultimately the value you bring to your customers with the technology, with the execution with all these other things that Adam has talked about. And we've been able to offset some of the things around cost, tariffs and otherwise over time. With these things, our general managers have just done a fantastic job. Some businesses are more impacted than others in some ways. And that we don't do this from the top level. We let their general managers kind of make the decision to make relative to each of the businesses. And that's the result of kind of what you see in our margin line. So super proud of that. And certainly, we expect going forward, as you can see in our guide, we certainly expect strong margins going forward. R. Norwitt: And just real briefly on book-to-bill. I wouldn't tell you that we see anything categorically with the only kind of proviso being that as I talked about earlier, we do have some customers who, because of investments that we're making, have opened up their order apertures. And that's something we've talked about for a number of quarters. But I wouldn't say anything more broadly about extended lead times. Operator: We have a question from Steven Fox with Fox Advisors. Steven Fox: Adam, I was wondering if you could talk a little bit about commercial buildings. You highlighted in your prepared remarks now with CommScope being there. You also mentioned antennas and sensors. So how do you think 1 plus 1 equals 3 between you and CommScope as you now include commercial buildings in your portfolio? R. Norwitt: Yes. Thanks so much, Steve. No, we're -- actually, this building connectivity business, as we call it and as they call it, is something really exciting, and it is really complementary and new to Amphenol. There's no doubt that we're sitting in our old building here. And as many of you who have come to Wallingford, would not be surprised to hear. I wouldn't say that we have a "smart building" here in Wallingford, but many companies who are less cheap than we are about their headquarters building are really making new investments and all the new functionalities that you can bring into a building. And when you say building, you're talking about residential, you're talking about commercial office. You're also talking about factories and smart factories and all of the like. And so what we're especially excited about is not only the leading position that CommScope has in that market but the channel that they have because it's a very unique channel with unique distributors. They sell into nearly every country on earth. I think it is more than 150 countries at least. Any place where they're building buildings, they need the connectivity to enable all of these next-generation things that go in a next-generation smart building. And with CommScope's position, what we're very excited is that there are other interconnect products, and you mentioned specifically antennas and sensors where we have a very strong position and where we haven't necessarily had that open door into a market like this where I do think long term, that can create value creation for Amphenol, the kind of 1 plus 1 equals 3 that you alluded to. So it's a really exciting area, and we look forward in the years to come to getting to know that market better getting to forge the strategic distribution relationships that they have on a broader basis across Amphenol and ultimately taking advantage of the revolutions that are happening in this area. Operator: We have a question from Wamsi Mohan with Bank of America. Wamsi Mohan: Amphenol work with the leading GPU player in the market on design for scale up connectivity and has earned that leading market share over there in copper-based scale up. So as you think about this transition to optical, there are many more players there. Maybe there's a later start date within underinvested CommScope portfolio, which I'm sure you will change. But how are you thinking about the share and competitive landscape and the potential to have perhaps similar share in scale-up solutions in optical over time? R. Norwitt: Yes. Look, Wamsi, let me just say this. I mean we are not the only player in copper or high-speed copper interconnect. But we have executed in a way that has ultimately led to us taking more than our fair share of that opportunity. And you mentioned one company, and we obviously have done that with many companies. And so to the extent that some of those architectures evolve into optics or some hybrid solutions, we will have also competition and maybe it will be the same or maybe it will be different, but we've always had competition, a very healthy competition, let me say, where we have to go earn that business every day of the week. And our team will go out there and work to earn it just as they have on the copper side. Operator: We have a question from Scott Graham with Seaport Research Partners. Scott Graham: Congratulations on another great quarter. I really just wanted to talk about industrial, where your organic was plus 16%. And in the past, Adam, you've been kind enough to unbundle a couple of the pieces of that. I'm hoping you can do that again, maybe delineate for us which end markets within there may be led and perhaps the 1 or 2 markets where the organic was less than the 16%. R. Norwitt: Well, thanks, Scott, and thanks for your kind words. Look, industrial has been really on a great momentum here in the recent quarters. And like I mentioned earlier, we're seeing that kind of accelerate with 16% organic growth. And one of the things that I find most encouraging is we look at a lot of different subsegments of the industrial market internally. And the vast majority of those subsegments actually have grown organically on a year-over-year basis. I mean, where did we see the strongest performance? I mean, a lot of different places. We saw that in instrumentation. We saw that in electrification. We saw that in oil and gas, even areas like lighting, medical, we saw strong performance, heavy equipment, factory automation, I mean, those are all like strong double-digit organic growth. I mean where did we see a little bit less. I don't know we saw a little bit less performance in like an RMT, marine, but pretty modest. And then there's this category which we call Other. And it's funny, Other is a big category inside industrial where it goes into just the vast universe of harsh environment applications from companies large, medium and small, and that grew very strongly in double digits as well. And so I think what we're seeing is a real broad-based reacceleration of the adoption of electronics in harsh environments in what we call the industrial market. And that's what ties all of our industrial together is it's unique electronic applications in places that aren't very hospitable. Everything from an operating theater to a corn field to an offshore oil well to a train going 400 kilometers an hour and everything in between. And so it's very broad-based growth, in fact. Operator: We have a question from Luke Junk with Baird. Luke Junk: Adam sitting in front of what seems really like a once-in-a-generation supply chain restocking event in both the U.S. and Israeli defense industry. Just hoping you can help us understand Amphenol's leverage within your defense electronics platform, especially thinking of interceptors, munitions, those sorts of things that are going to be exposed to the supply chain dynamic? R. Norwitt: Yes. Thanks very much, Luke. I mean, look, let me just start by expressing my hope that the current ceasefire in the Middle East holds. We continue to monitor our employees who are in the Middle East, whether in Israel or in the Gulf region, and we've continued to support them and hold them in our thoughts because it's not easy being in a war zone for a couple of months here. And I know that's been stressful for many. But there's no doubt that the world is not a safer place today than it was 5, 10 years ago. And there's a particular focus on things like missile defense on things like smart munitions. And we saw that during the Ukraine war, which tragically continues as we sit here today. And there's also a question that in the current very dynamic geopolitical environment that countries around the world are planning, are making but are also planning long term significant upgrades in their own military spending and also in the nature of what they're spending their money on. Spending it on next-generation technologies. And by the way, not only from traditional defense contractors, but from a whole new generation of defense contractors who are really kind of the disruptors in this market, and if we look at our position as the world leader in defense interconnect, having expanded significantly the scope of that position with the acquisition of Trexon and others over the years expanding to more advanced RF interconnect active and passive and all of what we have done, we have just become more important to all of our customers in all those regions. Both existing customers as well as the next generation of customers with whom we're working very intensively. And I think we've done a very smart thing along the way, which is we have invested not only in bringing new products, broadening our suite of products, but also in the capabilities to build those products and the capacity to meet the demands of our customers now and into the future. And when you see now the urgency with which many of these defense departments ramp up their own procurement budgets and that includes potentially here in the United States. We sit in a relatively unique position as a company that has the breadth of products but also the capacities and the capabilities to meet that demand. And our team takes up very seriously, not just because it's a good thing for Amphenol's business, but we know that lives depend on it. And there is a mindset across our entire team of folks working in the defense interconnect market that this is more than just delivering numbers and revenues and profit, but we're also delivering critical things to our customers. And I'm really proud of what they've done. I mean growing that business as we have done, 25% organically last year for the full year, 21% organically. It's not a trivial initiative because making these products requires an enormous amount of technology. There's regulations of how you open new things. There's qualifications and all of the like. It's not as simple as just adding some machines and off you go. So look, we look -- we're very proud of our defense business. We're excited for the future. And to me, it feels like this is potentially a long-term structural shift in the demand dynamics in a market where we position ourselves very well to take advantage of that. Operator: We have a question from Joe Giordano with TD Cowen. Joseph Giordano: I know we're not going to get into specific numbers here, but there's a lot of questions that people are trying to struggle with when you think about new architectures and data centers and on racks from -- as you move into higher voltages and what are the -- like the interplays between price -- like ASPs that you guys can charge versus like the pounds of wire or the lengths of wire. And can you maybe just talk generally like as you get into these more complex, more streamlined types of architectures like the interplay between what the value of those products are versus like what might be going away in terms of, like I said, like pounds of copper or length of cabling in that sense. Like how do we get to a net of all that? R. Norwitt: Yes. Look, Joe, I'm probably going to frustrate you here with my answer. I'm not going to -- because I couldn't give you kind of the fill in the spreadsheet so to speak, on pounds of this and length of that. But you mentioned one thing. And you mentioned that there's new architectures with new approaches. You mentioned, for example, higher voltage. And there's no doubt about it that our team is working to enable these next-generation systems which will need new energy. And we talk a lot about the data part of AI data centers, but I think we should also talk a lot about the power part of them. And again, we come into that with the broadest array of power interconnect from discrete connectors to very complex power cable assemblies, bus bars, liquid cooled bus bars. And you can imagine that our team is doing an enormous amount of things, making sure that as our customers shift to higher and higher power capacities inside their racks, inside their data centers, that Amphenol is their core partner. And I'm really proud of what the team has done there. And we'll continue to see great opportunities across the board. But I'm not going to be able to give you a pound and length kind of metric here. Operator: That concludes our Q&A session. So I will hand back to Mr. Norwitt for closing remarks. R. Norwitt: Well, thank you all very much. We truly appreciate everybody's interest in the company today, and we look forward to talking to you all here in 90 days, and I hope you all have a wonderful spring and start to your summer. Thanks so much. Thank you. Operator: This concludes today's call. Thank you for joining. You may now disconnect your lines.
Operator: Good afternoon, and welcome to the Redwood Trust, Inc. First Quarter 2026 Financial Results Conference Call. Today's conference is being recorded. I will now turn the call over to [ Natasha Spaduri ], Senior Vice President of Finance. Please go ahead, ma'am. Unknown Executive: Thank you, operator. Hello, everyone, and thank you for joining us today for Redwood's First Quarter 2026 Earnings Conference Call. With me on today's call are Chris Abate, Chief Executive Officer; Dash Robinson, President; and Brooke Carillo, Chief Financial Officer. Before we begin today, I want to remind you that certain statements made during management's presentation today with respect to future financial and business performance may constitute forward-looking statements. Forward-looking statements are based on current expectations, forecasts and assumptions, which include risks and uncertainties that could cause actual results to differ materially. We encourage you to read the company's annual report on Form 10-K, which provides a description of some of the factors that could have a material impact on the company's performance and cause actual results to differ from those that may be expressed in forward-looking statements. On this call, we may also refer to both GAAP and non-GAAP financial measures. The non-GAAP financial measures provided should not be utilized in isolation or considered as a substitute for measures of financial performance prepared in accordance with GAAP. Reconciliation between GAAP and non-GAAP financial measures are provided in our first quarter Redwood review, which is available on our website, redwoodtrust.com. Also note that the contents of today's conference call contain time-sensitive information that are accurate only as of today. We do not intend and undertake no obligation to update this information to reflect subsequent events or circumstances. Finally, today's call is being recorded. It will be available on our website later today. With that, I'll turn the call over to Chris for opening remarks. Christopher Abate: Thank you, and good afternoon, everyone. Before I turn the call over to Dash and Brooke, I want to share a few thoughts on our first quarter performance and what it says about Redwood's position as we move forward in 2026. As you all saw by now, Redwood generated a third consecutive record operating quarter with mortgage banking volume surpassing $8.5 billion for the first time and earnings available for distribution coming in a bit above last quarter at $0.21 per share, once again covering our dividend. Operating progress should garner some attention as our results came amid a broader mortgage market that has been stuck in neutral with mortgage applications running close to 40% below pre-pandemic levels and jumbo mortgage rates having risen from the recent February lows in large part due to the conflict in the Middle East. To zoom out and offer some context, our $8.5 billion of first quarter volume exceeded residential mortgage production at 3 of the top money center banks during the quarter. Our volume also clocked in at 10x our March 31 reported GAAP book value, a very high capital turnover ratio. This means the loans we hold in short-term warehouse facilities are moving quickly and getting replaced with fresh production. All told, we completed 11 securitizations in the first quarter, another in-house record for Redwood. High turnover also indicates the tremendous operational efficiencies we've implemented in recent quarters, in part due to our strong adoption of AI across the enterprise. In the first quarter alone, we executed over 2,500 agentic workflows, spanning technology platform expansion to support both Sequoia and Aspire in a single unified platform, as well as automated QC and the elimination of significant work previously performed by outside vendors. In the quarters ahead, we aim to continue unlocking addressable market share by leveraging the many network relationships we've spent years cultivating, something that is neither easy nor cheap to replicate. Our longer-term objective of 20% market share or more for our primary products will require both capital efficiency and significant growth capital. We believe there is a compelling opportunity for common shareholders to participate in that growth alongside us in advance of the next monetary regime and mortgage rate cycle. In the meantime, we continue to see tremendous demand from alternative asset investors who are eager to partner with us and speak for the high-quality assets we source. Just this morning, we announced a major Sequoia capital partnership with Castlelake, a blue-chip global investment firm specializing in asset-backed credit. This partnership brings approximately $8 billion of incremental purchasing power to Sequoia as it scales and reflects growing institutional demand to access our platform and the assets we create. We view this as an important step in a broader strategy to pair our origination capabilities with third-party capital at scale. To that end, we've also been hard at work on an Aspire-focused joint venture and hope to announce a similar JV in short order. Such capital partnerships are timely as we're growing more optimistic about macro trends that could positively impact the housing sector with the obvious caveat that the conflict in the Middle East seems far from resolved. As we like to say, mortgage was among the first sectors to be impacted by the Fed's historic tightening cycle to combat inflation in 2022, and we think mortgage could be among the first to benefit now with the prospect of a more accommodative and housing-focused Fed. Based on recent publications and testimony, the presumptive new Fed Chair, Kevin Warsh, seems to prefer the policy combination of lower rates and a smaller Fed balance sheet. While the reduction of QE had certainly removed the demand stimulus from the mortgage market, the prospect of a smaller Fed balance sheet should help reduce long-term inflation expectations and hopefully support lower long-term rates. The wildcard for mortgages continues to be spreads, which are still meaningfully above pre-COVID levels and still trying to find equilibrium. We expect any monetary policy tailwinds to be further supported by evolving regulatory dynamics, most notably the recently reproposed bank regulatory capital rules, also known as the Basel III Endgame. The proposed rules would ease the cost for banks to hold higher quality mortgages and mortgage servicing assets, a necessary step for banks to consider allocating more capital to their go-forward consumer mortgage operations. But lowering the capital rules is just one precursor for banks to reenter the mortgage space. The ultimate decision, we believe, remains risk-based and not profit-based. We consistently hear from bank C-suites that having a partner like Redwood to assist in the management of their interest rate and asset liability risks is a huge differentiator, especially because our support does not undermine their customer retention goals. Having the option to transact with Redwood when rates change quickly or priorities shift is the value differentiator we've now established throughout the banking system and another example of the moat we've built around our franchise. Finally, before handing the call over to Dash, I want to remark on recent headlines stemming from the private credit sector. As we all have seen, pockets of weakness in underlying fundamentals are emerging for certain aspects of private credit and constraints on liquidity and asset price visibility are, in some cases, impacting broader market sentiment. It's a timely moment for us to humbly champion Redwood's public credit model, where you can gain exposure to innovative mortgage banking and credit strategies, coupled with the liquidity that a publicly traded stock offers. We also strive to provide great transparency through the utilization of annual external audits, quarterly 10-Q filings, proxy statements and perhaps most importantly, mark-to-market accounting through our income statement. It's times like these that we take pride in our shareholders knowing not only what they own, but also knowing what they don't. With that, I'll turn the call over to Dash to discuss our operating results. Dashiell Robinson: Thank you, Chris. Our first quarter operating performance reflects continued momentum across our mortgage banking platforms, supported by record Sequoia volume, ongoing growth at Aspire and strategic progress at CoreVest, including evolution of our production mix. Even against a more volatile backdrop beginning in March, our full quarter results demonstrated the scalability of our model and the additional operating leverage still to be unlocked. Sequoia once again headlined our results, logging another record quarter with $6.5 billion of locks, up 22% from the fourth quarter. That volume was generated in a housing environment that remains well below historical norms, underscoring the market share gains we continue to make across our originator network, now enhanced by several new products to complement our core jumbo offering. Cost per loan improved 30% from the fourth quarter to below 20 basis points, aided by automation initiatives that we estimate will free up close to 6,000 hours per year that our team members can utilize more productively. Capital turnover also improved quarter-over-quarter with continued efficiencies expected from the new joint venture dedicated to Sequoia's jumbo production that Chris described. Gain on sale margins in the first quarter were 96 basis points, at the high end of our historical target range despite substantial TBA underperformance into quarter end, much of which has retraced thus far in April. Margin resilience was driven in part by strong execution on $5.5 billion of dispositions, including $4.6 billion across 9 securitizations. As Chris articulated, the recently reproposed Basel Endgame rules represent a potentially meaningful tailwind for the business. While flow volume represented the majority of first quarter production, we are currently evaluating on an exclusive basis close to $5 billion of seasoned bulk pools from banks, underscoring our view that more benign capital charges against high-quality mortgages will promote more 2-way flow of bulk pools, a positive for Redwood given our market positioning as banks continue to prioritize prudent asset liability management. Away from bulk opportunities, our sourcing channels remain well diversified overall with average flow lock concentration by seller of less than 1%. Product expansion also continues to support growth. During the quarter, we launched a new loan program focused on medical professionals, locking nearly $300 million of such loans on a flow basis during the quarter and later in the quarter, successfully securitizing a bulk pool of MedPro loans we acquired from a bank, a first-of-its-kind transaction. In all, our expanded offerings represented 14% of total lock volume in the quarter with over 100 of our sellers now actively selling us at least one new product. Aspire continued its growth trajectory in the first quarter, adding several new origination partners while further deepening our value with existing sellers. Aspire lock volume increased to $1.6 billion with April lock volume ahead of that pace. Approximately 70% of Aspire's first quarter volume came from sellers already active with Sequoia, a significant competitive advantage for the platform that also is indicative of its growth potential. More originators are now recognizing the strategic benefit of non-QM products that serve a growing cohort of borrowers outside the traditional W-2 profile, including self-employed consumers and smaller scale housing investors. We estimate Aspire's first quarter market share to be approximately 4%, which we expect to at least double by the second half of this year. As Aspire remains a relatively early-stage platform, an ongoing priority remains scaling operations ratably with volume growth and maintaining the cost discipline that supports long-term profitability. Aspire's gross margins were 73 basis points in the first quarter, impacted by spread widening in the pipeline at quarter end that has since largely reversed. The platform's inaugural securitization in March was an important milestone for the business, broadening distribution, improving capital efficiency, including through accretive distribution of the risk retention and subordinate tranches to a third party and establishing Aspire as a programmatic issuer alongside Redwood's other leading securitization shelves. At CoreVest, first quarter volume totaled $432 million, down modestly from the fourth quarter, but with continued progress in our smaller balance residential transition loan, or RTL and DSCR products. In partnership with our borrowers, we managed the pipeline carefully in March as volatility increased, which reduced monthly volume but positioned customers to lock loans in April at more favorable all-in rates. CoreVest's origination and distribution strategies are improving capital efficiency, reducing market risk and aligning the platform with areas of demand well supported by our capital partners. Most notably, this includes our joint venture with CPP Investments, to which we have now distributed over $2 million of CoreVest production life to date, generating upfront fee income and building a recurring income stream as the joint venture grows. The broader housing investor market remains focused on a pending piece of legislation that may impact institutional ownership of rented single-family homes over the medium to long term. While the final outcome remains uncertain, we believe parts of the eventual framework could create longer-term opportunities for the platform, both within our smaller balance loan programs and if the new rulemaking ultimately impacts the GSE footprint for single-family housing investors. Alongside record mortgage banking activity, we continue to pace with our reallocation of capital away from legacy investments, which stood at 15% of total capital at March 31, down from 19% at year-end. While segment returns were once again impacted primarily by net interest expense, resolution activity during the first quarter, combined with an accretive securitization, reduced legacy bridge loans to approximately half of the legacy segment and 8% of our total capital overall. 90-day plus delinquencies were roughly flat versus year-end in the legacy portfolio as we prioritize efficiently winding down the segment through outright dispositions or other structured sales that we believe will lead to the best outcomes through time. I will now turn the call over to Brooke to discuss our financial results. Brooke Carillo: Thank you, Dash. Turning to our first quarter results. We reported a GAAP net loss of $7 million or $0.07 per share compared to GAAP net income of $18 million or $0.13 per share in the fourth quarter. Book value per share was $7.12 at March 31. The 3% decline from Q4 was driven by noncash market-related valuation changes and certain nonrecurring expense items rather than underlying operating performance. Book value also reflected the $0.18 dividend paid to common shareholders. On a non-GAAP basis, consolidated earnings available for distribution, or EAD, was $27 million or $0.21 per share, up from $0.20 per share in the fourth quarter. Core segments EAD was $37 million or $0.28 per share, representing a 19% return on equity. This performance was driven by strong mortgage banking volumes, efficient loan distribution and capital turnover, particularly during the more volatile period in March, and disciplined capital deployment into attractive, income-generating investments, which supported net interest income and margins. The difference between core segment's EAD of $0.28 and consolidated EAD of $0.21 primarily reflects the legacy portfolio, which reduced consolidated EAD by approximately $0.08 per share in the first quarter. As capital allocated to legacy continues to decline, we expect that drag to further moderate. Our mortgage banking platforms generated $37 million of GAAP net income in the quarter, representing a 38% annualized return on capital. Capital efficiency improved with capital required per dollar of volume declining by approximately 10% quarter-over-quarter to 1.1%. Just to note, this quarter, our segment returns reflect a full allocation of unsecured interest expense based on average capital deployed with capital reduced by the corresponding allocation of corporate debt. The Redwood review presents segment results on both this basis and our prior methodology, which reflected these items within corporate. Sequoia generated $38 million of GAAP net income in the first quarter. Heightened flow activity represented 61% of production with a growing contribution from newer products such as ARMs, closed-end seconds and medical professional loans. As volumes scale, we continue to see strong earnings conversion and benefits of scale with cost per loan declining to 18 basis points, a highly efficient milestone. We also see a deep and growing pipeline of attractive opportunities with demand exceeding available capital. The joint venture announced today is designed to capture more of that opportunity in a capital-efficient manner by incorporating third-party capital alongside our own. Based on current expectations, the structure has the potential to contribute approximately $0.12 to $0.15 per share of incremental annual earnings as it scales with additional upside through structured economics. Aspire generated $2 million of GAAP net income in the first quarter. As the platform scales and expands distribution, we are beginning to see improvements in capital efficiency. Margins were impacted by late quarter volatility but have largely recovered post quarter end. CoreVest generated a GAAP net loss of $3 million in the first quarter, including approximately $5 million of onetime restructuring charges related to organizational changes that position the business for profitability in 2026. Excluding these items, our net cost to originate declined from 95 basis points last quarter to 79 basis points in Q1, reflecting improved operating efficiency. Redwood Investments generated GAAP net loss of $8 million. Portfolio-related marks were primarily driven by widening in the TBA basis and credit spreads, combined with the impact of higher interest rates late in the quarter. The cost of funds for our investment portfolio improved as we refinanced higher cost debt and optimized our financing mix, supporting net interest margin. Legacy investments recorded a GAAP net loss of $13 million, improving from a $23 million loss in the fourth quarter. The improvement was driven by lower net interest expense on legacy bridge loans, reflecting improved financing terms and lower balances as well as higher HEI income as capital markets conditions for the asset class improved. Total G&A was $49 million in the first quarter, up from $41 million in Q4, reflecting onetime costs associated with the previously discussed organizational streamlining initiatives as well as typical seasonal expense patterns. Excluding these items, run rate G&A was approximately $40 million, essentially flat to slightly below the fourth quarter. We continue to scale with discipline as first quarter volume growth exceeded expense growth by nearly 2x, driving our expense to volume ratio down to 66 basis points. With a largely fixed cost structure tied to production, we see meaningful upside in incremental volume converting into earnings, reinforcing our confidence in ROE expansion as the business scales. Liquidity remains strong with $202 million of unrestricted cash and approximately $3.9 billion of excess warehouse capacity as of March 31. Recourse debt increased modestly to $4.7 billion at quarter end, driven by higher warehouse utilization supporting record mortgage banking activity. Our ability to efficiently turn loans and inventory was evident in the first quarter with 11 securitizations completed across $5.2 billion of collateral alongside improved financing efficiency through tighter spreads and better advance rates, driving an approximate 50 basis point reduction in our cost of funds over the past 12 months. Over that same period, we increased warehouse capacity by 30% to $7.1 billion and renewed $5.7 billion of facilities, reflecting continued support from our lending partners. And finally, there are no corporate unsecured debt maturities over the next 5 quarters, and we maintain meaningful flexibility within our unsecured debt structure. With that, I'll turn the call back to the operator for Q&A. Operator: [Operator Instructions] Our first question is from Mikhail Goberman with Citizens JPM (sic) [ JMP ]. Mikhail Goberman: Congrats on another record quarter of banking volume. If I could ask, start with the new joint venture announcement this morning. I see in your slide deck, you mentioned you're expecting a meaningful annual EPS accretion for yourselves. Is there a target range that you guys are thinking about in terms of a number? Brooke Carillo: Yes, we are anticipating that it has a potential for roughly $0.12 to $0.15 of incremental earnings. This joint venture will really, as Chris noted in his prepared remarks, allow us to grow volume by another incremental 1/3 or 30% kind of add double-digit ROEs without raising other capital to source that. So given our incremental margin significantly outweighs our incremental cost to source, we're really excited about the partnership and its dedicated distribution channel that really kind of aligns with our high capital turnover model that we've evolved into. Mikhail Goberman: As far as your comments on the call about a potential Aspire JV being announced in the near future, is there a size that you guys are thinking about there? I see the Castlelake deal is about $8 billion. What are you guys thinking about in terms of size of a JV for Aspire? Dashiell Robinson: It's Dash. We'll have more to say when the details get finalized, but I think we are expecting a joint venture of this type to probably support 25% to 30% of Aspire's annualized production. That's probably the best way to quote it for now just in terms of all the other initiatives we have with distribution, including securitizations and whole loan sales. Obviously, we need to finalize what we're working on, but that's the context I would give you as a percentage of Aspire's overall production mix. Brooke Carillo: Mikhail, I'd also add, obviously, we've had joint ventures with CoreVest up to this point. And so I think the in-house knowledge is pretty high. And so our ability to continue to add these to the platform is getting progressively more streamlined. So we want to continue to find partners to the extent we need capital and it's available. And hopefully, again, we'll have more to say on Aspire, as Dash mentioned [Technical Difficulty] quarter. Operator: Next, we'll hear from Crispin Love with Piper Sandler. Crispin Love: So you had another record quarter for mortgage bank production. Can you just discuss some of the momentum there and what you're seeing in April? Mortgage rates peaked around quarter end, a little bit better now. So curious what you're seeing in April and what you might expect throughout the year? Dashiell Robinson: Well, I think on the one hand, vol. came down earlier in the month as we kind of settled into where we're at with the conflict in the Middle East and energy prices. So mortgage rates came in a bit. Obviously, the 30-year ticked 5% today, the 10-year is back up to 4.40%. So that's not a positive for mortgage rates. So I think that we're going to continue to expect to see some volatility here in rates. But I think the initial shock that occurred in March with this conflict in Iran, the market has somewhat processed that. And we've been much more business as usual, I think, as a sector these past few weeks. So from that standpoint, we've obviously got great inroads to taking market share. I think we've demonstrated that the last few quarters late in the first quarter, early in the second quarter, we've added a few more regional banks from a flow perspective. We continue to unlock market share for the platform. And I think we're quite excited about the prospect of the Basel III Endgame and being more or less an exclusive partner to a number of banks who work with us today. It's ironic that with the Basel III Endgame, some of the capital changes pertain to credit, but I think many banks would tell you that the largest risk they're focused on with respect to mortgage is convexity, and that's what we help manage asset liability risk, interest rate risk. That's the big need right now. So that doesn't go away. And in fact, if the capital charges go down, I think, having a partner like Redwood to manage that, our business case just gets stronger and stronger. So we feel good about the momentum. The only thing we don't feel good about is the volatility in the macro economy, and we're doing our best to manage through that. Crispin Love: Great. And then just for Sequoia, you called out the cost per loan improving to 18 bps a couple of times during the call. Can you discuss some of the drivers there? Is part of it volume-related tech, AI? I believe you mentioned the automation initiatives. So curious on a little bit of detail there. And then are there additional efficiencies that you think you can drive that even lower in the coming quarters? Dashiell Robinson: Yes. I mean, we feel really good about our combination of hustle and hard work with adoption of tech and AI. I think we have in the review that our volume growth is outpacing our expense growth by 2x, which I think really demonstrates the scale of the platform at this point. We're operating very, very efficiently. During the quarter, we mentioned 2,500 agentic workflows. We're eliminating vendors who have done a lot of QC for us or document intelligence. We're smarter on due diligence reviews. We're able to create a lot of efficiencies between Sequoia and Aspire using AI for our consumer platforms. So across the board, it's been kind of full frontal on just finding efficiencies in the platform and making sure that each dollar is used wisely, and we're leveraging our team and the tech that we're building. Operator: Next, we'll move to Marissa Lobo with UBS. Ameeta Lobo Nelson: Just looking at the slide, it noted that bank sourced volume at Sequoia was about 30%. I believe this is lower than 4Q. Could you just comment on your outlook for that contribution going forward? And the Castlelake JV, does this reactivate any recurring Sequoia program in the second half of 2026? Christopher Abate: Yes. I think the bank percentage ticked down maybe on a percentage basis but continues to rise. We had another record quarter of volume and a lot of that can be influenced by bulk one way or the other. So in the first quarter, we had some large, bulk transactions with certain independents. We have added some additional regional bank partners on flow, as I mentioned. And so we continue to expect that volume mix to evolve. I think we've got really durable partnerships on the bank side. It represents about half our network today, more or less. And while we can't necessarily cuff it because I think bulk has such a big impact on that quarterly percentage, we expect it to continue to grow. Ameeta Lobo Nelson: Some of your peers have noted institutional capital entering the non-QM market and the broader residential credit market. Are you seeing that competition manifest in your whole loan acquisitions or through tighter spreads on the AAAs? How is that impacting the ROE and securitization? Dashiell Robinson: It's Dash. I think that's largely been to an advantage for us as we continue to deepen our distribution channels. First quarter, a big milestone for Aspire was completing the platform's first securitization. We're actually in the market today with its second, which is really important because it shows institutional investors that the platform is going to be in the market regularly, which obviously helps primary and secondary liquidity. We've sold whole loans out of the Aspire platform to now close to 10 discrete different counterparties, including a couple of banks, which is a very big deal. And so I think from a supply-demand perspective, the amount of institutional capital coming into the space is a net advantage for us, because there are some players in the space that have been established. But again, Aspire is really leveraging not only the new sellers we're bringing in, but also obviously, the foundation of sellers that we've been working with for years in Sequoia. I think we said in the prepared remarks that about 70% of Aspire's production is from sellers that we've already done business with, are doing business within Sequoia. That's good news for a couple of reasons. One is we're leveraging our existing seller base and becoming an even more relevant partner to them with these added products in addition to all the products that Sequoia is now offering. But it also reflects the room to the ceiling for Aspire in terms of growth because there's a lot of sellers that we're not engaged with right now that want to do business with us that we anticipate onboarding between now and end of the year. We estimate our market share in Aspire at about 4% in the first quarter. We want to double that in the second half of the year to a run rate that will probably be close to $1 billion a month of locks. So the momentum on volume is there. The business is obviously still building, but I think a lot of the table stakes premise for getting into the business in a full-throated fashion 1.5 years ago are definitely coming to fruition. The amount of capital that is coming into the space but can't really put that sort of risk on themselves and relies on us to do that, I think it is a net tailwind for us. Operator: We'll move on to Jason Weaver with Jones Trading. Jason Weaver: I was wanting to ask about the legacy wind down within CoreVest. You took capital allocation down to 15% in one quarter. What do you think about the realistic finish line here to get below 10%? Is that end of year? And what sort of residual assets are sort of stickier on that resolution time line? Dashiell Robinson: We have stated we want that percentage to be well below 10% by the end of the year. One thing to unpack on that, Jason, and thanks for the question, is the legacy portfolio is, at this point, about 50-50 legacy bridge loans and then HEI. Legacy HEI we purchased a number of years ago, some of which, as you know, we've disposed of over the past year or so. We're pretty optimistic that we can recycle a fair amount of that HEI capital later this year. As Brooke articulated, capital markets execution for that asset class has continued to improve. Just this morning, there was an announcement that a new institutional investor was putting a few hundred million of capital towards new production with a different originator. But the point is that capital is continuing to flow into that space, and that's translated to more optimal securitization execution. So that's definitely front burner. On the bridge side, we are down to a few real focus line items, which will move the needle, which we are very focused on resolving in Q2, if not early to mid-Q3. That combination there will get us below 10%, and then we will continue to wind the position down from there and keeping with our goal of getting it below 5% by the end of the year. Brooke Carillo: If I could add just one thing on the financial impact of the wind down as well. I think the legacy book was around $240 million of capital at the end of March. That 5% or so translates to be below $100 million of capital by the end of the year. Every $50 million or so of capital that we free up, just given the drag from the legacy book is about a $0.05 quarterly -- would expected to be about a $0.05 quarterly improvement in EAD as it's redeployed into mortgage banking. And we've seen that the legacy contribution was about $10 million better than we saw in the fourth quarter as well. So that is starting to translate into continued EAD trajectory. Jason Weaver: That's great color. And then I wonder if you could talk about the comparative economics between the Castlelake JV and the CPP fee structure, risk retention, retained margin per loan. Dashiell Robinson: They're very different asset classes, obviously, jumbo versus BPL. I think they are conceptually very, very similar. Much like CPP, we're the minority of the capital in the Castlelake JV. The economics to Redwood include certainty of upfront economics at time of transfer into the JV, as well as a running essentially asset management or loan administration strip. So I think the economics are conceptually similarly. They do differ numerically, obviously, because the underlying assets are different. But the structures are very similar in that they're both sort of living, breathing ecosystems. We would intend to securitize out of the Castlelake JV, much like we've done out of the CPP JV. We could sell loans out of it, et cetera. So they're structurally very, very similar, but understanding there's nuances because of the underlying asset class differences. Operator: Bose George with KBW will have our next question. Bose George: Just wanted to ask about trends at CoreVest in April. And then can you just talk about the pipeline discipline in March, the volatility there, what drove that? And is the sort of backdrop a lot better now in April? Dashiell Robinson: Yes. I mean, Bose, as you know, CoreVest of our different strategies has kind of the most credit sensitivity. And as things got volatile in March, I think it was pretty prudent to not spread lock too far in advance of outcomes that we were kind of waiting on from a macro perspective. So there, too, the vast majority of that distribution is kind of spoken for with CPP and others. And so we kind of have somewhat baked economics in some respects. And so we decided to be a little bit more cautious there. I think that was the right call. Coming out of quarter end, similar to the consumer business, things have picked back up, and it's very much business as usual. So there, it's a little bit different than how we think about certainly Sequoia, which is a much more rate sensitive, less credit-sensitive business and Aspire, which is kind of a little bit of both. Bose George: Then actually, on the marks on the Redwood Investments, since quarter end, have you seen reversals of some of those? Dashiell Robinson: Yes. We've seen some reversals. Our business is quite a bit different than most others in the mortgage REIT sector, but I think book is probably up 1%, 1.5% based on kind of where the portfolio has evolved. But it's also still very early in the quarter. And I think what we learned in the first quarter is the last month of the quarter can have a pretty big sway. So we're early in the second quarter. And hopefully, things continue to kind of stabilize, and we're pretty happy with the credit profile of the book. Operator: We'll move on to Doug Harter with BTIG. Douglas Harter: Brooke, you mentioned that kind of pipeline adjustments negatively impacted kind of the gain on sale that you were able to achieve in the quarter. Just wondering if you could size that. And I think I just want to make sure I heard that you said that that has largely reversed in April. Brooke Carillo: Yes. So we saw a decent amount of TBA widening throughout March. That probably had about -- we saw them about an 1/8 or so wider and our execution widened a bit relative to where we were at the beginning of the quarter. A lot of that has since reversed in April to date. And so I think it was a portion of the delta between where we were in the fourth quarter on gain on sale. I think we quantified at the time, we had about 25 bps of margin outperformance in the fourth quarter due to TBA tightening, and we probably saw at least half of that in terms of the quantum of the impact from TBA widening on jumbo margins in March. Douglas Harter: Great. And obviously, with Dash's prior comments in mind that it's still early in the quarter, but all else being equal, you would see some outperformance from TBA tightening. What you've seen so far? Brooke Carillo: Yes. I think we still guide to the high end of our historical range in terms of expected margins for Sequoia in the quarter. Dashiell Robinson: Yes, Doug, I would say similar for Aspire. The Aspire pipeline was definitely impacted at 3/31 by empirical spreads in the securitization market. Those are probably 20 to 30 bps tighter today than they were at March 31, which specifically to Aspire is probably worth about $0.02 to $0.03 of EAD in terms of where that pipeline was marked at 3/31 versus where we ultimately expect to potentially execute or at current market conditions. So that would be sort of the Aspire part of the answer as well. Operator: We'll move on to Don Fandetti with Wells Fargo. Donald Fandetti: Can you talk a little bit about the sort of ramp-up of the Castlelake JV, how quickly you could get to that sort of incremental earnings contribution that you talked about? And then is there any offset, meaning like cannibalization or less of your core mortgage banking business, or should we think of this as additive? Brooke Carillo: I'll start. I think the answer is definitively additive. Chris mentioned the amount of opportunities we're seeing out of both regional banks on a slow basis as new partners and also seasoned opportunities. So I think we are highly excited to have this up and running. The joint venture will use warehouse lines and other things that just operationally need to set up in the second quarter. This is fully expected to really be incremental volume for Sequoia. Operator: We'll move on to Rick Shane with JPMorgan. Richard Shane: I actually don't think I heard the answer to Don's question, which was one of mine. Given that this is a -- the constraint seems to be capital, and it sounds like you have the pipes in place, should we expect a very quick ramp to that $0.12 to $0.15 per year accretion, or how many quarters should we be thinking about here? Brooke Carillo: Yes. I think you can think of that somewhat linearly over the next 4 quarters as we ramp fully. Richard Shane: I want to understand a little bit better the G&A expense allocations this quarter. We saw Sequoia go down. There was a pretty significant increase at CoreVest on a relative basis and an increase at the corporate level. And I just want to understand what's driving that and how we think about that going forward, so we can model the different business lines efficiently. Brooke Carillo: Yes. No problem. Expected this one, just given there's a lot of movement in the quarter. So just at a high level, let me start with some of the movement in G&A, and then I can talk about allocation as well. So G&A was $49 million in the first quarter versus $40 million in the fourth quarter. Predominantly most of that was $8 million associated with the reorg costs and other about $1.5 million of that as well with seasonally higher benefits that we actually always see in the first quarter. The run rate from here should really be inside the fourth quarter levels. The area where most of that came from was within both kind of corporate and CoreVest, which is why you saw CoreVest contribution impacted, which is we disclosed both our GAAP contribution as well as EAD for CoreVest, just so you can see what really the run rate of that business looks like, excluding the onetime costs in the quarter. The other corporate expense reallocation that was done on the quarter was really taking -- which we showed on Page 9 in the Redwood review, our segment returns, both pro forma for this presentation for what we presented both last quarter and this quarter. We were really just allocating our $777 million of corporate debt by segment rather than having it sit in a corporate segment so that you can see the impact of that interest expense proportionately for each segment. So that is why if you look on Page 9, our mortgage banking ROE under our prior presentation would have been 23%. It's 38% just given the impact of that capital coming out of the otherwise kind of dedicated working capital for each segment. Operator: There are no further questions at this time, and this does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time.
Operator: Good afternoon. My name is Kevin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 Holdings First Quarter 2026 Financial Results Conference Call. [Operator Instructions] I will now hand the conference over to Josh Yankovich, Investor Relations. Sir, please begin. Josh Yankovich: Thank you, operator. Good afternoon, everyone, and thank you for joining us today. With me on the call are Matt Flake, our CEO; and Jonathan Price, our CFO. This call contains forward-looking statements that are subject to significant risks and uncertainties, including, among other things, with respect to our expectations for the future operating and financial performance of Q2 Holdings and for the financial services industry. Actual results may differ materially from those contemplated by these forward-looking statements, and we can give no assurance that such expectations or any of our forward-looking statements will prove to be correct. Important factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included in our periodic reports filed with the SEC, copies of which may be found on the Investor Relations section of our website, including our quarterly report on Form 10-Q for the first quarter of 2026 and the press release distributed this afternoon and filed in our Form 8-K with the SEC regarding the financial results we will discuss today. Forward-looking statements that we make on this call are based on assumptions only as of the date discussed. Investors should not assume that these statements will remain operative at a later time, and we undertake no obligation to update any such forward-looking statements discussed in this call. Also, unless otherwise stated, all financial measures discussed on this call other than revenue will be on a non-GAAP basis. A discussion of why we use non-GAAP financial measures and a reconciliation of the non-GAAP measures to the most comparable GAAP measures is included in our press release, which is available on the Investor Relations section of our website and in our Form 8-K filed today with the SEC. We have also published additional materials related to today's results on our Investor Relations website. Let me now turn the call over to Matt. Matthew Flake: Thanks, Josh, and good afternoon, everyone. Thank you for joining us today. I'll start by sharing our first quarter results and highlights from across the business. I'll then hand the call over to Jonathan to discuss our financial results in more detail and provide our outlook for the remainder of the year. Starting with the quarter. We delivered a strong start to 2026 with financial performance that reflects continued execution across our key priorities. In the first quarter, we generated revenue of $216.5 million, representing 14% year-over-year growth. We also delivered adjusted EBITDA of $60 million or 27.7% of revenue and generated free cash flow of $44.2 million. Overall, we're pleased with our performance to start the year, including continued strength in our subscription model, ongoing demand for the mission-critical solutions we deliver to our customers and meaningful progress in our AI journey, which I will provide more detail on momentarily. Starting with sales. We had a strong quarter of bookings activity to start the year, building on the momentum we carried out of 2025 with a record bookings performance for our first quarter. Our performance was highlighted by 9 total Tier 1 and enterprise wins across the portfolio. And as we've seen in recent quarters, our bookings execution continued to be characterized by a balanced mix of net new and expansion activity as well. We saw particularly strong performance in both our Digital Banking and our Risk and Fraud solutions. I want to highlight a few deals from the quarter that exemplify some of the themes that have defined our recent sales performance. First, we closed a significant digital banking expansion driven by an M&A transaction involving existing digital banking customer, Synovus, who merged with Pinnacle Financial Partners. Following the merger, the combined institution selected Q2 as the go-forward platform for commercial digital banking and commercial fraud management solutions. We continue to view bank sector M&A as an opportunity for our business and an area where our platform strategy differentiates us. In scenarios like these, customers are making long-term strategic decisions, and we're proud to be selected as a platform of choice in a highly competitive and complex environment. Second, we also signed the largest fraud deal in our company's history in the quarter. This was a win with a new enterprise customer and represents another example of the growing scale and importance of fraud solutions within our portfolio. As we've discussed in recent quarters, the cost and complexity of fraud continues to increase across financial institutions. What we're seeing now is that fraud is no longer episodic or confined to a single channel. It's becoming a continuous enterprise-wide challenge and one that is driving increasing levels of investment from our customers. This deal is particularly notable because of its size, and it marks another quarter where we've delivered a fraud booking of magnitude, reinforcing both the strength of our solutions and the urgency of this problem for our customers. So from a sales perspective, we were very pleased with the breadth and quality of our bookings performance in the quarter. We're seeing continued demand across our platform, strong engagement from both new and existing customers and increasing alignment between our product portfolio and the strategic priorities of financial institutions. Of note, we're also seeing the term length of expansion deals increase compared to historical averages, which we view as a signal of our customers' long-term commitment to us as the partner of choice as they navigate their AI and digital transformations. On AI, we announced 2 product sets in recent weeks, and I want to update you on our strategy and where we're executing. As we've discussed on prior calls, there are 3 key differentiators we see for Q2 in the current wave of AI innovation, data, distribution and incumbency and trust. As AI lowers the cost of generating insights and writing code, we believe the value shifts towards platforms that can apply those insights in a trusted, compliant and operationally sound way. That's where we believe the platform we've been building gives us a real advantage. First, on data. Last quarter, I described Q2 as the system of context for our customers. While the core processor is the transactional system of record, Q2 sits in the flow of every digital interaction, seeing every log-in, transaction, alert, message and user decision. That gives us the context of behavior, not just ledger entries. We see log-in patterns, navigation paths, hesitations, retries and the full path a commercial payment takes from initiation through approval to execution. We believe that's the kind of banking-specific context AI needs to be useful, and it's a meaningful differentiator for us. Second, on distribution. We have an established customer and partner network ready to consume AI as we deliver it. That network took more than 2 decades to build and operate at scale, and it matters because AI is only valuable as the places it can actually be deployed. Lastly, on incumbency and trust, our customers are coming to us for direction on AI because of the trust we've built with them over many years. And because AI and banking has to be highly secure and compliant from day 1, we have the infrastructure, the technical know-how and the long-term customer relationships needed to deliver bank-grade AI at scale. Our customers are eager to adopt AI, but we have also seen an increase in customer conversations around the importance of managing data, privacy and access. Customers are turning to Q2 to help them work through this transition. And we believe that choice is continuing to show up in our bookings results as they make long-term strategic commitments to Q2 as their AI and digital transformation partner. Importantly, we are already converting those strategic advantages into tangible outcomes and innovation for our customers. Our near-term product focus is in 3 areas: improving efficiency for bankers, strengthening fraud detection and prevention, and driving deeper personalization for account holders. We announced 2 new products in those areas over the last few weeks. The first is Q2 Code, our AI-assisted development capability, which improves efficiency. It embeds AI directly into the development experience, allowing customers and partners to build on our platform using natural language while leveraging the full power of our SDK. The second is a new set of AI-driven fraud capabilities focused on account takeover. We're using AI to continuously monitor user activity, identify signs of compromise and intervene in real time. That shifts fraud management from after-the-fact detection to real-time prevention inside the platform where the transaction is happening. Looking ahead, AI is moving toward more agentic models where systems take action on behalf of users. In financial services, that will require trust, transparency and control. The platforms that win will combine context, execution and compliance. We believe that Q2 is uniquely positioned to be one of them and that we can capitalize on the value this creates for our customers. When you combine the progress we're making on our AI journey with our continued sales momentum, we're pleased with our start to the year. We believe that our sustained bookings performance, particularly coming off a strong second half of 2025, suggests that the demand environment remains healthy. And even with the continued sales execution, our pipeline is strong, giving us confidence in our ability to continue executing in 2026. With that, I'll hand the call over to Jonathan to walk through our financial results in more detail and provide our outlook for the remainder of the year. Jonathan Price: Thanks, Matt. We're pleased to announce first quarter revenue in line with the high end of our guidance and adjusted EBITDA meaningfully above. We also delivered record results across revenue, gross margin and adjusted EBITDA. The strategic investments we've made over the past several years helped to drive our best ever first quarter bookings performance and reinforces our confidence in the durability of this model. With that, let me start by discussing our financial results in more detail, and I'll finish with our updated second quarter and full year 2026 guidance. Total revenue for the first quarter was $216.5 million, an increase of 14% year-over-year and 4% sequentially. Our revenue growth was driven by subscription-based revenues, which grew 17% year-over-year and 5% sequentially, resulting largely from the delivery of new customer go-lives and expansion with existing customers. Subscription revenue as a percentage of total revenue continued to increase, ending the quarter at 83%, highlighting the ongoing shift in our revenue mix towards this higher-margin revenue stream. Total non-subscription revenues increased by 3% year-over-year, driven by a 12% increase in services and other revenue, which benefited from higher professional services revenues, primarily related to core conversions as well as an easier comparison versus the prior year. These increases helped offset ongoing declines in more discretionary professional services offerings, which remain under pressure. Total annualized recurring revenue or total ARR grew to $945 million, up 12% year-over-year from $847 million at the end of the first quarter of 2025. Our subscription ARR grew to $802 million, up 14% from $702 million in the prior year period. Our year-over-year subscription ARR growth was largely driven by bookings from new customer wins as well as expansion with existing customers. Our total ARR growth remains below subscription ARR growth, driven by the trends we previously discussed related to nonsubscription-based revenue. Our ending backlog of $2.7 billion increased by $46 million sequentially or 2% and $444 million year-over-year, representing 19% growth. The year-over-year and sequential increases were supported by booking success across new, expansion and renewal activity. As we have mentioned previously, the sequential change in backlog may fluctuate quarter-to-quarter based on the renewal opportunities available within that quarter. Gross margin was 62.1% for the first quarter, up meaningfully from 57.9% in the prior year period and 58.6% in the previous quarter. Both the year-over-year and sequential increase in gross margin were primarily driven by the completion of our cloud migration in January as well as an increasing mix of higher-margin subscription-based revenue. Total operating expenses for the first quarter was $81.7 million or 37.7% of revenue compared to $77.2 million or 40.7% of revenue in the first quarter of 2025 and $78.9 million or 37.9% of revenue in the previous quarter. The year-over-year improvement in operating expenses as a percent of revenue reflects scaling primarily within sales and marketing and G&A. Total adjusted EBITDA was a record $60 million in the first quarter, up 47% from $40.7 million in the prior year period and up 17% from $51.2 million in the previous quarter. Adjusted EBITDA margin was 27.7%, expanding approximately 630 basis points from 21.5% in the prior year quarter and up approximately 310 basis points from 24.6% compared to the fourth quarter. The year-over-year and sequential improvement was driven by a combination of the completion of our cloud migration and revenue growth. We ended the quarter with cash, cash equivalents and investments of $379 million, down from $433 million at the end of the previous quarter, driven by the repurchase of $97 million of our stock in the open market in the quarter, for a total of $102 million repurchased to date against our $150 million authorization announced in November of 2025. We generated cash flow from operations of $56 million in the first quarter, driven by timing of annual invoicing, collections and overall profitability and delivered $44 million of free cash flow. Let me finish by sharing our second quarter and full year 2026 guidance. We forecast second quarter revenue in the range of $214 million to $218 million and full year 2026 revenue in the range of $875 million to $882 million, representing year-over-year growth of approximately 10% to 11%. We continue to expect subscription revenue growth of at least 14% for full year 2026. We forecast second quarter adjusted EBITDA in the range of $57.5 million to $60.5 million and full year 2026 adjusted EBITDA in the range of $237 million to $242 million, representing approximately 27% of revenue. In summary, we delivered strong results to start the year, finishing at the high end of our revenue guidance while also driving significant profitability expansion above our guidance. This performance, coupled with our outlook for the remainder of the year has given us the confidence to raise our full year guidance on both revenue and adjusted EBITDA for 2026. We intend to continue to execute on our profitable growth strategy by balancing investments to sustain durable subscription revenue growth and drive operating leverage over time while prioritizing effective capital allocation. With that, I'll turn the call back over to Matt for his closing remarks. Matthew Flake: Thanks, Jonathan. I'll close by stepping back and putting the quarter into perspective. We're pleased with our performance in the first quarter, which reflects a strong start to the year across both financial results and bookings execution. We're seeing continued demand across our major product areas, including Digital Banking and Risk and Fraud, and that demand is showing up in both new customers wins and meaningful expansion with our existing base. As we highlighted earlier, expansion continues to be a defining characteristic of our business, and our customers are increasingly choosing to deepen their partnerships with Q2 as they look to address some of their most important priorities. One of those priorities is AI, where we are continuing to execute against the strategy we outlined last quarter, embedding new capabilities like Q2 Code and our latest fraud innovations directly into the platform to deliver real measurable value for customers. As we look ahead, we do so with a strong pipeline, a durable business model and a clear strategy for continued execution. We remain confident in the demand environment and in our ability to deliver profitable growth while continuing to invest in the areas that matter most for our customers and our long-term success. With that, operator, let's open the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Andrew Schmidt with KeyBanc Capital Markets. Andrew Schmidt: Matt, Jonathan, Josh, great results here. It's good to see the top and bottom line execution. I wanted to ask a question just on the demand you're seeing. And I hear you on the strong pipeline bookings execution. But if we drill down a little bit and we look at the funnel, it just seems like we're hearing a lot more urgency out there in terms of tech investment, especially on the commercial side. And then also it seems like part of that is obviously AI driving it. Are you seeing more opportunities in the funnel as a result of that? I'm just curious if you think about mid- and upper funnel, if the velocity or the volume has changed there? Matthew Flake: Yes, Andrew, thanks. We are seeing -- we saw the top of the funnel increase quite significantly in the first quarter and the sense of urgency. I wouldn't characterize it as AI at this point, although we're having a lot of those conversations. I would characterize it as our banks are doing really well. Their stocks are doing well, and they're wanting to invest in technology to go get the -- have the technology to be able to go pick up the businesses and consumers in their communities that they work in. And as I talked to a customer the other day, it's going live in a month, he just -- he said to me, I can't tell you how excited I am to get this product up and running so I can go take some of these bigger customers in our geographies because I'll have the tech to go do it. And I think that's really proud when I hear that, but that's really what the opportunity for them is right now is to go pick up these commercial accounts with this platform and all the feature functionality we have around the commercial functionality as well as the retail piece when they get off those old legacy systems. So it's -- the demand environment, if you look at Q3, Q4 and Q1, it's it certainly is strong. And if I look at the second quarter and the back half, it looks good as well. So top of the funnel looks good and the opportunities look good for us, and we're doing really well out there. Andrew Schmidt: That's awesome, Matt. That's great to hear. If I could ask a question just on AI and clearly, good job rolling out the AI products. But if we think about the pipeline of products, what things can we think about? There's obviously Agentic orchestration, there's MCP, threat access. I'm just curious, do you think you have everything in the portfolio you need to kind of serve future demand in that respect? You need to sort of emphasize different areas that might be below the watermark? Matthew Flake: Yes. I think it's so early. We have a long ways to go, and we spent a lot of time with customers and prospects talking about AI and how they think about it. The one thing that in this industry, I think it's important to understand is the diligence around regulatory compliance and security is a significant lift. You got to go through all how you're using it, the security around it, entitlements, rights, all those things. And so right now, I would say most of the customers are looking for AI tools that can help them run the bank as opposed to change the bank. Our Q2 Assistant, Q2 Code are in those areas. And then also fraud is a big part of that. And that's obviously where our road map has played out. But personalization, cross-selling products, understanding customers and what their next needs are, are definitely part of the road map we're going to begin to attack. But we want to get these right, and we want to get them in their hands and we want to get them happy with it, and we want to distribute and then continue to build on it. But there's a lot of opportunity, and it's early, and we feel like we've got some first-mover advantages. Operator: And your next question comes from the line of Ella Smith with JPMorgan. Eleanor Smith: So first, many of your customers might be fraud tech customers, but not digital banking customers or vice versa. What are the benefits for customers if they use Q2 for both digital banking and fraud tech? And how well do customers understand those benefits? Matthew Flake: Yes. So it's a good question, Ella. The value of combining the platform when you're using our digital banking system and you couple it with our fraud products, some of those products were built natively on the platform and others, we've partnered with people and then we built them separately is the data that you get is -- you get the payments, who's logged in, how they logged in, who they pay, when they pay, the Fed districts they pay in. We get all of that information in a real-time way when you're using the platform as opposed to if you're using a separate digital banking system. We may not have that information, it may not be as clean. It may not be as formatted the way we like it. So there's a lot more work when you're using a different digital banking system than a different fraud system. And so the value of putting it together makes you a more secure bank. And so if you look at it, I think 30%, 35% of our digital banking customers use our fraud products. And even the 30% and 35% that are using the fraud products, there's additional products we can add to them. So there's a huge cross-sell opportunity there. And the stand-alone fraud product customers, we are actively using sales reps to go call them and talk to them about exactly the value that I just mentioned in why they should look at our digital banking platform. So it's -- there's a lot of synergies there, and we continue to leverage them in conversations and marketing. Eleanor Smith: Very clear, Matt. And for a follow-up, do you think in the coming years that digital banking implementation could happen faster either from technology development or your own efficiency? Or do you expect the implementation process to remain fairly long and intensive? Matthew Flake: Well, I've always said that it takes 9 months to make a baby and it takes 12 months to deliver digital banking. So I think that may not be a truth in a couple of years. But right now, what I think we're looking for is to make our teams more efficient to where maybe a delivery team can handle 3 projects at one time now where they can handle 4 or 5. The banks have a buying pattern and a project management approach, which usually revolves around a year before the contracts up, they begin going through an RFP process. They make a decision a year out from the go-live and then the project is kind of forced into that time frame so that they can get off of this other system and get on our system at the same time, so there's not duplicate paying in months. That's largely in the bottom of Tier 1 and Tier 2 and Tier 3. But I do think we will become more efficient. It will be -- hopefully, there will be less work involved in it, not only for us, but for the bank as we begin to use tools that make it easier for the bank to do these conversions. But speeding them up, I think it's going to take a little time for us to have proof points around going and finding prospects that say they want to do it fast and we do it and we do it safe and it's -- they're able to -- a lot of these people do a digital banking conversion, and they got to do their day job at the same time. So I wouldn't pencil in speeding up the delivery process in the next year or 2, but I do think you're going to begin to see more efficiencies out of us. Operator: And your next question comes from Terry Tillman with Truist. Terrell Tillman: Hi there Matt, Jonathan and Josh. Can you all hear me okay? Matthew Flake: Loud and clear, Terry. Terrell Tillman: Awesome. So first, really intriguing to hear about this enterprise bank, largest fraud deal ever. I'm curious if -- how that kind of stacks up with just a traditional maybe digital banking deal. And is this kind of more of the exception? Or are you going to see more potential enterprise banks going big with fraud? And then I had a follow-up. Jonathan Price: Yes, Terry, it's Jonathan. From a dollar perspective in terms of the ASP, this would be akin to a Tier 1 digital banking deal, if not bigger. It is a really sizable opportunity. And yes, there are more of those in the pipeline. And whether you're talking about the size of the institution or the size of the deal, both exist where we have deal opportunities that are this size, sometimes even with smaller institutions. But also, as you know, with the fraud product, we are targeting our entire customer opportunity, both down market and upmarket. So those are bigger deals. They have longer sales cycle, but we certainly see those opportunities out there. And wins like these, once they're live and become referenceable, just become arrows in the quiver for the sales team. Terrell Tillman: Sorry, I'm learning the technology here. I could use an agent maybe to help me. But Matt, you talked about efficiency, fraud and personalization customer engagement. To me, with all the contextual data you all have, all that digital exhaust, it does seem pretty substantial in terms of that personalization and customer engagement. I don't know how much of this would be through Innovation Studio partners versus organic. But when do you actually see that potential unlock? Again, I know this stuff with AI and agents is early, but it does seem like that's to change the business type opportunity. And what do you think of timing on that? Matthew Flake: That's a tricky question, Terry. I'd like to get a couple more quarters before I get ahead of myself on that, the timing perspective. I think what's important is to know that we're working on it. We're talking with customers about it. I just don't want to get ahead of myself. Hopefully, you can understand. Operator: And your next question comes from Matt VanVliet with Cantor. Matthew VanVliet: Curious on how much Innovation Studios, not only penetration within the existing customers, I think we've gotten to the point where basically everyone is using something. But are you finding deeper penetration, more use cases in there? And how much of that is influencing some of these larger deals for things like fraud, where you're just fully ingrained in their ecosystem and using their preferred platform is -- makes sense from both an effectiveness and a cost perspective for them? Jonathan Price: Yes. Matt, I mean it's a little bit of all of that. We're seeing, like you said, the financial institution customer base is largely adopted, but they're very early in their adoption cycle of how many products are they consuming and then how penetrated are they with those products within the customer base. Those latter 2 points is where we've seen a lot of progress just in the last 2, 3 quarters. And so we're seeing really good penetration of these products where we're seeing FIs get more than one product live sometimes when they're going through implementation or sometimes as a cross-sell, they're buying multiple products and taking them live. And then we have a lot of work and AI is helpful around the idea of end-user marketing and how we're actually pushing these products out to the customer base. So we're seeing it have an impact. And yes, you mentioned the fraud arena. That is one area where it is bolstering our value proposition around the fraud intelligence story. And the combination is sort of akin to what Matt talked about earlier. When you marry the data and the signals from our platform, our fraud products and the partner products, you get a better fraud outcome for the financial institution. And so that is really salable to the customer base. Matthew VanVliet: Helpful. And then as you look at the Helix business, it seems as though while the regulatory environment in the financial services has remained relatively unchanged, the ability to build products is certainly being curtailed in terms of timing. Are you seeing more interest in your digital core products? Are you seeing any sort of [indiscernible] buys or alternative institutions looking to build something that is more nimble and can support maybe alternative use cases going forward? Has that picked up at all? Jonathan Price: Yes. I mean where I think it's picked up is the use cases that revolve around the traditional FIs as opposed to the Helix business, which was largely built around the fintech and brands when the BaaS space was more in vogue and was growing faster. So for us, we think that's a real opportunity over the coming years to bring that Helix product closer to the financial institutions with use cases, especially around the retail banking space. And so you're right. And within Q2, that's one of the teams that's being the most innovative and aggressive in terms of how we're structuring to build with AI and we think that's going to pay dividends in our ability to move quickly in that market and show the FIs a value prop that's different than what they've historically seen from the course. Operator: And your next question comes from Alex Sklar with Raymond James. Alexander Sklar: Matt, on the Q2 Code announcement, can you just elaborate on what that incrementally unlocks relative to what's available in Innovation Studio today? And is that a solution you expect to monetize over time? Or is this kind of used as a competitive differentiator or something that can drive higher customer retention longer term? Matthew Flake: Yes, it's separate from Innovation Studio. So it allows the financial institution to write code faster at a lower cost and experiment and personalize their experience in a simple, elegant way that we're seeing more engagement on that largely upmarket. There's some Tier 2s that are playing with it as well. But what it does is it allows them to really leverage -- they may have a product that's specific to them, maybe a credit union with a certain member base where they can roll out products that are specific to them where they don't have to rely on us or work with on our time frame. So it gives them a lot of freedom to do that. And they continue to leverage the platform. We get a deeper relationship with them and they do more and more. And so we're encouraged by the early adopters of it so far. Jonathan Price: And just to add, that is a -- the products that we talk about, these new AI products, so in the case of Q2 Code, this is a discretely monetizable product SKU. So they shouldn't be confused with AI features built into an existing product. And so obviously, it's early. We're in the early adopter phase. We're working with these beta customers around pricing models and building an idea of what monetization and revenue models could look like in the long run, but this is discretely monetizable product. Alexander Sklar: Okay. Jonathan, maybe then a follow-up for you. Just on the gross margin beat, you've got a few months under your belt now running fully in the cloud. Was there any part of the Q1 upside that was onetime in nature? And then how are you thinking about that opportunity now to really press on further optimizing some of the existing cloud deployments as we think about subscription gross margin? Jonathan Price: Yes. Thanks, Alex. Yes, we're really pleased with the outcome when it comes to the overall project. The teams did a phenomenal job completing the cloud migration project and finished on time. And obviously, from an expectation standpoint, we're ahead of it when it comes to the gross margin outcome in the quarter, and you see that sort of as you think through what we'll talk about and what we put in the press release for the rest of the year. But so no, that's not onetime in nature. That is the outcome of exiting the data centers and really operating now cleanly for almost the entire quarter in AWS. And so that is complete now. We feel good about that. To the second part of your question, as we think about the next leg, once we have time to operate in this environment over the coming months and quarters, we do think as we get into '27 and '28, there's a potential future step function upwards when it comes to another gross margin opportunity as we optimize working in that environment, understand scalability, more automation, more tooling, understanding where we need to rebuild architecturally to get better scale in the cloud. And so that's all coming. It's hard to quantify, and I would not expect that to impact 2026. But to your point about onetime, the step-up to the 62% level, that is where we expect gross margins to be for the remainder of 2026, right in that ballpark. And we will continue to work on the stuff I mentioned in terms of the '27 and '28 opportunity that comes with being in that environment. Operator: And your next question comes from Parker Lane with Stifel. J. Lane: Maybe to go back to Q2 Code. Matt, we've heard from other software companies about more forward deployed engineers and a lot of services folks involved in bespoke Agentic offerings. Do you envision a world where with Q2 Code, you have less reliance on that or less of a need to go in that direction? Or will there be instances in the future where some of that work is supported by you guys and a lot of it is in the IT departments and the hands of the customers themselves? Matthew Flake: Yes. I think that's definitely a possibility that you see less services work from us and they're able to move faster and they get more deeply embedded in our platform by using those tools. So for me, it's definitely a good thing to get the higher-margin revenue and kind of get out of the services business, but we're still going to have a component of that for a while. J. Lane: Got it. And then, Jonathan, maybe one for you. Can you remind us what the renewal cadence looks like for this year, if there's anything in particular we should be mindful of or things that have changed relative to when you first guided 2026? Jonathan Price: Yes. I mean we -- as we think about the rest of the year, it looks pretty standard. I would say more of the renewal volume exists later in the year as we think about -- we had a pretty strong Q1. As we think about the last 3 quarters of the year, Q4 is definitely the most volume, but there are opportunities all throughout Q2 and Q3. So it's just a question of execution on those and making sure if there are other opportunities, we can execute on ones that may be outside that period. But we feel good about -- we talked about at the beginning of the year. Really, we looked at it as a 2-year cohort because that's how we always talked about '24 and '25. And when we looked at '26 and '27 as we headed into this year, they were very comparable in size, both in terms of the number of opportunities and dollars in play. And so now that we're into '26, we had a good start with Q1. And as we think about the year, it's -- yes, it's a little bit heavier on the Q4 side, but there are real opportunities available within each of them. Operator: And your next question comes from the line of Michael Infante with Morgan Stanley. Michael Infante: Just on subscription ARR, is there any color you can provide in terms of whether there were any notable churn impacts in the quarter? And if so, maybe how that compared to the more concentrated churn you saw in 2Q of '25? I'm just trying to understand the bridge between the strong bookings activity you're seeing, including on the fraud side and the path to subs ARR acceleration from here as the recent bookings begin to convert? Jonathan Price: Yes. No, there really wasn't, Michael, when it comes to outsized churn activity in the first quarter, and we really don't see a quarter like that in 2026, like what we saw in Q2 of 2025. So no, the churn targets that we put out at the beginning of the year still hold true. We're doing everything we can to execute to beat those targets when it comes to both total churn and digital banking churn itself and feel good about where we're at so far through 3 months. Michael Infante: That's helpful. And then just a quick follow-up on the professional services side. Jonathan, you obviously called out the durability of the professional services revenue you highlighted related to the core conversions. Does that change your posture on the negative mid-single-digit non-subscription revenue growth for the full year? Jonathan Price: No, it doesn't. It really does not because -- well, 2 things. Number one, as we talked about when 2025 was evolving, M&A activity started to pick up. And so unlike Q1, where we had a very favorable comp, we're seeing the same type of elevated M&A activity here in 2026, but Q1 was a very favorable comp. As we get into Q2, Q3 and Q4, you start to see that the services opportunities related to core conversions from M&A are comparable. And so you just don't see the growth relative to those quarters in 2025. So we are still convinced that you are going to see a different look of that services trajectory as we get through the rest of '26, in line with the original guide we gave. Operator: Your next question comes from the line of Adam Hotchkiss with Goldman Sachs. Adam Hotchkiss: I guess to start, this is a bit of a follow-up to Parker's question, but just maybe take a step back and help us understand your holistic relationship with customers as it relates to AI. Are they generally going about their own strategies where there's a mix of wanting to build things in-house and use Q2 for other things? Or given their size, are they generally totally reliant on you for AI road map and strategy and you guys are leading and they're following? How does that look for you? Matthew Flake: It's the latter. I haven't seen anybody taking their own AI initiative and doing it on their own. They're partnering with us, learning from us, and we're trying to learn the problems they want to solve and build products to solve them. Adam Hotchkiss: Okay. Super clear. Helpful. And then on the Q2 Code being monetizable, I know it's early, Jonathan. I don't want to hold you guys to anything, but just how are you holistically thinking about pricing? And what's been some of the customer feedback around that? And then on profitability, based on how that product is run, how should we think about how token costs, especially given token cost inflation in recent months could impact margins to the extent that begins to scale quickly? Jonathan Price: Yes. Like you said, it's early, but we're having real conversations with these customers. And I think there is an understanding that we're going to have to have a hybrid model and an evolution in our pricing model on these products to account for what you talked about in terms of the underlying cost model. What we're seeing on an early basis with some of these AI products is the concept of what we'll call is a credit, which includes underlying token utilization, but other infrastructure and the value prop that we're delivering through that product priced-in up to a certain cap of token usage. And then over time, if they exceed that, there would be incremental fees for the excess usage. So that's sort of where it sits today as sort of a vision and a target of what I'll just call a hybrid model because it's still a subscription fee with a lot of that value bundled in, in a base size. And then the excess comes from over that amount and then making sure that we have caps to ensure that we don't go upside down in the interim. So -- but it's going to be a really iterative process, and we're going to learn from initial adoption and usage. And -- but early indications are there's an understanding that it does look different from a pricing perspective than what we typically have seen in our industry with just straight digital banking historically. On the profitability side, again, we can put in some of those caps and those structures to protect us. But I think it's safe to assume that until we see this at scale, it's hard to imagine like traditional SaaS margins are going to look like that on these early AI products, at least until we figure out sort of an optimal way to scale that's also sort of acceptable to the customer. So long-winded answer there, but hopefully, that gives you a little bit of color. We're working through it, and we're excited by the opportunity, but there's a lot we don't know yet. Operator: And your next question comes from Joe Vruwink with Baird. Joseph Vruwink: Just to stay on Q2 Code, if something like this makes it easier, cheaper, faster to build the custom integrations and experiences, what extent do you think that maybe widens the addressable audience you typically go after? And I'm wondering, does it make the platform less intimidating, does faster time to value become a key selling point. So maybe those that have traditionally not thought about Q2 as their digital banking provider, maybe this widens the core demo a bit and they start becoming addressable? Matthew Flake: Joe, the size of our customers range from sub-1 billion to $400 billion on digital banking. And so when we continue to work our way up on the enterprise plus side of things, I think it definitely -- it doesn't hurt on these -- on deals bigger than that to have those tools so they can build the products that they want because they usually have a broader set of products or make them more customizable to them. We'll have to see in the sales process, whether we -- whether that's a differentiator for us, and we'll obviously tell you if it is. So I don't know the answer to that yet. We've got to continue to experiment with this. It's early, and we're excited about it, and the feedback has been extremely positive early on. So I think it's going to create more opportunities for us. It's just a matter of -- I'm not positive on way up market, how much that will do. Joseph Vruwink: Yes. that's good and I appreciate it so early. Just on raising the full year revenue forecast by $4 million. You're also calling out some pretty big deals on fraud, and I think those fraud deals can activate more quickly. Are those starting to layer into kind of the 3Q, 4Q outlook? Is that the right time frame to think about the fraud deals you're winning right now? Jonathan Price: I mean it can be. The big, big fraud deals can have implementation time lines that exceed 6 months. So that -- the one in particular, we talked about that could be tight in terms of any real impact in 2026. But I mean, yes, obviously, we are -- we roll through the beat and are raising on top of that. And there's lots of contributors to that. That goes beyond just the go-live time lines associated with nondigital banking products. I mean we've seen great success so far this year when it comes to, obviously, the net new side, we talked about on the call across both digital banking, fraud and other parts of the portfolio, strong renewals and then another good cross-sale quarter and Innovation Studio in particular, had a really, really strong quarter. And like you said, those go to revenue even faster. And so sort of a culmination of all of that has given us the confidence to raise the revenue guide beyond just the beat in the first quarter. Operator: And your next question comes from the line of Cristopher Kennedy with William Blair. Cristopher Kennedy: Can you give us an update on kind of new sales activity within Tier 1 -- or Tier 2 and Tier 3 clients? Matthew Flake: Yes. We had a really strong quarter in Tier 2 and Tier 3 and the pipeline, I think probably the second quarter is probably going to be dominated by the lower end of Tier 1 and Tier 2 and Tier 3s with the upper end of Tier 1 and enterprise picking up in the back half of the year. We've obviously closed a lot of Tier 1 deals over the last 3 quarters. So really good activity there. Win rates are holding steady. ASPs are up. It's -- we've got a lot of traction in the kind of the bread and butter of this business, which is banks and credit unions between $500 million and $10 billion. Cristopher Kennedy: Great. And then just going back to the gross margins. Is most of the uplift this year just eliminating the duplication of the costs? And then over time, you should get some nice scaling benefits? Or are we going to see that in 2026? Jonathan Price: Well, certainly, Chris, the uplift in the first quarter was -- that was a big driver. That was what we were expecting in terms of the step-up between the timing and the execution, it was even more than we expected, obviously, given the full year commentary last quarter, about 60% plus is the target. So I feel really good about that. There's also other contributors, though, to be clear. I mean if you think about revenue mix now above 83% subs, that's a big one. We think that's going to continue to move upwards throughout 2026. We have a lot of optimization around efficiencies and ongoing initiatives, obviously, pricing and renewal and packaging that we've been talking about for several quarters now that are all having an impact. And then like I mentioned earlier, when it comes to sort of the next leg of operating in the cloud and seeing another uplift from that specifically, that's more of an opportunity we see in '27 and '28. Operator: And your next question comes from Dan Perlin with RBC Capital Markets. Daniel Perlin: Matt, I've got a question to start on -- it sounds like when banks are considering core conversions, and I don't mean by M&A, I mean like the proactive stuff that's happening out there. It sounds like they're coming to you guys early. It's not first in many instances. And it seems to me like this AI opportunity for you guys as that becomes a bigger part of their budgets only accelerates that. So I guess there's 2 things. One is, what are you seeing in relation to core conversion activity and appetite in the market currently? And then secondly, can you just remind us how that benefits you guys? I feel like it creates a lot of opportunities, but I oftentimes forget all the incremental products that kind of can get attached and things get switched sometimes. So that would be helpful. Matthew Flake: Yes, Dan, I'm not [ sure ] on that. I don't think I've seen an increase in the number of core conversions that are going on. I don't really know. I think one of the things that we provide and one of the reasons that people go with us is because they have the freedom to go with whatever core they want because we have all the integrations. We have a lot of them to all the ancillary systems, not just the general ledger. And so banks and credit unions, when they get to a certain size, want somebody that wakes up every day and thinks about a customer experience, speed, performance, simplicity, security in the user interface. And they want to get some leverage on not just the core processors, but us so that they can have freedom to go if they switch out the digital banking, then they can later on switch the core out a lot easier than having to replace the front end and the back end. So for us, for years, it's been a driver of deals for us, which is they pay a little more to go with us, but then they have some leverage in the negotiations on the back end with the core providers. So -- but I don't know. I haven't seen a ton of change in the amount of core conversions that go on. That's Fiserv, FIS and Jack Henry share that every quarter, I guess. I don't know -- I would think. Daniel Perlin: It's a hot topic. Yes. Just a quick follow-up. So I'm trying to make sure I understand the go-to-market motion that you guys have with the introduction of like Q2 Code and others. Like I know it's fully ingrained throughout the organization, but is it the relationship managers that are leading with this? Do you have kind of a SWAT team that's bringing this to market so that all the clients are aware of this? Is it a client conferences? Anything on that would be helpful. Matthew Flake: Yes, it's all that. I mean it starts with product marketing, identifying the marketing with the products, how they're differentiated, how they work and then the marketing team goes and takes that information and puts it in the market. We train our sales reps, net new and our success team, the relationship management team to understand the value of these and why it's differentiated and how we built it. And then it's incorporated in every sales pitch to our prospective customers and our strategic reviews with our quarterly or semiannual strategic reviews with all of our customers. We have a client conference coming up at the beginning of June, where, obviously, we're going to talk a lot about these products. It's going to be really interesting. We're going to have 1,000 of our closest friends there sharing what our road map and our future is, which we're excited about. So we'll have a lot of feedback in the August call or whatever the call is the second quarter call to kind of give you the feedback we got from it. But it's all hands on deck, all in on talking AI. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning. My name is Nikki, and I will be your conference operator today. Welcome to Luxfer's First Quarter 2026 Conference Call. [Operator Instructions] Now I will turn the call over to Kevin Grant, Vice President of Investor Relations and Business Development at Luxfer. Kevin, please go ahead. Kevin Grant: Thank you, Nikki, and good morning, everyone. Welcome to Luxfer's first quarter conference call. This morning, we'll be reviewing Luxfer's financial results for the first quarter ended March 29, 2026. I'm pleased to be joined today by Andy Butcher, our Chief Executive Officer; and Steve Webster, our Chief Financial Officer. Today's webcast is accompanied by a presentation that can be accessed at luxfer.com. Please note, any references to non-GAAP financials are reconciled in the appendix of the presentation. Before we begin, a friendly reminder that any forward-looking statements made about the company's expected financial results are subject to future risks and uncertainties. We undertake no obligation to update any forward-looking statements, whether a result of new information, future events or otherwise. Please refer to the safe harbor statement on Slide 2 of today's presentation for further details. During today's call, we'll be providing adjusted first quarter 2026 financial results, excluding the Graphics Arts business, which was divested in 2025. Now let me introduce Luxfer's CEO, Andy Butcher. Please turn to Slide 3. Andy, please go ahead. Andrew William Butcher: Thank you, Kevin, and good morning, everyone. Thank you for joining us. We delivered a strong start to 2026 with performance in the quarter demonstrating disciplined execution across the business and financial results a little ahead of the expectations we outlined coming into the year. As we indicated previously, 2026 includes variability across certain end markets. Although that dynamic was evident in the first quarter, we delivered adjusted earnings per share of $0.27, up 17% year-over-year, along with adjusted EBITDA of $12.3 million and margins of 14.7%. This signifies the strengthened earnings power of the portfolio and the ability to sustain profitability at current volume levels. Within Elektron, although timing dynamics drove lower volumes, demand across core areas remains intact with continued momentum in aerospace and defense. We also continue to advance our optimization initiatives, including the Powder Saxonburg Center of Excellence, enabling us to maintain strong margins. In Gas Cylinders, pricing and continued advancement of operational execution drove stronger year-over-year results. Our optimization program announced last year remains on track with key milestones progressing as planned, and we expect to realize increasing benefits from these actions. Through the performance we have seen and improved visibility through the remainder of the year, we have the confidence to raise our full year 2026 earnings guidance, increasing our adjusted diluted earnings per share to a midpoint of $1.17. As we look beyond 2026, we are increasingly confident in the momentum of the business and the drivers supporting a step-up in performance in 2027. Improving visibility across our end markets and the progress we are making on our operational initiatives position us well for a meaningful acceleration in earnings. We remain mindful of the broader geopolitical environment, but we see clear reasons for confidence based on specific drivers building across the business, including continued strength in aerospace and defense, the expected uplift in the SCBA replacement cycle and the expansion into higher-value applications such as space, supported by new product introductions. With that, I'll ask Steve to walk through the first quarter financial results and our updated outlook in more detail. Thanks, Andy, and good morning, everyone. Stephen M. Webster: Let's turn to Slide 4 for a review of our first quarter 2026 consolidated financial results. Turning to our top line. Adjusted sales were $83.9 million, down 7.3%, consistent with the trends outlined earlier. Despite the lower sales level, adjusted EBITDA increased to $12.3 million, up 8.8% year-over-year with adjusted EBITDA margin of 14.7%, an improvement of 220 basis points. As shown on the bridge, lower volumes created a headwind in the quarter due to timing dynamics discussed earlier. This was partially offset by pricing actions across the business, which outpaced inflation and supported strong margin performance. Importantly, we benefited from lower operating costs, along with early savings from our Riverside consolidation initiative within Gas Cylinders. Adjusted earnings per share was $0.27, up 17% year-over-year, demonstrating strong operating performance. From a cash flow perspective, cash from operations was an outflow of $4.1 million in the quarter, primarily driven by working capital, including inventory levels supporting our footprint optimization programs and the timing of receivables. Net debt at quarter end was $42.9 million, resulting in leverage of approximately 0.8x, maintaining balance sheet strength and financial flexibility. Overall, the quarter reinforces the resilience of the business and robust execution. With that, let's turn to Slide 5 for a closer look at Electron's first quarter 2026 results. Sales for the quarter were $42.1 million, down 14.8% year-over-year, attributable to lower volumes across certain end markets. This was largely driven by zirconium applications within industrial markets with some customer overstocking, along with the timing of high-end automotive wheels, consistent with the off-cycle dynamics we outlined previously, partially offset by continued strength in aerospace and improvements in certain defense-related applications. Despite the lower sales, gross profit year-over-year was $14.7 million, with gross margin increasing to 34.9%, up more than 500 basis points. Adjusted EBITDA was $8.5 million with an adjusted EBITDA margin in excess of 20% Pricing actions in the period exceeded higher input costs, which along with continued operational discipline across the segment, resulted in significant productivity improvements compared to the prior year. Overall, Elektron delivered strong margin performance despite lower volumes, driven by pricing and operational execution, and we expect stronger revenues as well as continued progress across the segment's operational initiatives as we move through the remainder of the year. With that, let's turn to Slide 6 for our Gas Cylinders first quarter 2026 results. Sales for the quarter were $41.8 million, up 1.7% year-over-year. Performance was driven by broadly stable volumes across the segment, continued strength in higher-margin specialty industrial applications and modest improvement in alternative fuels. This was partially offset by lower volumes in aerospace related to our branch relocation and seasonally slower SCBA demand, including the impact of the partial federal shutdown. Despite the relatively stable sales level, gross profit increased to $7.2 million, with gross margins improving to 17.2%, up 360 basis points year-over-year. Adjusted EBITDA was $3.8 million, representing strong growth with EBITDA margins of 9.1%, an improvement of 280 basis points. This performance was driven by pricing discipline across the business, which exceeded higher input costs, along with continued operational execution, including some early benefit from the relocation of the Pilbara operation. Overall, Gas Cylinders delivered margin expansion despite modest volume headwinds in the first quarter, and we expect continued margin enhancement throughout the year. Looking further ahead, we see multiple growth levers for Gas Cylinders, including the SCBA replacement cycle as well as space exploration as an emerging opportunity with activity developing across a range of customers and programs. Let's now move to Slide 7 for an overview of our 2026 guidance update. We have raised our full year earnings guidance based on the strong start to the year and improved visibility across the business. For the full year, we are now projecting our revenue in the range of $355 million to $370 million, while increasing our adjusted EBITDA to $52 million to $56 million and adjusted earnings per share to $1.12 to $1.22. The first quarter came in modestly ahead of our internal expectations and together with improving demand trends and visibility for the remainder of the year supports the updated guidance, including an implied midpoint of $1.17 while continuing to reflect a measured view of the broader macroeconomic environment. From a revenue perspective, the outlook continues to include timing dynamics in certain end markets, particularly within Elektron, which we expect to improve through the year. At the same time, we continue to see strength in aerospace and defense, supporting margin resilience and earnings progression. Within Gas Cylinders, demand trend remains constructive with continued strength in specialty industrial applications and emerging opportunities in areas such as space exploration, supporting longer-term growth. We are making good progress on our productivity and optimization initiatives, which remain on track with benefits expected to build through the second half of the year. Free cash flow guidance remains unchanged at $20 million to $25 million, reflecting ongoing investment in CapEx improvement programs and elevated inventory levels supporting our footprint consolidation initiatives. Given current geopolitical uncertainty, we are proactively monitoring global events as well as domestic tariff activity. To date, we have observed no impact on demand, and we have been successful in passing through increased costs. Overall, our updated guidance reflects a strong start to the year, improved visibility and a balanced view of the operating environment. With that, I will turn the call back to Andy to provide additional perspective on the outlook beyond 2026. Andrew William Butcher: Thank you, Steve. Please turn to Slide 8. As we look beyond 2026, it is helpful to start with where we are today. At the midpoint of our updated guidance, we are operating at approximately $1.17 of adjusted earnings per share with improved margins and a portfolio that continues to perform well despite near-term timing dynamics in certain markets. From that base, we see a clear and credible path to a meaningful step-up in earnings in 2027, supported by a number of drivers already underway. Starting with Elektron, the business will continue to benefit from strong and growing aerospace and defense demand, driven by the increasing use of precisely engineered magnesium alloys where lightweighting remains a key priority. Recent wins, including a new European aerospace defense application, reinforce our confidence in this trajectory. We are also seeing increasing momentum in the adoption of both of our Magtech heater solutions with interest building across a broader set of international markets as well as continued expectation for domestic flameless Russian heater add-on order in 2027. This is complemented by the expected recovery in high-end automotive applications as prior off-cycle dynamics normalize. This reflects timing within the end customer portfolio and configuration options that incorporate our high-performance magnesium components. In addition, we continue to make progress with a number of new product development applications and specialty platforms, including areas such as passive chemical detection and medical field emergency solutions, where we are seeing growing customer interest. Taken together, we expect Elektron to deliver steady mid- to high single-digit sales growth year-on-year, supporting a meaningful uplift in contribution to overall 2027 earnings. Turning to gas cylinders. We expect the return of the SCBA replacement cycle, including next-generation cylinders and larger municipal upgrades as a significant portion of the installed base moves into a more active replacement phase. This represents a multiyear incremental opportunity for the segment. Within aerospace, demand continues to be supported by commercial build rates and program outlooks from large OEMs, providing a clear and visible growth profile as aircraft production levels increase. We are also seeing new momentum in space exploration applications, where our products are being specified across an expanding range of programs and platforms. Along with hydrogen bulk gas, this is an area of higher growth within the portfolio with activity expanding across multiple customers as the market continues to scale. Taken together, we expect Gas Cylinders to deliver a stronger rate of sales growth, contributing to the overall step-up in earnings. Finally, across operations, we are progressing the productivity and optimization initiatives announced at the end of 2025, including footprint actions and our Center of Excellence programs. These initiatives are expected to be largely completed by the end of 2026 with the benefits carrying into 2027. We expect these actions to contribute significant incremental EBITDA, supporting improved efficiency and margin expansion, as previously noted. Given the strength of these underlying drivers and the visibility we are building across the business, we see a clear and credible path to robust double-digit earnings growth in 2027. This significant uplift reflects the progression from our 2026 base, supported by volume recovery, specific growth in higher-value applications and the full realization of our operational initiatives. Overall, we feel good about the momentum in the business and the opportunities ahead. Please turn to Slide 9. Before we take questions, let me briefly summarize the key highlights from the quarter. We delivered a strong start to 2026 with solid earnings growth and margin expansion driven by disciplined execution across the business. We have raised full year earnings guidance based on clearer visibility with stronger revenues in the quarters ahead and improvement supported by operational enhancements and pricing. We see a clear and credible path to a meaningful step-up in earnings in 2027, supported by specific multiple drivers already underway. And we remain focused on executing our strategic review process with the objective of maximizing shareholder value. Overall, we are encouraged by the direction of the business and the opportunities ahead as we move through 2026 and position for a step-up in performance in 2027. I will now turn the call back to the operator for questions. Nikki, please go ahead. Operator: [Operator Instructions] We'll take our first question from Steve Ferazani with Sidoti. Steve Ferazani: I appreciate the detail on the call. Certainly, very appreciative of the very early outlook on 2027. That's exceptionally helpful. I guess, Andy, the 2 big surprises to me are the strength in the Electron margins and the fact that you're able to grow gas cylinders year-over-year given the issues that you had outlined previously that were going to impact you in Q1. So I just want to walk through those 2 specifically. Very rare to see that kind of margin improvement segment-wise that we saw in Elektron when revenue is declining. Can you walk us through the pieces on that? What drove such significant margin improvement? It looks like the highest quarterly margin you've had in that segment since I have to go back to it looks like 2022. Andrew William Butcher: Yes. Thank you, Steve. We are very pleased with our Q1 and the performance in both the units. In our assessment also, it was a very nice result in Elektron. So we saw strong demand coming through in aerospace and defense. a nice mix of higher-value products. We saw strong operational performance in -- across most of the facilities. And that led to margins pushing above 20% despite the low values. So much to be pleased about there, especially overcoming that impact of the temporary softness in automotive high-performance wheels. We should see higher revenues now coming through in upcoming quarters, and that helped us raise our guidance. So another nice result for Elektron. And then in cylinders, yes, revenues held up nicely, in fact, slightly higher. So Cylinders Q1 profitability significantly ahead of the prior year quarter run rates. Some of the positives to highlight on the revenue line were around specialty products, demand for the specialty gas cylinder range, for example, some incremental profit coming through from space. And then continued pricing improvements versus inflation were helpful on the margin line, along with the relocation of the Pilbara to Riverside operations. So a nice result for cylinders also. Steve Ferazani: What was the surprise to you coming into -- that you saw in the quarter in terms of volume? You pointed out a couple of times specialty gas cylinders. How much of that semiconductor, which we think is going to have a really nice couple of years here? Is that the key driver there? Or was it mixed? Andrew William Butcher: Yes. So 2 key elements to the gas cylinders success on the specialty range. That is indeed related to semiconductors. Our larger cylinders are used to store expensive premium gases for the semiconductor market. And then we also have a range of smaller cylinders that gets used in the calibration market for testing cylinders and for monitoring testing sensors and for monitoring the performance of them. So yes, it was a nice period for specialty gas. We also saw a little uptick in the CNG market, which was a slight surprise. I don't necessarily think I can yet point to a long-term trend of improvements in clean energy, but that will come through at some point, and it was nice to see those slightly higher volumes there. Steve Ferazani: Got it. Update on the Saxonburg facility. Where are you with that? Andrew William Butcher: Yes. So in terms of the move to Saxonburg, that's the second of our relocation activities. So all of the atomization of powders and preparation of powders that was been done in Saxonburg [Indiscernible] has now moved across to our Saxonburg facilities. We do continue to run down our stock [Indiscernible], and that will continue for at least another couple of months as we ramp up in Saxonburg. So that project is on track and will be completed by the end of the year. We're more advanced with the first of our moves. That's in our cylinders business from Pomona to Riverside. The operations have now ceased in Pilbara. And since the start of the year, we've been ramping up production in Riverside. And all of those lines are now operational, albeit that we're still waiting for some product approvals to be completed. So we don't see the full benefits from that move until later in the year. Steve Ferazani: Got it. I guess for Steve, I think you noted the higher working capital part of that was the relocation. Should we see inventory levels coming down and be more of a benefit as the year goes on? Stephen M. Webster: Yes. I think that's a fair comment. So first of all, I mean, in terms of the cash being a modest outflow in the quarter, I mean, that's not unusual for quarter 1. That often happens. But yes, inventories ticked up to $100 million, which is up about $8 million higher than it was at year-end. That is linked to holding higher levels for the 2 projects. I'd also say there's some pricing coming through in terms of certain materials, which in turn has an upward pressure on the inventory value. Very confident we'll be able to pass those on ultimately through price. So no concern there. But yes, it should come down. Our OWC is around about 30% of revenue at the end of last year. I think it was at 25%, 26%. And I would expect to get close to that as we get towards the end of the year. This year. Steve Ferazani: Excellent. That's helpful. Turning to the 2027 outlook. This is very helpful to us. Can you walk through sort of what -- because the earnings growth this year is pretty much predicated on margin improvement, but it sounds like in 2027, you see a real top line contributor. Andy, this early on, what gives you that confidence to put this out there? And any particular areas you want to point out? Andrew William Butcher: Yes. Thank you. I'm glad that was helpful because we have heard from a number of shareholders over the last 2 months that they want to hear more clearly from us about the medium-term growth and earnings drivers. And the improved visibility in 2026 is also now giving us clearer insight into 2027. So if we to refer back to Slide 8, we can see some of those laid outs and why overall, we anticipate at least high single-digit sales growth in 2027. So I want to emphasize first the strong outlook for our overall Defense and Aerospace segment, whether it's for alloys, flares, heaters, chemical kits or commercial aviation, demand is robust, and we'll see growth overall in 2027. And then perhaps to provide extra color on 3 areas where we strongly expect there will be tailwinds in 2027. Firstly, Steve, there's this multiyear replacement cycle coming for SCBA that begins to impact in 2027. The major players in the industry are planning for this now, the cylinders and set age out and need replacing. Some of the largest municipalities in the country are looking to replace and upgrade One of them we know is in open discussions on this already for up to 10,000 sets. Secondly, I'd like to talk to flameless Ration heaters, which we are increasingly confident will grow in 2027 internationally and domestically. There are positive buying signals that suggest an add-on order will lift domestic demand early next year, and we're currently quoting on 4 pieces of international business, an unprecedented level. And thirdly, normalized demand for magnesium alloy for those high-performance automotive wheels is scheduled to return around quarter 4 of this year as model years roll over. We've recently learned that the uptake rate on the magnesium special option has increased in 2026. So we're actually seeing some recovery here coming in already. And of course, we have new product development and space as part of the picture as well. Now there will always be some surprises and headwinds. But suffice to say there's a good understanding we have of all of this and you combine it with the benefits of our operational excellence work. And that enables us to say we expect robust double-digit earnings growth in 2027. Steve Ferazani: Extremely helpful. And talking about the surprises or uncertainties, and you know you're watching geopolitical developments as we all are. But when I look at your end markets, not a lot of them should be impacted by elevated oil prices. Am I thinking about that right, at least from a demand standpoint? Andrew William Butcher: Yes, you are. We're, of course, like everyone, conscious of the geopolitical situation and any wider macroeconomic consequences, and we'll continue to monitor this closely. But right now, we're not seeing anything concerning from a demand perspective. Indeed, we are seeing some indications of a future uplift related to certain defense products. Now as Steve mentioned, we are seeing some inflationary costs come through on some materials. We see that on both metals and chemicals. But where we have customer contracts, we have quarterly pass-through adjusters, and we're seeing good acceptance of price changes both within those and on our spot order basis. And as you suggest, our product portfolio in general is biased away from consumer products tends to be rather resilient in the face of uncertainties. So overall, not a big factor for us right now. Steve Ferazani: Great. If I could just squeeze one last one in. On your final slide, you noted an active strategic review. Active might have been newly added or maybe I'm misreading it in terms of where this -- can you give any comments around the strategic review? Andrew William Butcher: I'll just remind people that there were 3 conclusions associated with our strategic review in 2024. The sale of the Graphic Arts business, which is now complete, enhancing the performance of Gas Cylinders and Elektron and maintaining all strategic optionality. So with respect to the third strategic optionality, we do maintain our view that Gas Cylinders and Elektron have no material strategic synergies, and we're continuously assessing performance and market conditions to maximize shareholder value. Over recent months, we have continued our readiness preparations. That's including work with various third parties, including investment banking and strategic growth advisers. But turning back to enhancing C cylinders and Electron, we've made strong progress over the last quarters, and I've talked in detail in my prepared remarks about how we are executing opportunities for both profitable growth and cost reductions as we move forward. Operator: There are no more questions in the queue. At this time, I will turn the call over to CEO, Andy Butcher for final remarks. Andrew William Butcher: Thank you, Nikki. Luxfer is well positioned with a resilient earnings profile and the trajectory for growth in 2027. We are executing with discipline and building momentum across the business, supported by improving end market demand and continued operational progress. The actions we have taken over the past several quarters are gaining traction and positioning the business for a meaningful step-up in performance. I want to thank our associates for their continued performance and commitment, and thank you for your continued support. Operator: Thank you. This concludes Luxfer's First Quarter 2026 Earnings Call. A recording of this conference call will be available in about 2 hours. A link to a recording of this webcast will be available on the Luxfer website at www.luxfer.com. Thank you all for your participation. You may now disconnect.
Investors are starting to draw conclusions on what Powell's tenure has meant for Wall Street.
Federal Reserve Chair Jerome Powell answers questions following the FOMC's decision to leave policy rate unchanged.
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The biggest news out of the Fed meeting was that Mr. Powell plans to stay on as a governor after his term as chair ends May 15. He cited legal threats against the institution and warned that the central bank's independence was “at risk.” Powell did not say how long he would stay on as a governor, a position he can hold until January 2028.
Federal Reserve Chair Jerome Powell on Wednesday said he will stay on the Board of Governors for an indefinite period while a probe into the renovation of the central bank's headquarters continues.
Iran is running out of places to put its oil — and in just a few weeks, global crude supply could take another hit that few investors are prepared for.
FOMC voted eight to four to leave rates unchanged. Tom White noted the decision was not surprising pointing to ongoing global risks as key factors.