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Operator: Hello, and welcome to the Q4 2026 Haemonetics Corporation's earnings conference call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Olga Guyette, Vice President of Investor Relations and Treasury. Please go ahead. Olga Guyette: Good morning, and thank you for joining us for Haemonetics' Fourth Quarter Fiscal Year 2026 Conference Call and Webcast. I'm joined today by Chris Simon, our CEO; and James D'Arecca, our CFO. This morning, we released our fourth quarter and full fiscal 2026 results and issued fiscal year 2027 guidance. The materials, including our earnings release and supplemental earnings presentation, are available on our Investor Relations website and also in this morning's press release. Before we begin, I'd like to remind everyone that we will use both reported and organic revenue growth rates that exclude the impact of FX, the divestiture of the whole blood product line, and the exit of certain liquid solutions products. Organic growth ex-CSL also excludes the impact of the previously disclosed transition of CSL's U.S. disposable business. Our fiscal year 2027 organic revenue guidance is also adjusted for the impact of the 53rd week. We'll refer to other non-GAAP financial measures to help investors understand Haemonetics' ongoing business performance. Please note that these measures exclude certain charges and income items. A full list of excluded items, reconciliations to our GAAP results and comparisons with the prior year periods are provided in our earnings release. Our remarks today include forward-looking statements, and our actual results may differ materially from the anticipated results. Factors that may cause our results to differ include those referenced in the safe harbor statement in today's earnings release and in other SEC filings. We do not undertake any obligation to update these forward-looking statements. And now, I'd like to turn it over to Chris. Christopher Simon: Thanks, Olga, and good morning, everyone. We delivered fourth quarter revenue of $346 million, up 5% reported and 9% organic ex-CSL, with adjusted EPS of $1.29, up 4% year-over-year. For the full fiscal year, revenue was $1.3 billion, and adjusted EPS was $4.96 per share with improved adjusted earnings, higher adjusted margins, and stronger free cash flow than in the prior year despite $153 million of nonrecurring revenue from portfolio transitions. Our performance reflects the strength of our core platforms with plasma and TEG driving momentum, margin expansion, and reinforcing our leadership in attractive end markets. This foundation enabled targeted investments to position interventional technologies to contribute to growth in fiscal '27 and beyond. At the same time, we advanced our innovation agenda with U.S. FDA clearance of Persona PLUS, the expanded indication for VASCADE MVP XL, a submission to expand the VASCADE label in Japan and the acquisition of Vivasure. Moving on to our business unit results. Hospital revenue was $160 million in the fourth quarter and $588 million for the full year, growing 8% in the quarter and 4% for the year, or 7% and 4% on an organic basis, respectively. Results were supported by strong performance in blood management technologies, partially offset by interventional technologies, consistent with trends we've discussed throughout the year. Blood management technologies delivered a record quarter with broad-based performance driving revenue growth of 21% in the quarter and 14% for the year. Hemostasis management grew in the high teens, fueled by sustained strength in TEG 6s, higher disposable utilization, continued capital placements and strong European momentum following the HN cartridge launch. Transfusion management delivered outsized growth in the quarter, contributing nearly half of the franchise growth as we continue to gain share through the adoption of our integrated solutions that enhance hospital safety and efficiency. In interventional technologies, revenue declined 10% in the quarter and 9% for the full year. Vascular closure was down 8% in the quarter, reflecting 6% decline in MVP and MVP XL in electrophysiology and continued softness in lower growth coronary and peripheral procedures. Performance in EP was affected by share loss in the first quarter of fiscal 2026 and evolving procedure dynamics. Sequentially, EP grew 8% and sensor-guided technologies returned to growth, partially offsetting the continued impact of PFA on esophageal cooling. Over the past year, we strengthened our commercial organization, equipped our teams with better tools and advanced our product portfolio. Q4 was our strongest quarter of fiscal '26, and we have renewed confidence in the trajectory of IVT. Importantly, the headwinds that drove approximately 80% of the decline in fiscal '26. First, OEM-related softness in sensor-guided technologies. And second, PFA impacts on esophageal cooling have now been lapped or reduced to a nonmaterial base. With the expanded MVP XL label and the anticipated release of PerQseal Elite, we are strengthening our competitive position and reenergizing the business as we enter fiscal '27. Turning to plasma and blood center. Plasma momentum continued with another quarter of growth driven by category leadership, differentiated innovation, and strong market fundamentals. The franchise delivered $130 million in revenue in Q4, up 3% reported and 13% organic ex-CSL as we annualized the last of the discontinued CSL U.S. disposable supply agreement. Full year revenue was $524 million, down 2% reported, but up 20% organic ex-CL (sic) [ ex-CSL ] above our revised guidance range of 17% to 19%. Market fundamentals remain highly attractive, supported by resilient immunoglobulin demand and continued global expansion in plasma collections. Our share of U.S. plasma collections grew in the high single digits in both the quarter and full year with double-digit growth in Europe as customers increasingly rely on our platform to drive efficiencies. Persona PLUS is the next step in our innovation cycle, further strengthening our competitive position by enhancing percent yield by mid-single digits on average, supported by a large randomized clinical trial of over 30,000 donations and underpinned by our proprietary patent-protected technology. It has been met with strong customer enthusiasm with multiple adoptions underway. Blood center also contributed positively to the fourth quarter, generating $56 million in revenue, up 1% reported and up 6% organic. For the full year, revenue was $221 million, down 15%, reflecting the whole blood divestiture, but up 5% on an organic basis. Performance was driven by continued strength in global plasma demand and stable and growing U.S. red cell collections despite our ongoing portfolio rationalization efforts. For the full year, total company revenue declined 2% reported due to portfolio transitions, but grew 10% organically ex-CSL, at the upper end of our guidance. We expect growth to continue in fiscal '27 with projected revenue growth of 4% to 7% reported and 3% to 6% organic adjusted for the extra week in FX. In hospital, we expect mid-single-digit growth with both franchises contributing. We anticipate continued expansion of the TEG 6s installed base and increased HN cartridge utilization in blood management technologies. In IVT, we are ending the year with a stronger commercial organization, improving market dynamics, and a more competitive portfolio, supported by the MVP XL label expansion. With most headwinds now behind us, we are focused on translating these improvements into consistent growth. Our guidance excludes any contribution from PerQseal Elite, which is currently undergoing FDA review. In plasma, consistent with our FY '26 approach, our mid-single-digit growth outlook is grounded in controllable drivers, share gains, the rollout of Persona PLUS and modest collection volume growth while retaining upside if collection trends remain strong and/or adoption accelerates. We remain confident in the durability of growth and our ability to further extend our leadership in this attractive market. In blood center, strong plasma-driven demand and customer relationships will continue to support performance. However, ongoing portfolio rationalization remains a near-term headwind, and we expect revenue to decline in the mid-single digits. We're encouraged by our progress, and we remain focused on consistent execution to deliver growth and sustainable value for our customers and our shareholders. James, over to you. James D'Arecca: Thank you, Chris, and good morning, everyone. We closed the year with strong execution and meaningful progress in strengthening the quality of our earnings, expanding margins, improving cash flow, and further aligning our portfolio with higher growth, higher-margin markets that will continue to support our growth aspirations in the long run. Adjusted gross margin in the fourth quarter was 59.7%, down 50 basis points year-over-year, primarily reflecting the absence of the prior year CSL shortfall payment and the impact from tariffs enacted earlier in the year, partially offset by a structurally higher margin portfolio. For the full year, adjusted gross margin expanded 280 basis points to 60.3%, driven by portfolio transformation, strong volume growth in plasma and blood management technologies, and continued strong demand for our market-leading innovation. Adjusted operating expenses in the fourth quarter were $122 million, up 5% year-over-year, largely driven by the addition of Vivasure and the impact from tariffs, coupled with higher-than-expected costs from the self-insured portion of our benefits plan, higher performance-based compensation, and a deliberate step-up in targeted investments to strengthen our commercial capabilities. Together with the adjusted gross margin dynamics in the quarter, this resulted in adjusted operating income of $85 million and adjusted operating margin of 24.4%, down 50 basis points year-over-year. Adjusted operating expenses for the full year were $465 million, up 2%, driven by continued investment in R&D and selling and marketing, the acquisition of Vivasure, and higher performance-based compensation. Adjusted operating margin for the year expanded 140 basis points to 25.4%, reflecting structural improvement from portfolio transformation even as we continue to invest for future growth and absorb macro cost headwinds. The adjusted tax rate was 24.8% in the fourth quarter and fiscal year '26 compared to 22.2% and 23.2% in the prior year, respectively. Adjusted EPS increased 4% to $1.29 in the fourth quarter, inclusive of a modest benefit from share count, which was more than offset by higher interest, tax, and FX. For the full year, adjusted EPS was $4.96, up 9%, demonstrating the strength of the underlying business and disciplined capital allocation that helped offset the impact of portfolio transitions, which are now fully behind us, partially offset by higher interest and tax. Now turning to the balance sheet and cash flow. Cash generation continues to be a defining strength of the business and a key source of strategic flexibility. With our major device investments and productivity initiatives largely behind us, the business has returned to a strong and sustainable cash flow profile. In the fourth quarter, we generated $45 million of free cash flow, bringing the full year free cash flow to $210 million with the free cash flow to adjusted net income conversion ratio of 89%. While free cash flow in the quarter was down versus last year, mainly due to the timing of income taxes paid and accounts receivable, full year free cash flow increased by $65 million, largely driven by better working capital management and less CapEx. We ended the year with $245 million in cash after deploying $175 million to repurchase over 3 million shares, investing $61 million in the Vivasure acquisition and continuing to fund organic growth, reflecting a balanced capital allocation approach that supports both organic growth and shareholder returns. We enhanced capital structure flexibility and positioned the business for continued deleveraging that can be supported by strong cash flow. While total debt remained unchanged at $1.2 billion, we refinanced $300 million of convertible notes with the revolving credit facility, ending the year with $700 million of convertible notes due in 2029, $239 million of term loan A debt and a revolver balance of $300 million with a net leverage ratio as defined in our credit agreement at 2.73x EBITDA. On that note, let's move on to discuss the rest of our fiscal year '27 guidance. Consistent with the strong foundation and momentum Chris outlined, we expect fiscal 2027 revenue growth of 4% to 7% reported and 3% to 6% organic. We expect continued margin expansion with adjusted operating margin improving 50 to 100 basis points year-over-year, driven by continued strong momentum across our growth franchises, innovation, and operating leverage as we begin to scale IVT. Also included in that expectation is a full year of dilution from the Vivasure acquisition with no associated revenue in our fiscal year '27 guidance, additional impact from tariffs, ERP-related costs, and continued investment in targeted high-return growth initiatives. At the earnings level, we expect adjusted EPS to grow broadly in line with revenue as improvements in operating leverage and mix benefits are assumed to be largely offset by higher interest and tax, which is expected to be higher by about 100 basis points than in fiscal '26. Importantly, the business is expected to continue to demonstrate strong earnings quality, supported by a highly recurring revenue model and disciplined capital deployment. We expect free cash flow conversion of approximately 80%, reflecting a disciplined approach to working capital that preserves flexibility to manage inflationary and tariff pressures and invest in growth while enabling organic investment, deleveraging, and opportunistic share buybacks. With that, I'll turn it back to Chris for closing remarks. Christopher Simon: Thanks, James. I want to share a few closing thoughts about our journey over the last 4 years. Fiscal '26 marked the culmination of our long-range plan for transformational growth, whereby we fundamentally repositioned Haemonetics into a more focused, higher quality, and more resilient company with significantly stronger growth, margins, and cash flow. We evolved and rebalanced our portfolio. In plasma, we drove broad adoption of NexSys and Persona while advancing the next wave of innovation with Express Plus to reduce procedure times, Persona PLUS to further improve yield and Device360 to digitize and streamline center operations. We rationalized our blood center portfolio, including the divestiture of whole blood to drive margin expansion. We broadened the clinical utility of TEG 6s with the HN cartridge, extending into high acuity settings such as cardiovascular surgery and liver transplantation and advanced international expansion with CE Mark certification. We strengthened the VASCADE platform with MVP XL for larger sheath procedures, enhanced our clinical evidence, scaled commercially, and expanded into large bore closure with PerQseal Elite. We also revamped the operating model of the company, advancing operational excellence, scaling and automating our manufacturing and supply chain capabilities, progressing our ERP digital transformation, and building the commercial and clinical infrastructure required to sustain growth, including a robust NexSys capital cycle to support ongoing global share gains. The results, low teens compounded average organic revenue growth ex-CSL, high teens adjusted EPS CAGR, low 60s adjusted gross margins, 660 basis points of adjusted operating margin expansion, and $636 million of cumulative free cash flow, results achieved while investing for growth, navigating dynamic markets and macro environments, and overcoming $153 million of nonrecurring revenue from portfolio transitions. With the transitions behind us, we expect growth to reaccelerate and become more consistent, supported by a structurally more attractive mix of recurring revenue from high-growth, high-margin platforms. Our priorities for fiscal '27 are clear: Continue to win in plasma, extend our leadership in TEG and reinvigorate growth in vascular closure while driving greater operating efficiency. Quality earnings growth will further strengthen our balance sheet and create opportunities for value creation through disciplined capital allocation, including organic growth, delevering and opportunistic returns of capital to shareholders via buybacks when appropriate. Thank you, operator. Please open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Andrew Cooper from Raymond James. Andrew Cooper: Maybe first on plasma. I don't think you shared, and apologies if I missed it, but U.S. collection volume trends you saw in the quarter at kind of the market level. And then as you think about the end market views for '27, given discussions with fractionators, would love just kind of the latest and greatest thinking that's included in the guide. And then secondly, if you could give a little bit more on the Persona PLUS rollout in terms of how the base has adopted it, how much has adopted it thus far? And then are you able to take some price with that? Or is this more of a tool to extend contracts, ensure stickiness, et cetera? So just would love kind of how that rollout is shaping up. Christopher Simon: Andrew, thanks for the question. Look, FY '26 was a record year for plasma. We overcame that hangover that's been out there for a bit now and had what we describe internally as the trifecta of growth, where we had price from the remaining Persona rollout. We had a meaningful uptick in share gains, which is something we're obviously quite proud of and a return to double-digit growth on collection volume in the latter part of the year. So real strength there. In the fourth quarter, in addition to the normal seasonality, we lapped our price gains on Persona. So that was not a meaningful contributor in the quarter. We do have some ongoing share gains from earlier transformation, earlier transitions, modest tick down in collection volume. But again, quite consistent with what we see as kind of the long-term trend for growth. FY '27 guide, we took a page out of our playbook for FY '26, and we're really only talking about the things that we directly control, the annualization of share gains and the committed upgrade to Persona PLUS. We didn't really include any collection volume, I think 0% to 2% again this year. We don't control that. Obviously, as I said in the prepared remarks, if collection volumes remain hot and/or the pace of adoption of Persona accelerates, then we have meaningful upside from what we otherwise view as very prudent guidance with mid-single-digit growth for the year. In terms of PLUS, it's the next stage of our advancements. Nobody can match it. It's another -- Persona on average gave 10% benefit. This is another 5% on average above that. Tremendous acceptance into the market. We've already begun the upgrade cycle. And while we don't talk about price explicitly, the value of dropping that additional 5% yield to our customers creates a lot of room for mutual benefit, right? So you should absolutely expect price to be part of the equation as we roll forward this year. But as our convention, we won't put it into the guide until it's fully contracted and we have a committed timeline for implementation. So more to come there. We think it gives us some breathing room as the year progresses, some potential upside, but really excited about it, puts just another step forward for the platform to advance and really be unrivaled in the market. Andrew Cooper: And if I can just ask one more, maybe on margins. I think you sort of forecasted the 50 to 100 basis points as a reasonable starting point, but you're coming off a little bit lower of an exit rate here. So when we look at 4Q for you, James, maybe you called out increased investments, some of which I assume will persist versus things that are maybe a little bit more onetime in terms of benefit costs. I think you called out performance comp and tariffs. So just if you could break that down for us a little bit more and lay out how those things flow into the '27 guide as well. James Owens: Yes, sure. Thanks, Andrew. On Q4 operating margins, the results certainly were lower than we initially expected, and it really comes down to the 3 items, which I think you mentioned. First, tariffs were higher than anticipated. We saw roughly 60% of the annual impact in Q4 as our plasma inventories were depleted. Second, as you mentioned, we had the higher claims expense for our self-insured medical plans. And third, we stepped up sales and marketing investment ahead of our FY '27 launches, including MVP XL and PerQseal Elite. When I look to FY '27, we expect the operating margin expansion to be driven primarily by gross margin improvement, but also by greater operating leverage. So on gross margin, we expect the benefits from our plasma innovation cycle, which Chris just talked about, including Persona PLUS, along with volume-driven leverage. And we also expect a favorable mix shift as hospital, which runs close to 70% gross margins contributes more of the growth. Offsetting some of that, we did incorporate higher tariff costs into our standard costs and we're assuming a 15% tariff level versus the current 10% that we're paying. So that differential is already built in. Overall, on operating expenses, I'd say we're investing. So expenses are going to be up, including with Vivasure, but we're expecting operating leverage as revenue growth and gross margin expansion outpace expense growth. We're staying disciplined, and we're looking to protect our profitability while funding the launches. So overall, we do think some of those items will recur like the tariffs we're building in, higher costs for medical, and we do have those bigger investments in there for S&M. But that's all built in to the guide. And we look forward to improved operating margins next year. Operator: Our next question comes from the line of Marie Thibault from BTIG. Marie Thibault: Maybe I'll pick up where Andrew left off and ask about hospital. I thought it was really encouraging to hear. You're feeling reenergized about the interventional tech trajectory. So just want to get a little bit more detail on the dynamics you're seeing stabilization, signs of improvement. Certainly, you've got the expanded label for MVP XL. So I would love more details on that and the cadence for how you think fiscal '27 could unfold for this part of the business? Christopher Simon: Yes. Thanks, Marie. We -- I think quite clearly, whether it's 6 or 9 or 12 months from now, we will look back at this point and say that was the inflection point. Fourth quarter of fiscal '26 is when Haemonetics IVT turned the corner. And we understand we were down 9% for the year. When you step back from that number, and there's no apologies here, but the reality is fully 80% of that 9% decline was attributable to 2 factors: the releveling of the guidewire OEM business with J&J's acquisition of Abiomed, they took the inventory down, rebalanced their sourcing a bit, and that was a big chunk of the hit. The other hit, of course, was ensoETM, which is on the wrong side of the PFA adoption curve. The good news is we've lapped the first, and the second is now at a level where roughly $2 million per quarter, it can't hurt us. So what you will see from us going forward is threefold. You will see a return to growth at or above market rates for vascular closure led by electrophysiology. You'll see SavvyWire, the direct retail business that we control, growing disproportionately. And with any luck, we'll launch the PerQseal Elite product later this year, and we think that's a novel offering for large-bore closure, which gives us a lot of encouragement. In short, the enthusiasm you're hearing from us is a better team, better tools, a better product and a more accommodating market overall. So we understand our win-loss ratio. We understand what this team is capable of. We've equipped them. You heard from James, the investments we've made throughout the year, but especially in the fourth quarter, to position them for stellar performance in FY '27, and that's exactly what we expect. Marie Thibault: A quick one maybe for James here. Free cash flow conversion, I think you cited 89% this fiscal year, which is tremendous. You're pointing to 80% conversion next fiscal year. Obviously, nothing to sneeze at. It's still very impressive. But what's behind that trajectory, the 80% versus the nearly 90% this year? James Owens: Yes. For the most part, Marie, that's just a bit of conservatism being built in. We know that we have to increase our inventory levels. So it's working capital related really driving most of that, but also a healthy dose of conservatism in there. Operator: Our next question comes from the line of Anthony Petrone from Mizuho. Anthony Petrone: Maybe one on plasma, one on IVT. On plasma, maybe just a recap on the landscape there. Some chatter that there's some discounting going on by some of the fractionators in that space. And then in addition to that, there's a shift as it relates to CIDP prescriptions. In other words, the FcRn competition question. So maybe what's the latest in terms of what you're hearing just on just finished good IG inventory as well as FcRn competition in CIDP? And I'll have a quick follow-up on VASCADE MVP. Christopher Simon: Hello, Anthony, it's Chris. Thanks for the question. We remain really bullish on plasma. It defines durable growth in our portfolio and is a major source, not only of earnings, but free cash flow and return on invested capital. So we look at this. There are certainly others that are more expert beginning with our customers. But our understanding is quite positive with regards to the long-term demand of IG-derived pharmaceutical therapies. What gets lost in the chatter, I think, is that fully half the market -- more than half the market and a disproportionate source of growth of the category is primary and secondary immune deficiencies, which tragically are being driven incidence and prevalence by cancer therapy. And so there is no alternative to IG in that space, and we see that growth unabated. On the other side, autoimmune, what we look to primarily is new patient starts. And what we see is IG remains the standard of care. Now I think folks misinterpret that when they see growth in VYVGART that, that must come at the expense of IG. And the reality is that's just a misinterpretation of the facts. The reality is both can grow because the primary use for VYVGART in those autoimmune categories is as secondary therapy for when their patient is nonresponsive to IG or that they want to overlay anti-FcRn in addition to IG to get an optimal result. There's very few examples of naive IG patients being started on the alternative therapy. And there's none that I'm aware of where someone is being switched off of IG who was otherwise well tolerated and well treated. Some of that's economics, some of that's just the base underlying efficacy of IG therapy. So there will always be noise in the system. There will always be a degree of cyclicality. Inventory levels are more art than science as we understand it. But we remain very bullish on the near, the intermediate, and the long-term demand for IG therapy and the need to collect accordingly. Anthony Petrone: And then just quick on MVP, VASCADE. All of the PFA companies reported here, it looks like the market for cardiac ablation slowed a little bit in 1Q. Just from the vantage point of Haemonetics, where does it see just the underlying market for EP volumes? Christopher Simon: Yes. Thanks, Anthony. I think one of the positive silver lining, if you will, of the pace of PFA adoption and the changing modalities associated with it is that it is very quickly settling in, which is helpful for us because we have a dual effect. Higher procedure volumes is obviously a good thing, but the reduction in access sites works against demand for our product. Because this is now leveling, you will increasingly see demand for closure track with the underlying demand for procedures, which is meaningfully ahead. When we go back and estimate FY '26, the underlying growth in access sites was probably mid-single digits, perhaps as low as 3.5% or 4%. What we expect for this year is certainly higher than that, probably in the mid- to high-single digits, which bodes well for us given our aspiration to grow at or above the market fairly quickly here. So from our vantage point, we're ubiquitous, particularly with the label expansion and the added clinical evidence, which is really outstanding. We are indifferent between which therapy is used. We have the best access closure for small and mid bore, soon to be large bore as well. And so from our vantage point, we think we can grow at or above market. If the market modulates down a tad, that probably just gives us a chance to catch our breath and get back on our front foot. Operator: Our next question comes from the line of Allen Gong from JPMorgan. K. Gong: I guess like one that I have is on PerQseal. I know you're not including any contribution in your current guidance, but just remind us on the pathway to market there and potential upside to the guide from that. Christopher Simon: Yes. Hello, Gong. As is our convention, we've included all of the launch expense, which actually began last quarter to prepare the team, the product and the market for a truly outstanding launch whenever that comes this year. The product has been submitted to FDA. It's under review. We'll have the normal ongoing process. I don't want to comment about the timeline. It's just unpredictable in that regard, particularly in this current environment. But we really like the data submission. It's based on a set of trials that have been well vetted by the academic community. And so we feel quite confident in the product's profile and its eventual approval. We didn't include any of the revenue because we don't control it. And so whenever it comes, we will be ready to go. And we think this will really be a meaningful novel offering for large-bore closure up to 26 French outer diameter. And so we think it will strengthen our play, not only in vascular closure more broadly, but in structural heart as well. So it's a nice complement. It's a true tuck-in. We don't need to add additional resources beyond what we already have in place. We just need to make sure those resources have the tools and are properly trained and equipped to be able to create launch intensity, which we expect later this year. K. Gong: And then just as a quick follow-up to an earlier question just on plasma supply. I just wanted to confirm when we think about some call-outs of maybe abnormal stocking and potential destocking dynamics in the quarter, that's not something that you're seeing. That's not something that you're necessarily concerned about for the rest of the fiscal year. I just want to make sure that's the right way to think about it. Christopher Simon: Yes, Allen, I'd just go back to our guidance at mid-single digit. We have included 0% to 2% collection volume growth for the year. So if what you are describing is right, we're indemnified from it, right? We didn't anticipate collection volume growth. Anything that is above that 0% to 2% is going to be upside for us as the year progresses. What we'll lean into is an expedited rollout of Persona PLUS, where we have meaningful innovation-based pricing that will really help the market. There have been -- in prior yield rollouts, there have been trade-offs made where folks collect less because -- less total collections because they're getting more per collection from us. That's part of our value proposition. It drives margin expansion, and it helps with the overall profitability and the durability of what we're doing. But the actual inventory levels, I think the numbers get confusing because you've got individual customers at very different stages in the life cycle. So for us, with north of 50 share of the total collection market between the U.S. and Europe, we have more ability to kind of balance that out perhaps than some. Operator: Our next question comes from the line of Larry Solow from CJS Securities. Lawrence Solow: It's [ Pete Lucas ] for Larry. Just following up on PerQseal. Should we expect incremental sales and marketing investment in fiscal year '27 ahead of when approved? And how should we kind of think about that? Christopher Simon: Yes. I'll let James walk through the details of it, Pete. But we -- our guidance of mid-single-digit growth for hospital and 100 basis points of margin expansion fully anticipates the resourcing of that launch for success. And good news is we were able to do a bunch of that work in the fourth quarter. Some of it will continue into the year, but it's fully reflected in our guidance. What's not reflected from my answer to the prior question is any revenue attainment. We'll -- if and when, we'll adjust accordingly. James Owens: Yes. When you look at the numbers, it was -- Vivasure was roughly $0.05 or so dilutive in Q4. If you take that and multiply it by 4, that would give you about $0.20 dilution for Vivasure for the full year. Operator: Our next question comes from the line of David Rescott from Baird. David Rescott: Two quick clarification questions and then I had a follow-up. And it sounds like you kind of just answered part of the first one as it relates to the contribution from these launch investments for Vivasure. But maybe can you think about or help us think about when we look at the margins in the quarter, I think operating margins in plasma was down 650 basis points year-over-year. If you know, what maybe that baseline operating margin, overall was in -- in your mind, maybe taking out that $0.05 kind of gets you to what that adjusted ex-Vivasure number is. And then as it relates to the guide for 2027, you called out EPS growth comparable to that of revenue. Just curious if that's specific to the reported revenue growth or the organic revenue growth guidance for the year? And then I had a follow-up. James Owens: Yes. On the second one, the EPS is commensurate with the reported revenue growth because that includes all 53 weeks. On the operating margin question on plasma, there's a couple of things that drove the decline versus Q4 in the previous year. One, I would say, as I mentioned, was we had some tariff expense that came in, in the quarter that was higher than what we anticipated. That pushed it down. The other thing that pushed it down was as we got into the fourth quarter, we hit some of the higher tiers on our volume-based pricing, and that also pushed it down a bit as well. But the baseline plasma operating margin, if you took the average of the year, excluding the $16 million that was in the first quarter for software, that should get you something close to a baseline amount there for plasma. Christopher Simon: David, it's Chris. If I could just jump in on that, if I may, because I think one thing that may get lost in the shuffle is we fully expect FY '27 to be a robust year of product launches. It will include the heparinase neutralization cartridge, which is now in Europe, but we will take more broadly, the MVP label expansion, which gives us tremendous cache at IDNs and ASCs and just a broader opportunity to promote the product directly in the market. We talked about Persona PLUS and what we think that will mean. We expect everyone to adopt that over the course of time here. And then PerQseal Elite when it comes. And so we factored in what we believe are the costs associated with making sure this goes. That's part of the guide. If we surprise ourselves positively, then the revenue forecast and the associated margins with that will look prudent in hindsight. David Rescott: And then maybe on the assumptions for the plasma guide in the year. I appreciate the color you provided on that already. But when we look back to the NexSys Persona Express Plus launch a couple of years ago, you had the improved yield benefits coming out of that in the period exiting that, the underlying plasma market growth declined or was slower than expected. And I know we don't definitively know what the reason was, but perhaps you could assume that better yield was a factor there. As you think about launching the new Persona PLUS system with a better yield enhancement coming with it, how, I guess, do you potentially expect that to impact the overall plasma collections if, again, perhaps the reason why you had slower growth in the prior couple of year period may have been related to the initial new product launch? And feel free to tell me if you think that's wrong as well. Christopher Simon: David, I don't think we have clairvoyance on this, right? We continue to believe plasma will play an outsized role in terms of durable growth, free cash flow and return on invested capital. The guidance of mid-single-digit growth for FY '27 includes the annualization of share gains, which have already been implemented, right? So share gains, we grew 20% in fiscal '26, as you know, fully half of that growth or share gains. And so that is still annualizing as we speak and will continue certainly through the first part of the year. Innovation-based pricing, important lever for us. We've annualized all the Persona gains previously built in. What we will have is potential upside associated with the Persona PLUS and accelerated adoption there, given what that means to the market. In terms of volume, again, 0% to 2% because we don't control it. The dynamic you described is very much what took place for the second wave of Persona rollout where some of the largest collectors took the 10% yield and met their annual objectives, and we're able to meaningfully lower cost per liter as a result. The first wave of Persona rollout was the opposite effect, which is folks that were intended to grow 10% for the year grew 20% to meet their individual demand at the time. So it will vary by individual customer. It's really difficult to call. We feel like we're well insulated at that mid-single-digit overall guide given that 0% to 2% is what's attributable to volume at this point. Operator: Our next question comes from the line of Mike Matson from Needham. Unknown Analyst: This is [ Joseph ] on for Mike. Maybe just one on plasma and then a quick follow-up on Vivasure. So 4Q looks like plasma growth ex-CSL maybe slow compared to the last 3 quarters. But I'm just wondering, was there any weather disruptions early in the quarter that affected plasma there? And how should we be thinking about Q1? I believe it's usually the seasonally weakest. So should we expect sequential decline from here? And then just with fiscal '27 being, I guess, the first clean year without the impact from CSL. Can you maybe tell us if there's any residual impact on the business that maybe investors aren't considering? Or is it completely headwind free from here? Christopher Simon: Yes. Hello, Joe, thanks for the questions. Let me answer them in reverse order. I used the phrase in a public setting recently that the fog is clearing and it's going to reveal the forest for the trees. I think the $153 million of overhang or hangover depending on who you're talking to, does clear entirely. And it will be nice to be able to talk with you guys without the asterisks and the but fors and what sounds like a list of apologies, just durable growth, cash flow and return on capital, which that business is known for. So yes, we are very much looking forward to a clean print in FY '27 and beyond. In terms of the fourth quarter, first quarter dynamic, you are right in the seasonality. Actually, our fiscal fourth quarter, which is the first calendar year that we just concluded, typically is the weakest collection period of the year. There's lots of things that get attributed this year to your point. Yes, we had some heavy storms that prevented donors from getting into the centers back at the very beginning of the quarter, that seemed to normalize and correct out. There are a lot of speculation about tax refunds and given the changes in the tax laws that refunds were larger, but then some were delayed. And so I don't really know how to handicap the ups and downs on that. We had a good quarter. Plasma did what we needed it to do to round out the year. In terms of first quarter softness, it's not what we're experiencing, but again, we don't control it. So we're going to remain prudent and conservative around that. But typically, first quarter begins to build, and it gains real momentum in second and third quarter, and we would expect this year to look similar. Unknown Analyst: And then yes, just a quick one. Are you guys seeing any early commercial signals? Obviously, not launched, but any early signals with your customers for interest in the Vivasure platform, PerQseal? And maybe how large could that opportunity be in fiscal '27? I know it's more of a second half later in the year launch, but any help -- any color there would be helpful. Christopher Simon: Sure. The early signals are overwhelmingly positive. I think the readout of the various DCT and HRS and elsewhere have been uniformly positively met that there's a novel new therapy coming for large-bore closure where there's just tremendous unmet need in the market today given the existing therapies. The product is approved for sale in Europe. We've intentionally not leaned in because as part of our integration planning, we have work to do in terms of manufacturing scale-up, reduction in cost of goods sold, make the product accretive, not just on a top line basis, but also to our margin expansion. So we are working diligently on that. What we see in Europe, though, because we've done a very controlled process where we're working with major academic centers around Europe is really meaningful interest and excitement about what the product means for the marketplace. When we step back on a global basis, we estimate the TAM for that opportunity at roughly $300 million. And we know where we sit vis-a-vis the competition. We know what we need to do to be successful on the launch. Let's wait for the release from FDA and the ultimate label that we receive, and then we'll be more than happy to drill down on exactly what this means. And when I use the term launch velocity, we'll put numbers behind it, that will be easily quantified. Operator: There are no questions at this time. I would like to thank you for your participation in today's conference. This does conclude our program. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Pat, and I will be your conference operator today.?At this time, I would like to welcome everyone to the Privia Health First Quarter Conference Call.? [Operator Instructions] I would now like to turn the call over to Robert Borchert, SVP Investor Relations of Incorporated Communications. Robert, go ahead. Robert Borchert: Well, thank you, Pat, and good morning, everyone. Joining me are Parth Mehrotra, our Chief Executive Officer, and David Mountcastle, our Chief Financial Officer. This call is being webcast and can be accessed in the Investor Relations section of priviahealth.com, along with today's financial press release and slide presentation.? Following our prepared comments, we will open the line for questions. Please limit yourself to one question only and return to the queue if you have a follow-up to get as many questions as possible. The financial results reported today are preliminary and are not final until our Form 10-Q for the quarter ended March 31, 2026, is filed with the Securities and Exchange Commission.? Some of the statements we'll make today are forward-looking in nature, based on our current expectations and view of our business as of today, May 7, 2026. Such statements, including those related to our future financial and operating performance and future business plans and objectives, are subject to risks and uncertainties that may cause actual results to differ materially. As a result, these statements should be considered along with the cautionary statements in today's press release and the risk factors described in our company's most recent SEC filings.? Finally, we may refer to certain non-GAAP financial measures on the call. Reconciliation of these measures to comparable GAAP measures is included in our press release and the accompanying slide presentation posted on our website. Now I'd like to hand the call over to our CEO, Parth Mehrotra. Parth Mehrotra: Thank you, Robert, and good morning, everyone. Privia Health delivered a strong first quarter as we continue to execute extremely well and drive growth across our markets. This morning, I'll summarize our first quarter performance and business highlights, and David will discuss our first quarter financial results and our updated 2026 guidance before we take your questions.? Privia Health's outstanding operational execution and the strength of our diversified business model clearly demonstrate our ability to perform in all types of market and health care regulatory environments. We are proud to deliver on our mission to achieve the quadruple aim, better outcomes, lower costs, improved patient experience, and happier and more engaged providers.? New provider signings and implementations remain strong. This provides great visibility through the remainder of 2026. We ended the first quarter with 5,535 providers, a 13.6% increase year-over-year, and with 1.6 million value-based attributed lives, up 26.5% from a year ago. The combination of implemented provider growth, attribution growth, and value-based care performance helped increase practice collections 14.6% from the first quarter last year.? We continue to show strong operating leverage across the platform and G&A expenses. Adjusted EBITDA for the quarter increased 36.3% to $36.7 million, with EBITDA margin as a percentage of care margin expanding 290 basis points to reach 28.5%.? Given our strong Q1 performance, we feel confident about our annual guidance across all metrics. Since it's still early in the year, we are maintaining our 2026 guidance, except for increasing our range for attributed lives given the strong first-quarter attribution growth.? Our ongoing business momentum is expected to drive EBITDA growth of approximately 20% at the midpoint of the guidance, while converting approximately 80% of EBITDA to free cash flow. Privia's national footprint now includes a presence in 24 states and the District of Columbia. Our 5,535 implemented providers care for over 5.9 million patients.? We continue to demonstrate very high gross provider retention and patient Net Promoter Score across our footprint. Our growth and momentum have positioned us as one of the leading primary care-centric medical groups and value-based care organizations in the country. We expect to expand our presence in existing and new states, both organically and inorganically, given our balance sheet strength.? Privia's diversified value-based platform serves over 1.6 million patients through more than 130 commercial and government contracts. Our total attributed lives increased over 26% from a year ago. This was driven by new provider growth and the addition of the Evolent ACO business.? Commercial attributed lives increased more than 17% from last year to reach 913,000. Lives attributed to CMS Medicare programs were up 62%. Medicare Advantage and Medicaid attribution increased 20% and 36%, respectively, from a year ago. We remain highly focused on increasing attribution and generating positive contribution margin across our value-based book.? Ultimately, our goal is to achieve consistent and sustainable earnings growth for our physician partners and shareholders. David will now review our first quarter financial results and updated 2026 guidance. David Mountcastle: Thank you, Parth. Privia Health's strong operational performance continued through the first quarter. Implemented providers grew 155 sequentially from year-end 2025 and increased 13.6% year-over-year. Implemented provider growth, along with solid value-based performance and ambulatory utilization trends, led to practice collections increasing 14.6% from the first quarter a year ago to reach $914.8 million.? Adjusted EBITDA, which is reconciled to GAAP net income in the appendix, increased 36.3% over the first quarter last year to reach $36.7 million, representing 28.5% of care margin. This 290 basis point margin improvement continues to highlight significant operating leverage.?We ended the first quarter with $219.5 million in cash and no debt following typical Q1 cash outflows from value-based care payments to providers and employee bonuses.? We are reiterating our full-year 2026 guidance metrics following our strong performance in the first quarter and raising our guidance range for attributed lives at the year-end. This guide implies adjusted EBITDA growth of approximately 20% at the $150 million midpoint, and we expect 80% of full-year EBITDA to convert to free cash flow as we become a full cash taxpayer.? While our guidance assumes no new business development, we have a robust pipeline of existing market expansion and new market opportunities. We will remain disciplined and strategic while leveraging our healthy balance sheet to grow the business and compound our EBITDA and free cash flow.? Over the last 2 years, our EBITDA growth rate has averaged 32%. Achieving the midpoint of our 2026 guidance will result in EBITDA more than doubling over the last 3 years. Our consistent growth and ability to compound EBITDA and free cash flow across economic, health care, and regulatory cycles over the past 9 years validate the strength of the Privia business model.? Privia's business momentum is powered by the consistent execution of our provider partners and our employees. This has positioned us well to continue to drive growth and profitability as we build and scale our national footprint. I would like to take this opportunity to thank each one of them for their hard work. Operator, we are now ready to take questions. Parth Mehrotra: Pat, we're ready for questions. Operator: [Operator Instructions] First question comes from the line of Jailendra Singh from Truist Securities. Jailendra Singh: This is Jailendra Singh from Truist Securities. Congrats on a strong start to the year. So you guys reported strong Q1, but now you are deciding to maintain the outlook on most metrics, except attributed lives. Is this you guys just doing the Privia approach of being conservative? Or are there any items we should be aware of in terms of puts and takes for the rest of the year compared to Q1? And related to that, are you guys still expecting shared savings to be flat year-over-year? Q1 figures are pretty strong. So just give us any color about the guidance here. Parth Mehrotra: Yes, I appreciate the question, Jailendra. Yes. So look, I mean, it's still early in the year. You've seen how we've done this for the last five years since we went public. Our approach is just to keep executing every quarter. There will be some puts and takes. But as we get more data, we get comfortable in then adjusting guidance. We just gave guidance about 50 business days ago. So if this continues, then obviously, hopefully, we'll just do what we've been doing in previous years. But I don't think shared savings should be flat if this trend continues, but we'll just see what data we get for any prior period stuff in the current year across our value-based book. But if the trend continues, then it should grow year-over-year. Operator: The next question will come from the line of Jessica Tassan from Piper Sandler. Jessica Tassan: So I know you emphasized just the focus on attributed lives. So I'm interested if you guys can discuss your perspective on Medicare Advantage, just given the final year V28. Is the space emerging as more attractive as you guys hear payers describe kind of prioritization of margin over growth for '27? And then just interested to hear what your appetite for that business is, whether you're seeing a sustained effort from the payers to subcap lives, or any change in payer appetite? And just any directional commentary on how we might think about the capitated business from here? Parth Mehrotra: Yes. Thanks for the question, Jess. So our answer is not that different from what I think came up on the last earnings call as well. MA has overall good tailwinds with the demographic changes that we'll see over the next 5, 10, and 15 years. So I think it's a pretty important program, whether you do it with CMS directly or through payers. We are really focused on the MA book. I mean, you can see now we have over 550,000 MA attributed lives between MSSP and then Medicare Advantage. And so I think we're highly focused on growing that book, both attribution and then performing in that. I think as it relates to capitation or subcapitation, I mean, you've seen our view that doing full capitation is not the only way to perform well in MA. We believe in sharing the risk. That view remains consistent. It avoids any potential conflict of interest as payers adjust in each state, in each local geography, with baseline trends, utilization, or their program designs or attribution changes. So I think as V28 flushes through, I think there are some other adjustments that CMS has announced that they will do with the program across the board. I think just generally having good hygiene around the program. So I think we'll just continue to work with the payers. The value we really bring is very low-cost, dense networks in all of our geographies. I think that's Privia's value proposition to any payer. That, I think, will speak for itself because we have the doctors, we have the patients. The patients don't leave the doctors, no matter what happens to V28 or the MA program or what some particular payer might do or not do. That relationship is what we bring to the table, and our ability to influence the total cost of care with that patient, starting with the lowest cost setting, I think it's very, very positive for our business and the tailwinds we have. So I think we'll continue to work with the payers. As long as our doctors get rewarded for taking risks, we will take more risks. We prefer the shared risk model. Some of our books will be capitated going forward as it is today. Some would be shared risk with a lot more upside. So we'll just see how this plays out in every geography because you're contracting at the ZIP code level, in different risk pools. And so even though the macro environment may get better and the payers come out of the last couple of years, how we contract with them just varies by geography. Operator: And the next question will come from the line of Matthew Gillmor with KeyBanc. Matthew Gillmor: I had a bigger picture question just on growth. Our thought is that there's going to be some washout with the industry, and perhaps you're seeing that already, and that stronger organizations with good balance sheets will benefit from that. Is that something you're seeing either from the business development pipeline or with M&A? Are there more opportunities than you've seen in the past? Or would you describe it as steadier? Parth Mehrotra: Yes, I appreciate the question, Matt. I think you're right. There were a lot of investments done, VCs entering the space, and private equity being very aggressive. I think with all of that dissipating, I think it bodes well for a business like Privia with a very strong balance sheet and free cash flow profile. I think also medical groups with ownership structures, which were pretty unique across the landscape, with physicians owning certain assets, small businesses owning certain assets, and smaller private equity firms owning certain assets. I think as they look for exit or they look for a much more permanent capital structure, I think they've seen what they have to see in the last four, five years. And I think they realize what a company like Privia is from that kind of ownership, permanent capital perspective. So I think our business development pipeline is really strong. We're looking at deals across the spectrum. And as you know, our platform is really broad in terms of acquiring service entities, tech platforms, ACO entities, medical groups, and tax IDs. So, it's really broad in terms of what we can do and how we can uniquely structure these deals. Ultimately, with the objective of creating these dense medical groups, ACOs, and full tech and services platforms in every state in a very integrated fashion. I think that's a very unique value proposition that we bring to the table for any physician group, any patient, any specialty, any type of value-based arrangement. So, I think we're keeping busy, and we'll continue to deploy capital to keep compounding the business. You've seen us do that last year. I think we'll continue to just do it, just be disciplined around it, just be patient with valuation expectations. But I think as there are less and less exit opportunities for some of these assets, I think we've become a pretty attractive option. Operator: The next question will come from the line of Elizabeth Anderson with Evercore ISI. Elizabeth Anderson: Congrats on the quarter. Maybe just to piggyback off of what Matt was saying. I mean, you've obviously built Privia around primary care and the entry point, expanding that. But it's like the network maturity grows, how do you think about adding more specialty or perhaps changing the mix? Is that sort of something that you just think will happen sort of naturally? Is there any change in how you're thinking about that as an attractiveness in terms of the mix? Parth Mehrotra: Yes. Thanks for the question, Elizabeth. So, I think that's already happening very naturally. It varies by geography because the physician mix is different in every geography we are in, and who we partner with initially is different. So today, even today, it's a 60-40 mix trending towards a 50-50 mix. And we define primary care pretty broadly. So, who's the first point of contact for somebody in the family to include pediatricians for the children, OB/GYNs, family medicine, internal medicine, and so on, and so forth? So, I think it's already happening. And even on the specialty side, we're not really focused on the surgical specialties. But over time, as volumes move outside of the health system, and we can focus on the total cost of care for certain procedures, surgeries move to the ASC setting. I think that becomes pretty attractive for a multi-specialty medical group like ours. And so, I think you'll continue to see us expand on that strategy. And we are set up really well to do that. 80% of the total cost is downstream from the PCP, with a lot of reimbursement still in fee-for-service. And so, I think the engine that we have today to add value to those practices, I think, is also very differentiated. And then over time, as value-based arrangements and programs evolve that include those specialists, I think we are very well positioned to capitalize on that opportunity. Operator: The next question will come from the line of A.J. Rice with UBS. Albert Rice: I thought I might ask you about this new lead program and your thoughts on that. We're hearing that some providers that maybe historically haven't been particularly well-positioned for some of the value-based care that this program is offering them some opportunities. And so, I wondered how you see it? And do you see this as something incremental that you have an interest in? Parth Mehrotra: Yes, I appreciate the question, A.J. So, really similar to REACH when that came about three years ago or so, I mean, we evaluate all the programs from CMS. I think given what we see today, it's unlikely we'll move our MSSP ACO into lead, just given how well we perform, the nature of the program, you can do one versus -- you can't do both with the same tin. So, you've got to pick one, really. And I think MSSP is designed really well. Our hope is that some of the elements of lead as CMS experiments with these and changes some of these programs to make them more long-term sustainable. I think you could see more convergence between MSSP and Lead as an example, because a lot of the baseline program structure is pretty much the same, with some added benefits in Lead. So again, it's a new program. It comes into effect next year. We'll evaluate it. I don't think you should expect us to move our existing MSSP book, but we have the flexibility to add new providers and lives into lead in new geographies, or if we acquire a business that has reach, it makes sense to move them into lead. I think we'll look at that. So, like any other program, we just evaluate it, but we think it's a step in the right direction, and CMS continues to evolve its thinking and take out some of the program structures that make it more attractive for a certain set of providers, like health systems, and so on and so forth. So, we'll just see how it comes about. Operator: Next question will come from the line of Sean Dodge by BMO Capital Markets. Thomas Kelliher: This is Thomas Kelliher on for Sean. On the attributed lives on the commercial side of the business, the number of lives where you're taking downside risk is up about 60% over the last two years. Can you walk us through how risk works in commercial? And then how does the shared savings potential per individual and the volatility of that shared savings compare to some of the government programs? Parth Mehrotra: That's a great question. I appreciate it, Tom. So look, I think it speaks to the value prop that Privia brings to payers, where, just backing off of what I said earlier, once you bring a very large, dense, low-cost medical group structure in any geography, we are one of the very few entities that can do commercial value-based at this scale. OptumHealth does it really well in certain geographies. And I think the value prop is really converting the traditional fee-for-service payment stream into helping the payer take care of these lives, manage the total cost of care, having some quality metrics around different subsets of populations, whether it's children, whether it's working adults, whether it's pre- The Medicare population is between 50 and 65. So, we are converting some of the work we do into our ability to take some risk on those lives, helping the payer manage their MLR really better. And honestly, the payers are willing to compensate us in addition to the fee-for-service reimbursement on a care management PMPM basis, as well as certain quality-based bonus payments, and then ultimately, shared savings if we bend the MLR cost curve for them. So over time, we're not going to take a lot of risk at this point because it's an open-access product. The commercial patient has the ability to go wherever it likes, pretty much for different needs, especially if there's a specialty event. But again, we have corridors at risk. But as you're seeing, we are working with more and more payers across our geographies to implement some of these contracts and try to perform well. Our objective remains the same. We give value to the payers. It reduces their MLR. Our doctors and medical groups need to get compensated for it. And it's really an effort to move some of the traditional fee-for-service payments into a more value orientation. It's still, give or take, 50% of the population is commercially insured, give or take the geography.?And so this is really trying to do value-based care at a very, very broad scale for the working-class population. Operator: All right. That concludes our question-and-answer session. I will now turn the call back over to Robert... Robert Borchert: I'm sorry. Pat, we're still taking questions. Operator: So the next question will come from the line of?Matthew Shea?with Needham. Matthew Shea: I wanted to touch on technology. We picked up, I think, in April that you guys brought on a new Chief Technology Officer. Seems to bring a good background to an interesting moment, particularly as you're expanding the implementation base. So would love to hear what gets you excited about this appointment. And I know you touched on some of the tech investments you were making last quarter, but it seems like AI is becoming a louder theme in health care. So curious if the new hire changes any of your thinking or maybe accelerates some of your initiatives. Parth Mehrotra: Yes, absolutely. Appreciate the question. So we had Konda join us from Optum Insights, really good background. It's on the website. And then Chris Foy, our long-standing CTO, finally retired after a very long career. He's been working tirelessly with us since the inception of Privia, pretty much. So we're just lucky that we don't lose our great people to any competitors.? So look, I mean, we are really excited. Konda brings a great background and renewed enthusiasm to the team. We talked a lot about our tech stack and what we are doing with AI across all aspects of our business. And we have to link that with the margin profile of the business ultimately. So I think I'll just reiterate that we are looking to implement different AI applications across our whole tech stack in 3 broad buckets. Whether it's the Privia Enterprise, which is our core corporate functions, care center operations, and those are broken into fee-for-service, value-based care, and then again, patient interaction.? And then the third ultimately is care delivery. And then in each of those buckets, we are working with a lot of existing players, like we're on Google Suite and Gemini for all our corporate functions. We have Salesforce and Workday. We are also focused on every single function where we could use generative AI to increase productivity, ultimately reduce costs, or, as we grow, do not add costs, existing partnerships with Snowflakes on their Coreex AI as an example. So I think this will evolve as applications are just getting better every 3 to 6 months.? And then on the care center side, we're looking at literally every single workflow in the doctor's office. On the fee-for-service side, some examples we have iterated last time were prior auth, autonomous coding, and referral management. On the value-based side, we are focused on care gap closures, chart prep, patient scheduling, and patient interaction, which is a big focus with Agentic AI. We're looking at automated outreach, Agentic AI engagement with the patients, self-service tools, virtual health, obviously, I think we'll get much more efficient.? And then ultimately, with care delivery, you're looking at completely accurate coding, clinical decision support, suspect medical conditions, things like that. So I think there are a whole host of companies that are coming about. I think you'll see us just evolve this strategy, again, using our build-to-partner approach. But I think a company like ours, with 6 million patients, with 1.6 million in value-based lives, complex workflows around physician practices with our scale, I think we're just set up really well to benefit.? Then I think we talked about the margin profile. I mean, we are already approaching the low end of our long-term margin target, EBITDA to care margin of 30% to 35%. Our guidance this year gets us close to 29%. I think if we look at the next 5 years with everything we see that we can do with AI, I think we'll easily be close to the high end, if not exceed the high end of that margin target. So we're really excited on what we could do with all the innovation and really excited about what our new CTO can bring to the table here. Operator: [Operator Instructions] So the next question will come from the line of Andrew Mok with Barclays. Andrew Mok: Just wanted to follow up on the shared savings revenue. Could you elaborate a little bit more on the drivers of strength in the quarter, including how much corresponds to prior year performance versus current year performance? And related to this, it would be helpful to hear an update on how the Evolent assets are performing. Parth Mehrotra: I appreciate it, Andrew. So look, like last past quarters, I mean, we don't usually break down. I mean, there's always some dry period at this point in the year as 2025 closes out, and it's across the book, commercial, MSP, and MA. And then there's obviously, we get good data, and then we see what our actuaries believe about how we can perform in the current year. So there's always a mix between the 2. It varies quarter-by-quarter. So for me to give you something, it's going to change next quarter. So I think if you just look at a rolling 12-month basis, you'll see the increase over time. But it's pretty much across the book. There was not one particular area that stood out, which just bodes well for us. Andrew Mok: Sorry, could you repeat the second question? I thought I was. Just an update on the Evolent assets. Parth Mehrotra: Yes. So I think it's going really well. I think we're ahead on the integration. We feel really good about the asset. It's a core MSSP and some commercial lives. So I think we're really excited that the team is pretty integrated in the first 3 months. The tech stack is pretty much integrated. We're ahead on schedule a little bit there. So kudos to the team for doing a very hard job out of the gate here. And we look forward to working with those provider partners and continuing to increase their performance. So I think hopefully, if all that works out well, that will be good for shared savings as well as we close out this year. Robert Borchert: [Operator Instructions]. Operator: The question will come from the line of?Daniel Grosslight?with Citi. Daniel Grosslight: I actually had a similar question to the last part of the previous question, but I was hoping to get a little bit more granular detail, specifically on the sell-through of the full Privia platform into the physician base.? What's been the early reception there? Are there any metrics you can give us on what that sell-through has been and the progress you're really making in the six new states? Any stats or quantification you can give us where Evolent gave you that beachhead in those newer states? Parth Mehrotra: Yes, I appreciate the question. I mean, it's still early days. The cross-sell takes time. We're just less than five months into the acquisition, which closed in December. So job number one was making sure the team is integrated, making sure the tech stack is integrated, making sure we reach out to the practices and implement how we work on these programs, on MSSP in particular. So I think that's been our focus. Our sales team obviously reaches out to these practices to deliver the full Privia stack, but that happens usually over time. Our sales cycles are three to six months. When you're cross-selling, it's a new relationship, and you just don't want to disrupt what's there initially. So I think that will come over time. We just don't break out externally what portion of those practices move over. I think that's just part of our existing book. So you'll see that in the implemented provider numbers, which only reflect the providers that are on the full stack and part of the single-TIN from a fee-for-service perspective. So that will just happen over time. Operator: The next question will come from the line of Brian Tanquilut with TD Cowen. Unknown Analyst: This is Will Spak on for Brian. Most of my questions have been asked, but I guess, is there any color you can provide around the $11 million repurchase of NCI in the quarter? And then just a quick one on, it didn't seem like there was a major impact, but anything from weather and weaker respiratory on ambulatory utilization in the quarter? Parth Mehrotra: So, on the repurchase of the noncontrolling interest, we just acquired the minority interest in some of our markets. We expect it's going to lead to better cash flow and net income. We're constantly looking in our current markets where we have minority interests for these opportunities, and we just executed on a couple of those in the quarter. On the second part, look, I think it's important to distinguish, as we've said before, ambulatory and community doctor utilization for flu or other respiratory diseases versus the inpatient setting. We didn't see any major swings relative to previous years. The flu season comes and goes. Some years it is better, some years it's worse. Our book is very diverse. So we didn't experience the kind of change that I guess you all wrote about for some of the hospital companies reporting results in the past quarter. I think inpatient care can vary a lot more than ambulatory. Preventative care continues to be pretty good around flu, people getting their vaccinations, going in if they have symptoms, and so on and so forth. Even with snow days, telehealth is fully embedded in. It's really efficient. People know how to use it. So that's reflected in our results. You didn't see practice collections dip because of that. I think it just speaks to the diversification of our business. Operator: Next question will come from the line of Whit Mayo. Unknown Analyst: The press release didn't mention $600 million of cash at year-end, probably nothing really to read into that, but just maybe update on expectations for cash this year. And Parth, just wanted to maybe take your temperature on how you guys are thinking about buybacks at some point. Parth Mehrotra: Yes, I appreciate the question, Whit. The guidance is the same. We reiterated 80% of EBITDA would convert to free cash flow if you exclude any BD line items, including things like purchasing minority interests. So really, if you look at what cash was at the end of the year and just add free cash flow to it, which is cash flow from operations less CapEx, I think you should get close to that number. I don't think our guidance is changing there. But that does not include, obviously, the business development line or any spending on acquisitions, which is not included in our guidance. So that $600 million round number, excluding that, remains if things go well. And then look, our preference is, given the TAM out there and the opportunity to continue to consolidate different assets in this industry around community-based physician groups, ACO entities, IPAs, MSO entities, and so on and so forth. I think the best value creation opportunity for shareholders here is for us to keep compounding the business. Using our balance sheet cash to acquire these assets, integrate them, synergize them, and then just keep running that playbook, that's focus number one for deploying our cash. You've heard us say we like to keep some "sleep-well-at-night" money for a rainy day, pandemics happen, hurricanes happen, and so on. And then look, we always have the flexibility to return capital. That's an easy trigger if the value in the stock price is well below what we think is the intrinsic value for the company. But our preference is to compound earnings and free cash flow and continue acquiring businesses with our balance sheet cash. It just depends on when BD deals happen. So you can have cash accumulate, and then we could do larger transactions that are more meaningful and value-creating. We'll just see how that plays out over the next 24 months. Operator: The next question will come from the line of Jeff Garro with Stephens. Jeffrey Garro: I wanted to ask about the strong implementation of provider growth. One question, but I'll throw three parts at you. First, any callouts by market or specialty? Second, any update to contributions from provider-to-provider referrals? And third, how is the current visibility into the signed-but-not-yet-implemented providers and the current pipeline of provider prospects? Parth Mehrotra: Yes, I appreciate the question, Jeff. I'll take them in order. Look, I think given now that we are in 15 states with the single-TIN model and then another nine with the ACO-only model, the market or specialty mix just varies by quarter and by geography. As a sales team builds its pipeline, they convert, and then some markets get hot one year or one quarter, and then the others catch up. So, given the diversification of the book, it really varies each year. I think the strength of the overall business just speaks for itself. As we get bigger, we've talked about this earlier, the snowballing effect happens in this business. In our most mature markets, 50%, sometimes even 60% or 70%, of the referrals are from existing Privia practices to their colleagues. They are the best salespeople, our doctors. They've worked with us. They know what this model is. We perform for them. So, for them to refer another physician who has very high conversion rates. The LTV to CAC is off the charts in this business, some of the best that I've seen. We've talked about our payback period being less than a year. LTV to CAC is well over 10 years if somebody even decides to leave, and then our attrition rates are very, very low. So, provider-to-provider referral is very strong. And then the visibility is exceptional in this business. I mean, this is our sixth year reporting as a public company. You've seen the track record. It's a three- to six-month sales cycle, a four to five to six-month implementation cycle, given just the length of the size of the group. And so by this time of the year, pretty much every provider that has to be implemented is pretty much sold. So the visibility is over 90 percent at this point in the year. And that's why we're really confident about the guidance. And that hasn't changed much. If anything, it improves as the book of the business gets bigger. So again, the metrics around the business, the conversion rates, all are trending really, really well. We're really pleased with how we're performing. Operator: The next question will come from the line of Ryan Daniels with William Blair. Ryan Daniels: Parth, maybe a strategic one for you, and you alluded to this earlier, but it seems like there's a lot going on in real time with acute care hospitals and health systems and movement of volume to lower-cost settings. So you've got teams rolling out with entire episodes of care. You've got things like the inpatient-only list being dissolved. And I'm curious what that is doing strategically with your conversations with health systems as a potential partner to help them deal with all these pretty big changes they're facing. Parth Mehrotra: Yes, I appreciate the question, Ryan. That's a good one. Look, I do think the pressure on the traditional health system model and how they were kind of monetized is going to be higher for all the reasons you outlined. You could add the 340B program if something changes there, inpatient-only list, the willingness for them to employ primary care doctors, or certain nonsurgical specialties, and subsidize them. I mean, a lot of you have written about that over the years. I think it's going to be tough. The changes to the Medicaid or the ACA exchange population and how that filters through different health systems are also going to add pressure. So look, I think it bodes well for a business like ours as physicians look to come out of these settings into more outpatient settings and as different health systems figure out their strategy. I think it's going to vary by health system, different strategies in different communities. They have a different mandate. A lot of them are not-for-profit and are delivering care to really low-income populations. So I think it will vary by geography. But generally speaking, I think as these pressures mount up, we should expect this consolidation that's happened with physician practices at the health system setting to start to unwind a little bit, and physicians looking at businesses like ours to be a natural landing spot or even as they complete their residency as a very viable option to start or join an existing independent practice. And then it also adds to the question that was asked before around certain specialties and ASC opportunity, and our willingness to have a very strong referral base with primary care doctors having the pen in directing where the patient goes. So I think we're going to look at all of those strategies to keep expanding our network. And just given our platform that focuses on creating large multi-specialty groups in every single geography that we are in and then offering that to payers of health care in unique ways, mainly on the commercial population as well, it's a big differentiation. And I mean, you're seeing that in the results somewhat. They're very stable across cycles. And I think it's part of all of these strategies is playing out. So I think we're just going to keep looking for opportunities that we can keep compounding with that. But great question. Operator: [Operator Instructions] So the next question will come from the line of Constantine Davides with Citizens. Constantine Davides: Yes. Just two really quick ones for me. David, it looks like capitated profitability really stepped up in the first quarter. Just wondering if there's anything to call out there? And then second, Parth, you just talked about Medicaid and low-income populations. And you guys had a really nice or pronounced step-up in your Medicaid attributed lives. So, just wondering if you can talk about your Medicaid arrangements and what's prompting that growth. Parth Mehrotra: Yes. Thanks for the question. Yes. So again, this is just the first quarter of the year. The timing of data can vary quarter-to-quarter. As we always like to say in the capitated, both look at the full 12 months and a rolling 12 months. This quarter, we did get some prior year adjustments that benefited both revenue and margin. So I would say our prudent approach to the book is, at some level, paying off as we continue to see more data. We continue to get some good news there. And again, we just continue to follow our same consistent and prudent, I'll say, accrual methodology. It's a long period of time we need to review this information. But again, as good news comes in, we're able to see a little bit of additional good news. And then on the second part, Constantine, look, I think we service the entire panel in every physician's office. So organically, as we grow in existing states or new states, some part of the panel is Medicaid patients. So I think the strength of our implemented provider growth and what our sales team is able to do in certain geographies, I mean, this organic Medicaid attribution growth. We continue, again, to work with payers to figure out the right value-based strategy in that book. The gap between what any provider business would like to do and what it could get paid for is still very big, especially for the population. I mean, they have special needs, transportation needs, nutrition needs, just getting people to see the doctors, single mothers, very low-income families, so on and so forth. So I think while we can do a lot more, the willingness of the payers to reimburse us for some of those strategies is there, but there's still a gap. So while we'd like to continue to grow that book, as you can see in our Slide 6, it's all 100% upside-only deals, where again, we are taking the network to the payers, asking them much like our commercial book where we can do certain things with the population, impact the annual well visit rates with the children, with women, with working adults, making sure that they're at least seeing the doctors, getting the vaccinations, getting their screenings done. And for that, the payers are willing to pay a certain PMPM, a certain quality bonus. And then if we impact the MLR, there's shared savings to be had. But to take a risk in that book is tough. Unless the payer is really willing to get behind us and solve for some of these things. So I think we'll continue to grow it. I don't think you should expect us to take downside risk in Medicaid unless there's a unique opportunity. Operator: The next question will come from the line of Jack Slevin with Jefferies. Jack Slevin: Nice job on the quarter. I guess maybe not to backtrack over this too much, but just on the Medicare Advantage discussion, because there's pretty palpable excitement across payers and the value-based care space around that environment improving. My understanding or my read is really that many investors think that some of the moves you took to pare down risk meant that you don't necessarily participate in upside in the same way on some of the tailwinds that are now behind the industry. Maybe just breaking down that book across the 71% in upside only, the 19% upside, the downside, and the 9% cat book. Can you just talk a little bit about how better rates or more margin favorable payer bids flow through to you in each sleeve of the book there? Parth Mehrotra: Yes, it's a great question. I think the biggest dichotomy lies in the fact that broad industry sentiment does not necessarily translate into the ground-to-ground payer contracting discussion with any particular payer in one geography with a certain book of business in MA. So I think overall, I don't think reimbursement is going to increase massively over time. I think what CMS is trying to do is make sure that everybody is getting reimbursed appropriately, whether that comes through star scores or risk adjustment or whatever other mechanism they can look at. I think they had a one-time adjustment. The system got a shock. Some of the payers, I mean, these cycles have happened with MA payers over the last 20 years. You can see every 4, 5 years, payers grow their book, they overshoot, they make a correction, and then the lives move from one to the other, and then somebody is left holding the bag until the cycle repeats itself. So I think while you're coming off the trough from a payer perspective and you're seeing those results after the last 2, 3 years, how a provider business contracts at the ground level kind of remains the same. We're going to look at each geography, each book of business. And then we continue to believe, I think, this broad-based view that capitation is the only way to capture the upside. I think it's certainly myopic. I mean that you've seen the last 5 years play out. I mean, it's not like any other provider group was making a lot of money in capitation 5 years ago in '21 when they were really talking about it, and we'll see how the next few years play out. And then there's an economic profit that is there to be shared between the payers, the doctors, and the providers. Our view is that economic profit should be shared and not just captured, or the risk should not be borne by one while the economic profit is shared. So I think it's a shared risk arrangement is much more sustainable. I think you prevent some of the anomalies, some of the potential conflicts that can happen. So I think we'll just continue to work with our payers and continue to capture the upside based on the value that we provide. It does not necessarily have to happen in a capitation. Some businesses might like that volatility and play for that extra risk for the additional downside potential. But our view is to have, as we've said, sustainable earnings is sustainable earnings. And you've seen us do that over the last 6 years as a public company and then even before that. So our strategy is going to be the same. And if there are opportunities for us to take more risk, we'll take more risk. Operator: All right. The next question comes from the line of Ryan Halsted with RBC Capital Markets. Ryan Halsted: Most of my questions have been answered. But maybe just a question, any views or thoughts about payers reform on prior authorization policies, I would think certainly potential implications for your fee-for-service business, perhaps opposite implications on value-based care, but just any thoughts on that would be helpful. Parth Mehrotra: Yes. I mean, look, there's a lot of noise in the media around it these days. I think the focus there is for higher value claims, probably in the acute setting, more so than the ambulatory settings with community-based doctors. 95% to 99% of claims are resolved on the first pass. It's mainly at the specialist level where you need prior authorizations. I mean, for a primary care-centric group, it's pretty low-value claims in the first place. Ultimately, I think, look, with AI, there will be an equilibrium where the payers and the larger providers in the acute setting will just settle out on prior auth. I think it's in everybody's interest not to have extended timelines for those. It doesn't bode well for the ultimate patient who gets stuck in the middle of these, either as a surprise bill after care has been delivered or is just waiting for prior auth. So I think everybody's interest is aligned with that patient ultimately, but I think we just go through a period where some of this stuff will just get settled out. But I don't think it really impacts our business in that big of a way relative to the acute setting. I think we obviously continue to work with payers in making sure that if there are certain areas of specialties where we feel there's some friction, we smooth that out. And I think a lot of the payers have the right intent to continue to not have this as a source of friction, especially when it impacts patient care. Operator: And our last question comes from the line of David Larsen with BTIG. Jenny Shen: This is Jenny Shen on for Dave. I was wondering if you could comment on medical cost trends, how that compares to a quarter ago, and maybe a year ago? And then also, any updated thoughts on your general appetite for risk? It sounds like it's pretty consistent, but whether that has changed at all. Parth Mehrotra: Yes, I appreciate the question, Jenny. So the medical cost trend is pretty consistent. I mean, you've seen that result in our value-based book and how we perform. Again, we like to look at it over a 12-month rolling basis, as David was saying, and that's broadly across our book. So nothing jumped out quarter-over-quarter here for us. There are some impacts of the flu season, but that happens every year. So we'll just continue to look at data and then see. But from our perspective, what's in our accruals, what's in our guidance is pretty consistent. If anything, we like to be pretty prudent. And if we are wrong, there should be upside, like we've always said. So I think that's how we look at it. And I think we answered the other question previously already in terms of our ability to take risks. Operator: All right. That concludes our question-and-answer session. I will now turn the call back over to Robert Borchert, SVP, Investor of Corporate Communications, for closing remarks. Thanks. Robert Borchert: I'll hand it over to Parth. Parth Mehrotra: Thank you for listening to our call today. We appreciate your continued interest and look forward to speaking to you again in the near future. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the BlackSky Technology First Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Aly Bonilla, Vice President of Investor Relations. Aly, please go ahead. Aly Bonilla: Good morning and thank you for joining us. Today, I'm joined by our Chief Executive Officer, Brian O'Toole; and our Chief Financial Officer, Henry Dubois. On today's call, Brian will provide some highlights on the quarter and give a strategic update on the business. Henry will then review the company's first quarter financial results and updated outlook for 2026. Following our prepared remarks, we will open the line for your questions. A replay of this conference call will be available later today. Information to access the replay can be found in today's press release. Additionally, a webcast of this earnings call will be available in the Investor Relations section of our website at www.blacksky.com. In conjunction with today's call, we have posted a quarterly earnings presentation on the Investor Relations website that you may use to follow along with our prepared remarks. Before we begin, let me remind you that we'll make forward-looking statements during today's conference call, including statements about our plans, objectives and future outlook. Actual results may differ materially as these statements are based on our current expectations as of today and are subject to risks and uncertainties, including those stated in our Form 10-K. BlackSky assumes no obligation to update forward-looking statements, except as may be required by applicable law. In addition, during today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA and cash operating expenses. Definitions and reconciliations between our GAAP and non-GAAP results are included in our earnings press release and presentation, which are posted on our Investor Relations website. At this point, I'll turn the call over to Brian O'Toole. Brian? Brian O’Toole: Thanks, Aly, and good morning, everyone. Thank you for joining us on today's call. Beginning with Slide 3. I'm happy to report that we are off to a strong start to 2026. With up to $160 million in contract awards, we are rapidly growing backlog, accelerating revenues and on track to deliver strong earnings growth driven by demand for our Gen-3 solutions. This quarter, we achieved a clear inflection point in our business as Gen-3 capabilities are now fully operational and delivering mission-critical intelligence to customers worldwide. Demand for our Gen-3 capabilities has never been stronger. And as a result, we are growing our pipeline and transitioning new and existing customers from early pilot programs into long-term 7 and 8-figure subscription contracts. Based on the strong year-to-date sales performance, in-year revenue visibility and accelerated pipeline growth, we are increasing our revenue and adjusted EBITDA forecast and full year guidance. As we move through the year, we expect this momentum to continue, driving increased revenues, margin expansion and improved profitability. Now let's move on to key highlights across the 3 major elements of our business. Moving on to Slide 4 and our space-based intelligence and AI services. Gen-3 continues to exceed expectations, delivering exceptional 35-centimeter imaging performance at a time when real-time space-based intelligence has never been more important. With 4 Gen-3 satellites in operation, we are now unlocking significant revenue growth from new and existing customers. We won over $60 million in new contract awards from major international and U.S. government customers that will contribute to in-year revenue performance, improve margins and drive out-year backlog growth. At the same time, we continue to onboard new customers and expand existing accounts as interest for Gen-3 on-demand and assured subscription services grows. During the quarter, we secured the next wave of new Gen-3 customers and expect these accounts to grow over time as part of our land and expand strategy. It is important to note that subscription-based contracts drive predictable revenue and strong visibility into future growth as these are highly sticky accounts with almost no churn. The major wins so far this year have us on track to grow this element of our business in 2026 by over 50%, achieving a projected annual run rate of over $100 million. This highly profitable subscription revenue is on track to deliver gross margins of around 80%, which is accelerating improving adjusted EBITDA margins. The operating leverage, capital efficiency, unit economics of our constellation and the scale of our business model is translating directly to bottom line performance. Looking forward, we expect to continue strong growth internationally and are starting to see momentum from the U.S. government as funding from the fiscal year '26 budget is moving through the system, which is further improving our visibility this year. Turning to Slide 5. Customers around the world are rapidly integrating our advanced 35-centimeter imaging and real-time AI analytics into their operations at a time when conflict and geopolitical tensions around the world are driving an increasing need for assured, responsive and low-latency space-based intelligence, which is essential for critical national security missions. To give you a sense of how we are supporting typical customer operations today, users are casting hundreds of images over the course of a few days within a specific area of operations. Our dynamic tasking services and Spectra support a rapid and responsive cadence as operators are reacting to changing conditions on the ground. Once collections are casted by the user, we are achieving imagery delivery time lines consistently less than 40 minutes, including processing for AI-enabled analytics. Over the course of several days of an operation, our AI analytics detected and classified over 5 million objects as part of customer workflows, providing vital real-time intelligence. Our automated Spectra platform is compressing time lines dramatically, enabling end users to make informed decisions while providing maximum tasking and operational flexibility to respond to developing situations. This combination of high-resolution imagery, AI-powered automated analytics and rapid delivery time lines is driving customer adoption and service expansion. Moving on to Slide 6. Our AI capabilities are operational today and are delivering critical intelligence. Our proprietary AI capabilities are purpose-built for real-time geospatial intelligence and have been validated by major defense and intelligence organizations as a trusted solution. What differentiates BlackSky is that we have moved AI into real-world deployment where our capabilities are embedded directly into customer workflows and are driving daily decision-making. Our Spectra platform is continuously processing high revisit Gen-2 and very high-resolution Gen-3 imagery, applying automated detection and classification and delivering actionable insights in minutes. This allows customers to move from data collection to decision advantage faster than ever before, which is vital in today's dynamic geopolitical environments. At scale, we are processing millions of AI-enabled detections, monitoring large areas of interest simultaneously and enabling persistent automated surveillance across critical global assets. This is not just improving efficiency but fundamentally changing how intelligence is generated, reducing reliance on manual analysis while increasing speed, accuracy and mission impact. Turning to Slide 7 and an update on our Gen-3 constellation. In March, we successfully launched our fourth Gen-3 satellite, which delivered first light imagery within hours of launch and was commissioned into operations in less than a week. By reducing the commissioning time line to just days, we're providing customers with rapid access to new capacity while maximizing the operational lifespan and return on investment of our constellation. This ability to quickly and reliably move from launch to mission operations is a distinct advantage for our customers. With 4 Gen-3 satellites in operation, we achieved a major operational milestone with daily revisit rates for very high-resolution 35-centimeter imaging services across key regions of interest worldwide. When combined with our Gen-2 constellation, we have added very high-resolution imaging to our dynamic hourly monitoring services. This is providing customers with assured and flexible collection operations. We are continuing to expand the Gen-3 constellation with our next Gen-3 satellite ready to be shipped and remain on track to meet our objectives of at least 8 Gen-3s on orbit this year. Now let's move on to Mission Solutions on Slide 8. Our sales pipeline continues to grow due to the on-orbit success of Gen-3 and our ability to deliver industry-leading 35-centimeter imaging performance at compelling economics and attractive delivery schedules. Having proven on-orbit performance is an important criteria for customers that are making important acquisition decisions now that will impact their road maps and long-term investment strategies for their sovereign programs. We're seeing increasing interest from international customers and acquiring more expansive end-to-end solutions that not only include satellites and ground infrastructure, but now include enhanced secure operations and AI-enabled analytic capabilities. The combination of best-in-class Gen-3 satellites and industry-leading software and AI capabilities operating in a proven real-time architecture has us well positioned to address this growing market opportunity. Turning to Slide 9 and our advanced technology programs. While we are making great progress scaling our core space-based intelligence and Mission Solutions business, we are also advancing our lead in space through the rapid evolution of the Gen-3 platform, the development of AROS, our new wide area collection system and the advancement of new leap-ahead payload technologies that can change the future of earth and space domain observation. We were pleased to announce this quarter a major new contract worth up to $99 million with the U.S. Air Force Research Lab for the development of an advanced large aperture optical payload. This is an advanced technology that we have been developing for the past several years and is now at a point where the approach has been assessed and validated by industry-leading government experts. As a result, we were awarded a multiyear sole-source contract to move ahead with the development and demonstration of the critical payload technologies. This program represents significant customer-funded investment that not only reinforces our technology strategy, but offsets internal R&D and is in strong alignment with U.S. government priorities to advance innovative commercial space-based capabilities. Moving to Slide 10. As we advance our technologies through customer-funded R&D, we are transitioning these innovations into our space portfolio. At the core of this portfolio is our Gen-3 platform. As we iterate and enhance this architecture, we are incorporating next-generation capabilities such as on-orbit processing and optical intersatellite links or OISL, which will enable low-latency space-based communications that is critical to reducing delivery time lines and increasing resiliency. Looking ahead, we are advancing AROS, our next-generation wide area search and mapping system. This new constellation, when combined with real-time AI processing, will overcome the limitation of traditional mapping systems through transformative always-on intelligence and information services. This is an expanded market opportunity that will address a wide range of applications, including broad area monitoring and change detection, maritime surveillance and the delivery of 3D digital twins in support of rapidly growing opportunity for AI-enabled autonomous systems. As we move forward into the details of the AROS design, we see strong interest from a number of key customers and partners for this capability. We will have additional details to share on our progress as we move forward throughout the year. In summary, we are excited with the strong start to the year and the progress we are seeing across all aspects of our business as the need for space-based intelligence has never been more important. The progress we've made so far this year reflects a major inflection point for the business and is a clear indication of the traction we are gaining in the market. With that, I'll now turn it over to Henry to go through the financial results. Henry? Henry Dubois: Thank you, Brian, and good morning, everyone. I'm pleased with the strong start to the year. With the recent wins and our market momentum, we're excited for 2026. Now let's begin with Slide 12. Our first quarter revenue was $20.8 million. With Gen-3 coming into commercial operations, we started to see a return to growth in our space-based intelligence and AI services revenue, which was up 14% over the prior quarter. When comparing this quarter's total revenue to Q1 of 2025, keep in mind, Q1 of 2025 benefited from a $9 million revenue milestone for our Mission Solutions program. With strong year-to-date sales, we are expecting to further increase space-based intelligence and AI services revenue by over 50% this year, achieving a $100 million annual run rate. With the momentum we are seeing for Gen-3 services, we are increasing our revenue guidance for the year from our previous range of $120 million to $145 million to an updated range of $130 million to $150 million, representing an overall growth rate of over 30% at the midpoint as compared to 2025. Turning to Slide 13. You can see that our cash operating expenses, which excludes stock-based compensation, depreciation and amortization expenses remained flat as compared to our prior first year quarter operating expenses. On Slide 14, our first quarter adjusted EBITDA was a loss of $5.1 million, in line with our internal expectations. Given our growing revenue streams, which we believe will translate into strong adjusted EBITDA performance, we are increasing our guidance for adjusted EBITDA for the year from a previous range of $6 million to $18 million to an updated range of $12 million to $24 million, yielding a 13% adjusted EBITDA margin at the midpoint. Let's move on to our cash and liquidity position, as shown on Slide 15. With cash CapEx for the quarter of $15.8 million, we ended the quarter with $117.5 million in cash, restricted cash and short-term investments and total liquidity of over $195 million. This liquidity gives us substantial flexibility to fund strategic growth initiatives, continued Gen-3 investments and provide for the operational infrastructure investments needed to support our rapidly growing customer base. Even though we are increasing our revenue and adjusted EBITDA guidance, we are not increasing our capital expenditure targets, demonstrating the leverage we are achieving in our capital deployed to develop our Gen-3 constellation. In summary, I'm pleased with the strong year-to-date sales momentum, which is continuing to grow our backlog, strengthen our financial position and further validate the operating leverage in our business model. I mentioned earlier and as shown on Slide 16, we are raising revenue guidance to be between $130 million and $150 million, adjusted EBITDA guidance to be between $12 million and $24 million and reaffirming our capital expenditure guidance of $50 million and $60 million. With that, back to you, Brian. Brian O’Toole: Thanks, Henry. In closing, we have clearly reached an inflection point in our business with the success of Gen-3, which is now delivering mission-critical intelligence to major customers around the world. We are proud to be a trusted mission partner and support the day-to-day operations of important national security missions, both now and in the future. The proven operational performance of our real-time space-based intelligence services is leading to strong sales performance and rapid customer adoption, which in turn is accelerating revenue and margin growth. We are pleased with the momentum in the business and that our year-to-date sales are ahead of plan, which is driving the raise of our full year guidance. This concludes our remarks for the call and we'll now take your questions. Operator: [Operator Instructions] Your first question comes from the line of Jeff Van Rhee with Craig-Hallum. Jeff Van Rhee: Congrats, numbers look good. So just a couple of questions. Brian, as it relates to the pipeline, can you talk to -- you've talked about these pilots coming in and then obviously, customers are getting a sense of Gen-3 and converting. Can you put a little finer point on the quantity of pilots coming in the top of the funnel? Give us a sense of the magnitude of the pipeline, how many have converted, how many are there? How many you've added in this last quarter? Any quantification about funnel and particularly pilots? Brian O’Toole: Yes. You may have seen this week, we had a release on securing our next wave of customers. This was in the scale of a couple of dozen. And we're seeing that momentum really pick up. So they all start with 6-figure type pilots and you're seeing, as a result, that moving into 7 and 8-figure subscription contracts. They're all in different points in the pipeline. So it's difficult to kind of quantify timing and all of that. But we're just seeing strong momentum and the pipeline is looking good. Jeff Van Rhee: Is there -- if I could follow up on that, is there anything you could share with respect to what I'd call the mega deals? Obviously, you've got a lot of sovereign momentum out there. A number of players in the space are talking about 9-figure deals working through their pipe. Can you give us any sense of the frequency in which you're seeing those and seeing those work through your pipeline? Brian O’Toole: Yes. I think we announced the $30 million 1-year subscription contract. That started with a 6-figure pilot about 6 months ago. And we are seeing a lot of that type of activity, particularly as customers now have had an opportunity to evaluate Gen-3 performance tied to the operational flexibility, the timeliness and the quality of the imagery and how that can integrate into their operations. And so these are major customers and we're seeing a pretty strong pipeline of those worldwide. It's hard to, again, quantify the timing of some of these deals. But you can see we also announced another large deal as well. So a lot of momentum with these larger contracts. Jeff Van Rhee: Yes. Real nice traction on the signings. Just 2 other quick ones, if I could. Spectra and analytics, what are you seeing in terms of new customer attach rates on the analytics side? What do you anticipate based on pipeline? Brian O’Toole: Well, Jeff, that's why our pipeline and the conversion rate is going so well. It's not just the attachment rate. It's the fact that all of these things are integrated into the service. So it's highly flexible access to dynamic monitoring and tasking with the AI integrated as part of the service and then the short delivery time lines, which are really critical to what -- as you can imagine, the things are happening around the world today. So it's the combination of those 3 things that has us differentiated in the market and what customers are responding to. And as I mentioned in our remarks, our AI is operational and it is embedded in our customer workflows. And so it's not just a tech demo or some offline processing capability. It's happening in real time and it's delivering real information intelligence. Jeff Van Rhee: Yes. Got it. That's helpful. And then just lastly on Gen-3. I know maybe sometime last year, you were thinking 8 Gen-3s early-ish in the year. It looks like you're now thinking that later this year, if I caught your comment in the script. Just curious to what extent that influences your ability to book customers, influences your ability to sign incremental revenue if you're capacity constrained in any way, assuming it doesn't present any gating factors. I was just kind of trying to figure out how I should think about that capacity and its potential influence on your ability to sign new business. Brian O’Toole: Yes. Jeff, as I said, we're on track to get 8 up this year. The real inflection point, as I'll say, in customer adoption was the performance of Gen-3. I've always said, once we have a few up there and get to a daily service, it provides customers a very good experience. So that's now happened. And the growth and what you're seeing in that line of business is not limited by our capacity and we're in good shape this year with what we have and we'll just continue to grow the constellation. Operator: Your next question comes from the line of Timothy Horan with Oppenheimer. Timothy Horan: [Technical Difficulty] compared to what you've done historically and how do you think that's going to ramp? And are there any kind of new areas or new customers that are surprising you or new use cases? Any color would be helpful. Brian O’Toole: Yes. I mean, the customer sales and adoption cycle is not surprising. We've had very good visibility in our pipeline and there has been lot of interest by a lot of major customers in our Gen-3 capabilities. So now that we're getting over the hump on that and they're getting firsthand experience with it, we're just seeing a natural growth in that business. As we mentioned in our remarks, we announced several large contracts, but we now are expecting the space-based intelligence and AI services, which is our primary subscription business to grow over 50% this year. This is our high-margin business. So you're also seeing how that is translating directly into improving EBITDA margins and performance, particularly because that part of our business has -- is delivering about 80%-type gross margin. So no surprises in the sales pipeline. If anything, current events are accelerating opportunities as the demand for this type of capability has never been stronger. And we're in a good position where we're now just converting the pipeline into new contracts. Timothy Horan: And can you talk about the sovereign satellite capability? Are you seeing more interest there? Brian O’Toole: Yes. As I mentioned, we are seeing demand increase. There is major investments happening worldwide in space programs by governments around the world. We're seeing both opportunities for large constellations and opportunities related to countries that are just getting started. We have seen a pick-up in interest around Gen-3 because it's proven on-orbit performance at this 35-centimeter capability is a really important factor as they're looking at other options in the market and our ability to manufacture Gen-3 at scale and also deliver that under a very competitive time lines is an attractive offering. So we have a lot in the pipeline. We're pursuing a number of opportunities and moving them through and we expect this to be picking up as we go out through the year and into next year. Timothy Horan: Lastly, Henry, can you give us a sense of the revenue -- quarterly revenue or maybe exit run rate at the end of the year? How should things pace? Is it linear? Is it hockey stick? Any color there would be helpful. Henry Dubois: Sure, Tim. We'll be filing the Q this afternoon in there. You'll see how we've got our backlog -- our backlog -- full backlog is about $351 million as of March 31st, but that does not include the -- some of the large contracts that we signed in early April. So that would be total backlog, including those about $380 million. Of that $380 million, we would expect about $90 million to be already booked for 2026. There will be some step functions in there and we've got a lot more pipelines coming in as well. So we do expect the second half of the year to be a much stronger than the first half. And as we go, we'll hit that -- we do expect to get to that $100 million run rate by the end of the year. Operator: Your next question comes from the line of Edison Yu with Deutsche Bank. Unknown Analyst: This is [ Laura ] on for Edison. So firstly, I want to ask about how the Middle East conflicts impacting your growth? Has that led to like large increase in usage year-to-date? And how you see that trend continue? Brian O’Toole: I would say, if anything, we've already -- we already had a very strong sales pipeline for Gen-3 capability and you're seeing that we're converting that into long-term subscription contracts. I think if anything, the conflict in the Middle East is amplifying for other customers the need to lock in long-term contracts for capacity in the event these types of crisis events occur. And that's been traditionally how the market operates is because we serve the national community -- national security community. The business is not driven by singular events. It's driven by day-to-day needs for a range of national security missions. So we don't see ebbs and flows around these events. But if anything, they amplify the importance of entering into these long-term contracts. But also, I will say the capabilities that we have are -- do shine in these type of events when you're really trying to -- you can see the importance of really rapid and flexible intelligence that these operations need to monitor what's going on. Unknown Analyst: Okay. Got it. Appreciate it. Also want to follow up on this -- your AI efforts. So how should we think about the AI road map over the next 12 to 24 months? And what are the priorities there? And would you try to bring in some AI partners on either the model side or some cloud platform, et cetera? Brian O’Toole: Yes. I think the first major point is our AI is a proprietary capability. It was purpose-built for real-time space-based intelligence. So it's -- it was really designed to operate in customer workflows at scale and at speed. So we will continue to expand over time the -- our ability to not only detect and classify important objects and things of that nature, but then how we start to see patterns and changes that are important to customers. That's really the bottom line. AI is really just an enabler, but it's really all about providing that actionable intelligence to decision-makers at rapid time line. So we do incorporate a lot of third-party technology. But at the core, it's our proprietary capabilities around this mission set that has us leading in the market. Operator: Your next question comes from the line of Austin Moeller with Canaccord Genuity. Austin Moeller: So just my first question here, is there a critical mass of Gen-3s that need to be launched in order to get access to more contract dollars from either EOCL or Luno? Or is it just a matter of the '26 budget being in place and task orders going out now from the program executive offices? Brian O’Toole: Yes. I would say our growth in that line of business is not dependent on a rate of launching satellites. We've got a core amount of capacity on orbit. And you have to remember, when combined with Gen-2, we have over 15 satellites up there that are providing dynamic hourly monitoring capability. So now that Gen-3 is proven, we're just seeing a ramp in those contracts. More satellites means more capacity. And improve frequency and the very high-resolution capability. But we don't have anything right now that will be triggered by more satellites. We'll just continue to grow. Austin Moeller: Okay. And can you comment on how Spectra's AI object classification capabilities compare with some of your peers that have expertise in mapping and geo data analytics? Brian O’Toole: I would just say that, as I said in my remarks, we are delivering this operationally today. They've been validated by major defense and intelligence customers. So they trust the results that we're delivering and we're constantly improving and refining the training of those algorithms. The models are operational real-time. So that's a major differentiator. It's not an offline process. But all I can say is you've seen our performance on Luno in the past in winning contracts because of the performance of our AI. And now you're seeing it working operationally. And I think that should give you a sense of why that capability is winning in the market right now. Operator: Your next question comes from the line of Greg Burns with Sidoti. Gregory Burns: Just a follow-up on the last question around EOCL. Does the updated guidance still contemplate revenue levels at the current level where they exited last year? Or are you expecting that to build back up to where they were prior to when they were haircut last year? Brian O’Toole: Yes. I think the assumption we have now is they remain at the current levels, the levels we exited last year. There are multiple funding lines that were in the fiscal year '26 budget for commercial imagery that are in the process of being allocated to specific programs and contracts and we're actively following the process. We'll see better visibility throughout the quarter. But for now, we've been conservative, assuming the levels we exited the year at. It's also important to note that, as we talked about, we're seeing the increase now on that business line. And these large contracts we're winning have significantly diversified our customer base. And international is now a much larger percentage of our revenues. So we've minimized the impacts of some of the annual budget effects of the U.S. government. Operator: Your next question comes from the line of Sheila Kahyaoglu with Jefferies. William Healey: This is Billy on for Sheila. Just continuing on the international side, there's a lot of momentum there. And how do you think about the pipeline and untapped opportunity going forward? And how do we think about progression of current customers expanding versus new customers? Brian O’Toole: Yes. I think we're seeing growth from a couple of dimensions. We are expanding the revenues with customers we've had for a long time as they start transitioning in scaling the use of Gen-3. So we're seeing that. And then in parallel, we're adding new customers and I talked about that earlier. And then we're continuing to grow the pipeline to continue bringing a wave of those new customers into service. So the other thing I'll mention is the quality of Gen-3 is demanding a higher premium than Gen-2 because of the 35-centimeter capability. So the dollars per sold capacity are increasing. You're seeing an expansion of existing contracts. We're seeing new customers coming online and then the translation of those new customers in small initial pilots transitioning to 7 and 8-figure type subscription. So there's multiple growth vectors as we bring new and existing customers into higher levels of service. William Healey: Great. And then just like following up on that. In terms of international mix, like it's higher now. How do we think about that going forward? And how do we think about domestic versus international contributing to the 50% plus growth for the rest of the year? Brian O’Toole: Yes. As I mentioned earlier, we're -- we've assumed the U.S. government EOCL kind of maintains its current level. The majority of the growth is coming internationally. Although we did announce a new subscription contract this quarter from another U.S. government agency that's leveraging the capacity of our Gen-2 constellation, so we are seeing new opportunities emerging with the U.S. government as well. So -- but the revenue mix will be growing significantly internationally as compared to the U.S. government. Operator: Your next question comes from the line of Chris Quilty with Quilty Space. Christopher Quilty: I wanted to follow up on something that was already discussed. Just regarding the typical customer journey, is that accelerating, slowing down, staying the same? Are there any reasons that you're seeing a change in how quickly they're converting? Brian O’Toole: Yes. We're seeing an acceleration. As I mentioned, I think getting Gen-3 operational at a daily service level and putting that in the hands of customers to experience that firsthand is driving an increase in the pipeline and it's increasing the rate at which things are moving through the pipeline. So -- and it's all -- it's really -- it's fundamentally based on the level of service that's available to these customers when combining 35-centimeter imaging with low-latency, flexible tasking operations with integrated analytics. That's a first-of-its-kind capability in the market that's giving customers operational intelligence faster than ever and a lot of flexibility in how to leverage that capability across a lot of different mission sets. So it's not just about the pixels. It's about the level of service and how that's being integrated and used in a dynamic environment. Christopher Quilty: Got you. So for Henry, I mean, you did $16.5 million in the space-based intel and AI in the first quarter, which is the average of what you did all last year. So obviously, to ramp to $100 million, you're going to see a significant quarterly step-up. Is that due simply to the contracts you have in backlog and those just falling in? Or is there a higher level of book and ship type business that you expect this year? Henry Dubois: We've got a couple of things that are going to help that step up. You recall, we just announced that roughly $30 million 1-year subscription contract. If you take that and divide that by 4, you've got a pretty big step-up on that one contract alone. That contract we signed in early April. So that should be kicking in here in the second quarter. So then when you take a look at our total backlog, we will -- we've got a lot of that already booked and we've got some additional renewals coming on board as well in the near term. So we feel pretty comfortable on it. We're going to get a step-up here in the second quarter, but bigger step-ups as we go into the third and fourth. Christopher Quilty: Got you. And remind me, the backlog in terms of the breakdown, I think you said $90 million to ship this year and which business segment that falls across? Henry Dubois: We don't break it down between the different business segments and business elements. But for the most part, a lot of that is Gen-3 subscription, most of it is Gen-3 subscription. Christopher Quilty: Got you. Brian, also a follow-up on the EOCL. Back when that was awarded like 3 years ago, I was always under the impression that the uptake in the revenue because it didn't have a material impact at the time, but that the upside to the contract was based on Gen-3 capability being added into the contract. Is that not correct? Are they simply paying on the number of satellites and volume and not on resolution improvement? Brian O’Toole: Chris, if you remember, when it was originally awarded 10-year contract heavily back-end-loaded around Gen-3 services that grew over time. So the initial service levels were primarily around Gen-2 capacity. And that was really the subscription that we've been operating under the last couple of years. Gen-3 is -- they are looking at integrating Gen-3 into that subscription this year. There's a lot of interest in that. And as I said, we're watching how this -- the funding from the fiscal year '26 budget is going to flow through. But we are at a point with Gen-3 that's an attractive offering to the U.S. government and we'll have better visibility in that, I think, by the time we get through the second quarter. But there's a lot of interest in Gen-3 and the contract is primarily back-end-loaded for that capability. Christopher Quilty: Okay. Great. And Brian, you mentioned earlier the latency of the content delivery and goals to improve it. Can you talk about like what would be your sort of mid to long-term goals for where you think latency should get? And does that drive higher revenue as you drive the latency down? Or is that just becoming the table stakes of being in this business? Brian O’Toole: I think there's 2 ways to think about it. I think low latency is a requirement these days. You -- we're responding to dynamic events on the ground. And Chris, as you know, we've built a -- this is a purpose-built capability around responsive tactical operations. So to us, it is a required part of the service and it's what customers are asking for. We -- in addition to the basic commercial service, we've also -- have the ability to directly downlink into customers' environments and that brings that down into minutes as well. And so what you'll see from us continuing is just a constant improvement in that latency, not only in the imagery tasking and delivery time lines, but as we're processing more and more AI, we're doing that in real-time. So imagine we're interrogating this imagery and looking for objects and activities across a lot of things in parallel. So -- but we see it as really a core part of our offering and it's what customers are really looking for. Christopher Quilty: Got it. And maybe if I can, a final question. I know you don't do backlog breakdown, but I'm going to ask you a question on pipeline breakdown. Can you just give us a general sense when you talk about your business pipeline, either where you're currently seeing the largest area of pipeline or alternatively, where you're seeing the greatest growth in pipeline opportunity? Brian O’Toole: I think proportionately, we're seeing growth in all 3 aspects of our business. We're seeing growth in the pipeline around our space-based intelligence and AI services as you're seeing that translate into new contract wins. I already talked about the Mission Solutions pipeline as the demand for sovereign is increasing and we're seeing an acceleration of those types of programs. And we're also seeing a lot of interest in the advanced technology programs. As you know, Chris, as you know as well as anybody, space is a long game. And so customers are understanding that it's not only about what you have now, but where this is going to be in the future in the next 3 to 5 years. So we're seeing a step-up in that part of it as well. And we see that as a key part of our strategy is leveraging those investments and then translating that into the innovation and a leadership position in our space portfolio. So we're seeing growth across all 3 aspects of the sales pipeline. Operator: Your next question comes from the line of Scott Buck with Titan Partners. Scott Buck: I think most of my questions have been answered, but just one. Brian, as demand for sovereign increases, are you seeing more [Technical Difficulty]. Henry Dubois: I'm sorry, Scott, can you repeat that? Scott Buck: Yes, yes, sure. As demand for sovereign increases, are you seeing more competition for these opportunities? Brian O’Toole: I think, yes, there are a lot of -- there are -- there is increasing competition, but they're from a number of companies that have really not demonstrated proven operational performance. And as I mentioned in my remarks, having a capability like Gen-3 that is delivering the quality of 35-centimeter imaging at the level of performance that we're seeing -- and then having that on orbit and proven and operational at the economics of that spacecraft is a really compelling proposition for customers. As you know, these types of customers aren't going to risk their long-term road maps on unproven space capability. And so we feel like we have a very good advantage there. Gen-3 worked right out of the box and it has been exceeding expectations and that is giving customers a lot of confidence in our ability to support their long-term programs. So we feel we're really well positioned. There are not -- Gen-3 is a best-in-class capability and we're seeing that in the opportunities that are coming at us. Operator: Your final question comes from the line of Preston Graham with Stonegate. Preston Graham: Preston sitting in for Dave. You touched in the prepared remarks on land and expand. And so I guess for customers and pilot programs for Gen-3, are most using the broader full analytics suite from the beginning? Or do they typically start with imagery and then expand into analytics over time? Brian O’Toole: Yes, I think the way you have to think about it is they have access to a platform and that platform has a lot of different capability that they can tap into. And so they can task imagery from Gen-2 and Gen-3 satellites. They can also, as part of that tasking operation, request different types of AI-enabled analytics as part of the natural workflows. So what we typically see is customers start with the basic operations, which is a dynamic tasking. And then as they integrate that, then they start adding the AI analytics as part of the service. So I think it's an important comment in that it's a full service offering that we have through the platform. And again, that's not typical in the market. So that's another factor of what's driving the increase in our demand and the customer traction. Preston Graham: Got it. So you wouldn't even say it's not like 35-centimeter, the quality of the imagery is the main driver. It's the platform, it's the whole suite. It's all of it. Brian O’Toole: It's all of it. 35-centimeter is an important aspect because very high resolution matters. The more resolution you have, the better insights you get from the imagery, but also the level of analytics you can extract with AI goes up as well. So -- but I'll also say timeliness matters and time diverse collection throughout the day matters as well. So it's a combination of all those things. And keep in mind, just a few years ago, this went from really commercial being mapping capabilities. So now we're in dynamic monitoring with real-time intelligence from space. So it's a major paradigm shift around our purpose-built capability. Preston Graham: Understood. And then maybe just one final one. You've talked about in the past kind of vertical integration gives you better visibility into production and deployment. Are there any kind of current supply chain constraints that could impact Gen-3 production or launch timing or still feeling good about the road map? Brian O’Toole: As I said, we're on track. We did bring LeoStella into the company over a year ago now to improve our visibility in the supply chain and streamline production operations. That's going very well. We have ordered long lead supply components so that we can maintain a regular cadence of production of Gen-3. And through that cadence of production, we can use those satellites to expand our commercial constellation or accelerate deliveries on Mission Solutions contracts, which is a competitive advantage in the market. So the vertical integration we've achieved is paying off and you're going to see that scale as we move throughout the year and into next year. Operator: There are no further questions at this time. This concludes today's call. Thank you all for attending. You may now disconnect.
Operator: Good day, and thank you for standing by, and welcome to the Ispire Technology Q3 2026 Earnings Conference Call. [Operator Instructions] Please note that today's event is being recorded. I would now like to turn the conference over to James Carbonara with Hayden Investor Relations. Please go ahead. James Carbonara: Good afternoon, and welcome to Ispire Technology's fiscal third quarter 2026 earnings conference call. Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact in its announcement are forward-looking statements. Forward-looking statements are based on estimates and assumptions made by the company in terms of its experience and its perception of historical trends, current conditions, and expected future developments as well as other factors that the company believes are relevant. These forward-looking statements involve known and unknown uncertainties, and many factors could cause the company's actual results or performance to differ materially from those expressed or implied by the forward-looking statements. Further information regarding this and other risk factors are included in the company's filings with the SEC. The company undertakes no obligation to update forward-looking statements to reflect subsequent or current events or circumstances or changes in expectations, except as may be required by law. I will now turn the call over to Michael Wang, Co-Chief Executive Officer of Ispire Technology. Michael, you may begin. Michael Wang: Thank you, operator, and thank you all for joining us. This quarter marked a turning point for Ispire. Our business has stabilized. Our operating model is sharper and more disciplined, and we ended the quarter with $18 million in cash, up $468,000 sequentially. This sequential cash growth is one of the clearest signs of progress in the quarter. It demonstrates the improving financial control and a more focused operating posture and reinforces our confidence in becoming cash flow positive in the second half of this calendar year 2026. The transition we set out to make is behind us. Now we are executing against a phased growth roadmap, multiple catalysts, each tied to billion-dollar markets where we have clear competitive advantages. The first and most immediate of these is Malaysia. Our Malaysia manufacturing platform is live today, and we believe this is one of the most strategically important developments in the company's history. In addition, Malaysia provides us with an estimated 25% tariff advantage over China, giving us both economic and strategic leverage as we pursue opportunities in the $73 billion global vape market. This is both a manufacturing milestone and a structural advantage that we believe can support margin improvement, customer acquisition, and long-term market relevance. Second, plans are underway to launch our Vapor ODM initiative in July. This initiative will initially serve small and mid-sized brands with larger brand opportunities targeted for 2027. We see this as another practical commercialization pathway that can convert our manufacturing, design, and regulatory capabilities into higher-value customer relationships. Beyond these near-term drivers, we continue to build long-duration optionality through differentiated technology. Through IKE Tech, we believe our Age-Gating platform has the potential to help unlock approximately $50 billion to $70 billion U.S. flavored vape market, a market that remains effectively inaccessible today under the current framework. In parallel, our G-Mesh Glass Technology is growing interest in a $24 billion plus legal global market, including licensing discussions with major tobacco participants. These are proprietary assets that could materially expand our strategic and financial opportunities beginning in 2027 and beyond. The accomplishments we achieved during the fiscal third quarter are clear. We strengthened liquidity, improved operating discipline, and advanced the roadmap with multiple high-value catalysts. We believe that combination gives Ispire a stronger foundation for both profitability and the long-term shareholder value creation as we move forward. I will now turn the call over to Jie for a more detailed review of our financial results. Jie? Jie Yu: Thank you, Michael. For the fiscal third quarter ended March 31, 2026, Ispire reported revenue of $18.7 million compared with $26.2 million in the third quarter of fiscal 2025 and $20.3 million in the prior quarter. The modest sequential decline primarily reflected seasonal factory downtime associated with Chinese New Year and represents the most resilient second to third quarter performance pattern in our history. Gross profit for the quarter was $2 million and gross margin was 10.7%. Importantly, gross profit was impacted by approximately $2.2 million of one-time product returns from legacy cannabis customer with whom we have ceased doing business. We view those returns as part of final cleanup associated with our strategic repositioning, not representative of the normalized earnings profile of the go-forward business. In that sense, we view this quarter as one in which reported margin observed a legacy headwind, while the underlying business mix continues moving in an improved direction. On the cost side, we continue to make meaningful progress. Total operating expenses, excluding credit loss were $5.9 million, down 36% year-over-year from $9.3 million, and down 3.7% sequentially from $6.1 million in the December quarter. This performance reflects the impact of sustained cost discipline and a more focused operating structure. It also reinforced our belief that profitability is increasing a matter of near-term execution and scale. Credit loss in the quarter was $5.6 million, down roughly $500,000 year-over-year. This improvement is another indication that the financial cleanup tied to legacy activity is moving in the right direction. And we are committed to continued discipline around receivables and working capital management. Net loss for the quarter was $9.5 million compared with $10.9 million in the year ago period and $6.6 million in the prior quarter. While the quarter still reflects transition-related pressure, the broader trend is encouraging. We have materially reduced our cost base while positioning the company for higher quality revenue streams and better operating leverage over time. We ended the quarter with $18 million in cash, an increase of approximately $468,000 sequentially. This sequential cash growth is a meaningful achievement in the context of an ongoing repositioning. It strengthens our balance sheet, support our near-term growth investments, and underpin our confidence in reaching cash flow positive performance in the second half of this calendar year 2026. From a financial perspective, the foundation for improved profitability has been built. The company is leaner, more disciplined, and better aligned with high-value growth markets. I will now turn the call back to Michael. Michael Wang: Thank you. This quarter marks the beginning of a new phase for Ispire. The transition in our business reflects reduced exposure to low-quality revenue and is now about converting that reset into a stronger earnings model, a stronger cash profile, and a stronger strategic position in global nicotine and compliance technology markets. Our priorities are clear. First, we are focused on profitability and the path to becoming cash flow positive in the second half of this calendar year 2026. We intend to build on the momentum we have established this quarter through operating discipline, working capital management and the ramp of new revenue catalysts. Second, we are focused on winning from a position of strategic advantage. Our licensed manufacturing presence in Malaysia gives us a highly differentiated foothold in a critical geography with regulatory exclusivity and tariff advantages that we believe can translate into both commercial and financial benefits over time. Malaysia is a platform for expansion. And finally, we are building a company with multiple avenues for value creation, near-term scale commercialization through Vapor ODM, and longer-term upside through Age-Gating and G-Mesh. Together, these initiatives create a diversified roadmap that we believe is unusual in our industry and compelling from an investor perspective. Thank you for your time and continued support. Operator, please open the line for questions. Operator: [Operator Instructions] And today's first question comes from Nick Anderson with ROTH Capital Partners. Nicholas Anderson: Congrats on the quarter. First for me, just on the vape news and the recent flavored approval, there was discussion around the digital leash software, which maybe was the reason the FDA viewed that application favorably. I guess 2 questions off that. Do you believe proximity-based restrictions will be the path the FDA takes? And if so, do you have the capability to incorporate that tech into your -- do you have the ability to incorporate that into your tech if you don't have it already? Michael Wang: Nick, thank you. The first part of the question, actually, I will go straight to the second part. Yes, we do have that built into our solution. And from day 1, that was the key differentiation between our technology and other solutions out there. So more importantly, our platform is now moving out of the old app model more into a platform model. So this, again, reinforced the continuous authentication capabilities. And more importantly, because it's a platform, we would allow for brands to customize and set their own, I guess, performance parameter, you can say, really brand -- from brand to brand, we provide that capability because we also want to make sure brands in dealing with different regulations across the world, they can set the parameters differently country by country depending on regulations, too. So the simple answer is, yes, we have the continuous authentication capability, and it's in our solution. And the advantage really is, so many solutions out there, especially solutions developed years ago tend to be either having the device turned on after initial age verification and then stay on forever, which is, of course, highly undesirable from a regulatory point of view or they would have a periodic reauthentication or verification. That also creates gaps where potential misuse of the device could happen. So that's why from day 1, our solution was continuous authentication and that proved to be very important to regulators, not only with the FDA, but outside the U.S. as well. Nick, I hope I answered your question. Nicholas Anderson: Yes, that's perfect and very encouraging. Second for me, just on partnerships. This PMTA announcement also validated Age-Gating positioning and getting flavors to market. I know this is maybe too early, but what have you seen with discussions with potential partners in terms of potentially accelerating off of this approval? What has changed in the last few days in terms of the clients you're talking to? Michael Wang: You're right. Indeed, in the last 48 hours, up to 72 hours, the ground was moving per se. So that's really encouraging to us. President Trump's pressure on the FDA, obviously, went a long way for the industry. And the immediate approval of the 4 additional SKUs for glass sent a strong signal to the industry. So I think all the key players in the industry are familiar with the pros and cons of different solutions. Collectively, we have shared consensus that our solution is most advanced versus other technologies. So with the news over the last couple of days, certainly, we got accelerated existing conversations with brands. In a couple of situations we actually have even moved one step further discussing using our technology in some of their existing PMTAs through a so-called supplemental PMTA to accelerate the approval of their flavored products. So it's clear the industry recognize the flood gate is opening and Age-Gating is the only way to get flavored approval. And lastly, with everybody's understanding for our solution being far ahead of competition. So we are absolutely getting -- I would say, yesterday, put it this way, I worked for 17 hours. That's much longer than my typical day of 12 hours. So it says a lot about the effort we put into entertaining those conversations. Nicholas Anderson: That's great to hear. If I could squeeze just one more in on the state-by-state structures. With regulators becoming more constructive around vape, how do you anticipate states will respond? Several markets still have banned flavors, some have banned foreign imports. How do you see the state landscape changing as potentially more flavors come to market, in the legal market? Michael Wang: I think from a flavor ban point of view, those, I think, 5, 6 states literally are aligned with FDA's flavor ban. So they are just reinforcing these bans accordingly. So from that point of view, there is consistency. I certainly hope with FDA feeling comfortable with Age-Gating Technology and start approving flavors, those states would align as well, would support approved flavors. But of course, we all know the general flavor ban in place right now is really trying to minimize the impact of black market from selling devices to underaged users. So that was a real goal by those states. So I think from that point of view, there is a perfect alignment with the FDA. I certainly hope the state would follow FDA's lead in terms of supporting approved flavors. But regarding other state-by-state situation, Texas, for example, is driving toward banning China-made vaping devices. So that is absolutely supporting our strategy of producing our product in Malaysia. So I think that's a plus for us. But some other state-by-state restrictions, I think, involved in probably banning disposables. We all know disposables are not environmentally friendly approach to vaping. So I think the industry is moving further, further into pod systems versus disposable. And California, I think, as we know, ban online sales to further protect consumers. So I don't think that is going to change. That is the right policy because online sales is so hard to regulate and verify, certify. But ultimately, the true solution in protecting under-aged consumers or people and to protect adult consumers from using risky dangerous product is by FDA approving flavored devices with age-gating built in. So I think I'm happy for the industry, knowing to us devices were approved, and this is a new beginning for the industry. I'm happy for consumers. And certainly, this is a major win for the regulators as well. Instead of doing nothing for flavored products, finally, this is the right thing to do, using technology here to solve the problem. Nick, that's my answer. Nicholas Anderson: Congrats. Operator: And this concludes today's question-and-answer session. I would now like to turn the conference back over to Michael Wang for any closing remarks. Michael Wang: Thank you, operator. Obviously, this quarter is a low quarter in terms of revenue for us, but it's not a surprise. Q3 has always been a low quarter due to the Chinese New Year shutdown of the factories. But generally, from Q2 to Q3, we saw over 30% drop in business. For this time, it's only 8% drop. That's really, as Jie indicated, the lowest drop in history. So -- but I do believe from top line and bottom line point of view, Q3 was a low point. And we feel very strongly, as Jie stated, our foundation is set solidly. We have a lot of work to do, certainly to prove to investors that we're over the hump and we are now on an upward trajectory. So I look forward to sharing more performance and developments with investors in the coming months. Certainly, we are here to show what we can accomplish this current quarter and the September quarter. I hope there will be a trend to regain some of the investors' trust and confidence, and we'll never look back again. So thanks again to everybody on today's call. This concludes it all. Thank you. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the GoodRx First Quarter 2026 Earnings Call. As a reminder, today's conference call is being recorded. I would now like to introduce your host for today's call, Aubrey Reynolds, Director of Investor Relations. Ms. Reynolds, you may begin. Aubrey Reynolds: Thank you, operator. Good morning, everyone, and welcome to GoodRx' earnings conference call for the first quarter of 2026. Joining me today are Wendy Barnes, our Chief Executive Officer, and Chris McGinnis, our Chief Financial Officer. Before we begin, I'd like to remind everyone that this call will contain forward-looking statements. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including, without limitation, statements regarding management's plans, strategies, goals, and objectives, our market opportunity, and our anticipated financial performance. Underlying trends in our business and industry, including ongoing changes in the pharmacy ecosystem, our value proposition, our long-term growth prospects, our direct and hybrid contracting approach, collaborations and partnerships with third parties, including our point-of-sale cash programs and our integrated savings program, our e-commerce strategy, and our capital allocation priorities. These statements are neither promises nor guarantees but involve known and unknown risks, uncertainties, and other important factors. These factors, including the factors discussed in the Risk Factors section of our annual report on Form 10-K for the year ended December 31, 2025, and our other filings with the Securities and Exchange Commission, could cause actual results, performance, or achievements to differ materially from those expressed or implied by the forward-looking statements made on this call. Any such forward-looking statements represent management's estimates as of the date of this call, and we disclaim any obligation to update these statements even if subsequent events cause our views to change. In addition, we will be referencing certain non-GAAP metrics in today's remarks. We have reconciled each non-GAAP metric to the nearest GAAP metric in the company's earnings press release, which can be found on the overview page of our Investor Relations website, @investors.goodRx.com. I'd also like to remind everyone that a replay of this call will become available there shortly as well. With that, I'll turn it over to Wendy. Wendy Barnes: Thank you, Aubrey, and thank you to everyone for joining us today. We delivered a strong first quarter with performance driven by continued momentum across our strategic growth priorities. We are seeing strength in revenue, disciplined execution on profitability, and healthy engagement across the platform. Overall, we feel confident these results validate that the strategy we laid out last quarter is working and that we are building a sustainable value proposition designed to deliver resilient long-term growth. That momentum is coming from the parts of the business we've been investing in. Pharma Direct continues to scale, supported by strong demand for manufacturer-sponsored pricing programs and continued momentum in GLP-1 access. Our subscription offerings, led by GoodRx for weight loss, are growing and driving deeper consumer engagement. Rx Marketplace is delivering performance in line with internal expectations, supported by the continued expansion of our e-commerce footprint and the strength of our direct contracting model. At the same time, the broader health care environment is evolving in ways that align with our strategy and create meaningful opportunities for us to capture additional value. Coverage gaps are widening, out-of-pocket costs remain elevated, more Americans are finding themselves uninsured, and consumers are demanding greater transparency in how medications are priced and accessed. As a result, affordability is becoming a more central factor earlier in the patient journey, with consumers and providers actively evaluating cost before prescribing and filling, pharmaceutical manufacturers accelerating direct-to-consumer strategies, employers looking for new ways to support high-cost therapies, and pharmacies adapting to more transparent, digitally driven models of fulfillment. As these dynamics evolve, how affordability is presented and experienced by consumers is becoming increasingly important, shaping not just awareness, but whether patients ultimately move forward with treatment. GoodRx is well-positioned to respond to these changes. Over the past several years, we have been focused on evolving our platform from an affordability destination into a true access infrastructure. We have built a digital storefront where consumers can easily understand pricing across generics and brands and access those options through a more integrated experience. At the same time, we have developed the underlying capabilities that allow manufacturers to leverage our platform to deliver self-pay programs directly to consumers at scale. This is expanding the role GoodRx plays in the prescription journey and positioning us to be at the center of how medications are evaluated, accessed, and filled. With that, I'll walk through our business updates, starting with Pharma Direct. GoodRx Pharma Direct continues to be a key growth engine for the business. In Q1, Pharma Direct saw 82% growth year-over-year, reflecting the continued expansion of manufacturer-sponsored pricing programs on our platform. We now have more than 125 self-pay programs live, reinforcing the growing role GoodRx plays in enabling modern pharmaceutical access. A key driver of momentum in the quarter was our continued support of highly anticipated GLP-1 launches and expansions. Since the start of the year, we have helped enable access to Ozempic Pill, Wegovy HD, Wegovy Pill, Boundeo, and Zepbound KwikPen. To provide a sense of the scale we are driving, a third-party source indicates that we accounted for approximately 1/3 of all Wegovy Pill transactions in the first 2 months post-launch. This reinforces the increasingly central role GoodRx plays in helping manufacturers bring therapies directly to the patients who need them with transparent pricing and broad pharmacy access from day 1. Beyond GLP-1s, we are continuing to expand Pharma Direct across therapeutic areas and program types. In the quarter, we announced a collaboration with Viatris to support savings availability for 17 of its established brand medications. We also introduced significant discounts from Pfizer on more than 30 of its essential medications, spanning women's health, migraine, arthritis, and rare disease, made available through a dedicated Pfizer-branded storefront on GoodRx and on TrumpRx as part of our integration. As these programs scale, our focus is shifting from launch to how affordability is surfaced and discovered by consumers. In response, we are developing new ways for manufacturers to engage patients on GoodRx. Branded storefronts are a key example, providing a simple, trusted entry point for consumers. Turning to explore a manufacturer's full portfolio of savings in one place. And when manufacturers leverage GoodRx as a channel, those programs are available across our nationwide pharmacy network, supporting broad consumer choice and convenient access. We believe this model represents a more cohesive and consumer-friendly way to present affordability offerings at scale. We are also seeing encouraging traction from TrumpRx, where GoodRx enables pricing for many of the brands available on the platform. Early data shows strong demand concentrated in GLP-1 therapies and, importantly, the volume appears to be incremental, expanding access to new patients rather than shifting existing demand. That is a meaningful signal for manufacturers and reinforces the value of transparent pricing delivered through consumer channels. Overall, Pharma Direct is evolving GoodRx beyond the pricing solution into a broader consumer access platform for pharmaceutical manufacturers, enabling them to reach patients directly, convert clinically appropriate demand, and deliver pricing seamlessly at the pharmacy counter. Now diving into the Rx marketplace. In Q1, Rx Marketplace delivered steady prescription transaction performance that was in line with internal expectations, supported by continued operational execution across the business. Monthly active consumers were flat quarter-over-quarter, reinforcing consistent engagement on the platform. Following the significant expansion of our e-commerce retail network late last year, Q1 performance demonstrated the scalability of our model, with both order volume and total claims more than doubling quarter-over-quarter. As more consumers seek convenient digital ways to access medication, expanding our e-commerce capabilities remains an important part of improving the GoodRx experience and capturing a greater share of the prescription journey. At the same time, we continue to make progress on strategic initiatives designed to strengthen the long-term economics of the marketplace. This includes advancing direct retailer agreements. We have direct contracts in place with 9 of our top 10 retail pharmacies nationwide, and are enhancing our pricing capabilities, including partnerships that enable pharma direct net pricing claims to be delivered directly at the pharmacy counter. These initiatives improve the consumer experience, create operational efficiencies for retailers, and support healthier marketplace economics over time. Turning to subscriptions, which is a key growth priority for the business. In Q1, our subscription offerings continued to scale, and the number of subscription plans returned to year-over-year growth, driven by purposeful investment, growing consumer adoption, and continued expansion across our condition-specific programs. We are seeing increasing engagement as more consumers choose GoodRx, not just for savings, but as a more integrated way to access and manage their care. GoodRx for weight loss remains the primary driver of momentum within this category. Since our last call, we expanded the platform to support all available FDA-approved GLP-1 therapies, with the Wegovy pill performing particularly well since launching at the start of the year. More broadly, our weight loss offering continues to demonstrate the value of the integrated experience we are building. By combining clinical care, transparent self-pay pricing, and broad pharmacy availability, we are creating a seamless path for evaluation to therapy initiation, helping consumers easily start and stay on treatment. Beyond weight loss, our ED and hair loss offerings continue to contribute to growth while also demonstrating the broader applicability of our subscription model across additional conditions. Overall, we believe subscriptions are becoming a more meaningful part of how consumers engage with GoodRx and are strengthening our ability to build deeper, more recurring consumer relationships over time. Combined with our Pharma Direct solutions, it also creates a strong foundation to extend our model into the employer channel. Through GoodRx Employer Direct, self-insured employers can offer manufacturer-sponsored pricing to their employee populations and choose to directly subsidize the amount with employer contributions layered seamlessly on top of the manufacturer's approved price. This creates a clear, reduced out-of-pocket cost for employees while giving employers a more flexible and predictable way to support high-impact therapies. We are already seeing this model in practice through our work with Eli Lilly and Company on Zepbound KwikPens, which enables employers to subsidize Lilly's $449 price across all doses. This is a clear example of how pharma direct pricing can be extended into the employer channel without requiring changes to the core benefit structure. We are also extending our subscription offering into this channel. Employers can offer a customized version of GoodRx for weight loss, integrating clinical care, transparent pricing on FDA-approved therapies, and broad pharmacy availability into a single streamlined experience. This approach allows employers to address coverage gaps without redesigning their core pharmacy benefit while delivering meaningful savings and improved access for employees. I will now turn the call over to Chris to discuss Q1 results. Christopher McGinnis: Thank you, Wendy, and good morning, everyone. For the first quarter, we delivered revenue of $194 million and adjusted EBITDA of $58.3 million, representing an adjusted EBITDA margin of 30%. Looking at revenue in more detail, prescription transactions revenue was $113.7 million, down 24% year-over-year, reflecting the continued lapping impacts from 2025 as well as the unit economics pressure we previously discussed. Importantly, volume trends stabilized with monthly active consumers flat sequentially at $5.3 million. Pharma Direct revenue grew to $52.2 million, up 82% year-over-year, driven by strong momentum with manufacturer partnerships and continued expansion of our self-pay pricing, specifically with the successful launch of the Wegovy pill. Pharma Direct delivered consistent sequential growth throughout 2025, which continued into the first quarter of 2026, supporting the year-over-year increase and reflecting the ongoing ramp of our consumer direct pricing offering. Subscription revenue increased 16% year-over-year to $24.4 million, supported by the ongoing adoption of our condition-specific offerings. For the full year 2026, we are raising our guidance and now expect revenue to be in the range of $765 million to $785 million and adjusted EBITDA to be at least $235 million. While we expect continued pressure on prescription transactions revenue in 2026, our increase in guidance is driven primarily by stronger-than-expected performance in Pharma Direct as we continue to build momentum in our consumer direct pricing offering. Consequently, we now expect Pharma Direct revenue to grow over 50% year-over-year. Subscription revenue is also expected to build throughout the year as our condition-specific programs continue to scale. With that, I will turn the call back over to Wendy. Wendy Barnes: Thank you, Chris. Q1 was defined by execution, but more importantly, it was a quarter where we saw a clear validation of the strategy we're executing and the sustainable value proposition, we believe it creates. We delivered strong performance in Pharma Direct, accelerated growth in subscriptions, and stable engagement in the Rx marketplace, reflecting progress against the priorities we outlined coming into the year. Across the business, we are making it easier for consumers to access medications and navigate the prescription journey while creating value for manufacturers, employers, and pharmacy partners. As the market continues to evolve, we believe this positions GoodRx to play a more central role in how patients evaluate affordability and access to treatment. That momentum gives us confidence in the opportunity ahead, and we remain focused on disciplined execution as we continue to scale the business and drive durable long-term growth. With that, I'll turn the call over to the operator for questions. Operator: [Operator Instructions] Our first question comes from the line of Michael Cherny of Leerink Partners. Michael Cherny: Maybe just one quick one first for Chris, so I can understand the change in guidance. It seems that Pharma Direct has gone up, I think this implied subscription has gone up. What is the change in view, if any, on the PTR revenue base that's embedded in the new guidance? Christopher McGinnis: Yes. Thank you, Michael, for the question. First of all, prescription transaction revenue met our internal expectations. I know we didn't guide specifically to it, but I think when you look at the MAC sequentially, it was slightly up-rounded to flat, but slightly up quarter-over-quarter, and then the reflected unit economics that we talked about, I think it was largely in line. Relative to the full-year guidance, I think being down in this 24% range is probably in line with how we thought about it. I would think about the year-over-year full year as about the same. And then obviously, we're focused on the pharma Direct and the building momentum in our condition-specific subscriptions offering as well. Michael Cherny: And so that leads me to my, I guess, follow-up second question is on that subscription side. It's great to see the condition-specific growth playing out. We all know this to be a highly competitive market, with both established and fly-by-night players. As you think about what's driving your improvement in the subscription base, what do you think it is that GoodRx is doing better, differently, that's allowing you to drive that improved stability? Wendy Barnes: Michael, it's Wendy. I'll start, and Chris, by all means, chime in if you've got additional thoughts. Look, I think it's a combination of a couple of things. One, our brand recognition and consumer engagement have long positioned us as really the #1 digital drug pricing platform. So, that top-of-funnel connection we already have with consumers is, in fact, strong. And when you tie that and point that back to conversations with pharma, where they look at the connectivity we have with consumers, that absolutely drives an engagement on the brand deals that they want to strike with us, which, of course, then feeds into the success of those subscription offerings. Yes, you've got to have exceptional service in those programs, but you've also got to have competitive pricing on the drugs that those patients are seeking, in addition to potentially telemedicine. I would also say our connectivity to a broad and unbiased retail network is a competitive advantage. We are not purposely launching these programs where you've got to use a specific home delivery provider. But I would footnote, we're happy to support home delivery or retail. At the end of the day, it's really about consumer choice. And so, when you think about those 3 elements, again, our connectivity on brand, NPS with prescribers, in addition to that vast retail network, we believe that is what gives us a competitive advantage and why we're finding success and also aligns to our reason for investing in the business when we originally outlined that thesis, I think, mid last year. Anything you'd add, Chris? Christopher McGinnis: Yes. I would say from a financial perspective, Michael, what I'm encouraged by is that we largely started to build momentum on the subscription offering without a lot of marketing dollars pushed in. If you look year-over-year, we're actually down a little bit from Q1 from a marketing spend perspective. So that is reflective, I think, of Wendy's point about the volume of consumers that are visiting our platform organically, and we got a lot of tailwinds from that. We're pushing marketing dollars. I expect to spend more dollars throughout the rest of the year on marketing and specifically towards our condition offerings. So, I think we're encouraged by the early momentum we're building, and I think we'll continue to invest dollars there throughout the year. Operator: Our next question comes from the line of Jailendra Singh of Truist. Payton Engdahl: This is Payton Engdahl on for Jailendra. I wanted to hit on the Surescripts' partnership you guys announced. It's been about like 5 months since that partnership was announced. I was wondering if you could provide just an update on that, and also if that had led to any type of outperformance in the quarter. Wendy Barnes: Yes, I would say nothing material at this point. We remain partnered but continuing to figure out how best to deploy that offering. Not a lot to comment on at this point, but we appreciate the question. Christopher McGinnis: Yes. From a financial perspective, nothing material and really nothing built into the guide on that either. Payton Engdahl: And then I also just want to hit really quickly on the ISP. You guys noted some volume reduction in one of your integrated savings programs. Just any color on that, that you could provide. And if this was the same ISP partner that you guys saw last year as well, the same issue. So any color would be helpful. Christopher McGinnis: Yes. Thanks for the question. And for clarification, there's no volume reduction in 2026. Anything we've referenced is a volume reduction associated with 2025 in the past. So, we are only referencing it as a comp relative to the lapping impact, and the year-over-year impact from the volume that was included in '25 is not recurring this year. But so far this year, the ISP programs are performing consistently with our expectations, and the volume looks relatively stable. Operator: Our next question comes from the line of John Ransom of Raymond James. John Ransom: Just a couple for me. This is a little tangential to what you do, but some other players who focus on manufacturers, particularly on the software side, have noticed a pause in their marketing spend, Novo being called out specifically. What behavior, I mean obviously, your numbers didn't show any of that, but would you call out any changes in behavior as you're having dialogue with these folks in terms of how they're thinking about marketing spend and go-to-market, that either is a good guy or a bad guy? Wendy Barnes: John, good to hear from you. No, we're actually not seeing any impact. I would say quite the opposite. I mean, having recently returned from Asembia, not that we're not engaged continually with these same partners, but obviously, that's a forum where you get to see everybody in the span of about 48 hours. Feedback continues to be leaning in even more so, I would say, I think largely as a result of the success we've had to date. Laura, I believe, joined us for our last call, where she indicated that we're seeing success even earlier in the year than we had previously, and that a lot of that revenue was pulled forward that we typically book. So far, we are demonstrating exceptional ROI for the dollars that pharma is investing with us. And I'll give the regulatory environment a little bit of credit here, too, to suggest that the push on affordability and direct-to-patient programs coming out of various sources is continuing to help fuel pharma's motivation to do deals and/or expand with us. Christopher McGinnis: John, I would say the first of all, the one thing to note is that our point-of-sale buydown programs are not a part of those marketing budgets. So, that's not impacted in terms of what you may be seeing in the marketplace. And the only dynamic I think that we really noted is Laura, who joined us last quarter, who's the President of our Pharma Direct businesses, noted that the number of deals was down a little bit, but the dollar amount of those deals was higher. So net-net, we're up across the board across Pharma Direct. So we're seeing positive contribution from all aspects of that line of business. John Ransom: And then just going back to the old core business, Rx Marketplace. I know it's been a slog, but are you implying at least stabilization in terms of transactions and monthly MAC and transactions subscriptions? Do we look for that to stabilize and flatten? Or is there continued longer-term pressure there? Christopher McGinnis: I think it's a great question, John. I appreciate it. So, I do believe that our MAC will, I would call it, flatten. If you look back to last year, certainly with the impacts from the Rite Aid store closures and the ISP programs, other things we noted, we saw sequential declines. As I noted in my prepared remarks, we're actually slightly up. It rounds to flat quarter-over-quarter. We've modeled in some continued erosion in MAC, but much more flatlined relative to last year's trajectory. So, I do expect that to stay a little bit under pressure. But look, the start to the year was strong. It built some momentum, but I think we're taking a very conservative approach for the rest of the year. John Ransom: I mean, we look at like CVS, for example, and clearly, they're on offense, taking share. I don't know what's going on with Walgreens anymore, but sorry, -- my dog is going crazy. But if the retail marketplace continues to concentrate to the winners, is that neutral, flat, good for GoodRx, or is it not? Wendy Barnes: For clarification, John, do you mean primarily just cash customers that CVS is attracting? I want to understand what you mean by the CVS comment or other retailers. because, of course, we don't work with all of them. John Ransom: What I mean is that the stronger players in retail pharmacy are taking share from the weaker players. And so is that neutral positive to GoodRx or not? I mean, I know the loss of Rite Aid was a bad guy, but let's assume the retail market stabilizes and the strong get stronger. How do you view that in terms of your position in the market? Wendy Barnes: I mean, look, in general, I would say we work with all of the top players. I mean, full disclosure, of course, we do have slightly different economics depending upon who the retail player is. But all things in the aggregate, all of our retailer partners are quite happy with the profitability they're experiencing in partnership with us. Again, you heard us talk through historically how we are prioritizing margin accretion to retailers with the direct deals that we've been striking. So, having said that, we, on the whole, in the aggregate, are somewhat indifferent to where our consumers choose to go. Again, not to disregard the fact that, of course, we do have slightly different economics, but not materially so. Rite Aid was the outlier at the time, which, of course, was why the impact was, I think, so significant last year. But beyond that, we're focused on striking fair deals with each such that we're not in that situation again, whereby any type of shift of our consumer set to a different retailer should things end up not going well with the retailer shouldn't provide such an outsized impact to us again. Operator: Our next question comes from the line of Charles Rhyee of TD Cowen. Charles Rhyee: Chris, maybe I can ask this question for you. So obviously, we have the manufacturer-direct bucket, which is doing very well. We have the older PTR. And obviously, it's good to see that MAC is flattening out. Subscriptions are growing. If we think about all those buckets together, and maybe think about what the total prescriptions processed by GoodRx were in the quarter? And what was that growth year-over-year? And is it may be better for us because I know we've all been very focused on MAC and PTR? But as the model shifts, is it better to look at what our total prescriptions are that we are touching and processing? And maybe if you can give us a sense for what that looks like and what growth has been, that would be helpful. Christopher McGinnis: Thanks, Charles. Appreciate the question. I think it's a fair question to ask about additional metrics that we might point to. We haven't disclosed the consolidated prescription transactions across the entire business. So, let us take that away and think through it a bit. But I think part of your underlying point to the question is that if our business model works correctly, there is some cannibalization of our core business into pharma Direct. And if you think about GLP-1s is a great example that last year, prior to the pharma-sponsored point-of-sale programs, retailers and consumers were paying full price, and that was clearly coming through our PTR line, and it had higher PTR per MAC, et cetera. If those same consumers are getting that same prescription through now a point-of-sale buydown program, it shows up on the pharma Direct line. So, there is interplay in terms of one side of our business cannibalizing the other, and that's actually preferred to us. It's a much longer-term, durable revenue stream for us. But I think the point of your question is the takeaway for us and let us think through that. Charles Rhyee: And that would be great in the future. But do you have a sense right now whether, if you looked at all the prescriptions that you touched, regardless of what bucket was in, would you say that we're seeing growth? Are we seeing up slightly, flat? Just curious, any commentary there? And then maybe one other would be a lot of other companies have called out weather impacting the first quarter, obviously, with a lot of the storms earlier in January and February. Just curious if that had any impact in the quarter? And if you could size that for us. Christopher McGinnis: Let me take your first one first. In terms of your first question, if you imply with our MAC count, which is largely driven by the prescription transactions revenue, that was flat, right? And pharma Direct is growing. So, I think the implied impact is that our total prescription service on a consolidated basis is up overall. In terms of weather impacts, I mean, the flu season was a little bit longer and later than we thought. We didn't see really… Wendy Barnes: I can take that question. I mean, I will say, look, we track volume by geography just like a large retailer does. And true to form, you're not wrong. Whenever there's a random storm, yes, on the whole, volumes dip, but you almost always see those recover in the following week. So follows a similar cycle to pharmacies, if you will, in that regard, because that, of course, is where our consumers, in fact, get billed. But usually, if a consumer is motivated to get a prescription, they'll just then push it into the following week if they were unable to do it based on whatever natural event took place. Operator: Our next question comes from the line of Steven Valiquette of Mizuho Securities. Steven Valiquette: I guess for me, I just have a couple of quick confirmatory questions around the accounting and revenue recognition on the subscription side. So just mathematically, the revenue per subscription is moving up from, call it, roughly $10 to $11. And I'm wandering around the GLP-1s. Are you just booking the $39 per month for the unlimited online care in the subscription revenue? Just want to confirm that first, and that's why maybe that's why that's moving up. I just want to get more color on that first. Christopher McGinnis: That is correct, Steven. Steven Valiquette: And then, as far as some of the other companies around booking the drug revenue, some of your peers are booking the compounded drug revenue on their P&L, but not the branded drug revenue. So, I don't know if there's any clarification on that on your P&L one way or the other, and where that's showing up, if at all, but I just wanted to get just a quick confirmation on that as well. Christopher McGinnis: It's helpful. Thank you. So as I said, the $39 you referenced, which is a monthly subscription fee, is hitting the subscription line. To the extent it's going through our point-of-sale buy-down programs, you're seeing that portion of the revenue actually getting picked up in Pharma Direct. It does not get grossed up treatment the way you're suggesting others do it, especially like the compounders. We don't do any compounding. We only deal with the FDA-approved drugs that are branded drugs on the Pharma Direct side. So we don't have any gross-up of the drugs included in our revenue. Operator: Our next question comes from the line of Brian Tanquila of Jefferies. Brian Tanquilut: So, maybe just to follow up on some of these discussions. When we think about the pull forward in Pharma Direct that you spoke about earlier, should we still expect sequential growth going forward this year in that? And then, can you just give some more color on the growth in that space? Like when you think about or talk about the shift of claims and high cost branded from core to the Pharma Direct segment, like how much of this is actually affecting either line item? Christopher McGinnis: Thanks, Brian. Appreciate the question. The answer is yes. If you look at our guide of 50-plus percent growth and the $52 million we put in Q1, I think you would imply continue sequential growth throughout the rest of 2026 for Pharma Direct, and we have pretty strong conviction at 50-plus percent growth on Pharma Direct for the remainder of the year. Wendy Barnes: This is Wendy. I'll take the second half of your question. So, as we think about just a longer-term outlook and what does the runway looks like for Pharma Direct, look, in our ongoing conversations and partnerships with these same manufacturers, they truly are starting to view us as the best channel solution for engagements with patients. So that continues to bolster our confidence in the pipeline of opportunity, not just this year, but well into the out years. I mean, added to the wraparound regulatory environment, which would suggest there will be more motivation for manufacturers to strike direct-to-patient deals, no doubt, GLP-1s have been a significant component of the growth we've experienced this year. But to be clear, there are a number of other GLP-1 molecules that we'll be launching. And outside of GLP-1s, we've continued to see material growth in our pharma Direct business. So, that continues to give us confidence that we're going to continue to see this line item grow. Hence, our commentary on that being one of our key strategic growth drivers for the business. Operator: Our next question comes from the line of Allen Lutz of Bank of America. Allen Lutz: Wendy, at the top of the call, you talked about 1/3 of all Wegovy Pill transactions in the first 2 months coming through GoodRx. I mean, congratulations on that. That's really, really strong. Can you talk about the trajectory from launch to maybe the March exit rate or anything you're seeing early in April? How should we think about the contributions from that over the course of the quarter? And then how are you thinking about contributions from that through the remainder of the year? Wendy Barnes: Sure. Well, I'll start maybe more philosophically, just saying that this is just an exceptional example of what a brand launch with a cash strategy or point-of-sale buydown can do in the market. We have been partnering very closely with Novo on the timing, the PR tied to it, and the marketing elements. They, of course, owned their portion of what needed to happen, including embedding an EHR such that prescribers could see the doses of the pill to readily be able to write for it. They had gotten well ahead of ensuring that supply was available so that pharmacies could, in fact, dispense the same medication. And so all of those things tied together pointed to just an incredibly strong performance out of the gate. I will also say, I think there's something to be said for utilizing the same brand name that was used in their auto-injector. So, there was consumer familiarity with just the brand name, which we can discount if you want, but we do think it made a meaningful difference. And how that program has continued to perform. As we look into the future and how we're anticipating the performance of that drug, look, we don't see demand abating for GLP-1 therapies. And so for that reason, we continue to be pretty bullish on its performance, of course, even amidst other molecules launching, which, of course, will provide more consumer choice. And I think if the economics continue to hold the way most brands continue to launch, and then you end up with multisource brands, maybe pricing will come down further in the back half of the year. I mean, these prices for all of these programs continue to fluctuate, and we're keeping our finger on all of it such that we will be positioned to win both through the weight loss subscription program or for consumers who simply want to get their fill without utilizing the weight loss program. Allen Lutz: And then one for Chris. As we think about the composition of revenue at GoodRx, a little bit less emphasis on PTR, a little bit more emphasis on subscribers, and the Pharma Direct business. I guess, Chris, conceptually, as we think about where you're advertising and where you're spending marketing dollars, 2025 versus 2026, is there anything that's materially changing in terms of where those dollars are going? And would love to get a sense of if there are some of the early ones you've had there. Christopher McGinnis: Thanks, Allen. Appreciate the question. We have pivoted our marketing budgets to me, more directed at our condition-specific subscription offering. We believe that there continues to be a brand halo effect from that specific advertising. So in the past, where our marketing dollars were more generally brand, we are targeting the subscription offering much more heavily in 2026 comparatively. Operator: Our next question comes from the line of Craig Hettenbach of Morgan Stanley. Jialin Jin: This is Jialin on for Greg Henck. I just want to follow up on the comment that PTR is in the down 24% range. I know it's early but just wondering if you can share any thoughts on the trends beyond 2026. When you say like the lower unit economics in exchange for durability, is there like an expected timeline for when that process would bottom out? Christopher McGinnis: Thanks. I appreciate the question. In terms of down 24%, I do think Q1 is probably in the range of how we think about the year-over-year comp for 2026 relative to 2025. I think that when you think about macroeconomic trends, something we're watching closely with MAC being up sequentially, we've got early information, but obviously, we're dealing with 1 quarter, and we're thinking about how to think about that for the rest of the year. We know there's a change in the macroeconomic environment relative to 2025. You've got more people uninsured this year. You've got some underinsured. You've got Medicaid eligibility changes. You've got the subsidies for the ACA lives. So, there are a lot of factors that we're watching pretty closely to try to understand what's going to happen to the business over 2026 and beyond. But I think relative to like beyond 2026, we don't really have a lot of guidance for the longer term, but I think the business largely can flatten out throughout this year. We'll watch our MAC pretty closely. And then as we get to the back half, we can start to provide some more color around how we think about 2027. Operator: Our next question comes from the line of Louis Mario Higuera of Citi. Luismario Higuera: This is Luis on for Daniel. I know you described the TrumpRx platform as incremental to volume on a net basis, but can you give any details on what the economics of the partnership actually look like? And would it represent a meaningful revenue opportunity? Or is it more strategic positioning? Wendy Barnes: Thanks for the question. This is Wendy. Look, we have been overt in commenting that most of the volume we're seeing come through, to be clear, is largely GLP-1s coming out of TrumpRx, and there are, of course, a number of other drugs that we support on that same platform. But for now, our analysis would suggest, in fact, most of that volume is, in fact, incremental. There are new consumers on our platform who have previously not claimed with us. From an economic perspective, just as a reiteration, I think we may have talked about this previously, these are actually our direct deals with pharma. So, we do not have a contractual relationship with TrumpRx, nor does anyone else. It's just reflective of our pricing. And then in turn, when a consumer goes to choose said pricing, they're utilizing our same flow pricing economics that we have directly with the manufacturer. So there is no distinction in the economic model for us. It is our brand point-of-sale deal, no different than if someone had come to us distinct and separate from TrumpRx, if that's helpful. Operator: Our last question comes from the line of Maxi Ma of Deutsche Bank. Maxi Ma: This is Maxi on for George Hill. The GLP-1 space has become increasingly competitive with manufacturers, telehealth platforms, and pharmacies all building direct-to-consumer capabilities. Could you talk about how you differentiate your GLP-1 offering from others? Wendy Barnes: Sure. Happy to take that question and thank you for it. I think, similar to the question that may have been phrased a little differently earlier in the call, it largely has to do with where we sit in the ecosystem. So one, we have the benefit of really being the top brand recognition for consumers when it comes to looking for drug pricing, whether it's through web or app, so effectively our digital assets. We also have incredibly high NPS and brand recognition with prescribers, so they routinely use it in their workflow and in their conversations with patients. Not only do they check GoodRx for themselves, but we also have a product whereby there's their own provider portal where we will present pricing to them in their unique environment, in addition to just how consumers engage with the platform. Then, of course, you've got our connectivity to a really broad retail network. We do work with most retail pharmacies in the U.S. and some home delivery providers. And when you stack up all of those things and think about consumers engaging with us routinely already for checking their basket of drugs in combination with being able to choose where they get fulfillment, and/or if they want to utilize our subscription offering, to your point, that really is a key differentiator compared to these other programs that aren't tapping into a broad retail network. Sorry, did you have a follow-up there? Hopefully, that answers your question. It sounds like maybe you had a follow-up there, but we couldn't hear it if you did. Operator: Hearing no response. This does conclude the question-and-answer session. I'd like to thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the First Quarter 2026 Gogo Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jim Golden with Collected Strategies. Jim, go ahead. Jim Golden: Thank you, and good morning, everyone. Welcome to Gogo's First Quarter 2026 Earnings Conference Call. On the call today to discuss the company's results are Gogo's CEO, Chris Moore; and CFO, Zach Cotner. During the course of this call, Mr. Moore and Mr. Cotner may make forward-looking statements regarding future events and the future performance of the company. Participants are cautioned to consider the risk factors that could cause actual results to differ materially from those in the forward-looking statements on this call. Those risk factors are described in the earnings release filed this morning and in a more fully detailed note under Risk Factors filed in the company's annual report on 10-K and 10-Q and other documents that the company has filed with the SEC. In addition, please note that the date of this conference call is May 7, 2026. Any forward-looking statements made today are based on assumptions as of this date, and the company undertakes no obligation to update these statements as a result of more information or future events. During this call, Mr. Moore and Mr. Cotner will present both GAAP and non-GAAP financial measures. A reconciliation and explanation of adjustments and other considerations of the company's non-GAAP measures to the most comparable GAAP measures is available in the Gogo's first quarter earnings release. The call is being webcast and available at ir.gogoair.com. The earnings release is also available on the website. After management comments, Mr. Moore and Mr. Cotner will host a Q&A session with the financial community only. I'll now turn the call over to Mr. Moore. Christopher Moore: Thank you, and good morning. The defining theme of the first quarter has been the deliberate transition of our legacy base services in air-to-ground and global satellite services into our next-generation technology portfolio. Consistent with prior earnings calls, I will focus on the continued demonstratable progress made across the compelling new product portfolio. These include Gogo Galileo with two models, HDX and FDX, both of which are providing game-changing increases in capacity, functionality, speed and global consistency as well as our 5G rollout and our existing GEO offerings. We are making steady progress on shipments, installations and early activations across both 5G and Gogo Galileo. I will also highlight our recent fleet wins and long-term growth prospects from our military and government customer base. We believe these next-generation products are not only enhancing the value we deliver to existing customers, but also expanding our addressable market and creating a reoccurring revenue stream that sets the stage for free cash flow growth and long-term strategic value in the future. Let's start by reviewing Gogo Galileo, our global low earth orbit or LEO service in which we have two products, HDX and FDX and where we continue to see encouraging progress. HDX serves as our entry point LEO solution, purpose-built for smaller aircraft, while FDX extends that capability to mid- and large cabin aircraft with higher performance connectivity. And together, they position Galileo as a scalable full fleet solution spanning the breadth of our customer base globally. Our Q1 shipments were largely in line with what we projected. We shipped 92 units in the quarter, including 82 HDX and 10 FDX. This brings our total number of LEO terminals shipped to 410 units since launch and across 35 commercial supplemental type certificates or STCs. Our 35 STCs cover a total addressable market of approximately 7,000 aircraft. We have 14 additional STCs underway to be completed in the next few quarters, addressing another 1,500 aircraft for a total of 8,500 aircraft. Building on this progress, I want to highlight some significant fleet wins for our Gogo Galileo offering. VistaJet is rolling out Gogo Galileo across its fleet with approximately 100 aircraft currently in scope as part of the broader plan to equip more than 270 aircraft globally. Installations began in Europe and are now expanding into the U.S. with a steady cadence of roughly 1 aircraft every 9 days, supported by continued STC progress. Wheels Up, another significant fleet win is also rolling out Galileo across its 80-plus aircraft in coordination with its fleet modernization strategy. Finally, we plan to have fully rolled out the committed aircraft with NetJets Europe in the first half of 2026, which currently make up half of our Galileo units online and have also started installations with NetJets North America. We remain confident with our Galileo projections given the strong pipeline, which is demonstrated with the rollout at major fleet operators. We expect a great ramp of shipments as important installations at multiple OEMs are expected to start in the second half of the year with Galileo becoming a line fit option. Turning to our air-to-ground or ATG network. We are seeing significant momentum with our 5G rollout. Even though customers have been waiting a long time for 5G, we're seeing strong enthusiasm for the service. We sold an all-time record of 511 air-to-ground units this quarter, of which 52 were 5G, and we anticipate a very robust rollout throughout the rest of the year with units online ramping in late Q3 and Q4. We have a very robust total pipeline of over 500 units. In terms of our legacy products, we reported record C1 conversions of 254 in the first quarter. This momentum reflects a growing wave of customers upgrading to C1 to ensure a seamless transition from our EVDO network to our LTE network. Additionally, I'm also happy to announce that we've secured an extension from the FCC regarding our classic product migration with the program completion deadline now extended to November 8, 2026. Under the FCC reimbursement program, we've also allocated our full approved amount of approximately $334 million to cover the cost of removing and replacing covered foreign equipment across the U.S. network and ATG aircraft. We believe this gives us the necessary flexibility to transition our customers from our classic service to our C1 and AVANCE products, giving them the room they need to operate seamlessly between the old service and the new and adding robustness to our overall 5G and LTE rollout. We're also seeing strong support from our MRO and OEM partners in the network transition, including Duncan, who is outfitting their demonstration aircraft with 5G as well as Textron, who is updating all of their STCs in the quarter. We are getting more customers exposed to our exciting new 5G network, which will continue to improve, especially with the new LTE network, which we expect to be fully operational by the end of 2026. Finally, let's now turn our attention to our Geostationary Earth Orbit or GEO business. GEO units online declined by 15 in the quarter, a moderate reduction from the net reduction of 22 we saw in Q4, reflecting continued resilience in our installed base and demonstrating the strength of our OEM partnerships. Looking across the balance of the year, we do expect some attrition in our GEO fleet, driven by broader market evolution towards next-generation LEO and hybrid satellite solutions. and we are closely monitoring ARPU dynamics within our customer base. We continue to view GEO as a strategically valuable component of our network offering, particularly for customers whose mission profiles benefit from the global coverage and redundancy where LEO has regulatory restrictions and proven reliability and accessibility of geostationary networks. As recently announced, our Plain Simple Ku-band platform continued to gain traction in the first quarter across both commercial and military end markets. AirX selected our Plain Simple Ku-band solution to upgrade its Challenger 850 fleet. The selection was driven by the simplicity of installation and our ability to provide a fully integrated end-to-end connectivity solution for a high utilization global fleet. We were also pleased to receive U.S. Air Force Mobility Command approval to offer our Plain Simple Ku-band tail-mount. -- on the C-130 platform, opening access to a fleet of more than 1,000 aircraft and representing a meaningful new avenue of growth for our GEO franchise within the military and government vertical. I now want to spend some time on our important military and government end market in which we see significant expansion and growth for Gogo. Military and government service revenue increased by 7% sequentially compared to the fourth quarter of 2025, marked the second consecutive quarter of growth. Geopolitical uncertainty and a focus on sovereign communication requirements are creating a sustained need for secure, reliable connectivity and our network military and government offerings have proven to be well positioned to meet that demand in an unpenetrated market. As a result, we are seeing a distinct rise in communication spending that extends well beyond the United States and NATO as global governments actively invest to modernize their secure and airborne networks. During the quarter, we secured several contracts, the first being with the National Oceanic and Atmospheric Administration, or NOAA, totaling more than $8 million over a 5-year period. This represents a meaningful addition to our long-term backlog and a strong endorsement of our network-neutral platform's reliability for mission-critical applications. We also secured business with a U.S. civil government customer worth over $3 million for Galileo and 5G on their small to midsized airframes. We expanded further into the growing global UAV market with customer wins for both GEO and LEO services for border protection and surveillance with major drone manufacturers anticipated to deliver over $15 million in revenue over the contractual periods. Another major milestone in the quarter also demonstrated the importance of avoiding vendor lock to OEMs as we adapted the HDX so it can be fitted under an existing STC and the Escape hatch for a major airframe OEM for European deployment. Building on the growth we've delivered over consecutive quarters within our military and government end market, we are seeing high demand for our existing services driven by ongoing conflict in the Middle East, where the operational environment is also accelerating the cadence of adoption for next-generation communication systems across our global military customer base. The U.S. government can access our technologies quickly because of our blanket purchase agreement, which serves the U.S. Department of War. Outside the U.S., our partnerships with leading aerospace integrators and OEMs continue to deliver with strong demand for Galileo from international government customers. Taken together, this momentum has meaningfully strengthened our competitive position in the military and government end market for the long term. An important point to mention is that the following sunsetting of our legacy EVDO network, Gogo will operate the only fully U.S.-based data sovereign ATG network. Our data originates in the U.S., lands in the U.S. and is entirely protected within the U.S., which makes our offering more appealing than our competitors. This transition away from EVDO, which is expected to open up new opportunities since the EVDO hardware utilize foreign components that lock us out of certain opportunities due to national security requirements. Before I turn the call over to Zach, I want to highlight a few financial themes that his remarks will detail. The first is that our product portfolio shift is expected to ultimately increase the durability and resilience of our revenue as customers made the significant capital commitment to install these next-generation products on their aircraft as well as diversify our revenue across multiple connectivity solutions and mission profiles. Secondly, the expansion of our military and government business, which is based on longer contracts compared to shorter-term business aviation contracts should add to this revenue as heightened military and government activity continues. Lastly, our top capital allocation priority in the near term is to aggressively pay down debt. I will now turn the call over to Zach to walk through the Q1 numbers. Zachary Cotner: Thanks, Chris, and good morning, everyone. Our first quarter performance met our expectations as we built upon our strong finish to 2025. The quarter was driven by C1 and 5G demand, positive Galileo momentum, along with sustained growth in our military and government service revenue. This performance helped balance anticipated service revenue softness as we navigate ATG aircraft deactivations. Gogo's total revenue for the quarter was $226.3 million, down just 2% compared to both Q1 2025 and Q4 2025. Service revenue was $187.7 million, down 5% year-over-year and 2% sequentially. Total equipment revenue showed continued strength at $38.6 million, an increase of 22% compared to Q1 2025 and flat sequentially. Sustained activity with record C1 shipments and increasing adoption of our 5G-ready AVANCE LX5 platform for total ATG equipment sold of 511, up 8% compared to Q4 2025. We sold 184 AVANCE units, a 5% increase compared to Q4 and 327 C1 units, an increase of 10% sequentially, bringing our cumulative C1 units sold to 1,063. Gogo C1 solution is a simple box swap designed to allow connectivity for classic ATG customers on Gogo's new LTE network, which is expected to come online later in 2026. Galileo equipment shipments totaled 92 for the quarter, bringing our cumulative Galileo shipments to 410. Turning to our aircraft online. Total ATG AOL of 6,116 decreased 11% compared to the prior year quarter and 4% sequentially for the reasons Chris outlined in his comments. Advanced AOL now comprises 79% of our total ATG aircraft online and average monthly service revenue per ATG aircraft online, or ARPA, was $3,351, a 3% decrease compared to Q1 2025 and flat sequentially. Broadband GEO AOL increased 2% year-over-year to 1,306 but decreased 15 units from Q4 2025, largely due to aircraft sales in the quarter. Moving to our bottom line. Net income for the quarter was $13.1 million, a significant increase on a sequential basis. In Q1, net income benefited from 3 noncash items: first, a $4.9 million pretax reduction to the SATCOM direct earnout accrual; second, the nonrecurrence of a $10 million litigation accrual that occurred in Q4; and third, a $4 million pretax charge to reflect the change in the fair value of the convertible note that also occurred in the prior quarter. Adjusted EBITDA was $53.3 million in the quarter, a 14% decrease year-over-year, but a 41% increase on a sequential basis. Q1 2026 adjusted EBITDA includes $6.1 million of litigation expenses versus $8.4 million in Q4. The sequential increase in adjusted EBITDA of $15.5 million was primarily driven by improvement in equipment profit resulting from a favorable product mix and lower inventory reserves as well as a reduction in ED&D expenses. Year-over-year, the 14% adjusted EBITDA decrease of $8.7 million was largely driven by a drop in service profit stemming from declining ATG revenues. However, we partially mitigated this impact through disciplined OpEx management and strong execution on the synergy front with annualized synergies reaching $40 million, exceeding our prior targets. In addition, ED&D expenses benefited from the reimbursement of costs related to the FCC reimbursement program. Turning to our strategic initiatives. In Q1, our 5G program incurred $0.2 million in operating expenses and $1.4 million in CapEx. In addition, our Galileo project spend included $0.8 million in OpEx. Regarding our efforts to reduce our debt and improve our leverage profile, which, as Chris mentioned, remains our top capital allocation priority, we made a $21.1 million principal payment on the HPS term loan facility in April. This payment was executed as an excess cash flow or ECF sweep. Turning to our net debt leverage ratio. We ended the first quarter at 3.6x. Based on our 2026 forecast, we anticipate this leverage ratio will increase slightly in Q2 and Q3 before dipping back within our target range by the fourth quarter. Moving to free cash flow and the balance sheet. Net cash used in operating activities was $7.2 million and free cash flow was negative $19.2 million for the quarter, down from $30 million in Q1 2025 and down from negative $4.9 million in Q4. Our cash story this quarter was heavily influenced by a $14 million cash outflow related to our annual bonus payout as well as a reduction in accounts payable associated with our inventory ramp related to the Galileo product launches. We ended the quarter with $103.5 million in cash and cash equivalents. In our earnings release this morning, we reiterated our 2026 financial guidance. We project total revenue in the range of $905 million to $945 million. We expect adjusted EBITDA in the range of $198 million to $218 million, which includes $3 million in strategic investments and $8 million of ongoing litigation expense. Finally, we anticipate free cash flow in the range of $90 million to $110 million. This implies a 12% year-over-year growth rate at the midpoint, driven by the winding down of new product investment, sustained cost synergies and an expected strong ramp of new product revenue. Our guidance includes $30 million slated for strategic investments, net of any FCC reimbursements and net capital expenditures of $20 million, assuming $45 million in FCC reimbursement. To summarize, our first quarter results reflect continued strong execution, record ATG shipments and a 41% sequential increase in adjusted EBITDA. We are managing through near-term pressures in legacy service revenue while investing behind the two initiatives that we believe will define our next phase of growth, our 5G network and Galileo Broadband. We also repaid $21.1 million on our HPS loan in April, further strengthening our balance sheet. Together, these actions should expand our addressable market and position us to deliver long-term value to shareholders. I want to express my continued gratitude to the Gogo team for their hard work in driving our transformation and their commitment to outstanding customer service. Operator, this concludes our prepared remarks. Please open the queue for questions. Operator: [Operator Instructions] Our first question comes from Scott Searle with ROTH Capital Partners. Scott Searle: Nice to see you guys reiterating the outlook for 2026. Chris, maybe to start from a high level. It seems like there are a lot of shipments going out the door as it relates to Galileo and 5G, yet AOL has been slow to come online. I'm wondering if you could talk us through the comfort that you have in terms of that ramping up into the second half of this year in terms of dealer channel support, STCs, which seem like they're very much on track. And just maybe help us understand the competitive landscape out there, particularly as it relates to Starlink? Christopher Moore: It's going to take time. We've got the building blocks in place. We have the real estate. Our equipment revenue is up 22% year-on-year. We've got record ATG unit sales. Galileo AOL grew 50% sequentially and adjusted EBITDA grew 41%. And then if you look at the current shipments on Galileo, then most of that's with MROs at the moment. And really, as we've stated in previous calls, the OEMs come online really in Q3, Q4, and then you see that ramp going from there. So actually, we're really excited about what we're seeing with Galileo, and it's going to plan at the moment. Regarding competition, we're not really seeing any changes. I think the good news is this is probably the fastest product we've ever launched and the customer confidence is kind of showing with our results. Scott Searle: And Chris, I'm sorry, my phone blocked out for the 5G commentary. I'm wondering if you could just reiterate that quickly. Christopher Moore: Yes. I mean if you look on equipment revenue is up 22%. And then we've got year-on-year record ATG unit sales as well, which we said on the call. So if you look at 5G from a standing start, the pipeline is over 500, and it's a really solid start. We're seeing already partners like Textron already completing all their STCs. We've got good product shipments, good reliability. So we're very, very confident about 5G. It's actually a really good start to the product. Scott Searle: And then quick two follow-ups. Maybe just in terms of the classic conversion, what you're ultimately hoping that looks like by the end of this year? I know you got an extension there, but what's -- what do you think the attrition is versus retention and conversion over? And then lastly, just as it relates to the traditional SATCOM business, I'm wondering, given the growth that you're seeing in the military opportunities, when -- what's the long-term growth opportunity when you look at the traditional SATCOM business? And how much do you expect military to comprise of that as we start to look out 2 years to 3 years? Christopher Moore: Yes, that's a lot. All right. So let me start with kind of air-to-ground. If you look at record 254 C1 conversions this quarter and 1,058 overall, and our AVANCE base grew 3% year-over-year. So I think the tendency is just to focus on the quarter on suspensions, deactivations on the classic customers. They're not all deactivations. Some of those are suspension. So we expect some to come back. We, in the previous call, said that we expect to lose like 1,000 customers over the year. I think that's kind of holding. I think the big thing there, though, is the transition that we're showing with the new products is all of our customers have somewhere to go with a broadband experience, which they didn't have previously, which is pretty exciting. And we continue to believe the ATG portfolio kind of will be a very, very important part of our business moving forward. Going on to the Milgov business, I think just what we're seeing with the wins that we discussed today is kind of a very robust business unit that's growing, which is really exciting. And the value of the commercial-based products that we're putting into that, lower cost support global capability, robust cybersecurity and then the drone market, we see that as a really exciting area for the business to grow into and service revenue up 14% year-on-year, 7% from the last quarter. So we're really excited about that revenue segment for us. Operator: Our next question comes from Justin Lang with Morgan Stanley. This is Gaby Knafelman on for Justin Lang. Gaby Knafelman: You had mentioned that NetJets Europe will fully roll out Galileo in the first half of the year. I'm curious if you could give us a sense of expectations for the overall Galileo domestic international split through the end of the year? Christopher Moore: Yes, that's a good question. So let me just clarify a little bit on NetJets. I think there's a lot of misunderstanding around our NetJet relationship. And I want to clarify this is really going very well. If you look at the confidence in the broader fleet relationships along with NetJets, we're completing and rolling out NetJets Europe. We're starting to roll out NetJets North America. And we're also starting to see real big traction with VistaJet aiming for 270-plus aircraft, Wheels Up in their transformation with new aircraft, Luxe Aviation, Avcon Jet, AirX. So the confidence in the fleet operators, I think, speaks volumes for the business. And that 60-40 split is 60% North America, 40% overseas is really exciting for the business because previous to the Satcom Direct acquisition, Gogo was predominantly just a U.S. supplier. So we're seeing that kind of international expansion, confidence in the fleet operators and NetJets is still in the fold with Gogo, and we're excited about rolling out with them. Gaby Knafelman: Got it. Super helpful. And I'm just curious if you could comment on how GEO AOL figures this quarter compared against your expectations and whether or not you're thinking any differently at all about some of the pressures you had flagged around GEO coming into the year? Zachary Cotner: Yes. So effectively, GEO has held up exactly as we thought it would. The 15 units is sort of what we thought. I think the other kind of positive sign is, as we telegraphed in Q4, the minor drop was largely related to aircraft sales. I can tell you that's the same trend in Q1. So our sales guys are beating down the door to try to find the new owners and win those back. So I think GEO continues to be robust. The ARPA is down a little bit, but again, that's what we thought. So I think we've got a pretty good handle on GEO as of now. Operator: This concludes today's earnings call. Thank you for your participation in the conference. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the N-able First Quarter 2026 Earnings Call. [Operator Instructions]. I will now hand the conference over to Griffin Gyr, Investor Relations. Please go ahead. Griffin Gyr: Thanks, operator, and welcome, everyone, to N-able's First Quarter 2026 Earnings Call. With me today are John Pagliuca, N-able's President and CEO; and Tim O'Brien, EVP and CFO. Following our prepared remarks, we will open the line for a question-and-answer session. This call is being simultaneously webcast on our Investor Relations website at investors.nable.com. There, you can also find our earnings press release, which is intended to supplement our prepared remarks during today's call. Certain statements made during this call are forward-looking statements, including those concerning our financial outlook, our market opportunities and the impact of the global economic environment on our business. These statements are based on currently available information and assumptions, and we undertake no duty to update this information, except as required by law. These statements are also subject to a number of risks and uncertainties, including those highlighted in today's earnings release and our filings with the SEC. Additional information concerning these statements and the risks and uncertainties associated with them is highlighted in today's earnings release and in our filings with the SEC. Copies are available from the SEC or on our Investor Relations website. Furthermore, we will discuss various non-GAAP financial measures on today's call. Unless otherwise specified, when we refer to financial measures, we will be referring to non-GAAP financial measures. A reconciliation of certain GAAP to non-GAAP financial measures discussed on today's call is available in our earnings press release on our Investor Relations website. Now I will turn the call over to John. John Pagliuca: Thank you, Griffin, and welcome, everyone, to our call this morning. Today, we'll review our first quarter results, discuss key trends we're seeing through recent industry engagements and highlight how AI innovation is tangibly expanding our software opportunity. We will focus particularly on our AI innovation, where we are automating work historically delivered through labor-intensive services, helping organizations operate more efficiently and securely while also growing our TAM. This progress matters now as advancements in frontier models are fundamentally rewriting the threat landscape, compressing response times for defenders and empowering attackers to exploit vulnerabilities at unprecedented speed and scale. We believe our end-to-end cyber resilience platform is purpose-built for this moment, positioning N-able to lead as cybersecurity reaches an inflection point. Let's jump right in. Starting with the quarter, our results were strong. First quarter ARR was $548 million, growing 8% year-over-year in constant currency, and adjusted EBITDA margin was 27%. Quarterly gross and net revenue dollar retention both improved quarter-over-quarter and year-over-year, with trailing 12-month net retention now at 106%. Let's walk through the drivers of that performance. First, we continue to see momentum upmarket. The number of customers with over $50,000 of ARR grew by 13% year-over-year, and this cohort now represents 62% of N-able's total ARR. In addition, customers with over $100,000 of ARR represent 41% of our annual recurring revenue. This upmarket progress is further exemplified by our selection as Manchester City Football Club's official cybersecurity partner. As the club operates at global scale on the field, N-able protects its critical data and systems, securing its digital environment off the field. The partnership underscores our ability to serve complex, high-profile organizations. More broadly, given the strong retention in our upmarket cohorts, we believe our success in this segment provides a solid foundation for future growth. Second, our channel expansion strategy is working. 4 of our top 5 new customer wins in the quarter, including the Manchester City deal, were through value-added resellers, or VAR channel. With an established MSP motion that counts 25% of CRN's top 150 MSPs as customers and our scaling VAR presence, our broad channel footprint enables us to capture demand across the market. Third, the depth and breadth of our platform is resonating. Strength in cross-sell and upsell underpinned improvement in both gross and net retention as customers realize value in expanding and consolidating with N-able. From a category perspective, security operations and data protection continue to outpace total company growth as customers prioritize advanced remediation and recovery capabilities in the face of rising cyber risk. Reflecting on the quarter, the business executed well and our strategy delivered strong results. Let's now switch gears and discuss key observations from recent industry engagements. During the quarter, we engaged across the ecosystem through our annual customer conference in power, a major industry event such as RSA and ongoing dialogue with third-party research firms. One major takeaway is that we believe cybersecurity continues to experience strong secular tailwinds. We are consistently hearing from customers that the worsening threat environment and rising IT complexity are driving increased need for stronger cybersecurity solutions. This sentiment is reinforced by our internal data and third-party research. Our 2026 state of the SOC report, which is informed by telemetry and frontline response data from N-able SOC, we observed an alert every 30 seconds. We also saw a dramatic rise in perimeter-based attacks with 50% of attacks bypassing endpoint controls entirely. Manual triage approaches are not able to keep pace with the scope and velocity, emphasizing the need for modern, machine-driven defense. Industry research firm, Futurum, reported a similarly challenging attack environment. In their 2025 Cybersecurity Global Enterprise decision-making survey report, Futurum highlighted that 46% of organizations surveyed experienced more than 3 significant security incidents over the past year. We do not see these dynamics abating, particularly as advances in AI continue to lower the barrier to entry for increasingly sophisticated cyberattacks. Together, these factors give us confidence that our mission to protect businesses from evolving cyber threats is underpinned by strong market demand. Another takeaway is that customers are struggling to balance the need for powerful layered defense with practical constraints such as managing vendor sprawl, staffing challenges and budget limitations. This pain point validates our platform strategy. Spanning unified endpoint management, security operations and data protection, our platform enables customers to efficiently manage complex IT environments, detect and stop threats in real time and safeguard and recover critical data. We deliver coverage across the entire life cycle before, during and after an incident, helping customers stay secure while operating efficiently. We are also hearing strong conviction that AI is a meaningful growth driver for MSPs. Our conversations at our customer conference in power reflected a broadly bullish sentiment, improve efficiency and create new revenue streams for MSPs. While adoption is still early, customers are clear that they want a trusted partner to help them navigate the technological wave so they can focus on operating their businesses. In summary, our industry engagements reinforce our view that industry demand is strong and increasingly favors AI-powered integrated platform-based approach. This brings us to our innovation and how our software is expanding our opportunity by automating work historically delivered through services. Our platform is rapidly evolving from a system of record to a system of action, increasingly completing tasks previously handled by technicians. This evolution unlocks significant economic opportunity. Industry analysts such as Omdia estimate annual security services spend at about $200 billion, roughly twice the size of security software spend. We see a similar labor-heavy cost structure within our MSP customer base. Our field work indicates MSPs operate at approximately 10% EBITDA margins with a sizable portion of their cost structure composed of labor. As our intelligent software completes workflows historically owned by labor, we help our customers operate more efficiently and improve margins while expanding our monetization surface from software budgets into a much larger labor-driven services opportunity. A concrete example helps illustrate the opportunity we are driving. Technicians are the revenue engine for MSPs. The more IT assets, including AI that each MSP technician can manage, the more revenue an MSP can generate. The challenge is that technicians have practical limits. A common industry benchmark is roughly 1 technician for every 200 devices. This creates a growth ceiling in the structurally tight IT labor market and pressures MSPs profitability as they must continually hire additional technicians to support more customers. Our aim is for our software to improve that ratio, empowering a single technician to manage 500, 1,000 or even more IT assets. Delivering this creates a win-win for our customers and N-able. Our customers can scale their businesses without linear increase in labor costs, and we can gain market share as MSPs consolidate around platforms that can help them grow their businesses more efficiently. Importantly, this is not a future state. We are delivering progress today. In UEM, we recently introduced N-zo, our AI workflow assistant and our custom model context protocol, or MCP server. These advancements mark an important step forward in AI-driven IT operations. For certain tasks, N-zo delivers up to 70% faster IT operations by enabling teams to interact with their environments using natural language and agentic workflows. Our MCP server goes a step further. Securely connecting external AI tools like Claud, ChatGPT and Microsoft Copilot directly to live operational data inside N-able UEM. This means AI no longer just tells customers what's wrong. It helps fix it real time with the control and governance our partners require. Together, these capabilities are empowering IT teams to move faster, reduce manual effort and act directly within the environments where they already work. This progress directly improves the technician to managed device ratio we discussed earlier. UEM's value proposition is showing clearly in execution. 6 of our top 10 new customer lands flowed through our UEM solution. A standout example is one of the fastest-growing quick service U.K. restaurant brands that was looking for a trusted partner to ensure the digital operations work seamlessly. They deployed our UEM in late 2025 across 100 locations, gaining real-time visibility into the devices, automating routine fixes and significantly reducing downtime. We recently built on that success, signing the U.S. group and expanding the relationship significantly. We are also automating historically manual-intensive work in data protection, where we recently introduced Disaster Recovery as a Service, or DRaaS. We are eliminating the need for customers to manage backup infrastructure themselves, reducing cost, time, risk and operational headache. This shifts backup management from a labor-intensive activity to a software-led capability. Beyond efficiency, DRaaS meaningfully strengthens customer security posture. In the event of data loss, businesses can there instantly recover critical systems, minimizing their downtime and maintaining their operations. We also expanded our anomaly detection capabilities, which help identify changes to backup environments. With threat actors increasingly using identity-based attacks to steal credentials and target backups from inside the organization, including altering retention policies or deleting servers, this advancement has real impact. Building on that momentum, we are excited about the planned addition of Google Workspace backup coverage later this year. From a broader perspective, we continue to see durable demand drivers for data protection. With time to exploit turning negative and adversaries exploiting vulnerabilities before patches exist, the criticality of our ability to protect and restore data is heightened. As we look ahead to a world with agents owning more workloads for businesses, the possibility of agents making costly mistakes also rises. We see the need to effectively undo agent mistakes and restore operations through a clean prior state as a potential demand catalyst for our data protection solution. Our execution and value are showing up in the numbers. Data protection has now surpassed 3.5 million Microsoft 365 users and led our net new ARR growth in the quarter. Finally, in security operations, we are extending the same system of action approach into one of the most labor-intensive areas of cybersecurity. Businesses are facing more complex attacks and N-able is helping them operate, contain and scale security without standing up their own SOC. Our security operations solution is a system of action at its core as AI handles the bulk of our threats automatically. This is a critical differentiator. With breakout time shortening to minutes, the ability to neutralize threats in real time could be the difference between a contained event and a successful breach. Customer count has nearly doubled since the second quarter of 2025, reflecting our traction here. A recent customer win demonstrates the solution in action. A compliance-focused MSP serving regulated industries was facing challenges managing a fragmented security stack spanning multiple EDR, MDR and semi tools. We standardized the security operation, replacing multiple legacy providers with a unified scalable model, driving ARR of nearly $500,000. Importantly, AI reinforces the role our platform plays in the Agentic world. From an operating standpoint, AI is embedded into our platform, and we are deeply embedded in our customer environments and workflows. This positions us to serve as a control plane to govern and secure agents as they become more prevalent across their IT and security environments. Customers can access AI where they already operate. We pair that accessibility with a technical experience built on proven infrastructure, extensive data, deterministic workflows, domain context and rigorous compliance standards. From a demand perspective, we see AI increasing both the volume and severity of threats while also expanding the amount and criticality of data that must be protected. These forces directly drive the need for our solutions. Our trusted brand and established go-to-market further positions us to translate innovation and demand into real-world adoption. To close, we're executing with discipline as we pursue the large and compelling cybersecurity opportunity. We believe AI is expanding our software opportunity by enabling us to automate more workflows and reinforcing the critical role we play in helping customers navigate a more complex and hostile digital environment. With that, I'll turn it over to Tim and then circle back for closing remarks. Tim? Tim O?Brien: Thank you, John, and thank you all for joining us today. Our first quarter performance reflected the execution drivers John discussed, including continued upmarket momentum, strong contribution from both our MSP and VAR channels and expanding platform adoption. Our innovation is also broadening the scope of what our software can deliver, unlocking significant opportunity as we automate work historically delivered through services. From a strategic and capital allocation perspective, our focus remains investing behind durable demand for cybersecurity solutions while delivering a robust financial profile. Before diving into the results and outlook, I also want to share perspective on how we believe our business is positioned for growth in an increasingly agentic era. Our revenue model is diversified. We have meaningful monetization across data growth, servers and cloud assets alongside more traditional drivers such as users and devices. We believe this diversified exposure powers multiple paths to growth. Looking ahead, we see a significant new monetization opportunity as customers increasingly adopt agents and other non-human identities across their environments. As these new IT assets introduce requirements around security, governance and resilience, we believe we are well positioned to help customers secure, govern and back up these new IT assets. At the same time, we intend to continue innovating by delivering our own agents, building on our existing platform capabilities and system of action. Taken together, we believe these dynamics reinforce the durability of our model and create additional long-term growth opportunities as the market evolves. I'll now walk through our first quarter results, provide additional detail on the drivers of our performance and discuss our outlook for 2026. First, let's discuss our results for the first quarter. For our first quarter results, total ARR was $548 million, growing at 11% year-over-year on a reported basis and 8% on a constant currency basis. Total revenue was $134 million, $2 million above the high end of our guidance, representing approximately 13% year-over-year growth on a reported basis and 8% on a constant currency basis. Subscription revenue was $132 million, representing approximately 13% year-over-year growth on a reported basis and 9% on a constant currency basis. We ended the quarter with 2,710 customers that contributed $50,000 or more of ARR, which is up approximately 13% year-over-year. Customers with over $50,000 of ARR now represent approximately 62% of our total ARR, up from approximately 58% a year ago. Dollar-based net revenue retention, which is calculated on a trailing 12-month basis, was approximately 106% on a reported basis and 103% on a constant currency basis. Approximately 46% of our revenue was outside of North America in the quarter. Turning to profit and margins. Note that unless otherwise stated, all references to profit measures and expenses are calculated on a non-GAAP basis and exclude the items outlined in the GAAP to non-GAAP reconciliations provided in today's press release. First quarter gross margin was 80% compared to 81% in the same period in 2025. First quarter adjusted EBITDA was $37 million, representing approximately 27% adjusted EBITDA margin. Unlevered free cash flow was $22 million in the first quarter. CapEx, inclusive of $3 million of capitalized software development costs, was $4 million or 3% of revenue in the first quarter. We ended the quarter with approximately $118 million of cash and an outstanding loan principal balance of approximately $399 million, representing net leverage of approximately 1.8x. Non-GAAP earnings per share was $0.09 in the first quarter based on 189 million weighted average diluted shares. Turning to our financial outlook, which assumes FX rates of $1.17 for the euro and $1.34 for the pound. For the second quarter of 2026, we expect total revenue in the range of $137.5 million to $138.5 million, representing approximately 5% to 6% year-over-year growth on a reported basis and 4% on a constant currency basis. We expect second quarter adjusted EBITDA in the range of $39.5 million to $40.5 million, representing an adjusted EBITDA margin of approximately 29%. As a reminder, revenue growth is impacted by the timing and magnitude of on-premise deals and related revenue recognition dynamics, and we continue to view ARR as the best velocity metric for our business. For the full year 2026, our total revenue outlook is approximately $554 million to $559 million, representing approximately 8% to 9% year-over-year growth on a reported basis and 7% to 8% on a constant currency basis. Our full year ARR outlook is $581 million to $586 million, representing 8% to 9% year-over-year growth on a reported and constant currency basis. We expect full year adjusted EBITDA of $167 million to $171 million, representing an adjusted EBITDA margin of 30% to 31%. We are raising our unlevered free cash flow outlook and expect our unlevered free cash flow to be approximately $116 million to $120 million. We expect CapEx, which includes capitalized software development costs to be approximately 5% of total revenue for 2026. We expect cash interest payments of approximately $27 million, assuming interest rates remain in line with current levels. We expect total weighted average diluted shares outstanding of approximately 189 million to 192 million for the second quarter and $188 million to $192 million for the full year. Finally, we expect our non-GAAP tax rate to be approximately 24% to 27% for both the second quarter and the full year. Now I will turn it over to John for closing remarks. John Pagliuca: Thanks, Jim. We delivered another quarter of consistent execution with solid ARR growth, strong margins and practical AI innovation. As cyber threats continue to evolve and agent adoption grows, we remain focused on helping our customers prevent incidents, recover quickly and operate with confidence while delivering durable value for our shareholders. With that, operator, we'll open the line for questions. Operator: [Operator Instructions]. Your first question comes from the line of Mike Cikos with Needham & Company. Michael Cikos: This is Matt Cory on for Mike Cikos over at Needham. Great to see the uptick in growth and retention. I wanted to dig in on the revenue beat was a bit more modest than we've seen over the last couple of quarters, and it didn't flow through to EBITDA margin or the full year guide. Can you give us some color on what you're seeing in the market in terms of sales cycles and linearity as well as how that influenced guidance construction? John Pagliuca: Sure. Thanks for the question. This is John. I'll talk a little bit about sales cycle, and I'll pass it over to Tim on some of the compare. Look, as we continue to go upmarket, we are seeing a little bit of a lengthening of the sales cycle and a little bit more of a scrutiny around the ROI. I think some of this is a natural expectation. We're now landing deals. We referenced 1 or 2 during the call, a $500,000 ACV deal. We're seeing more and more 6-figure deals. We're seeing multiyear 7-figure deals. As you go upmarket, you'll start to get requiring CEO sign off and actually, in some cases, we're starting to see Board level sign off. As you're going upmarket, we're starting to see a little bit of a lengthening of the sales cycle. Overall, I'd say a little bit more of a scrutiny on the ROI. Frankly, we feel we're in a good position with that. We pride ourselves on delivering really strong TCO across the portfolio. In Cove and our data protection, it's the software, but it's the labor, and so as there's more scrutiny on ROI across the landscape, we believe we're well positioned to win in that category because it is one of our strengths. How do we allow MSPs to do more with their dollar, both from the software point of view and from the labor point of view. I think that's the one trend that we're keeping an eye on. I think it's somewhat expected as we continue to go up market. Michael Cikos: Then you mentioned agent mistakes as a demand driver, which is extremely topical finding following reports of the Rogue PocketOS agent that its production database and backup. Have you seen a noticeable uptick in demand or initial conversations following, like incidents like this sounds like it's becoming more prevalent sort of as you alluded to? Or is there any other color you can provide on the data protection growth during the quarter? John Pagliuca: It's much more top of mind. I think there's a realization across the landscape that the need to recover and the need for business resilience and continuity in the world of this agentic era is going to become more and more top of mind. If you think about backup in general, the last couple of years, it's been dominated by this cybersecurity bit, right, ransomware or attacks from threat actors and the ability to back it up. Right along for a long time, there's also friendly fire. In other words, if an employee unintentionally or intentionally deletes a bunch of data. Well, now we have all these agents in some state in an autonomous state that if not governed the right way, have the same ability to go delete data. I think there's a realization that this will happen. This could happen across small organizations or large organizations and the ability to get back up and running is top of mind. Frankly, that's why we pitch business resilience, not cyber resilience. That's what -- we know when we're talking to our MSPs and we're talking to mid-market companies and small, medium enterprises, what they're really worried about is avoiding disruption. If there is disruption, how quick can we get back up and running. That's why we're really excited about DRaaS. DRaaS provides an immediate failover or near immediate failover. If something happens via a threat actor or friendly player or because an agent goes rogue on you, you have the ability to fill over and keep your business going. All of these things are creating a bunch more demand. There is, I'd say, a realization across the industry that this is more and more of a real thing as agents continue to proliferate across the IT environment. Operator: Your next question comes from the line of Jason Ader with William Blair. Jason Ader: A couple of things. First on the macro environment, John, can you talk about any impact? Has it changed given the situation in the Middle East, the supply chain tightness going on out there? In Q1, did you see any variance from what you've seen throughout 2025 on the macro front? John Pagliuca: Jason, thanks for the question. As it relates to some of the geopolitical issues, no, we're not seeing any slowdown from any geopolitical issues. We are very international. A good amount of our business is in the U.K., a good amount of our business is in Western Europe. No, we're not really seeing any impact from what's going on related to what's going on in Iran. Jason Ader: Then, Tim, for you, just can you talk about the -- I guess you've had a 2-point NDR improvement over the last several quarters. Can you just talk through what is driving that improvement? Tim O?Brien: Yes. On the NRR, Jason? Jason Ader: Yes. Tim O?Brien: Yes. On the operational front, a lot of it is on the heels of the execution we've had with cross-selling MDR into the customer base. That's continued to be very successful and demand remains very healthy from that perspective. We also have some benefit from FX on the NRR rate as well. The combination of those 2 things are the key drivers of the NRR improvement. Jason Ader: Then I guess, last thing for you, John. What's the #1 thing you want people to take away from the print? John Pagliuca: Yes. Look, I think the #1 thing is that we're really well positioned in this agentic era, and that's not a future state. That's a now state. we've introduced N-zo, which is an AI assistant in our UEM offering, which is really going to take a lot of the high-volume operational work off the load of our technicians. This is our first really or our continuation of turning labor into software. We're excited about that. We plan to do it, and we are doing it across all 3 fronts. We pride ourselves on being the platform of choice for MSPs before the attack, during the attack and after the attack. We're layering in an agentic technology to take the labor off of our MSPs, making them more efficient, making them more profitable. In turn, we expect better GRR, better NRR and being more of a critical piece of the MSP and the internal IT departments go forward. The best way of doing that, frankly, is to make sure that AI is helping them run their business and driving the efficiency. And we believe we're well positioned there. Operator: Your next question comes from the line of Joe Vandrick with Scotiabank. William Vandrick: John, can you talk about if you're seeing frontier -- Cyber developments like Mythos and GPT 5.5 cyber changing customer urgency around N-able's core products. I'm thinking especially around the automated patching and maybe endpoint, but backup and recovery as well. Are you seeing that show up in pipeline or maybe even just in customer conversations? John Pagliuca: Joe, definitely in customer conversations. I wouldn't say it's necessarily showing up in pipeline. Look, patching and vulnerability management is a fundamental layer in cyber resilience and an overall business resilience. We've been preaching that for a while. I think it just makes it more top of mind and folks need to make sure that they have a level of autonomous patching and vulnerability management regardless of the environment. As it relates to backup, I think I brought this up earlier with the previous call from Mike and his team, it just provides another tailwind as to the use case, why you need to be able to back things up and more importantly, recover and recover in a near-time way. I think it's really just driving a lot more conversation and awareness across the industry. By and large, my MSPs that are in the upper quartile, they've been practicing this layered security approach. We've been helping them with that layered security approach. Again, this is why we think our best-of-breed platform approach is the right one for our customers and because it helps tie in together and drive a lot more efficiency before the attack, during the attack and after the attack, whether it's agentic or not. It's definitely making some of these conversations that might have been out of vogue, more in vogue, but -- and that's overall good for the community, good for the industry and good for N-able. William Vandrick: Maybe one tactical one for Tim. How should we think about net new ARR for the remainder of the year? Is there any commentary that you can provide that could help us understand the trajectory throughout 2026? Tim O?Brien: Yes. We talked on slightly last quarter that it was going to be more back half led than front half led, more so due to some of the new offerings that we're bringing to market throughout the course of 2026. That's specifically more so on the data protection side with DRaaS and Google Backup that John touched on. Operator: Your next question comes from the line of Eric Suppiger with B. Riley Securities. Erik Suppiger: I apologize if this was asked on balancing a couple of calls. Just curious, has the developments with Anthropic and Mythos highlighting new or highlighting zero-day attacks, has that changed your customer behavior in terms of the way they're using N-able to do patch management and trying to move forward on more of an accelerated path to implementing patches in response to kind of a threat landscape that's getting more difficult? John Pagliuca: Erik , yea, we talked about this a little bit before. What it's really done is just, I think, making patching and vulnerability management, which is a fundamental layer and cyber resilience more top of mind for the -- overall for the industry. Look, an internal IT department and/or an MSP who is established, that is growing their business that practices the right proper layered security that is driving more of a compliance forward type of business is executing on these areas already. It really just puts the -- our solution more to the center of what it needs. That's why, again, we believe the way that we're positioned before the attack, and we talk about before the attack, that is patching, that is vulnerability management that is monitoring and managing and during the attack with our threat hunting and our XDR, which is AI infused and then, of course, recovery if you need to get things back up and going, we believe that's the right formula for internal IT departments and MSPs. Tying these all together and adding an agentic layer that takes away from some of the high-volume operational work from a technician, that's the right formula because at the end of the day, what AI will also do for the bad guys is accelerate their speed and their volume for the threats. We need to be able to give our customers the ability to fight fire with fire and provide them AI-infused or AI-led technology so they can keep up with the speed. Often, a human is the bottleneck, and it's our job here at N-able to give them the software. It's not a labor burden, but it's on technology to, one, keep their customers safe and also drive their efficiency. We mentioned in the prepared remarks, an average MSP has an EBITDA of 10%. A lot of that's because of the labor and on the high-volume mundane tasks. As we usher in the AI technology, our hope is to really break that linearity in the model, number one, to help them improve their EBITDA, but also be able to make sure that they're thing off any threats as a result of some of the AI in the wrong hand type of thing. All of this, frankly, is pointing, I think, to an area where cybersecurity will see a tailwind and it's making it more top of mind. Operator: [Operator Instructions]. Our next question comes from the line of Keith Bachman with BMO. Adam Holets: This is Adam on for Keith. I wanted to circle back to the new products and ask that now that disaster recovery and N-zo are formally launched, what are adoption trends and uptake there relative to your prior expectations? Then inclusive of those as well as the Google Workspace launch expected later this year, are you guys embedding any expectations into the guide for revenue or ARR? John Pagliuca: Adam, thanks for the question. It's good. I want to clarify. DRaaS is in limited preview right now. It's in customers' hands. We'll do the full launch a little bit later on in the back half of the year. To Tim's point, that's why we have the ARR building more to the back half of the year. It's early days. I'm happy to report that so far, so good. We're building the pipeline. We have customers in preview. The experience so far, again, it's early days, has been really positive, and so we're excited there. On N-zo, it's also promising. Now in N-zo, we're not going to directly monetize this in this first phase, but what we're seeing is MSPs coming back saying, "Hey, that saves me hours. You're improving certain tasks that I'm doing by 70% and the feedback has been good. That being said, the use cases are limited right now. Our plan is to continue to expand those use cases as we continue to get some of those reviews and savings from the labor. DRaaS, just to be clear, that one will be directly monetizable. N-zo in its initial phase is really going to be about helping the customer experience, driving our GRR and helping them improve their profits as well. Then we'll layer in coworkers and other monetization paths as we continue on the Agentic lane. As it relates to Google, that's more to the back half of the year. We actually have customers in the queue and doing some limited preview there, but because of where that sits in the year, we're not necessarily baking that into our financial plan just yet. just because that's a little bit closer to the back half of the year. Good question. Look, this is also DRaaS and backup for Google are the top 2 areas that people were requesting for backup and data protection for the last couple of years. Just as a reminder, as it relates to data protection, this will help us improve our win rate now that we have these offerings. It will help us with the expansion, of course, because we'll be able to cross-sell, and it should help us with the GRR as well because now we have that one complete offering that an MSP is looking for. We're cautiously optimistic. Cove continues to be a fantastic offering and our data protection area is our largest ARR area. We expect this to just accelerate the data protection story. Adam Holets: Just a follow-up, if I may. I just wanted to ask about packaging and pricing changes. I believe you previously mentioned there's going to be a 1- to 2-point net benefit for FY '26. Is that still the expectation? John Pagliuca: Yes. I would say it's probably closer to the 1, but yes, we're still expecting to get a slight benefit from pricing and packaging overall on the year. Operator: There are no further questions at this time. I will now turn the call back to CEO, John Pagliuca, for closing remarks. John Pagliuca: Thank you, everyone, for joining N-able's quarterly results. We'll see you next time. Thank you. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning. My name is Aaron, and I'll be your conference operator for today. At this time, I would like to welcome everyone to the Better Home & Finance Holding Company First Quarter 2026 Results Conference Call. [Operator Instructions] And with that, I'm pleased to turn the call over to Tarek Afifi, Senior Corporate Finance and Investor Relations Manager. Tarek, with that, you may begin. Tarek Afifi: Welcome to Better Home & Finance Holding Company's First Quarter 2026 Earnings Conference Call. My name is Tarek Afifi I'm Better's Corporate Finance team. Joining me on today's call are Vishal Garg, Founder and Chief Executive Officer of Better; and Loveen Advani, Chief Financial Officer of Better. In addition to this conference call, please direct your attention to our first quarter earnings release, which is available on our Investor Relations website. Also available on our website is an investor presentation. Certain statements we make today may constitute forward-looking statements within the meaning of federal securities laws that are based on current expectations and assumptions. These expectations and assumptions are subject to risks, uncertainties and other factors as discussed further in our SEC filings that could cause our actual results to differ materially from our historical results. We assume no responsibility to update forward-looking statements other than as required by law. During today's discussion, management will discuss certain non-GAAP financial measures, which we believe are relevant in assessing the company's financial performance. These non-GAAP financial measures should not be considered replacements for and should be read together with our GAAP results. These non-GAAP financial measures are reconciled to GAAP financial measures in today's earnings release and investor presentation, both of which are available on the Investor Relations section of Better's website and when filed in our quarterly report on Form 10-Q with the SEC. More information as of and for the period ended March 31, 2026, will be provided upon filing our quarterly report on Form 10-Q with the SEC. I will now turn the call over to Vishal. Vishal Garg: Thank you, Tarek. Good morning, everyone. Q1 was a strong quarter for Better. We generated approximately $1.64 billion in funded loan volume, exceeding the high end of our prior guidance and growing funded loan volume approximately 89% year-over-year. Revenue from continuing operations grew approximately 52% year-over-year to $47.5 million, and our adjusted EBITDA loss was approximately $19 million, which was a 48% improvement year-over-year. Just as importantly, we continued scaling the Tinman AI platform and expanding our partnership ecosystem, which remain the core drivers of our long-term strategy. Before discussing product innovation and partnerships, I want to address the macro environment directly and explain how we are thinking about the business in the current rate backdrop. The company entered 2026 with strong momentum, generating funded loan volume of $450 million, $521 million and $673 million in January, February and March, respectively, a month-over-month growth of 16% and 29% in February and March. What's more in late April, pre-approval volume for our biggest Tinman AI platform partner went from approximately $100 million per day in preapproved customer volume to over $200 million per day in pre-approved customer volume. That being said, the prolonged conflict in the Middle East has started to show a market impact on interest rates across the mortgage industry with rates for consumers on our platform growing from 5.75% to well over 6.5% in the last few weeks. And this is causing consumers to get stuck in the middle of the funnel, hesitating to lock at a higher rate, particularly if they feel the rate increase is temporary due to the situation in the Middle East. With our partners' help, we are converting some of these customers who need cash now to HELOCs. But for those looking just for savings per month, we are in a waiting pattern where we will go back to them with a lock as soon as rates come back down. So the bad news is that conversion rates are down from where they were in Q1 due to macro factors. The good news is that partner volume continues to increase dramatically as the partner opens us up to a broader section of their customer base and products. Despite the macro noise, we are structurally better positioned than most mortgage platforms for three reasons. Our partnership model creates structurally lower customer acquisition costs and scalable distribution and doesn't require us to spend money upfront, which then can get hung up when conversion cycles blow during volatile market periods. Tinman AI continues to improve conversion efficiency and operating leverage. Our diversified product mix spans across purchase refi and HELOC. And when refis become more difficult, we can convert a segment of those into HELOCs, which is a tool we didn't have in prior rate cycles. That positioning is reflected in our Q2 guidance. We expect funded loan volume of approximately $1.65 billion, representing approximately 37% year-over-year growth, slower than what we had originally anticipated going into Q2. Importantly, while funded loan volumes are expected to remain approximately flat sequentially, revenue is still expected to grow meaningfully due to continued mix shift towards higher-margin HELOC products. We currently expect approximately 15% sequential revenue growth in Q2, which we believe is an important signal that the strategy works and the platform works despite the macro backdrop. We also continue to believe the business is positioned for substantial operating leverage as volumes recover. At the same time, we want to be direct with investors. The timing on when we achieve our $1 billion monthly funded volume target will depend in part on the rate environment. It looked highly doable this time last month. And right now, sitting for this month, it looks like it's going to be deferred. The long-term trend remains intact, but near-term visibility continues to be impacted by macro volatility and what that does to consumer benefit on a refi. That said, if rates improve meaningfully, we believe the lead funnel is already in place and positions us to accelerate towards that target relatively quickly. Regardless of the environment, we continue to execute aggressively. In April, we announced a series of deliberate steps to strengthen operations and continue our progress towards profitability. These actions are on track and are even more important against the backdrop I just described. First, we're removing at least $25 million of annualized costs from our operations beginning in Q2 2026. Second, we expanded our total warehouse capacity by 48% to $850 million since the start of Q1. And third, in early April, we raised $69 million in equity that further strengthened liquidity and operational flexibility. All of these actions, along with greater focus on AI efficiencies, deep cuts in corporate overhead and the adjusted revenue growth and the change in the mix to HELOC versus refis means we remain in sight of the target of adjusted EBITDA breakeven by the end of Q3 2026. Turning to partnerships. Our Credit Karma Finance of America and top five non-bank originator partnerships are all live and ramping. These partnerships are especially important because they leverage existing customer ecosystems rather than paid acquisition channels. For example, an increasing portion of Credit Karma's 140 million members are exposed to Credit Karma Home Loans powered by Better at zero upfront CAC to us. We believe that structural CAC advantage will become increasingly important as the industry consolidates. In late January, we marked the one-year anniversary of our partnership with NEO. NEO grew from a $1.5 billion run rate at onboarding to $2.9 billion in March 2026. Our Tinman AI platform generated approximately $821 million in funded loan volume during Q1, accounting for approximately 50% of total funded loan volume, up from 44% in Q4. That progression is important. Tinman represented 0% of funded loan volume in 2024, approximately 36% in full year 2025 and now approximately half of total funded loan volume. We expect that percentage to continue increasing in the coming quarters ahead. Now to product innovation. We had two recent launches I want to highlight, both of which serve buyers in this environment. Last week, we announced the launch of the Better Home Equity card in partnership with Stripe. The card is a Mastercard linked to a Better HELOC, letting customers spend funds drawn from their line with a single flight. Even more, customers get 1% cash back on all spend, which further lowers their total cost of financing and extends their stickiness in the Better ecosystem from a one-time transaction to a 30-year relationship. We believe HELOC demand remains durable across rate environments, and this product materially simplifies homeowner access to instant long-term liquidity against the value of their home. In March, we also launched the first Fannie Mae eligible token-backed mortgage in partnership with Coinbase. Qualified customers of Coinbase can pledge Bitcoin or USDC as collateral to fund their down payment without liquidating their holdings, triggering a taxable event. We have a large pipeline of Coinbase customers who are signed up on waitlist for the official commercial release of the product in Q2. We see digital assets increasingly becoming part of mainstream consumer finance infrastructure, and we intend for Better to lead that transition inside mortgage origination to leverage refi technology to fundamentally lower the interest rates on home finance products for consumers. We believe the foundation is now in place for Better across our tech platform. Our distribution partnerships, our product expansion and our cost structure and the proof points are becoming visible in revenue growth and path to profitability in sight despite a choppy macro environment. With that, I'll turn it over to Loveen. Loveen Advani: Thank you, Vishal. The Q1 financials reflect continued progress and growing operating leverage from our platform and improving efficiency in our business model. Funded loan volume grew approximately 89% year-over-year to $1.64 billion, while revenue from continuing operations increased approximately 52% year-over-year to $47.5 million. Importantly, total expenses grew approximately 27% year-over-year. That spread between revenue growth and expense growth reflects the operating leverage embedded within the Tinman AI platform. As Tinman AI volumes scale, revenue growth outpaces headcount and infrastructure growth. In Q1 2026, our adjusted EBITDA loss was approximately $19 million. That's a 48% improvement year-over-year and a 16% improvement quarter-over-quarter. Looking at product trends in Q1, refinance grew 542% year-over-year. Home equity grew 30% year-over-year, and purchase grew 2% year-over-year. By product mix, 50% of funded loan volume in Q1 was refinance, 36% was purchase and 12% was home equity. By channel, approximately half of funded loan volume in Q1 came through the Tinman AI platform and the other half through direct-to-consumer. As Vishal discussed, we're starting to see the impact of the prolonged conflict in the Middle East on rates. However, one of the most important dynamics in our model today is mix shift. HELOC products carry materially higher gain on sale economics, which allows revenue growth to outperform funded volume growth, which is reflected in our Q2 guidance. In Q2, we expect funded loan volume of $1.575 billion to $1.725 billion, of which the midpoint represents 37% growth year-over-year. We expect total net revenues of $53 million to $56 million, of which the midpoint represents 28% growth year-over-year. We also expect an adjusted EBITDA loss in the range of $12.5 million to $14 million, of which the midpoint represents 42% improvement year-over-year. Importantly, we continue making progress on our path towards breakeven while simultaneously strengthening the balance sheet and improving liquidity. We previously announced at least $25 million of annualized cost reductions beginning in Q2. These reductions are underway and include lower corporate overhead, vendor rationalization and the planned divestiture of our U.K. bank. On the balance sheet, we ended Q1 2026 with approximately $136 million of liquidity, which includes cash and cash equivalents, restricted cash and net assets held for sale. This does not reflect our recent capital raise of $69 million, which closed after quarter end. We believe the balance sheet today is materially stronger and appropriately positioned to support our path towards profitability. In addition, we expanded warehouse capacity from approximately $575 million at year-end to approximately $850 million today, representing a 48% increase. That expansion reflects both lender confidence in our platform and the infrastructure required to support future partnership growth. As Vishal discussed earlier, based on our current operating structure and ongoing cost initiatives, we remain focused on adjusted EBITDA breakeven by the end of Q3. The timing for reaching that level will depend in part on the macro environment and the pace of rate normalization, but the operating model continues to move in the right direction. We believe Better today is materially more efficient, more diversified and more scalable than it was even 12 months ago. With that, I'll turn back to the operator for Q&A. Operator: [Operator Instructions] Our first question for today comes from the line of Kyle Peterson with Needham. Kyle Peterson: I guess I just wanted to first start off and clarify a couple of the moving pieces in the guide. I guess, one, have you guys assumed that the macro and kind of this frozen pipeline due to some of the Middle East tensions, have you assumed any improvement or resolution in the back half of the quarter or more of a status quo? And then I guess also, could you guys just give us a quick reminder on some of the relative gain on sale rates, specifically on the HELOC side. Obviously, it seems like that's really offsetting some of the volume difference, but I think a reminder there would be helpful for everyone on the call. Vishal Garg: Sure. I mean we are assuming no resolution. And so I think we've been very conservative with respect to what we're guiding towards because going into April, we knew that volume top of funnel was about to almost double. And going into April, we were very confident in the number that we were quoting, which was $1 billion of volume. And then the rate spike, the escalation in the Middle East, basically, all that new volume came top of funnel. I think we shared that it went from about $100 million a day top of funnel for pre-approval volume to $200 million a day in the back half of April. But those customers are not converting at nearly the same rate. We're converting a bunch of them to HELOCs, but a bunch of them that come in just to do a rate term refi or do a debt consolidation to bring down all the rates. They're going to save more if they wait it out than they would getting into it right now. And so we have to give them the right advice for them, and that's what we've always done, prioritize the long term over the short term. So that's what we're doing. And we think that, that's a coiled spring for when things die down in the Middle East, you're going to see some bumper months as we convert all those customers who are effectively on a wait list to lock when rates come back down. On the gain on sale, HELOCs are averaging between six to seven points total gain on sale in combination of origination fees and gain on sale premium, whereas traditionally, mortgage on D2C has averaged 2.5 points and on NEO has averaged 3.5 points. Kyle Peterson: Okay. That's really helpful. And then I guess a follow-up on the HELOC card initiative that you guys have launched. That seems like a really interesting product, I guess. How are you guys thinking about when that goes live later this year, ways whether that increases engagement gives you a competitor edge or monetization opportunities? Just any more color there on how you think that fits in and could potentially help you guys kind of continue to accelerate growth in HELOCs would be great. Vishal Garg: Yes. So I think there are many utility functions of the home card. The first utility function is it tracks all your home spend. So it helps you effectively monitor that, and it provides discounts on things that you use for your home. Two, you get 1% cash back. So for a customer, they're effectively getting their rate or fees bought down as a result of that 1% cash back. Three, it creates a 30-year relationship with the consumer for us versus having a onetime transaction, which means that recurring refis for that consumer, cash out refis will be nearly instant and super -- creates a super engaged customer base for which then we can market other products like what we've done with homeowners insurance, which typically comes up for renewal every year, life insurance, any of these other products that we've traditionally had, we can then have an always-on relationship with the consumer versus a once every three-, five-, seven-year relationship with the consumer. I think it moves into basically Better being a home finance home operating system for the consumer rather than just a onetime home transaction system. And we think that our partners have already started asking for it. It's just another really good way for a partner to service their customer and maintain that. So a number of our partners are already asking us to replicate what we're doing internally for our D2C business for that. So it gives us another feather in our cap when we go and pitch HELOCs or home equity as a service to other companies or mortgage as a service to other companies. Operator: Our next question is from the line of Ramsey El-Assal with Cantor Fitzgerald. Ramsey El-Assal: Has the more challenging macro backdrop caused any slowdown in your partnership discussions or partnership pipeline conversion? Vishal Garg: I think it's accelerated, especially within the traditional mortgage broker and retail mortgage lender channel. A lot of people were hoping '26 was the year that they were going to thrive in. And it's looking like with the Middle East conflict, things are tougher. So more and more banks are still looking to get into the business. Of course, the Middle East conflict and higher elevated rates and oil prices has an impact on the number of customers eligible for refi, but it has an even bigger impact on unsecured consumer credit. And so we're starting to see a lot of inbound from other fintechs, other large consumer credit companies to pivot from their traditional unsecured offerings into a secured offering like a HELOC. Ramsey El-Assal: Okay. And could you also comment on the loan mix between Tinman and direct and kind of how the changing environment might play out in terms of your target there. I think it was 60% Tinman by the end of the year. I was just curious if the changing backdrop here has any impact on that target. Vishal Garg: I think we're well on our way to achieving that target. Loveen Advani: Yes. I think, Ramsey, you're hitting on a great point. Had we been a traditional D2C play, we would have spent money on these leads upfront and not have them convert. Because we're now relying on our partnership volumes, right, we're somehow derisking ourselves from that eventuality. Operator: Our next question is from the line of Rohit Kulkarni with ROTH Capital Partners. Rohit Kulkarni: One kind of just comparison of unit economics to the extent you can, can you just flag what's the difference between Tinman platform generated volume versus D2C specifically, like relative kind of CAC profile gain on sale? And longer term, do you see a scenario where the contribution margin for the platform volume would actually be structurally higher than your traditional D2C business? Vishal Garg: That's a great question. Right now, we try to price our platform partnerships. So, we make the same amount of contribution margin. Revenue can change, right, because different partners are asking us to do different services for them. But we try to make the same contribution margin that we do on D2C in our platform business. And so as we scale, we're hoping to make sort of around $2,000 per loan contribution margin on mortgage and slightly less than that on HELOCs in our Tinman AI platform business. Over time, as it becomes -- the sale becomes more and more software, like margin profile is much better on Tinman AI platform. But in the right now, the gains from AI are captured first in D2C, which is why you saw our continued improvement in our unit economics on the D2C business. And then we port those things that work in D2C into the Tinman AI platform business. Rohit Kulkarni: Okay. Got you. And regarding the current macro environment and rate kind of changes in the last 45 days. Historically, what is the typical lag in consumer behavior and how that impacts your business, assuming there's a pathway towards more stable macro in the next 60, 90 days. How does that -- how do you anticipate that to impact your business? And over what duration and -- sorry for a multi-quarter here and that, are you assuming any improvement in macro in your 2Q guide? Vishal Garg: We're assuming no improvement in the macro in our 2Q guide. And so, we're being conservative there. And we are -- the typical cycle is you can start to see on refis in particular, on rates on refi, in particular, you can see immediately within a week, if a consumer comes in as a pre-approval, if they're going to lock or not or if they're hesitant. And usually, when they are hesitant, we register in our data, the price point at which they would transact and then we hold them until they come back, kind of like -- think of it like a limit order in stock trading. And then -- so we see that behavior manifest itself out in refis. Purchase, as you know, is like a six-month cycle. And HELOC, depending on the use case, if it's for debt consol, it can take the consumer a month to decide on what debt to pay off or not and what things that they care about or not. If it's more for home improvement or tuition or other things like that, they typically have a need that needs to be satisfied within a week, two weeks, three weeks. Loveen Advani: Yes. Rohit, I think to go with this is, as we think about beyond the second quarter, if the environment stays where it is, we'll have increased indexation towards HELOCs and less so towards refi. And if the macro changes, then that equation will flip. Rohit Kulkarni: I see. I got you. And then I know you reaffirmed breakeven EBITDA by end of Q3. Q2 is still close to negative $13 million in EBITDA. Can you help us kind of what specifically bridges that Q2 to Q3? What are the factors under your control? And maybe just layer in the $25 million cost reduction program, how much of that is in Q2? And what other levers do you have in Q3? Loveen Advani: Absolutely. Yes, that's a great question. So today, our current financials exclude the U.K. business, which is we're considering that as discontinued ops, right? As we think about getting to our breakeven targets, our current cash OpEx is about $68 million. That's the guidance that we're giving, right? So for us to get to profitability by the end of Q3, we'll have to get to a revenue mix or a revenue component of around low to mid-70s for us to breakeven at the end of Q3. Operator: Our next question is from the line of Owen Rickert with Northland Capital Markets. Owen Rickert: Could you talk a bit more about how some of those newer partnerships are ramping today? Are you seeing encouraging trends in engagement and conversion rates so far? And how have those partnerships trended on a monthly basis throughout the quarter? Vishal Garg: The newest partnership are ramping extremely well. I mean we literally in the month of April, went from $100 million a day top of funnel to $200 million a day top of funnel. $200 million a day top of funnel just multiplied by 250 business days is $50 billion of pre-approval volume. And we're still just scratching the surface. Our biggest partner, Credit Karma, we are exposed in many of the products to less than 1% of their customer base. for the top five retail lender, we're just ramping up their salespeople on the HELOC product, and they have hundreds of billions of dollars of MSR on their books that we're going to be targeting, which has a very, very high conversion rate. Our top three fintech, they're scaling. They're becoming a reasonably decent size of our HELOC volume. And so you've seen like monthly HELOC volumes start to continue to trend up. A little bit of that has been. And then we've got a couple of banks in the queue off of our ChatGPT announcement that we did, I think, about two months ago, and we're hoping to get them closed and operational and live shortly. Owen Rickert: Got it. And then on the technology side, where are you seeing the biggest operational or customer-facing benefits from tools like Betsy, Tinman AI and the broader machine learning initiatives? Vishal Garg: The biggest benefit is in customer contact capability where consumers are now able to transact with Betsy 24/7, 365. And we're increasing the exposure of Betsy branded for our partners in their funnels. So I think the biggest uplift is going to actually be when we are able to fully deploy Betsy in our partner funnels, not just in our D2C funnel. Operator: [Operator Instructions] Our next question comes from the line of Kartik Mehta with Northcoast Research. Kartik Mehta: Vishal, one thing you've talked about are partnerships and your partnerships are growing. If in the interim, the mortgage market stays soft, but all of a sudden, we get a big bump up, the war is over and all of a sudden, you get a lot of activity. How do you manage the infrastructure if demand spikes? Vishal Garg: We are already getting geared up for something like that. The best thing that we can do is in the old days, we have to rely on humans to staff up and pick up the phone, work late shifts, work weekends. And now we are able to simply leverage Betsy. Betsy loan officer, Betsy loan processor, Betsy loan underwriter. And in preparation for some of that, we're actually taking off some of the gloves where Betsy was recommending a particular task or a particular path to both a consumer or an internal person and then the internal person was sending it out. We're now just having Betsy be on autopilot after close to over 1.5 years of learning data. And so I think that, that's just going to crush the operating cost framework and allow us to capture all the volume as it comes in. Kartik Mehta: And Vishal, on a couple of partnerships, you're not the only mortgage provider, but it seems as though you have a competitive advantage because of your technology. Have you seen your partners or talk to your partners about comparing your ability to serve their customers versus others that might be on the platform? And if so, what type of advantage is that giving you? Vishal Garg: Our partners typically see an improvement of 2x relative to the incumbent in terms of both productivity and customers served. So that's really the promise that we make to them is "We're going to help you double revenue, and we're going to help you cut your cost structure by 30% to 50%, and you'll make 4x, 5x, 6x more money." And that's how it's playing out for our existing partners. That's why there's a waitlist of people to get on the Tinman AI platform, the ChatGPT Enterprise Edition. We just are -- we're continuing to work through that and the value prop to the partners is high. But as you know, like the mortgage industry is an industry that the Internet basically forgot. And so we have lots and lots and lots of mortgage people who are still operating on really old antiquated systems. And what we're also finding is that their staff are used to just those systems. So frequently, we go in and they tell us that, "Hey, we'll keep this staff and then the rest of them, why don't you like adapt them to the new system?" And what they find eventually is that we have to do it all for them. So I think that is also upside in the margin profile that we land with a particular product or a particular implementation and then we expand from there. Operator: Our next question is from the line of Brendan McCarthy with Sidoti. Brendan Michael McCarthy: Just wanted to ask a quick question on Birmingham Bank, the U.K.-based bank. I know you classified it as discontinued operations held for sale. Can you give us any detail on when we might expect a sale regarding timing? Can you give us any color on potential capital release from that sale or perhaps sale proceeds? Loveen Advani: Yes. So Brendan, this is Loveen. We're in an active sale process. We had an investment bank to lead that. We're in active discussions with potential buyers, right? That's all I want to disclose at this time, given that we're in active discussions. Even if we do sign, there's a regulatory approval process in the U.K., which is going to take about two to four months. So think of the impact in Q4. Brendan Michael McCarthy: Understood. Looking at the Coinbase partnership with the crypto-backed mortgage product, can you kind of walk us through the economics of that, the revenue profile there and perhaps the launch time line of when we might see an impact in the P&L? Vishal Garg: The currently publicly stated launch time line is sometime in late Q2. The revenue profile from that product is starting to manifest itself. Obviously, we have more pricing power in that product than we do in your traditional direct-to-consumer product. And so you should start to see like NEO-like margins on that product. Brendan Michael McCarthy: Got it. That's helpful. Last question, just back to the Q3 breakeven guide for adjusted EBITDA. Just to clarify, I know you mentioned you're assuming a pretty stable environment as it relates to the macro. But is there any risk to achieving that breakeven if rates move meaningfully higher or maybe the Middle East conflict is more prolonged than expected? Vishal Garg: We're going to have to cut costs deeper. I think we're pretty committed to that number. Operator: And ladies and gentlemen, that will conclude our Q&A session for today. Vishal, I'd like to turn it back over to you for any closing comments. Thank you. Vishal Garg: Thanks, everyone. Q1 was a really good quarter for us. We signed a bunch of really big deals, and we executed on our plan and we beat guidance. I know it's disappointing for the Q2 guidance for us to not get to the $1 billion mark of loan originations that we had planned to in May, but we're going to make up for that in the context of cost cutting, deeper cost -- change to a HELOC product, which doesn't have a $350,000 balance, has a $100,000 balance, but makes basically the same amount of revenue and using that to continue to drive revenue growth and a path towards profitability, which is what we are expecting in our Q2 guidance, and we're confirming again that we will achieve by the end of Q3 2026. So, thank you all for continuing to have an interest in believing in Better, and we appreciate you all. Operator: Thank you, everybody. Have a great day.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to Excelerate Energy's First Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Craig Hicks, Vice President, Investor Relations and Strategy. Please go ahead. Craig Hicks: Good morning, and thank you for joining Excelerate Energy's First Quarter 2026 Earnings Call. Joining me today are Steven Kobos, President and CEO; and Dana Armstrong, Chief Financial Officer. Also joining the call are Oliver Simpson, Chief Commercial Officer; and David Liner, Chief Operating Officer. Our first quarter earnings press release and presentation were published yesterday afternoon and are available on our website at ir.excelerateenergy.com. Before we begin, please note that today's discussion will include forward-looking statements, which involve risks and uncertainties that may cause actual results to differ materially. We undertake no obligation to update these statements. We'll also reference certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures can be found at the end of the presentation. With that, it is my pleasure to pass the call over to Steven Kobos. Steven Kobos: Good morning, everyone, and thank you for joining us today. Before I get into the quarter, I want to take a moment to acknowledge something that goes beyond the financials. We have employees, seafarers and partners operating in and around the Arabian Gulf. Our thoughts and prayers are with them and with their families during what is a difficult and uncertain time. The safety of our people is always our top priority, and I want them to know that they have our full support. Against that backdrop, I am proud of how Excelerate performed this quarter. We delivered $122 million of adjusted EBITDA and achieved a 99.8% reliability rate across our asset portfolio. Those results reflect the strength of our contracted asset portfolio and the dedication of the teams who operate them every day. This strong performance is a direct result of how we built this business. Excelerate is a global LNG and power infrastructure company. We own and operate assets that deliver reliable downstream LNG and power solutions to countries who depend on us for their energy security. That responsibility is central to how we operate, how we invest and how we manage risk. Our operations span 4 continents, and that geographic reach translates directly into revenue and earnings diversification. It is a core reason we are able to perform across market cycles and limit the financial impact of regional disruptions. As the global energy landscape grows more complex, the ability to deliver energy safely and without interruption matters even more. That brings me to the macro environment, which provides an important context for today's discussion. As we've highlighted previously, the global LNG market is moving into a period of meaningful and sustained supply growth. Despite recent geopolitical events, approximately 200 million tons of new LNG supply will still come online between now and the end of the decade. The conflict in the Middle East is accelerating the push for greater geographic diversification of supply. This will result in even more LNG volumes reaching the market. Those volumes will only intensify the need for more regasification capacity. In recent weeks, we've heard commentary around pricing dynamics, potential project delays and market hesitation in certain regions. While those near-term dynamics are real, they should be evaluated separately from the structural need for regasification as new supply enters the market. The fact is long-term contracted LNG pricing has been and remains affordable. That is why many of the countries and markets we are targeting continue to turn to LNG as a fuel source. In this environment, Excelerate's role is clear. We provide the downstream infrastructure that connects new supply to the customers who need it most, and we do it under contract with assets we own and operate. That's the structural backdrop. Now let me walk you through how it is showing up in our operations. I'll start with the Middle East. Since the conflict began, our focus has been on the elements of the business within our direct control. We optimized our asset portfolio to protect earnings, maintain operational continuity and demonstrate the rigor our customers and investors expect. Our terminal services operations performed as we expected, and we saw limited financial impact during the quarter, in large part due to the quality of our contracts and the nature of the services we provide. The two FSRUs operating in the UAE, the Explorer and the Express are fully operational and our crews are safe. We are proud to support Dubai, Abu Dhabi and the broader UAE as a component of their energy infrastructure for more than a decade. Turning to our LNG supply agreements. In March, as a result of the conflict, we received a Force Majeure notice from QatarEnergy related to our supply agreement. We subsequently issued a corresponding FM notice to Petrobangla, our customer in Bangladesh. These agreements are structured on a back-to-back basis with delivery obligations aligned to supply commitments and supported by contractual FM protections. This structure is allowing us to manage the current disruption in an orderly way. Based on our current assessment, we expect the financial impact to be approximately $1 million per month while the Strait of Hormuz remains closed. Our commitment to the region extends beyond the UAE. Let me update you on the Iraq terminal. The fundamentals supporting this project have not changed. Iraq faces chronic power shortages and limited domestic gas processing capacity. These structural deficits are not going away. The need for scalable gas import infrastructure is as real today as it was when we signed the contract in Q4 '25. Current conditions have only heightened that need. Our customer shares the same view, and we are committed to working with them on the best path forward. What has changed is the near-term path to startup. The conflict in the Middle East has created logistical constraints that have delayed jetty reinforcement and construction of the fixed terminal infrastructure. As a result, we no longer expect the terminal to commence operations in Q3 '26 as we previously disclosed. Project startup is now expected in '27. This is a shift in timing, not a cancellation. The contract is structured as a 60-month agreement that begins once operations commence. We are taking a measured safety-first approach with construction resuming as conditions allow. Once underway, we expect approximately 6 months before operations begin. We are managing this project for the long term and remain confident in the opportunity. With the Iraq project now delayed, we have been evaluating opportunities to optimize the Excelerate Acadia, our newbuild FSRU in the near term. In early April, the Acadia was delivered successfully from Hyundai Heavy Industries. This week, we executed a 9-month time charter party agreement with Jordan's National Electric Power Company or NEPCO to deploy the Acadia to the country's existing LNG import terminal in Aqaba. The Acadia is expected to commence operations in Jordan by mid-'26, and the deal will generate roughly $20 million of adjusted EBITDA this year. The interim deployment enhances Jordan's energy security by providing additional regasification capacity and generates incremental earnings. It does this while we continue to advance the Iraq integrated import terminal. It also underscores the continued demand for our assets and the commercial resilience of our business, even amid broader regional disruption. Now let me turn to Jamaica, where our integrated platform continues to deliver. A year ago this month, we added the integrated LNG power platform in Jamaica to our asset portfolio. Jamaica is a core component of our business and one of the strongest proof points of Excelerate's strategy. In the first quarter, the Jamaica platform delivered reliability of 99%. That consistency underpins the contracted cash flows that have contributed meaningfully to our overall growth. Beyond operations, we are making commercial progress on the island. Gas volumes are growing through new customer agreements and incremental sales to existing customers. We are pleased to be a partner with the Jamaican government and look forward to advancing new opportunities in Jamaica and throughout the Caribbean. The financials this quarter reflect the operating momentum I've described. Next, Dana will take you through the numbers, our capital priorities and the updated outlook. Dana? Dana Armstrong: Thanks, Steven, and good morning, everyone. Excelerate delivered solid financial results for the first quarter. We reported net income of $50 million, a sequential increase of $11 million or up 28% as compared to the fourth quarter of 2025. Adjusted EBITDA for the first quarter was $122 million, up roughly $10 million or up about 9% versus the prior quarter. The net income and adjusted EBITDA increases were driven primarily by vessel optimization and higher LNG gas and power margins. Adjusted EBITDA increased compared to the first quarter of last year due to an increase in LNG gas and power margins, mostly driven by the impact from the Jamaica acquisition. For the first quarter, maintenance CapEx was $8 million and committed growth capital was $17 million. Now let's turn to our balance sheet. As of March 31, 2026, total debt, including finance leases, was $1.3 billion with $540 million of cash and cash equivalents on hand. The full $500 million of capacity under our revolver was available as of quarter end. Net debt was $714 million and trailing net leverage was 1.5x. From a capital allocation perspective, our priorities are unchanged. We are focused on investing in accretive growth while delivering consistent shareholder returns through dividends and opportunistic share repurchases. Last week, the Board approved a quarterly dividend of $0.08 per share or $0.32 per share annualized payable on June 4, 2026. In December 2025, our Board authorized a $75 million share repurchase program, providing added flexibility to return capital while continuing to invest in our growth priorities. During the first quarter, we repurchased roughly 148,000 shares or just over $5 million of our Class A common stock at a weighted average price of $34.07 per share. With that capital framework in mind, let me walk through our updated financial outlook for the year. We have revised our full year 2026 adjusted EBITDA and committed growth capital guidance to reflect the delayed start-up of the integrated Iraq LNG import terminal. As Steven described, this is a timing shift driven by the Middle East conflict. We continue to view Iraq as an attractive opportunity and construction will resume as soon as conditions allow. Adjusted EBITDA for the full year is now expected to range between $480 million and $510 million. Consistent with that shift, we now expect 2026 committed growth capital to range between $270 million and $300 million, reflecting the deferral of certain Iraq-related construction activity into 2027. To be clear, this revised committed growth capital guidance does not yet include costs associated with our FSRU conversion. Negotiations for the conversion work are ongoing. We have signed a letter of intent with the Seatrium Shipyard in Singapore, and we'll provide additional updates once final contracts with the shipyard are executed. Our 2026 maintenance CapEx guidance is unchanged at $100 million to $110 million. With respect to dry dock timing, we continue to refine schedules through close coordination with our customers to identify the most efficient and least disruptive maintenance windows. Our current plan assumes that the Express will proceed with its scheduled dry dock at the end of its current contract in the third quarter of this year. Once that work is completed, we expect the Express will redeploy to Pakistan to substitute for the Exquisite, which is now anticipated to enter dry dock in the fourth quarter of this year. This updated outlook reflects careful planning, solid underlying fundamentals and a continued focus on building durable contracted earnings. Looking beyond 2026, the growth path through 2028 remains intact. On our February call, we outlined a framework for sequenced earnings growth through 2028, supported by a defined set of executable initiatives. While the Iraq start-up has shifted due to external factors, we maintain visibility to growth through actions within our control. First, the Express is expected to be redelivered at the expiration of its current contract. We have high confidence in redeploying that vessel at improved economics, which we expect to support incremental EBITDA in 2027. Second, our planned FSRU conversion provides an additional source of earnings growth in 2028, following completion of the conversion and commercial deployment of that vessel. This represents the next major capital deployment after Iraq and supports continued earnings expansion. Third, as Steven discussed, we are focused on driving additional growth through a range of scalable LNG solutions, including in Jamaica and the Caribbean and throughout the rest of the world. Together, these initiatives provide a sequenced pathway to extend growth through 2028 and beyond. With that, let's open up the line for questions. Operator: [Operator Instructions] And our first question comes from the line of Elias Jossen with JPMorgan. Elias Jossen: Just wanted to start on the supply portfolio and think about how you guys are approaching diversification going forward. Obviously, the Qatar situation is ongoing and developing, and I think you laid it out well in your opening remarks. But how should we think about your overall strategy to ensure supply in the longer term? And what options do you have there? Steven Kobos: It's Steven. Let me jump into that. First, we like to give customers what our customers want to receive. So, some of those don't want to make it too simple. It's going to be reactive in terms of what our customers want to have their portfolio deliveries look like. Now remember, of course, we're talking about the component of LNG that we control. That's largely the integrated projects, the Iraq's when it comes online and of course, the 1 million tonnes into Bangladesh and some of the Caribbean growth. The vast majority of our earnings and our revenue, as you know, are simply the capacity payments of our infrastructure through which that unfolds. But I feel like we have good diversification already. We have from different continents, we haven't gotten into it in complete detail, but we have 4 contracts coming from divergent locations. So, I think we've done a good job so far in building up geographic diversity. Kudos to Oliver's team for that. And I think we will continue to do that, but being sensible to geographical time lines as well. So, we are taking it into account already, and we will continue to take it into account. So, I think what I want to emphasize, Eli, is what we've always said. We're pretty boring about this. We like to buy and sell on the same index. You don't see us taking commodity risks. We're determined to be that sort of boring infra provider that integrates molecules. Elias Jossen: Yes. That's helpful color. And then maybe thinking about sort of the increased capital allocation and optionality there. Obviously, you have a really strong growth platform in Jamaica, and this is a temporary sort of situation. So, as the cash and overall flexibility builds, what should we think about as kind of the key growth priorities this year and heading into next year? And what else might we see sanctioned on the growth front? Steven Kobos: I have a little bit of color since you mentioned Jamaica, Eli just had a very grateful for U.S. Embassy in Kingston, just hosted Excelerate for a big reception there last week for all of the Jamaica business leaders and for the Jamaican government. And then we had our Board of Directors visit our facilities there. Very proud of that platform, looking for great things from it. I would say that our view on what we've outlined for CapEx requirements in the Caribbean that we're expecting, remains intact from what we've guided you all to before. It's somewhat opportunistic. We're already seeing increased sales of gas, new customers, increased gas sales in Jamaica, but we also want, obviously, to be expanding throughout the Caribbean, adding more spokes to that hub, and we're eager to be doing that. We are doing some of that. If they're too small, we probably won't bring it to anyone's attention. When they're larger ones, we'll announce them as they write them. Operator: And our next question comes from the line of Chris Robertson with Deutsche Bank. Christopher Robertson: Yes. Maybe to start with just following up on the conversion project here. I know Dana mentioned kind of the time line and CapEx devoted to it and some discussions there. But just thinking about it in terms of any commercial discussions or plans regarding more integrated type project, given the current volatility in the Mid East, how are you thinking about where to potentially look for a subsequent integrated project or to deploy that asset? I know it's maybe a couple of years off here, but just has anything changed in your mind about how you're strategically thinking about positioning the asset given the current situation? Steven Kobos: Yes. Let me, this is Steven, Chris. Thanks for the question. I would say first point is, no, our strategic priorities haven't changed. The markets we like before the conflict, we still like. This is a near-term supply disruption. It is not demand destruction. So the first thing I would say is we're not pivoting from where we were out there with hunting license before the war. We continue to be in the same markets. Second thing I would say is that you will have seen with the announcement of the Iraq project and with the Jordan Charter yesterday and today, that was the first anybody heard about it. We have a number of opportunities we're pursuing in the pipeline, but you should expect moving forward, that will probably be the cadence. You will hear about them when we are announcing them. That's just the best way to commercially approach these things. So we're looking on every continent, I assure you, we're looking throughout the Caribbean, and we continue to be focused on those markets that we've highlighted before, such as South Asia and East Asia. Operator: And our next question comes from the line of Craig Shere with Tuohy. Craig Shere: So on the Jamaica and Eli's question, I think you had mentioned, Steven, that you're already seeing some organic upside on the island. And there was kind of a bifurcation that maybe wasn't laid out explicitly as well about the growth opportunity in Jamaica with some incredibly low-hanging fruit with capacity utilization upside that really doesn't involve a lot of CapEx and could at least be notable in terms of EBITDA driver, combined with a larger CapEx opportunity that is accretive that could hit by decade end. Could you elaborate on the cadence of this and opportunity set, what might come even before we see tens of millions of dollars of investment? Steven Kobos: Craig, I'm going to pass that to Oliver. I would, I don't know if I ever said very low-hanging fruit. And that sounds like the mango is actually on the ground instead of just being; look, we are seeing some early, and that's the point, Craig. If it's de minimis CapEx, it's just going to show up in performance over time, likely later in '26 on some of these. But let me hand it to Oliver. I don't think we're going to change our view on cadence of how the Caribbean unfolds. Oliver Simpson: Yes. Thanks, Craig. And yes, I think the bifurcation you speak to is correct, right? There's opportunities using the platform that we have today and some that we've been able to capitalize on already and continuing to look at those. I think when you think of the timing of those, it's really around, as this LNG wave comes on in the U.S., I'd expect to see a good correlation to the LNG coming on to some of these opportunities as the affordability of that long-term supply is able to displace the fuels in some of these markets in the region. I think some of the higher, sort of higher CapEx is also, I mean, obviously, we continue to look at that. We continue to be confident that those opportunities are the most affordable and most, sort of economical solutions for the markets we're looking at. And likely, those are shifting probably towards the later end of the scale. But we feel confident that over the period, you've got those, you've got some good opportunities in the near term and that will build, move us into some of those higher CapEx opportunities on the back end of that range. Craig Shere: And maybe I could also follow up on Craig's question. I think you were talking about the FSRU conversion opportunity there. But you've talked about both the opportunity to redeploy Express in 2027 and the potential Shenandoah conversion into 2028. And both those opportunities or asset redeployments potentially supporting entirely new downstream opportunities. And over time, you have mentioned a few of those from Vietnam to Bangladesh and beyond. So I guess my question is and you said, Steve, you're not going to give any more color until you actually have something commercial to announce. But is it unreasonable to think that the redeployment of these assets into '27 and '28 could combine into tens of millions of dollars of EBITDA run rate upside? Steven Kobos: That's not unreasonable at all, Chris. This is Steven. I mean what I would say is, as we've told you, we're going to evaluate there are a lot of things you look to with your counterparty, and we're not going to dictate what the customer should want or want. We want to be a good partner for the long term. We want to be a reliable partner. And it's going to, some deals will continue to be our, I don't even like to say legacy, but just our capacity type business. Some will be integrated if we can integrate it on a predictable basis where the addition of the molecule has a payment performance that looks like our infra. So, we're going to be both and we're not going to be hidebound and just have one approach to the world. mean we feel strongly that the future of LNG is regas, regas capacity. There aren't enough of it. We are among the only ones focused on it, and it is critical for dealing with this. So, there is opportunity. There's going to continue to be opportunity. I think what you're seeing with our announcements, and I don't wish to be coy at all, but we've got teams around the world working on that pipeline. Opportunities are staggered. I'm confident that we're going to continue to have sustained growth, as Dana mentioned, sequence growth through '28. It remains intact. And I possibly have never felt better about the market, the future of regas, the future of Excelerate than we do at this moment. Operator: And our next question comes from the line of Bobby Brooks with Northland Capital Markets. Robert Brooks: I thought it was pretty impressive how quickly you recontracted the FSRU Acadia on that 9-month deployment in Jordan. And I think it should really remind investors of the flexibilities of these asset class. What I was curious to hear more on was sort of how quickly the conversations went from, 'okay, this Iraqi terminal is going to be delayed. Let's look and see if we can deploy the Acadia somewhere short term to actually getting that Jordan deal signed. ' Steven Kobos: Bobby, this is Steven. If our regional teams haven't been reaching out to everyone around the world every quarter, and just sharing ideas and talking with them, so they're aware of what the opportunities are, I'd be very disappointed. So, I suspect if you drill into it, the relationship and the contact has been going on for years. We just needed to activate that. So that's the virtue of having these regional teams, having the experience around the world, not being somebody who's a one-off or a 2-off. You've built the knowledge of each region and what might come up. And you point out something great, Bobby. These are floating assets. They are redeployable. They can be flexible. You can take advantage of this. If you're building a power plant somewhere in some continent and you get a slowdown, it's not like you're going to float that somewhere else. So, we love this asset class. This is partly why our investors should feel comfortable, we believe, in our ability to take advantage of the TAM that's out there in front of us. Robert Brooks: Awesome to hear. And it was also exciting to hear the new customer agreements and growing sales to existing customers in Jamaica. Just was hoping to get a little more context of how much of an increase is that and maybe how much more opportunities you see to do more of that? And maybe just how infrastructure expansions in Jamaica would look like versus through the broader Caribbean? Oliver Simpson: Bobby, this is Oliver. I'll take that one. So, we haven't spoken specifically to the volume increase. And I think as Steven mentioned earlier, you'll sort of see that aggregation come through in sort of plan as we sort of give guidance on this. But we've seen, I think, some of the near-term gains or near-term increases have been in the Jamaican market. I think we've talked about before on the small-scale side through the trucking, it's pretty easy to just deliver incremental volumes through the platform that we have. So that's something that we continue to look at. We've got the team on the ground, knocking on the doors, chasing those opportunities, and we continue to see the growth there just that will happen just organically over the coming months and years on that. And then sort of more broadly in the region, it's really using the Jamaica platform. We've got the, the FSRU in Jamaica is a big storage tank in the Caribbean that we can use to then reach the other markets, the spokes that we have, we've spoken about. The nature of how that can be, I mean, that could be through ISO tank deliveries. It could be using the small-scale vessel we have to make deliveries to other sort of small-scale assets that we develop in the Caribbean. So, I think we're, ultimately, we're agnostic to the technology. It's all about how we get that demand, how we build up that demand. And with our technical solutions, I think we've got a wide array to meet the different needs of the different markets. I think as Steven said that we want to give the customers what they want as an energy solution. And I think that also applies to the technology solutions. It's different for each different island in the Caribbean. Operator: And our next question comes from the line of Wade Suki with Capital One. Wade Suki: Just quickly, just a housekeeping item, just so I'm clear on the timing here. I think I heard you say the Express will be in dry dock in the third quarter, then moving to Pakistan in the fourth quarter with the Exquisite going into dry dock. Is that right? David Liner: Wade, this is David. Yes, that's correct. We expect, our current plan is for Express to go into dry dock at the end of the third quarter and then have a replacement for Exquisite when she comes out in around fourth quarter. Wade Suki: Got it. Got it. Okay. Great. And just maybe just to dovetail off Bobby's question, I think. Just thinking about the longer-term solution in Jordan, is that a possible, I know you guys don't necessarily like to speak to specific commercial opportunity, but is there an opportunity longer term in Jordan for the Express possibly after the Acadia moves on? Steven Kobos: Wade, this is Steven. I would say once people get LNG once, and look, Jordan's had LNG for 10 years. They had 12 cargoes last year, 10 of those came from the U.S. I think they'll reach even more markets from there. And a lot of respect for what they've done. We would certainly love to be part of that. We love people who already have access to LNG because we know that people that have access to LNG inevitably want more LNG. Operator: And our next question comes from the line of Zack Van Everen with TPH. Zackery Van Everen: Maybe just following up on some of the time lines asked on the last question. With the Acadia deal starting midyear and being a 9-month contract, and then I believe you said once activity starts back up in Iraq, it will be about 6 months. If the Iraq project were to start up again in June and completed by the end of this year, could you use the Express or other flexibility to start that project? Or would you have to wait for the Acadia to complete its agreement in Jordan? Steven Kobos: Zack, this is Steven. Man, you mentioned this very possibility last earnings cycle. And yes, I took that to heart, I have been thinking about it. I mean you have a keen insight. These are floating assets. We routinely bridge with one asset to another asset. So, I can't speak to what we're going to do here, but we routinely take advantage of the flexibility of having an asset that can float and can be redeployed. So, what I can tell you is we'll be able and we intend to serve Iraq as soon as we can stand it up. But we can't guide not knowing what the conditions are, I don't intend for us to be any more clear than Dana's in my comments that start-up would be in '27. Zackery Van Everen: Got you. No, that's super helpful. And then maybe just a macro question. I know you guys mentioned the 200 million tons coming online between now and 2030. We're in that same ballpark. I'm curious where you guys stand on the global demand side. I know historically and just with your asset base, you do benefit from lower prices just with some of the markets that are more price sensitive. But do you guys have a view on the demand supply mismatch coming into the end of the decade? Steven Kobos: I mean, Zack, that's why I'm telling everybody, we're telling everyone the future of LNG is regas. like this is supply disruption. This is not demand destruction. I mean what's TTF right now, $15 or something with 20% of the global LNG offline. This isn't what you saw in '22. This is a disruption of supply. Long-term contracted LNG is affordable. It remains affordable. I think you're going to see that movement that went to long-term contracted supply continue. There may be some geographic diversification riders that people want on top of that. But we think that the supply and the wave justifies the company we've built with the balance sheet, which can integrate a molecule because we know people are going to want this, and they're going to want it on as easy and as quick a basis as possible. And that's the company that we've built at Excelerate. Operator: And there are no further questions at this time. I will now turn the call back over to Mr. Steven Kobos for closing remarks. Steven Kobos: Thank you all for joining us today. As I just said, there is and will continue to be an enormous need for the growth of regas capacity around the world. That's why we know that the future of LNG is regas and Excelerate is the global leader. Operator: Thank you. This concludes today's call. We thank you for attending. You may now disconnect.
Operator: Welcome to the PacBio First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Caylene Parrish with Investor Relations. Please go ahead. Caylene Parrish: Good afternoon, and welcome to PacBio's First Quarter 2026 Earnings Conference Call. Earlier today, we issued a press release outlining the financial results we'll be discussing on today's call, a copy of which is available on the Investors section of our website at www.pacb.com, or as furnished on Form 8-K available on the Securities and Exchange Commission website at www.sec.gov. A copy of our earnings presentation is also available on the Investors section of our website. With me today are Christian Henry, President and Chief Executive Officer; and Jim Gibson, Chief Financial Officer. On today's call, we will make forward-looking statements, including, among others, statements providing predictions, estimates, expectations and guidance. You should not place undue reliance on forward-looking statements because they are subject to assumptions, risks and uncertainties that could cause our actual results to differ materially from those projected or discussed. Please review our SEC filings, including our most recent Form 10-Q and 10-K and our press releases to better understand the risks and uncertainties that could cause results to differ. We disclaim any obligation to update or revise these forward-looking statements, except as required by law. We also present certain financial information on a non-GAAP basis, which is not prepared under a comprehensive set of accounting rules and should only be used to supplement an understanding of the company's operating results as reported under U.S. GAAP. Reconciliations between historical U.S. GAAP and non-GAAP results are presented in our earnings release, which is available on the Investors section of our website. For future periods, we're unable to reconcile non-GAAP gross margin and non-GAAP operating expenses without unreasonable effort due to the uncertainty regarding, among other matters, certain acquisition-related items that may arise during the year. A recording of today's call will be available shortly after the live call in the Investors section of our website. Those electing to use the replay are cautioned that forward-looking statements may differ or change materially after the completion of the live call. I will now turn the call over to Christian. Christian Henry: Thank you, and good afternoon, everyone. Our first quarter of 2026 was highlighted by record consumable revenue, greater than 100% year-over-year growth in consumable shipments to clinically focused accounts and significant progress on our strategic objectives, including entering our first significant AI-related project with Basecamp Research. On the other hand, instrument revenue, particularly Vega, was lower than we had expected. This was driven by continuing pressure on academic funding, particularly in the United States. Additionally, we were unable to deliver some products to the Middle East because of the conflict in the region. I'll start by diving into our consumable performance. Once again, we achieved record consumable revenue, marking our third consecutive record quarter. In Q1, this was highlighted by more than 100% year-over-year growth in shipments to clinically focused accounts. This growth offset the fact that some customers held off consumable shipments to wait for the SPRQ-Nx commercial launch. Overall, consumable revenue grew 9% year-over-year, and clinical shipments now represent a mid-teens percentage of total consumable shipments, doubling year-over-year. We expect clinical shipments to continue growing as customers transition from testing and validation to full commercialization. Consumable pull-through was within our expected range of $225,000 to $250,000 Revio system. Additionally, there was strong demand to participate in our SPRQ-Nx early access program during the quarter. Turning to instruments. We shipped 15 Revio systems in the first quarter compared to 12 in the first quarter of 2025. While Revio demand remains constrained by the funding environment in the Americas, we are encouraged by the fact that half of Revio placements went to new customers globally, and we continue to see multisystem orders from clinical accounts building their capacity. We ended the quarter with cumulative Revio shipments of 346 systems. We shipped 27 Vega systems in the first quarter compared to 28 in the first quarter of 2025. The revenue contribution from Vega was impacted by 2 primary factors: lighter demand in the United States, where academic funding remains under pressure and promotional pricing geared towards attracting new customers. Specifically, during the quarter, we launched a limited time Vega promotion to expand our Vega installed base and unlock several new accounts. We concluded the promotion at the end of the first quarter, and we expect Vega ASPs to normalize in the second quarter. The good news is that more than 85% of Vega placements went to new customers this quarter, expanding the reach of HiFi sequencing. Cumulative, Vega shipments stand at 174 systems. From a regional perspective, EMEA was a highlight in the first quarter, delivering 17% year-over-year growth. We are seeing clinical customers who were in pilot and validation mode now make the transition into sustained production scale sequencing. That shift is creating demand for more Revio placements and is driving sustained consumable pull-through. The EMEA pipeline for Revio continues to be strong, and we believe that instrument sales in EMEA will remain an important driver for our business. As we saw in 2025, we expect that EMEA will be the fastest-growing region in our business in 2026. In the Americas, we continue to aggressively shift our strategy to clinical and commercial accounts where the funding dynamics are more favorable. In fact, in Q1, our largest accounts are now commercial service providers and clinical accounts. Revenue in Asia Pacific declined 16% year-over-year due primarily to our largest customers in China waiting for the commercial launch of our SPRQ-Nx kits, which are expected to ship later this month. Looking ahead, we remain confident in delivering revenue growth for the year. Although Vega demand remains softer than we anticipated, Revio opportunities are increasing with the imminent launch of SPRQ-Nx. As I communicated previously, we believe the introduction of SPRQ-Nx makes HiFi sequencing the most affordable long-read sequencing technology. These favorable economics have been enabled by both the Multi-Use SMRT Cell and an increase in SMRT Cell yield. We will commercialize SPRQ-Nx with the ability to use the SMRT Cell 3x, and our beta customers have seen double-digit improvement in yield. In fact, the beta program has gone so well that we significantly expanded the program in the first quarter. However, as I previously indicated, some of the customers are waiting for the full launch of the new chemistry, which will occur later this month. Ultimately, we believe that SPRQ-Nx will drive demand for both more Revio systems and more consumables, but SPRQ-Nx isn't limited to Revio. Later this summer, we expect to launch the SPRQ-Nx chemistry on the Vega platform. On Vega, SPRQ-Nx will enable significantly more throughput, and it will unlock some of the key features of the SPRQ chemistry, including lower DNA input quantities. This will immediately increase the utility of the platform and increase its value, which we believe will accelerate demand for Vega. Now I'd like to highlight a few significant strategic developments from the first quarter and areas where we have made encouraging progress in support of our long term goals. First, we completed 2 significant strategic actions in the quarter. We closed the sale of our high-throughput short-read sequencing assets to Illumina, generating approximately $48.1 million in net cash proceeds and meaningfully strengthening our balance sheet. Additionally, we resolved outstanding litigation with personal genomics of Taiwan. Taken together, these actions sharpen our focus, strengthen our position and allow us to concentrate entirely on what we believe to be our true competitive advantage, long-read sequencing. We are also making real progress in our clinical opportunity, which we believe remains the most compelling long-term driver of our business, with shipments to clinical accounts increasing more than 100% year-over-year. Our goal is clear: lower the barriers of adoption and enable clinicians worldwide to deliver more complete answers to patients and their families. Our core thesis is straightforward. HiFi is the only commercially available sequencing technology that we believe can comprehensively characterize substantially all classes of variants in a single assay. As a comparison, short-read approaches require multiple tests to achieve a similar result. As demand for comprehensive genomic testing continues to grow, we're focused on expanding the clinical utility of HiFi sequencing because our system's faster time to answer, comprehensive genomic output, and altogether less expensive total testing costs can provide the insights that meaningfully change outcomes for patients. Specifically, we continue to believe that the rare disease market will be a major driver for clinical adoption of HiFi sequencing. Of the estimated 300 million people living with a rare disease, many remain undiagnosed or misdiagnosed, which we believe to be a reflection of the limitations of historic sequencing technology. What makes the rare disease market particularly compelling from a business perspective is that we believe we are in the early phase of the adoption curve. Patients getting sequenced today represent a small fraction of those who could benefit. It is clear to our team that we are in the early innings of a very large opportunity, and we have the chance to make a big impact with HiFi technology. We've made notable progress across our recently announced collaborations in rare disease. Ambry Genetics is on track to assess 1,000 patients in their once study. With Ambry, we believe we are proving that HiFi has the power to find what other sequencing technologies have missed. Our collaboration with n-Lorem and EspeRare continues to advance with HiFi sequencing across dozens of ultra-rare diseases. HiFi has the potential to help inform therapy recommendations, another important validation point for clinical utility beyond the initial diagnosis. Additionally, the University of Washington program studying sudden unexplained death in childhood by sequencing across 200 families is well underway, further building our evidence base. As utilization of HiFi to sequence rare disease cases continues to expand, the ability to connect the data across customers and sites becomes a valuable tool for understanding each rare disease. This is why in late February, we announced a collaboration with DNAstack to launch the first global federated HiFi whole genome data set. Through the HiFi Solves consortium, which includes nearly 30 clinical and research institutions across 15 countries, the collaboration enables secure international research and allows genomic insights to travel across borders. Members have connected or have committed to connect more than 10,000 HiFi whole genome sequences, which would form one of the largest and most diverse federated HiFi data sets dedicated to rare disease research. We expect that collaboration will accelerate discoveries for patients and further drive our strength in the clinical research setting. Beyond rare disease, we're seeing a tremendous opportunity in the carrier and newborn screening markets. For example, in the fourth quarter of '25, we announced the Babies and focus project led by Eurofins Genomics U.K. to sequence at least 2,000 samples. This study aims to demonstrate that long-read whole genome sequencing provides clinically meaningful improvements within a newborn screening setting, particularly in detecting complex and structural variants. We believe that this study will generate real-world evidence at population scale that can justify adoption of long-read sequencing in newborns in national health care programs and demonstrate the value created by long-read sequencing over short-read approaches. I'm happy to report that this is advancing as planned, and we expect 1,000 samples to be sequenced on the PacBio technology between April and September of this year. We believe this work is foundational for building the evidence base for potential inclusion of long-read sequencing in a national newborn screening program in the United Kingdom. Before I turn the call over to Jim, I want to discuss our recently signed collaboration with Basecamp Research to deeply sequence approximately 100,000 metagenomic samples. This will be the largest project using HiFi technology in the history of PacBio and the first scaled use of HiFi for the development of a biological foundation model. The team at Basecamp believes that model performance and biology scales disproportionately with data quality and diversity, not just model size. As a result, Basecamp is ambitiously targeting to create a Trillion Gene Atlas, which may end up expanding known genetic diversity by as much as 100-fold by sequencing up to 100-plus million species globally. The Trillion Gene Atlas will be used to train a new class of biological foundation model, Basecamp's Eat-in model, which is already demonstrating the ability to move beyond simple prediction into generative biology, designing therapeutics directly from sequence and disease prompts, including gene insertion systems, antimicrobial peptides and cell therapies with high experimental hit rates. Basecamp selected PacBio for this groundbreaking project because HiFi technology offers the most accurate and comprehensive view of the genome, which will be critical for this new class of biological foundation model. Additionally, with the launch of SPRQ-Nx, we now have the ability to not only sequence at scale, but also offer the economics required to meet the needs of ambitious projects like the Trillion Gene Atlas. I look forward to keeping you updated on this project as we expect sequencing to begin scaling up over the course of 2026. I'll now hand the call over to Jim, to detail our financials. Jim? James Gibson: Thank you, Christian. I'll discuss non-GAAP results, which include noncash stock-based compensation expenses. I encourage you to review the reconciliation of GAAP to non-GAAP financial measures in our earnings press release. Unless otherwise noted, all growth rates are year-over-year. We reported total revenue of $37.2 million in the first quarter of 2026, roughly flat compared to $37.2 million in the first quarter of 2025. Instrument revenue in the first quarter was $9.7 million, a 12% decrease from $11 million in the first quarter of 2025. The year-over-year decline was primarily driven by lower Revio ASPs as we continue to prioritize placements in strategic accounts and lower Vega ASPs associated with our Q1 promotion. This dynamic was partially offset by an increase in Revio instruments shipped. In total, we shipped 15 Revio systems and 27 Vega systems, bringing cumulative shipments to 346 Revio systems and 174 Vega systems. Turning to consumables. Revenue reached a record $21.8 million in the first quarter, up 9% from $20.1 million in the first quarter of 2025. Annualized Revio pull-through per system was approximately $229,000, reflecting consistent utilization across an expanding installed base. Finally, service and other revenue declined approximately 7% to $5.6 million in the first quarter compared to $6 million in the first quarter of 2025. From a regional perspective, Americas revenue of $16.7 million increased by 2% year-over-year. The performance was primarily driven by growth in consumables revenue related to an increase in our installed base. For Asia Pacific, revenue of $9.7 million decreased by 16% compared to the first quarter of 2025. The year-over-year decline reflected a weaker academic funding environment and the fact that some of our Chinese service providers are waiting for the launch of SPRQ-Nx. EMEA revenue of $10.8 million increased by 17% compared to the first quarter of 2025 despite some challenges delivering product to the Middle East. The year-over-year increase was driven by consumables demand, reflecting both account expansion and higher utilization, particularly in clinical settings where increased test volumes drove incremental pull-through. Moving down the P&L. First quarter non-GAAP gross profit of $13.8 million represented a non-GAAP gross margin of 37% compared to a non-GAAP gross profit of $15 million or a gross margin of 40% in the first quarter of 2025. Non-GAAP gross margin decline in the quarter was impacted by 3 primary factors: First, we continue to see increased computing component costs, specifically memory, which we flagged on our Q4 call as a potential headwind in 2026 and which we believe will persist throughout the year. Second, we held a temporary Q1 promotion for Vega to drive placements, which compressed instrument margins. Third, there are unique onetime dynamics at play in Q1, including inventory adjustments and warranty-related charges. We want to be clear. Gross margin pressure in Q1 was primarily driven by nonrecurring and timing-related factors, and we expect gross margins to improve in the second quarter. Non-GAAP operating expenses were $49.9 million in the first quarter of 2026, representing a 19% decrease from non-GAAP operating expenses of $61.7 million in the first quarter of 2025. Operating expenses in the first quarter of 2026 included noncash share-based compensation of $3.8 million compared to $8 million in the first quarter of 2025. Regarding headcount, we ended the quarter with 492 employees compared to 485 at the end of 2025. Non-GAAP net loss was $35.9 million, representing $0.12 per share in the first quarter of 2026 compared to a non-GAAP net loss of $44.4 million, representing $0.15 per share in the first quarter of 2025. We ended the first quarter with approximately $276 million in unrestricted cash, cash equivalents and investments compared with $280 million at December 31, 2025. Our cash position reflects the January closing of the sale of intellectual property and other assets related to our short-read DNA sequencing technology to Illumina for which we received $48.1 million in net cash proceeds. Turning to 2026 guidance. Given the dynamics that Christian cited, we are lowering the high end of our outlook for 2026 revenue by $5 million and now expect revenue in the range of $165 million to $175 million. Our revised outlook continues to assume that consumables are the primary driver of growth, supported by continued utilization from clinical customers and the ongoing expansion of the Revio and Vega installed base. We continue to assume no meaningful recovery in academic and government funding, particularly in the Americas. We expect non-GAAP gross margin improvement in 2026 to be towards the lower end of our previously communicated range of 100 to 400 basis points. While higher consumable mix and the introduction of SPRQ-Nx remain important drivers of margin expansion, rising compute costs will temper the pace of margin improvement in the near term. Non-GAAP operating expenses are expected to be in the range of $220 million to $225 million, down from 2025 levels. I'll now hand it back to Christian, for closing remarks. Christian Henry: Thanks, Jim. The first quarter certainly had its challenges. But when I look at what we have accomplished to start the year, record consumables revenue, continued sequential strength in EMEA, increasing clinical adoption, the Basecamp Trillion Gene Atlas win and the promising results of our SPRQ-Nx beta program, which will enable full commercialization later this month, I see that we are executing on the initiatives that are expected to drive meaningful sustained growth. We are well positioned to advance the field of sequencing, making an impact for the better and delivering long-term value across stakeholders. We believe that HiFi sequencing remains the most comprehensive and accurate way to sequence the genome. We remain focused on increasing the adoption of HiFi through both increasing the throughput of the sequencers and dramatically improving the economics of leveraging the technology through SPRQ-Nx. With these improvements, we expect to continue creating new opportunities and expanding our clinical opportunity, especially. Additionally, HiFi is increasingly becoming recognized as an obvious choice as large data sets are created to train advanced AI models for drug discovery. As a result, I'm confident in the trajectory of our business and growth as we advance through 2026. We look forward to updating you as the year continues to unfold. With that, we will now open it up for questions. Operator? Operator: [Operator Instructions] The first question comes from Dan Brennan with TD Cowen. Unknown Analyst: [ Pradeep ] on for Dan. What does your guide for instruments imply? And what sort of visibility do you have going forward? Christian Henry: Can you repeat the first part of the question for me? Unknown Analyst: Yes. What does your guide for instruments imply for the rest of the year? Christian Henry: Yes. So our guide for instrument, the guide for instruments continues to be strengthening Revio's and a little bit of uncertainty around the Vega platform. Vega, we're finding, particularly in the Americas, is really more sensitive to the academic and government funding environment. And as we've turned our focus to really driving clinical and commercial accounts, we're seeing more demand for the Revio system. And so on balance, we expect them to somewhat balance out, and that's why you can see in the guide, we still believe we're going to achieve -- we're going to still be in the range of the guide that we provided back in February. From a visibility perspective, we do have funnels for both platforms of course. The platform for Revio has been improving. And Vega, particularly in the Americas, has been a bit more challenging. And so that's kind of where we sit today. Unknown Analyst: Can you discuss clinical traction, including U.S. versus outside U.S.? And what does progress in the U.S. look like and outlook for 2026 and even 2027? Christian Henry: Yes. So U.S. versus the U.S., if we look at clinical traction, I'll start outside the United States because really, we're seeing in EMEA, very, very strong traction with the Vega platform being really the platform for whole genome sequencing for rare disease. And we're seeing the customers in EMEA go from the validation phase to increasing full commercialization. And so we expect that to be an important core driver. In the United States, we're actually seeing much of the same thing. And one of the things we said in our written remarks is that our biggest customers now have become the clinical and commercial accounts. And what's exciting about that is those clinical accounts -- some of them have gone commercial, but many of them are kind of ending their validation phase at this point in time. And we expect to see them ramping in full commercial production with both the carrier screening assays as well as whole genome sequencing in the rare disease setting. So we do expect our growth prospects in clinical to continue and quite frankly, keep moving forward, both in the United States and in Europe, in particular. So very encouraging results. We also indicated that we saw over 100% growth quarter year-over-year for the clinical side of our business and consumables, which will help us all around. Operator: The next question comes from Doug Schenkel with Wolfe Research. Unknown Analyst: This is [ Austin ] on for Doug. Just a quick one on input costs. Within cost of product sales, what is your exposure to memory pricing? And given the rise in memory chip costs, are you expecting a material gross margin headwind? And if so, how should we think about the impact on margin cadence for the rest of the year? Christian Henry: Yes, it's a great question. Thank you, Austin. We do -- our instruments are heavy compute instruments, both for DRAM and for storage as well as GPUs. We've mitigated some of that risk over the for 2026, but we do expect that to impact our gross margin some this year. And as Jim pointed out, we expect to be more on the lower end of gross margin growth than the higher end of gross margin growth really as a result of these input costs. So they are having an impact. There's a lot of variability there. We're seeing prices increase pretty regularly here. And so we're managing it. But we're managing it through. We already have supply on hand, and we're also looking at R&D solutions, which take a bit longer to get into the system, but over the long run, as DRAM prices kind of normalize, those R&D solutions actually will help us with gross margin in the long run. So in the short run, we're managing it will have some impact in 2026. We still are expecting to improve our gross margins over 2025. And in the long run, R&D solutions will help us lower those costs overall. Unknown Analyst: Great. And then just one on the discounting you mentioned. Where did ASPs for Revio's and Vegas land in the quarter? And are there any similar discounting activities planned for the rest of the year? Or should we expect improving ASPs from here? Christian Henry: Yes. We -- there are no additional discount programs that are ongoing or going forward. That Vega was really a onetime promotion. And what we were trying to do with that promotion is get some new accounts, and we are very successful at that. 85% of the Vega sales were to brand-new customers. But we've decided to kind of back off of that discount in Q2. Revio ASPs are reasonably consistent with where they've been and Vega was certainly lower this quarter because of that promotion. We would expect Vega to return to kind of more normalized levels in Q2. Operator: The next question comes from Kyle Mikson with Canaccord Genuity. Unknown Analyst: This is [ Alex ] on for Kyle Mikson. So I understand you're facing 2 pressured instruments, but I'd like to focus on some areas of strength and potential growth. Just to start here, congrats again on the consumables growth in the quarter. Aside from rare disease, you had your pure target panels. Any plans to launch additional pure target panels in the near term? And of course, it's no secret that you shifted a good deal of focus towards the clinical end market. Do you have any internal targets regarding where you can envision what clinical might make up as a percentage of total revenue in the medium- to long-term? Christian Henry: Yes. Those are great questions, and we're actually very happy with the pure target performance that we've had with the company, and that's really enabling us to get into the carrier screening market, for example. Where we're seeing the fastest growth though in clinical really is in a whole genome context in rare disease. But the pure target panel itself is great for carrier screening. We are developing variations of it, so that customers can customize their panels somewhat, which I think will help spread that opportunity out for us. And when we start to look at the long run, we do believe that a very substantial proportion of our business, perhaps as much as more than half of our consumable revenue over time will be clinically driven. And we'll reserve to figure out when does that actually occur. But we are certainly seeing that the clinical business is making up for some of the weakness in the academic segment, particularly on the consumable side, and we're very happy to see that we've got 3 sequential quarters in a row of record consumables which I think will -- not only is demonstrating the power of the platform, but it's also going to, in the long run, help our gross margins as that product mix continues to improve. Of course, the one thing I will also say is with the imminent launch of SPRQ-Nx, SPRQ-Nx, because of its multi-use capability is one of those rare situations where we can improve the economics for the customer, but we can also increase our gross margin for consumables. And so as that product starts to take hold over the second half of the year and into 2027, that's another real opportunity for gross margin expansion. So very excited about what's going on in consumables right now. Unknown Analyst: Great. And just one more for me. This is on the upcoming ultra-high throughput sequencer. So just thinking about multiple dynamics here in the near to medium term, the launch of SPRQ-Nx and the reusable SMRT Cells. But also you have customers thinking about this ultra-high throughput sequencer as well. So how should we factor that into potential slowdown of Revio orders near the ultra-high throughput launch as well as the benefit you're going to get from the full broad commercial launch of the reusable SMRT Cells. Moreover, do you envision yourself as a multiple product tools vendor in the long term? Or realistically, do you think maybe ultra-high throughput and Vega would become the main stage of the portfolio? And perhaps what is customer feedback on potential new sequencers indicated to you about how you think about this dynamic? Christian Henry: Yes. It's an interesting question. And what our strategy has been is that we believe we need that having 3 platforms in the market gives customers a lot of choice for what levels of volume that they want to pursue. What our intent is, is to keep improving the Revio platform through improvements to the reagents to the consumables, which is what we've done with the SPRQ chemistry and now with SPRQ-Nx chemistry, we will keep creating more value for those Revio customers. That said, for those customers that want to operate at very significant scale, the ultra-high throughput system will be the way to go because it will be -- it will drive cost down for them in terms of not only the economics of the sequencing, but the logistics and everything behind that. And so over the long run, we believe that all 3 platforms will find their place in the market with the mid-throughput kind of customers being long-term Revio users. And then, for example, the larger clinical accounts all moving to the ultra-high throughput. Vega will continue to improve as well. As I said in my written remarks, we're going to increase the throughput pretty substantially later this summer and also introduce all of the features of SPRQ, so Ultra or so low DNA input amounts, for example. And that will add value to that platform and help it become a mainstay. It is -- it will have the right level of throughput for lots of different applications like AAV and microbial and other types of applications like that. So we do think it will find its footing not only in the academic setting, but perhaps in some of the -- some aspects of the clinical market as well. So we see very strong prospects for all 3 platforms in the market going forward. Operator: The next question comes from David Westenberg with Piper Sandler. Unknown Analyst: This is [ Peron Patel ] on for David. Maybe just one on EMEA growth. Maybe could you characterize the type of clinical applications that are driving that growth? Is it primarily rare disease germline? Or are you seeing meaningful contribution from oncology rare disease? Christian Henry: Yes. So we grew 17% in EMEA. So we're really pleased with how EMEA is moving forward. And it really is on the back of rare disease testing in going -- becoming first-line tests in different countries. Structurally, Europe is a perfect market for us and for Revio for this, a single-payer health care system with a lot of innovative leaders that have really gotten behind the fact that with long-read sequencing and particularly HiFi, you can eliminate several other tests relative to short-read approaches and you can increase your diagnostic yield at the same time. And so they're demonstrating this in multiple countries now, and we're starting to see that push. That's really what really what is propelling our growth in that part of the world right now. Interestingly, they grew substantially even though we did have some challenges getting some shipments out to the Middle East, which would have counted in the EMEA scorecard. So that region is really doing quite well, and I fully expect it to be our fastest-growing region again in 2026. Operator: The next question comes from Mason Carrico with Stephens. Mason Carrico: Maybe first, within the 2026 guide, how much visibility do you have today into consumable revenue that's baked in maybe from the existing installed base ramping utilization versus consumables associated with maybe new placements this year? Christian Henry: Yes, that's a great question. And the reality is that we have -- most of our guide is predicated on existing customers and their utilization because here we are in May. And as we place new systems, there is a ramp-up time for utilization, particularly if they're going to have a meaningful contribution to consumables in 2026. So when you think about the guide, we're really taking the majority of it coming from existing customers as they grow and expand. The launch of SPRQ-Nx is the one variable that we are evaluating, and we'll see how that unfolds over the next 2 or 3 months as we kind of get that off the ground. As I did say, some of our customers held off their shipments in March for regular SPRQ reagents in anticipation of the SPRQ-Nx launch. And so I suspect as some of those -- as we get SPRQ-Nx out to market, some of those customers perhaps will place bigger orders earlier, which will help us and get us off and moving. But overall, when we think about the visibility to the guide in consumables, it really is driven off of the existing installed base, what we know about the existing installed base expanding their utilization and then to a lesser extent, the new placements of instruments that we expect. Hopefully, that helps. Mason Carrico: Yes. No, that's really helpful. And -- we're juggling a few tonight, so sorry if you've talked about this, but could you share any additional feedback on the Vega promotional program in Q1 and how we should be thinking about Vega placements for the balance of the year? I think you had a high percentage of new customers in Q1 for Vega. How much of that demand was driven by that promotional program? Christian Henry: Yes. The promotional program was successful. It's always difficult. Once you put a promotion in place, it's always difficult to know which customers would have purchased the system without the promotional price. But we did have a substantial portion of our 27 units shipped under the promotion. And where the promotion was most successful was in APAC, in particular, where that's certainly a more price-sensitive market. And so we're seeing that. But it also kind of gave us some insight that it really is a tough academic and -- academic and government tough funding environment, particularly in the Americas because even with the promotion, there wasn't that many customers that took advantage of the promotion in the United States, and it's really due to funding. And so it helped us understand that a little better. When I think about going forward demand, I do think that the funnel allows us to kind of certainly achieve our guidance. That's why we put the guidance out the way we did. And I do think that Vega will be volatile from quarter-to-quarter. It typically is. It varies. If you look at last year, the numbers varied quite a bit. But I do expect us to start moving in a more normalized direction with respect to ASPs, and we'll see how the unit volumes react to that. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Christian Henry, for closing remarks. Christian Henry: Yes. Well, I appreciate everyone's participation on today's call. We look forward to providing you updates at the various conferences this quarter and on our next call, and we appreciate your support of PacBio. So have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.