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Rune Sandager: Hello, everyone, and welcome to GN's conference call in relation to our Q1 report announced yesterday evening. Participating in today's call is Group CEO, Peter Karlstromer; Group CFO, Soren Jelert; and myself, Rune Sandager, Head of Investor Relations. The presentation is expected to last about 20 minutes, after which we'll turn to the Q&A session. The presentation should already be uploaded on gn.com. And with that, I'm happy to hand over to Peter for some opening remarks. Peter Karlstromer: Thank you, Rune, and thanks to all of you for joining us today. Let's start with some highlights on the quarter. Our Enterprise business experienced strong growth in the U.S. and the APAC market, while EMEA continues to experience weak demand and some level of channel inventory reductions. We started shipment of our Evolve3 range at the beginning of March, and we have been very encouraged by where we've seen so far. During the quarter, we experienced significant growth in the premium segments of headsets. This is exciting as we will be launching further additions to the Evolve3 family later this year that will gradually support our growth in Enterprise. On the margin side, we have had a soft quarter as expected due to the annualization of tariffs and inventory provisions related to warehouse movement in the U.S. and certain channel investment to support the launch and rollout of the Evolve3 headset platform. In Gaming, we continue to gain market share in the gaming equipment market influenced by continued weak consumer sentiment. While Gaming also faced some of the same margin headwinds as Enterprise due to tariffs, we have managed to control it through positive ASP development coming from the price increases implemented last year as well as a continued good cost control. We have just launched an exciting addition to our gaming headset portfolio, the Nova Pro Omni category, which is expected to contribute with growth for '26. In addition, we still have a strong product pipeline in the coming quarters, and we look forward to even more exciting launches in '26. Moving to our Hearing division, that now is treated as discontinued operations due to the announced divestment to Amplifon March 16. While we prepare for the closing of the transaction, the Hearing division continues to perform well and in the quarter across regions and channels grew with the help of ReSound Vivia, driving continued market share gains, which led to an organic revenue growth of 9%. With this summary, let me provide you with some more details on the performance across our divisions. In Enterprise, the business continues to do well in the U.S. and APAC, but due to the continued weak demand and some channel inventory reductions in EMEA, we delivered a negative 5% growth in the quarter. The gross margin ended at 53.7% in the quarter, which was around 2 percentage points lower than last year due to the annualization of tariff costs as well as some temporary effects due to an inventory provision related to the U.S. warehouse movement. We expect the gross margin to stabilize in the coming quarters. The divisional profit margin reflects the development in gross margin as well as some higher channel investment into the Evolve3 launch and rollout. The launch of Evolve3 has been very well received and is progressing better than expected, driving significant growth in the premium segment of headset. This is encouraging and supports our growth ambitions for the year as we extend the Evolve3 family. Let's move to the next slide for a bit more detail on this. Within our premium headset category, where we have started the shipment of Evolve3 75 and 85 in March, we have experienced more than 50% growth year-over-year in Q1. This is, to some extent, driven by channel stocking of the new products, but the sell-through to resellers also showed strength in the segment, which is an encouraging sign of momentum. The premium category accounts for around 15% of the Enterprise revenue. Evolve3 did contribute to growth in Q1, and we expect the effect from the launch to grow stronger over the year as we launch more products. In Q3 and in particular, in Q4, we do expect to see a significant Evolve3 contributions to absolute revenue and thereby also growth. As for the channel reductions we experienced in EMEA in Q1, we expect them to continue in the next few quarters given the current geopolitical uncertainty and the desire for several distributors to reduce the inventories. To help you understand how we plan our year, we would like to tie all this together. As several of you know, we normally see a revenue seasonality between H1 and H2 of around 47% sales in H1 and 53% in H2. Due to the short-term channel reductions and the H2 benefit of the Evolve3 rollout, the revenue seasonality will likely be more pronounced this year, which we have factored into our guidance. Let's move to the next slide and take some further look into the dynamics we observe in the markets we operate in. On this slide, we're illustrating the different dynamics that have contributed to the top line development in Q1. Our sellout in North America and APAC continued to be very strong. This has also been supported by some market share gains, in particular in the U.S. The channel inventories are stable, both in North America and APAC. And for both regions, we delivered double-digit organic revenue growth in the quarter for our core Enterprise business. Our main challenge for Enterprise is EMEA that is also the largest region. In EMEA, we are experiencing a weak market demand due to the geopolitical uncertainty. We also lost some market shares in the region, which can be expected from time to time given our more than 60% market share position. The decline is mainly related to the entry-level price points of headsets where we have seen increased competition. We do expect to regain this share with the launch of Evolve3 when we're launching these products relatively soon. Lastly, we've also seen some channel inventory reductions as our distributors navigate the global uncertainty. These effects together have resulted in a double-digit organic revenue decline in the quarter for EMEA. We do expect the challenged market conditions in EMEA to continue for the next few quarters. We focus on successfully upgrading our portfolio by rolling out the Evolve3, and we do expect this will stabilize our growth as the year progresses. Let's move to the next slide for some highlights and performance in the Gaming division. In Gaming, we delivered a negative 1% organic revenue growth in the quarter on top of a very demanding comparison base of 11% growth last year. This was driven by strong execution in a relatively soft market suppressed by continued muted consumer sentiment. The growth was supported by a good momentum in the headset segment, while low-end keyboards and mice provided some growth headwinds. Region-wise, North America contributed positively, while the business was somewhat weaker in EMEA and APAC. The gross margin of 34% was negatively influenced by the annualization of tariff costs as well as the wind-down effects in Q1 of the consumer business. This was partly offset by a positive ASP development coming from the price increases introduced last year. The divisional profit margin developed positively to 11% compared to 10.4% in '25, despite the negative development in gross margin, reflecting a continued good cost control. Let's move to the next slide for some more information on the gaming launch. SteelSeries expands our premium category of gaming audio with the introduction of the Arctis Nova Pro Omni. This headset enhances overall experience for the modern gaming, providing the best circumstances for ultimate immersion with the best ANC in gaming and an AI noise rejection baked into the microphone for impressive background noise reduction. The ability to connect to 5 devices at once with real-time audio control and infinite battery life enables complete omnipresence while the sound experience is enhanced further with a Hi-Res Wireless Certification and custom Hi-Res magnetic drivers. Coming in a new refined compelling design, this is a truly step-up in the Nova Pro headset category. We're excited about this launch and do expect the Nova Pro Omni to meaningfully contribute to SteelSeries growth from Q2 and onwards. With these updates on the Enterprise and Gaming divisions, let's move to the next item on the agenda, where Soren will provide some more details on the Hearing transaction. Soren Jelert: Thank you, Peter. On March 16, we announced the divestment of our Hearing division to Amplifon. Let me give you an update across key aspects of the transaction and its value creation. The carve-out process is well underway, and we continue to expect the transaction to close towards the end of the year as previously communicated. The transaction proceeds comprise a cash payment and the shares in Amplifon. The shares are subject to the customary lock-up period. We are excited to create an industry-leading player with Amplifon by combining our strength. We are convinced that this transaction will contribute with significant value creation for GN and Amplifon shareholders. While we do not see ourselves as a very long-term shareholder in Amplifon, we give our new strategic -- given our new strategic direction, we will be patient and wait for the value to be realized before we responsibly and in a controlled way sell our shares. The carve-out will be taxable, and we expect an upfront tax payment of DKK 1.5 billion to DKK 2 billion. However, we will also get an equal sized tax asset that can be used for tax reductions over the coming years. To unlock shareholder value, we are committed to return excess cash to our shareholders. We are currently, in the short term, targeting a leverage of 1 to 1.5x EBITDA. Shortly after closing, we plan to initiate a share buyback program. To avoid any doubt, we also like to be clear that we are not planning to do any large-scale acquisitions. So the excess cash at closing and additional cash when we exit our Amplifon shareholding is expected to be returned to our shareholders. Moreover, to address stranded costs and to set up GN for financial success, we are initiating cost initiatives to be executed during '26 that would deliver around DKK 200 million in structural cost savings. To separate Hearing and to adjust our cost base, we estimate total one-off cash costs of DKK 750 million across '26 and '27, of which around 75% is expected this year. Related to the separation and to the setup of GN for the future, we have also, in Q1, executed a number of noncash impairments. On the next couple of slides, I'll provide you with some additional details around some of these initiatives driven by the transaction. Let me first start by framing the size of the initial cash we will have available for distribution. With the cash proceeds from the transaction, net of tax, we will have an excess cash position. On top of this, we will drive a healthy operating cash flow in '27, which will further add to the positive cash position. In order to reach a leverage target of 1 to 1.5x by the end of '27, this would imply a quite meaningful excess cash holding somewhere between DKK 3.5 billion and DKK 4.5 billion, depending on the EBITDA of the business and the leverage target. As an overall planning assumption, you should expect the significant majority of this excess cash to be distributed back to our shareholders. As we mentioned, we are currently planning to initiate a share buyback program after closing of the transaction. Until the AGM in '27, we are authorized by our shareholders to hold up to a 10% treasury shares. We are currently holding 3.5% shares, so we can buy back around 6.5% shares, which equals to roughly 10 million shares. At the AGM in '27, we will then propose a cancellation of any excess shares and ask for a new authorization, which would allow us to continue to significant shareholder distribution. In addition, we also expect to reinstate yearly dividends. In the years to come, we will also have a few attractive financial assets that can be sold over time, which could drive even more shareholder distribution. We hope that this framework will help you to understand our priorities. We will come back with more details about our capital allocation priorities at our upcoming Capital Markets Day, which will also allow us to discuss the framework with our investors. Slide 14. We are focused on driving GN towards sustainable profitable growth. Let's talk about where we are and the steps we are taking in the near term. All margin numbers on this slide refer to the new GN without our hearing business. If we start with where we are coming from, in '25, our restated EBITA margin is 7.6%, which includes DKK 200 million in stranded costs as part of the transaction. While we in '26, will have limited operating leverage due to the low growth from our challenged markets, we still expect to drive a margin expansion from cost focus and also from lower average tariff exposure than we had in 2025. We'll also benefit from some of the balance sheet adjustments, which we announced today. This will, in total, lead us to an EBITA margin of 8% to 9% for the year. The effect from the cost initiatives of around DKK 200 million will further support our underlying margins with around 2% in '27. With the help of these steps, you will derive at an underlying EBITA margin of 10% to 11%. This margin level then serves as the structural margin level, which we will further improve in the years to come. We will share more of our plans around this at our upcoming Capital Market Day, which we plan for towards the end of the year. At this event, we will explain our plans for how to accelerate growth and drive margin expansion beyond where we are now, thanks to attractive markets, customer-centric innovation, selective investments and strong execution. Next slide, please. As a natural consequence of the transaction, we will be having some one-off costs related to the transaction. We estimate a total of one-off cost of DKK 750 million, of which 75% is expected to be incurred in '26. The one-off costs comprise of costs directly related to the transactions such as adviser and consultant fees, legal costs and the likes. To complete the carve-out, we will have costs for advisers, legal support, IT consultants and costs related to contract separations. As we communicated today, we will also have costs for rightsizing of the business, which mainly will serve the severance costs. As for 2026, one-off cash costs, you should assume that most of these will be in the discontinued operations as these are costs necessary to drive the carve-out, while the rightsizing costs will be sitting in the continued operations. In total, this means that roughly 70% of the one-off cash costs in '26 will be related to the discontinued operations. Finally, we have done some asset impairments across IT, R&D and facilities. The majority of these is related to a large ERP project within our Hearing division that is not part of the transaction perimeter, and we are therefore subject to an impairment to the asset. The impairments are noncash by nature and is incurred in the first half of 2026. With that overview of the status and impact of the transaction, let's move to the group numbers and the related guidance. As a consequence of the transaction, our Hearing division is now treated as discontinued operations. So from now on, we will focus on the performance of the continuing operations in GN, which comprise of our Enterprise division, Gaming division and group functions that are not part of the transaction perimeter. In Q1 of '26, the continuing business delivered organic revenue growth of minus 4% due to the challenges in the EMEA part of our Enterprise division. The gross margin ended at 48.2%, reflecting gross margin development in Enterprise, as Peter mentioned earlier. However, we do expect our more normal gross margin in Enterprise already from Q2, and we will likely also see further improvements in gaming. The adjusted EBITA ended at DKK 6 million, equal to a margin of 0% compared to 6% in Q1 of 2025, driven by the development in the gross margin as well as negative operating leverage. The cash flow development in the quarter is including the discontinued operations. In Q1 of '26, GN delivered a free cash flow, excluding M&A of negative DKK 45 million, driven by seasonality, but offset by well-managed working capital. The net interest-bearing debt ended at DKK 8.9 billion, corresponding to an adjusted leverage of 3.8x EBITDA. Let's move to the next slide for our group financial guidance for the year. First, I would like to say that we are now reintroducing our guidance on EBITA margin, which was suspended when we announced the divestment of the Hearing division to Amplifon. As mentioned earlier, we are now guiding for a full year '26 adjusted EBITA margin for continuing operations of 8% to 9%. The benefits of the DKK 200 million cost savings would then come on top of this number and will be visible from 2027. Our guidance on organic revenue growth is a result of assumptions from our 2 divisions. The performance of our Gaming business in Q1 has been fully in line with our plans for the year, while we are confirming our early applied assumptions, which were an organic revenue growth contribution of 7% to 13% for the Gaming division. As Peter mentioned earlier, the demand in EMEA and Enterprise has been weak in the first quarter, and we are now taking a more cautious perspective to the underlying market development in EMEA. Consequently, we are now assuming a modest declining global Enterprise market for the year. However, due to the early feedback around Evolve3, we remain confident in our ability to drive market share gains for the year, while we are assuming Enterprise to contribute with organic revenue growth of minus 3% to plus 3%. As a function of the divisional assumptions across Gaming and Enterprise, we, therefore, are updating our organic revenue growth guidance to 0% to 6%. And with that, I'm happy to hand you back to Rune. Rune Sandager: Thank you, Peter and Soren for the updates. That was the end of the presentation. I will hand over to the operator for the Q&A. Please limit yourself to 2 questions at a time, please. Operator: Your first question comes from Veronika Dubajova with Citi. Veronika Dubajova: I have 2, please. One, I just would love to understand what gives you the confidence in that improving growth outlook in Enterprise. And I guess maybe you can kind of touch upon, one, what gives you confidence in the growth improving, but two, also what gives you confidence in the improving margins? I know you've not given an Enterprise guidance, excuse me, but obviously, that, I think, was the piece that the market was most disappointed this morning. And then I have a quick follow-up after that, but maybe we can start there. Peter Karlstromer: Thank you so much. I think it's fair to say that we are a bit behind what we expected here in Q1, and that's also why we're making some adjustment, of course, to the outlook. But I think what remains the same is that we always believed in a much stronger second half of the year than early half of the year. And this is solely due to the Evolve3 product launches. We have now launched the first products in late Q1, and we shared some of the initial encouraging effect of this where we see a very healthy growth. And when we say growth, we're then looking on the segment as total, so the old product and the new products together, how do we perform now vis-a-vis a year ago. We do expect to see similar effects as we're launching products in the medium and the entry-level segments of the market. And this is also where the majority of our Enterprise business is sitting. So this is essentially why we are believing in a much stronger second half of the year. So this will help us then to improve the momentum, in particular, in Q3 and Q4 compared to what you see here in the beginning of the year. Then when it comes to the margins, we had some one-off effects in this quarter, and we highlighted them here in the intro. And there is something related to the tariffs first where, of course, we didn't have tariffs in the beginning of last year. And then the other one is this movement of the warehouse, which is also a one-time effect where we're taking some kind of provisions related to that. So we do expect the gross margins to bounce back already in Q2, and you should see them on more, what you say, levels that you have got used to throughout the rest of the year. And then I would say, of course, also if you look more on the divisional margins and on the group margins, they will, of course, be supported by the growth as well. So this is our thinking around it. Veronika Dubajova: And that was actually going to be my follow-up. Can you quantify the warehouse provision for us or the impact that it had on the gross margin this quarter? Soren Jelert: Veronika, the warehousing is around 1% in terms of the implications in this first quarter. And then, of course, you have the tariff also that is also -- bear in mind that the tariff is sitting on the balance sheet. So whatever was the improvement in the tariff in the quarter 1, you won't see that until a little further down the line once we start to pick the product from the balance sheet. So that's also why we are confident in that it will actually improve our underlying margins because Q1 is mostly, of course, linked to the old tariff that we saw during last year. Operator: Your next question comes from Carsten Madsen with Danske Bank. Carsten Madsen: A question to Enterprise and the comments you have about North America, where you say strong growth, but your segment breakdown points to a decline in Danish kroner of 8.5%, the dollar is down 10%. So I guess you have something like a 1.5% growth in North America for Enterprise. I don't think that is strong or am I missing something here? And secondly, the EBITA margin of 10% to 11% for 2027, what level of amortizations are you expecting that year? Because I have a little bit difficult stripping out all the balance sheet impairments today and estimating the impact on future amortizations from these. Yes. Peter Karlstromer: So thanks a lot for the question. Let me start. I think the comment I made in the intro was mostly the Enterprise core. It's essentially the core Enterprise headsets. As you probably recall, we also in Enterprise, the way we report, have BlueParrott as well as FalCom. If you look in North America, there was not any real impact of FalCom in any way. But BlueParrott had a very good quarter last year and a weaker quarter this year. So that is essentially putting some negative effect. So if you filter that out, actually, the growth we saw in the core enterprise was a very solid growth in North America. So hopefully, that helps understand. Just one more comment related to this to help you all. I mean, I think that some of you probably will also reflect and we did have some FalCom business in the quarter. So to some extent that, that positively contributed to the overall Enterprise numbers. But as I mentioned, we also had a bit of a negative contribution from the BlueParrott. So they more or less netting each other out, so to say, if you look on the global Enterprise numbers. But in North America, it's a BlueParrott negative effect. Carsten Madsen: Okay. Soren Jelert: Then to the impact of the amortizations, I mean, the majority of it, given that we already do it now, you see the positive effect of that this year, and that's baked in. Of course, as it's also a full year and part of the portfolio also is depending on it, there is a little step up next year, but the majority is this year. Carsten Madsen: But can you help us understand what the EBITDA margin guide would have been for '27 without these impairments? Soren Jelert: Yes, fair. I think approximately, it's 1% that it's -- that's the tailwind we can have from these amortizations this year. And we'll have the same next year, essentially because it will continue over multiple years. Operator: Your next question comes from Andjela Bozinovic with BNPP. Andjela Bozinovic: This is Andjela. The first one is just on Enterprise. I'm interested to hear your thoughts on the phasing of the growth for the rest of the year, especially because on Slide 7, you signaled that Evolve3 portfolio should contribute less to group growth than in Q1. And as far as I remember, you only launched Evolve in March. So just curious why should we assume less of contribution in Q2? And the second question is more like a follow-up to Veronika's question on profitability. So with the adjusted EBITDA margin of 0.3% in the quarter, just -- can you help us break down the improvement assumed for 2026 and 2027? I understand that the provision is 1 percentage point, but what else should drive the improvement from here? Peter Karlstromer: Okay. Thank you so much. Let me start with the phasing. I think that these are the base assumption. It might vary a bit. So I don't think we can read into the very details of this. But we -- I think it's back to how we launched the product. So in Q1, we launched the Evolve3 85 and 75, the premium products. Then when you launch, you're getting the initial channel stocking, which is essentially all channels are filling up the products. And then if you look on Q2, you will not have that initial stocking effect. So it's more like a replenishment of what being sold out. So it's still a very healthy contribution, but we do expect it to be slightly less than in Q1. And then why it's picking up again in Q3 and Q4 is because then we are launching more d Evolve3 products into the mid- and lower-tier segments of Enterprise. Soren Jelert: And when it comes to the buildup on the margins that, of course, was muted here in quarter 1, I think a couple of things. Of course, we do have the impairments, and that's probably an easier one, right? That's a 1%. But in general terms, the business we have left in GN has a higher share of the profitability and a higher share of also the sales in a normal year in the subsequent 3 quarters and especially in the second half of the year. So you should always expect us to earn a larger part of our earnings and also through that, have a better leverage in the second half of the year that should drive up towards the 8% to 9% in margin. So it is top line driven, but it's also a fact that we generally earn more the way our company is the seasonality in the company. And then in addition to what we then land this year, you should think of it as the 2 percentage points, they come on top of the landing of this year in terms of us addressing the stranded costs this year, but the benefit of addressing it will deploy next year and give the 2% margin uplift. Andjela Bozinovic: Just a follow-up on the first one. So basically, you assume that Enterprise will decelerate into Q2. Is that a fair assumption? Peter Karlstromer: If we look on the Enterprise core, we do think it will be relatively similar. So don't expect a significant effect in any way. If you look at Enterprise in totality, what we need to factor in then is also the FalCom business where we had a very large order last year. So if you include FalCom, we probably could see some pressure on the number from that year-over-year comparison. We do expect we will have a good year on FalCom, but it will come more towards the end of the year. So we have talked about that before. It's a little bit, of course, lumpy in the way this business is delivered. So hopefully, that helps you to think about Q2 in the right way. Operator: Your next question comes from Niels Granholm-Leth with DNB Carnegie. Niels Granholm-Leth: My first question is on your expected tax going forward. So you're talking about this tax reduction for the coming years. So would that be fully lifted in your tax in '27 and onwards? Or should we still assume 23% tax rate in your P&L? And secondly, could you just update us on the situation about nation's benefits and to what extent there is a sale process ongoing for this asset? Soren Jelert: Niels, on the tax, our base assumption is that the tax we are paying will approximately stay at the same level, but we'll, of course, get back to you if we get different clarity on that. So that would be our working assumption based on how we calculate today in the P&L, of course. And then in terms of paid cash tax is, of course, reduced as we will be able to take advantage of the tax assets we are having. Peter Karlstromer: On nations, I think no real update on any imminent sales process. The underlying business continues to develop well, and we will act together in coordination with other major shareholder when the time is right, but no real further info at this time. Operator: Your next question comes from Martin Parkhoi with SEB. Martin Parkhoi: Martin Parkhoi, SEB. Just also two questions. First on the guidance, 2 questions. Firstly, maybe just around for both. If we look at the guided interval in the old year, you had an interval range of 2 percentage points. Now you put a very narrow guidance range on the EBITDA margin of 8% to 9% in a business where your ability to forecast the development in the last couple of years has been difficult. So can you be so confident in such a strong guidance range on the EBITDA margin and also on the guidance side, maybe that's for Peter. On Enterprise, it is a little bit confusion on the commentary as also Carsten alluded to that you make the commentary on the headset business and then afterwards, we talk about, yes, BlueParrott was a little bit high last year. So can you maybe say that on the minus 3% to plus 3% Enterprise growth, what's the assumption for the core Enterprise headset business on that side? And then just as now you have revealed some details on hearing still with a very good quarter of 9% organic growth. What drove that acceleration? And have you seen your share to Amplifon increase in the quarter? Soren Jelert: Martin, basically, on the guidance for the year of us being more precise, I think we are having the insights now. We are now further into the year. And we also believe that now our outlook is more firmed up of how we see the cost patterns also pan out and also how we see the overall landscape of the top line. So it is a function of that we are closer through the year essentially, and that makes us more confident in the 8% to 9%. Peter Karlstromer: Okay. And when it comes to the BlueParrott and FalCom, for the year, we do expect similar sales this year for both as we had last year. So there is not a real effect from them on the Enterprise growth, so to say. So for the core Enterprise is the same as the guidance we have given. The comments are more because in individual quarter, there could be effects. So we're more making these comments to try to help you understand the business in that way. And then if you look on the Hearing business, I mean, yes, thank you. We had another very good quarter in Hearing. It was a broad-based growth across the 3 regions. I mean I don't want to go and comment specifically on the Amplifon business as we would not I can confirm that we still have no customers that are, I mean, 10% or higher, and that's also true in this quarter. So I would say it's been a broad-based growth across regions and channel types. Operator: Your next question comes from Susannah Ludwig with Bernstein. Susannah Ludwig: Mine is a more long-term question on the Enterprise market. So we're heading into what looks like the potential fourth year of negative growth in that business, which will now be the majority of the group's revenue following the hearing sale. Could you update us on your thoughts on midterm growth in this market? And I guess in conjunction with that, previously, you've talked about a 3-year replacement cycle. Is this still the replacement cycle that you're seeing? Or is this lengthening? Peter Karlstromer: Thank you. And we appreciate it's been a long adjustment period here after the strong COVID growth. I mean taking a step back, I mean, we very much still believe in the attractiveness of the Enterprise market. And then when we're saying that we are taking, of course, a longer-term horizon on this. If we look on the strength of the market, I think it's encouraging to see what we see in North America and APAC. The market here has actually been in growth for the, I mean, 6 quarters now in a row. What has, to some extent, surprised us is the continued weakness in the EMEA market. And it has had a period of encouraging signs of improvements and coming back to growth and then setbacks. And we have some level of setback now also, likely driven by the more macroeconomic uncertainty driven about the unrest in Middle East and so on. The indirect effects of that seems to be that there are many companies across Europe, which have tightened spending and it's affecting us also. So in terms of the long-term belief in the market, I don't think anything has changed. We are working now to develop a new kind of mid-range plan and with detailed targets and so, which we intend to share with you at our Capital Markets Day here towards the end of the year. But the attractiveness in the market, we still think it's very much there. And then in terms of your question on replacement cycles, I mean, on average, we still assess them to be around 3 years, and then the periods can be slightly longer or slightly shorter. But if you look like over some period of time, that is still our best assessment of it. I will say though also that this year is likely one of the years in a long time where we will launch most products, and we started now in the beginning of the year, and we will launch many more products throughout the year. So I do think that our guidance, you should factor in that there is, of course, a market element of it, but also what's in our control in terms of launching strong products and having good launch processes is quite a lot of what's in the guidance as well. So we're coming back to this that as we're launching more products this year, we do also believe that will support the Enterprise business very well. Susannah Ludwig: Okay. Great. And just quickly on the replacement cycle, is that the same across sort of different categories, call center, sort of office workers and frontline workers? Peter Karlstromer: It actually varies a bit across them, as you say. call center tend to be slightly less and office workers slightly longer. But given that we have the majority of the business with office worker, we're trying to weigh it, see it as a blended average. So that is around these 3 years. Operator: Your next question comes from Andjela Bozinovic with BNPP. Andjela Bozinovic: I just wanted to ask on the conflict in the Middle East and if you're seeing anything in terms of inflation, increased transport costs or raw material and especially considering you're in the launch phase in Gaming and Enterprise and you need to ship these products from Asia to North America and EMEA market. Is any of this impact reflected in the new guidance? Peter Karlstromer: Thank you so much. I would say that both direct and indirect effects from the Middle East and rest. The direct effects on us includes things you mentioned, like logistic costs are slightly elevated. You need to find new shipment routes and also, in particular, around launches, we have been using a bit more flights for transportation of the products -- so that has some impact. That is factored into the guidance. The indirect effect, we actually think is the larger ones, which we think is one of the key contributors to we see -- the weakness we see now in EMEA, which is also factored into the guidance as we have shared with you today. So everything is in the guidance, but we do expect this actually holding back the business quite a bit, mostly on the EMEA side. The direct margin impacts, I think, are quite manageable for us. So that is not anything significant. Operator: Your next question comes from Julien Ouaddour with Bank of America. Julien Ouaddour: I hope that you can hear me okay. I have one which is just like a clarification on Enterprise. So if I'm correct, you said the core Enterprise roughly down 5% again in Q2. Then we take the 5% comes from FalCom, so roughly Enterprise down 10%. So first of all, is it correct? And can you just help me to bridge the H1 performance in Enterprise to the full year guidance, especially to the upper end of this guidance? And maybe just a quick follow-up on margin. I expect that this could have a pretty negative impact on margin next quarter. So could you also help us to understand the magnitude of it and the kind of margin we should expect from this business? Soren Jelert: It was a little difficult to hear you in the end. Could you please repeat the margin question, please? Julien Ouaddour: Yes. No, on the margin side, just when the top line declined potentially by 10%, I assume some like operating leverage. So any comments about the margin at the divisional level or just like the EBITDA margin impact that we could expect from this like low growth will be -- would be helpful. Any comments? Soren Jelert: I think when it comes to the margin, we are anticipating, as we also said, that the gross profit will improve already from quarter 2, actually. And as such, it's more down to the absolute value. When you look into the growth rates, bear in mind the comparators of last year, that's, of course, important. And coming into quarter 2, as also Peter spoke to, we had a FalCom order, large order that was in quarter 2. So essentially, that will give some pressure on the growth rates for quarter 2. But from a margin -- gross margin standpoint, there, we expect the uplift to be seen already from quarter 2 and onwards. Peter Karlstromer: I can also clarify, I think you -- if I understood the first question right here, also the growth in the quarter. I mean, we had a bit of a positive effect from FalCom and a bit of a negative effect from BlueParrott. So the core Enterprise growth, I think, is very close to the reported growth for Enterprise. Operator: Your next question comes from Veronika Dubajova with Citi. Veronika Dubajova: I just want to ask a couple of technical questions around the new structure and just how we should be thinking about the next steps. Just the timing of buybacks, are you willing to do buybacks before the deal closes? Or are we waiting for the deal to close? And I guess, would you want to wait for authorization to do a bigger buyback? Or would you be happy to use the 6.5% before we get there? If you can talk to that, that would be helpful. And then just a very technical one, apologies. But from a covenant perspective, anything that we need to be aware of until the deal closes or effectively, the debt is fine even as the leverage is kind of changing optically at least in the deconsolidation process? Soren Jelert: In terms of the buybacks, what we have said today, and also stands, is that we will wait until we have closed essentially and then go for the buybacks. As I also said in my intro that we have the 6.5% left in our -- the permit we have basically to the 10%, and that's where we will go first. So that's at least on the buyback side. And then the other question was on -- on the covenants, yes, we -- of course, yes, covenants, we are in a good balance there and also have commitments from our banks in terms of this process. So that is in good control. Operator: That does conclude our question-and-answer session. I will now hand back to the company for closing remarks. Rune Sandager: Thank you very much, operator, and thank you, everybody, for joining on the call.
Operator: Good day, everyone. My name is Michael, and I'll be your conference operator today. At this time, I would like to welcome you to EPAM's first quarter earnings release conference call. [Operator Instructions] At this time, I would like to turn the call over to Mike Shandel, Head of Investor Relations. Mike Rowshandel: Good morning, everyone, and thank you for joining us today on our first quarter 2026 earnings call. As the operator just mentioned, I'm Mike Shandel, Head of Investor Relations. We hope you've had an opportunity to review our earnings release we issued earlier today. If you have not, copies are available on epam.com in the Investors section. With me on today's call are Balazs Fejes, CEO and President; and Jason Peterson, Chief Financial Officer. I would like to remind those listening that some of the comments made on today's call may contain forward-looking statements. These statements are subject to risks and uncertainties as described in the company's earnings release and SEC filings. Additionally, all references to reported results that are non-GAAP measures have been reconciled to the comparable GAAP measures and are available in our quarterly earnings materials located in the Investors section of our website. With that said, I will now turn the call over to FB. Balazs Fejes: Thank you, Mike, and good morning, everyone. It's a pleasure to be here with all of you. We delivered a solid first quarter with revenue growth at the high end of our outlook range, year-over-year improvement in adjusted profitability and gross margins and strong adjusted earnings per share pure AI revenues exceeded $125 million in Q1, up nearly 20% sequentially from Q4. This momentum gives us a strong line of sight to our $600 million target for the full year, even with the broader macro variability we have factored into our outlook. We also just announced a strategic multiyear applied AI partnership with Ontic to accelerate the delivery of safe, reliable enterprise-grade AI for our clients. As an Anthropic services partner, EPAM is building a dedicated practice for more than 10,000 cloud-certified architects, including the specialized cadre of 250 forward deployed engineering Black Belts. To date, over 20,000 EPAMers have completed training via entropic economy and more than 1,300 are already Claude certified. We expect to reach 5,000 certifications by end of Q3 with 10,000 by year-end. This is a further proof of our engineering expertise for adaptability, advanced learning and education programs and readiness for Claude within the enterprise. As we outlined at our recent Investor Day, we have a clear multiyear strategy to drive our next phase of profitable growth and further capitalize on the global AI transformation opportunities. Our aspiration is to become the go-to partner for enterprise a transformation with a focus on 3 strategic pillars, which are helping reshape the company. These pillars include establishing ourselves as a leading AI delivery software engineering services provider, transforming ourselves into an AI-native organization and capitalizing on our AIT structure to expand go-to-market offerings. For 30-plus years of engineering DNA and heritage expanding domain and vertical expertise, advanced IP and platforms and deepening strategic partnerships continue to differentiate us and provide a durable advantage. Our mission is to win the build opportunity of our lifetime. The gap between the rapidly developing foundational AI capabilities and the ability of enterprises and societies to adopt AI safely, reliably and with sustainable growing volume will drive some of the largest technological investments humanity has ever made. This view was recently validated by our new partner Anthropic and also by NVIDIA's CEO, Jensen during his interview with Vorkesh Patel. Today, we are moving beyond traditional IT services with a sharp focus on AI native engineering and AI native business transformation, which both continue to gain traction. At the same time, EPAM is fundamentally retaining how the company operates, which goes beyond scaling AI adoption across 60,000 people. With our Client Zero mentality, we are engineering an entirely new operating model one that dynamically blends human talent, AI capabilities and advanced agentic systems to run the business foster better and lower cost across all geographies. The early stage of this new blend reflected in the number and the shape of AI-native projects that we are starting with clients. AI/Run, then from being an SDLC transformation pay book to powering a series of AI/Run transform motions that bring significant structure and volume to our clients' own adoption apertures. ROI-driven Playbook uniquely brings together our engineering excellence with AI native delivery, coupled with strategic consulting and advisory teams, deep technical expertise and partner ecosystem technologies. Online traditional consulting roads and deployments, EPAM's AI run transform integrates blueprints, talent and tools into a single proven, repeatable and scalable transformation platform for our clients. We continue to create global go-to-market playbook using proven methods across the globe. The larger number of our AI programs are scaled into deployments, tonic and implication for our engagement is becoming more significant. This is a generally new and consequential commercial construct and presents both challenges and opportunities for us and services companies in general. As the industry works through the models, we intend to be ahead of the curve as we continue to evolve our approach to AI investment pricing, client engagement and delivery models for some quarters to come. One additional element of our strategy worth highlighting is the fact that we are now accelerating our deliberate go-to-market investments in our largest market in North America. These investments are modeled on what has proven to be successful in EMAR, evidenced by their industry-leading growth rate in Q1. Now let's turn to some quick Q1 highlights. In Q1, revenues grew 7.6% year-over-year with constant organic currency revenue growth of 3.7%. The 5 of our 6 verticals grew year-over-year, led by Financial Services and Software and Hi-Tech, followed by Consumer Goods, Retail and Travel, emerging verticals and Life Sciences and Health Care. Across geographies, growth was led by email, delivered strong double-digit year-over-year growth. We are continual balancing our delivery locations and scale mix, adding new certification, domain specialization and additional roles across our global pet. We also continue to proactively manage our commercial engagement types, driving new fixed price and other service deals while proactively managing localized banks. Now turning to the demand environment. Overall, client sentiment remained stable through the end of Q1 and with continued shift in spend towards AI native and strategic deployments. Clients continue to turn to EPAM for help in addressing the widening adoption gap. The need to modernize and build out a foundation readiness remains critically important. Technical debt continues to mount and the latest AI capabilities are making backlog of required work evident, further underscoring our confidence that the build opportunity is a long-term win. As we look ahead, there's a more macro uncertainty today compared to 90 days ago. And our outlook reflects the broader variability we are seeing in the client decision-making. We are particularly seeing underperformance in North America, and this is contributing to lower visibility in the second half. At the same time, our underlying momentum, particularly across our AI native business continues to build. However, macro volatility has introduced some additional caution in client decision-making, particularly on certain larger discretionary programs. While Q1 was not impacted, we are expecting some impact in Q2. Importantly, our client pipeline of AI programs and fundings remain strong. What we see is a temporary shift in timing and direction as clients respond with caution and reprioritize the short-term actions against the bigger transformation opportunity. Now turning to AI. As we have all seen in the news, AI capabilities continue to advance extremely fast. The pace of technological change and digestion is unprecedented for enterprises as they face the challenge of balancing cost optimization and productivity with real business outcomes at scale. Further token usage and the associated economics are only becoming a more integral part of the investment thesis and business case. All this just increases complexity, which, as we stated at our Investor Day on less new sets of requirements across all 8 dimensions of AI enterprise. EPAM remains in the sweet spot of helping enterprises close the AI adoption gap, solve their most complex challenges and deliver quality AI-native enterprise-grade solutions at scale. We are working hard to further build and create high velocity performance teams within our AI native delivery engine to take advantage of larger growth opportunities. By design, our teams will bridge strategy to execution with a more consultative approach, all with deep domain and verticalization expertise. Looking across our top 100 clients, traction remains strong as more than 80% of our engaged in AI initiatives. Our AI frameworks and tools continue to support hundreds of active AI-native projects. Note, we had more than 100 new AI-native project launched in Q1, illustrating our active pipeline and healthy replenishment of new opportunities. In terms of new deals, or since we shared our updated at our AI Day. EPAM is seeing an oxalating large-deal pipeline focused on AI-enabled vendor consolidations, where EPAM has significant opportunity to gain market share. These multiyear deals are larger than our historical norm are expected to scale over time and include a range of commercial models. The trajectory of this pipeline marks a meaningful step in EPAM's evolution as a strategic partner to enterprise clients. However, the full potential of these deals is not yet reflected in our outlook. Across our pure AI native revenues, our momentum continues and fundamentals remain intact with another quarter of double-digit sequential growth. Demand across our AI foundational services remains solid with faster growth in both our data and cloud practices as compared to the rest of the business. Importantly, we believe we can further accelerate capturing AI foundation demand with the deployment of more domain capabilities and forward deployed engineers to engagement. This motion will take some time to scale, but we see this as a critical unlock to being able to deliver true business transformation to clients. Beyond transforming EPAM's business and go-to-market approach towards more outcome-based models, we are building not just an engineering moat, but a domain and context-based mode and court in playbook built on successful engagements over time. Capturing expertise at the source of these engagements further develops our playbooks into differentiated IP and ways of working. Here are some client example to illustrate the shift. one, PDLC transformation for Nelnet, a global company specializing in consumer finance, student loan servicing, telecommunications and education to explore the potential of GenAI tools to boost PDLC efficiency. To do that, EPAM developed a program to identify baselines and performance productivity benchmarks based on EPAM's AI/Run transform, Nelnet achieved a 31% productivity increase, accelerated back-end development by nearly 2x and empowered its teams to scale AI-driven innovation across the organization. We continue working with Nelnet to expand the PDLC program across the organization and continued building an enterprise governance model that scales. Two, modernize and upgrade global streaming infrastructure for a leading streaming platform client within the media entertainment, serving 10-plus million concurrent users across 50-plus countries. With our partner, AWS, we successfully transformed a fragile single-region platform into a self-healing global system sustaining 99% uptime without manual interaction. The solution deployed active, active ES across more than 6 regions with automated IAC governance and standardized site reliability engineering practices. Together, we helped our client achieve 70% less configuration drift and 0 downtime deployments. Three, bring the right AI and GenAI programs from use case concepts to full-scale production deployment for a large global insurance company. Here, our DI platforms serve us both domain playbook and a significant accelerator, integrating both upstream and downstream systems to ensure seamless end-to-end automation to assist the reinsurance clean department in first order of loss processing. EPAM automated billing reconciliation and streamlined reinsurance treaty analysis proving the real-world potential of AI in a highly regulated industry. After implementation, time to process first order of loss events decreased by 75%. Our efforts continue to be recognized validating our strategy and the quality of our execution. So far, in 2026, we have been honored to receive several key leadership distinctions. We earned two 2026 Google Cloud Partner of the Year awards for helping clients achieve measurable business outcomes through advanced AI and cloud technologies. The sustainable award highlighted our use of AI and geospatial technology to address environmental challenges, while databases, ML awards celebrated or scalable methodologies for enterprise cloud migrations including our work with Deutsche Bank. EPAM was included in the Forrester Customer Experience strategy consulting services landscape, featuring providers that supports end-to-end CX transformation from visions through execution. EPAM named a leader in the IDC Marketscape worldwide data modernization services provider for retail and restaurants. And finally, EPAM was ranked among the top 3 companies in Glassdoor's inaugural best companies in tech and AI 2026 list, recognized for its culture of belonging, innovation and leadership. These recognitions continue to reflect the hard work and dedication of global teams and riveting commitment to delivering tangible, high-volume outcomes for our clients. In summary, we are pleased with our first quarter results, which delivered the high end of our revenue outlook despite more uncertain macro environment, a solid foundation we intend to build upon throughout the year. We remain confident in our long-term strategy and vision in transforming ourselves into a global leader in AI transformation services working to further capitalize on faster-growing parts of the total IT and AI services market. Our underlining AI native and AI foundational readiness momentum remains strong and continues to resonate with our existing client portfolio. while we transform our go-to-market motions over the coming quarters to further expand our new client portfolio, while the economic environment impacted visibility and added some vulnerability. We feel good about our pipeline, including the larger strategic opportunities I described earlier, which represent a meaningful step in our evolution. Lastly, I want to thank you all for your continued commitment, trust and support. Jason, over to you. Jason Peterson: Thank you, FB, and good morning, everyone. In the first quarter, EPAM generated revenue of $1.4 billion at the high end of Q1 revenue outlook, delivering year-over-year growth of 7.6%. On an organic constant currency basis, revenue grew 3.7% compared to the first quarter of 2025. With improved year-over-year profitability in the quarter. GAAP income from operations grew by approximately 18% and non-GAAP income from operations grew by over 14%. AI native and AI foundational revenues continued to contribute to year-over-year growth with more than $125 million AI native revenues in the quarter. This is the fifth consecutive quarter of sequential double-digit growth. Moving to our Q1 industry performance. We delivered broad-based year-over-year growth across the majority of our verticals. Financial Services delivered strong growth, up 11.5% year-over-year, driven by asset management and insurance clients. Software and Hi-Tech grew 10.9% year-over-year, driven by strong execution across existing clients and contributions from new logos. Consumer Goods, Retail and Travel delivered 7.2% year-over-year growth, notably driven by retail and consumer goods. Life Sciences and Health Care increased 5.9% on a year-over-year basis. Revenue growth in the vertical continues to be driven primarily by clients in life science and med tech. Business Information Media decreased by 0.7% year-over-year, and our emerging verticals delivered year-over-year growth of 6% and 8%, primarily driven by ongoing strength in energy and government. From a geographic perspective, Americas, our largest region, represented 57% of our Q1 revenues, grew 2.5% year-over-year. EMEA comprised 41% of our Q1 revenues, grew 15.9% year-over-year and 8.4% in constant currency. And finally, APAC making up 2% of our revenues grew 1.2% year-over-year. Lastly, in Q1, revenues from our top 20 clients grew 4.4% year-over-year, while revenues from clients outside our top 20 increased [ 9.1% ] Moving down the income statement. Our GAAP gross margin for the quarter was 27.7% compared to 26.9% in Q1 of last year. Non-GAAP gross margin for the quarter was 29.4%, compared to 28.7% for the same period a year ago, demonstrating our commitment to improving profitability and gross margin during the fiscal year. GAAP SG&A was 17.1% of revenue compared to $0.168 in Q1 of last year. Non-GAAP SG&A in Q1 2016 came in at 14.1% of revenue, compared to 14.2% in the same period last year. GAAP income from operations was $117 million or 8.3% of revenue compared to $99 million or 7.6% of revenue in Q1 of last year, and grew by 18% year-over-year. Non-GAAP income from operations was $201 million or 14.3% of revenue compared to $176 million or 13.5% revenue in Q1 of the previous year, and grew over 14% year-over-year. Our GAAP effective tax rate, which includes a higher level of tax shortfalls related to stock-based compensation, came in at 31.6%. And our non-GAAP effective tax rate was 23.6%. Diluted earnings per share on a GAAP basis was $1.52 compared to $1.28 in Q1 of last year, a $0.24 increase year-over-year, reflecting growth of 18.8%. Our non-GAAP diluted EPS was $2.86 compared to $2.41 in Q1 of last year, a $0.45 increase year-over-year, reflecting growth of 18.7%. In Q1, there were approximately 54.2 million diluted shares outstanding. Turning to our cash flow and balance sheet. Cash flow from operations for Q1 was negative $36 million compared to $24 million in the same quarter of 2025. Q1 cash flow was negatively impacted in the quarter by higher variable compensation payments related to 2025 performance as well as timing of certain vendor payments. Free cash flow was negative $54 million, compared to free cash flow of $15 million in the same quarter last year. Cash and cash equivalents were just over $1 billion as of the end of the quarter. At the end of Q1, DSO was 76 days and compares to 72 days for Q4 2025 and 75 days for the same quarter last year. Share repurchases in the first quarter were approximately 1.8 million shares for [ $264 million ] at an average price of $143.84 per share. To date, since the initiation of our share repurchase program, we've returned approximately $1.5 billion in cash to shareholders. Moving on to operational metrics. We ended Q1 with more than 56,500 delivery professionals, reflecting total growth of 1.6% compared to Q1 2025. Our total head count at quarter end was more than 62,750 employees. During the quarter, the company reduced head count in Mexico. Additionally, there were targeted reductions in certain geographies as part of our cost optimization program. These actions produced a modest sequential decline in production head count during the quarter. Utilization was 77% compared to 77.5% in Q1 of last year, and 75.4% in Q4 2025. Q1 2026 utilization was impacted by the ongoing introduction of juniors, who initially operate at lower levels of utilization. The addition of juniors is intended to improve our seniority index over time. Now let's turn to guidance. Before moving to the specifics of our 2026 and Q2 outlook, I'd like to [indiscernible] and are beginning to modestly delay decisions. This behavior became more apparent early in [indiscernible] opportunities and are looking to close these in Q3 and Q4, driving higher levels of growth in the second half of the year. At the same time, we are now expecting that higher energy prices and global economic uncertainty will have an impact on our revenue growth rate for the year. As a result, we are lowering our full year revenue growth outlook. We remain committed to improving overall profitability and gross margins. As usual, our guidance assumes that we'll be able to continue to deliver from our Ukraine delivery centers at productivity levels similar to those achieved in 2025. Moving to our full year outlook. Revenue growth will now be in the range of 4% to 6.5%. Foreign exchange is expected to have a positive impact of approximately 1.5%. Therefore, the organic constant currency growth is now expected to be in the range of 2.5% to 5%. We expect GAAP income from operations to continue to be in the range of 10% to 11% and non-GAAP income from operations will continue to be in the range of 15% to 16%. We expect our GAAP effective tax rate to be 27%. Our non-GAAP effective tax rate, which excludes the impact of benefits in shortfalls related to stock-based compensation will continue to be 24%. For earnings per share, we expect that GAAP diluted EPS will now be in the range of $8.29 to $8.59 for the full year, and non-GAAP diluted EPS will now be in the range of $12.98 to $13.28 for the full year. We now expect weighted average share count of 52.7 million fully diluted shares outstanding. Moving on to our Q2 2026 outlook. We expect revenue to be in the range of $1.4 billion to $1.415 billion, producing year-over-year growth of 4% at the midpoint of the range. Our guidance reflects a 1.3% positive foreign exchange impact during the quarter, producing organic constant currency growth of 2.7% at the midpoint of the range. For the second quarter, we expect GAAP income from operations to be in the range of 9% to 10% and non-GAAP income from operations to be in the range of 15% to 16%. We expect our GAAP effective tax rate to be approximately 27% and our non-GAAP effective tax rate to be approximately 24%. Earnings per share, we expect GAAP diluted EPS to be in the range of $1.79 to $1.87 for the quarter, and non-GAAP diluted EPS to be in the range of $3.10 to $3.18 for the quarter. We expect a weighted average share count of 52.4 million diluted shares outstanding. Finally, a few key assumptions that support our GAAP to non-GAAP measurements for Q2 and the remainder of the year. Stock-based compensation expense is expected to be approximately $50 million for Q2 and $44 million for each of the remaining quarters. Amortization of intangibles is expected to be approximately $70 million for each of the remaining quarters. The impact of foreign exchange is expected to be an approximate $3 million loss each quarter. Tax effect of non-GAAP adjustments is expected to be around $19 million for Q2 and $14 million for each of the remaining quarters. We expect $2 million excess tax shortfall and negligible in Q3 and $1 million in Q4. Expenses associated with the 2025 cost optimization program are expected to be $13 million in Q2. And 1 more assumption outside of our GAAP to non-GAAP items. We now expect interest and other income to be $1 million in Q2, $2 million in Q3 and $4 million in Q4. Lastly, my continued thanks to all our EPAMers for their dedication and focus on serving our clients and driving results throughout 2026. Operator, let's open the call for questions. Operator: [Operator Instructions] Our first question comes from Bryan Bergin from TD Cohen. Bryan Bergin: On the 2026 guide on the organic growth guide revision. So is this a handful of large engagements that are just moving slower or a broader portfolio dynamic, and what gives you the confidence on the second half implied sequential growth, just given where the 2Q number is. Are you assuming geopolitical volatility moderates to hit that revised target? Do you have things in hand? Maybe a little detail on that. Balazs Fejes: Yes. I guess I'll talk a little bit about the impact that we're seeing as we look at Q2. And I would say it's probably more of a handful of customers where decision-making does seem to be somewhat delayed. And again, we began to see that probably more so in April and May. And then I think Jeff probably could update us on some of the larger deal opportunities in the second half. . Jason Peterson: Number one, in our estimate, we are not kind of considering that the geopolitical environment changes significantly. So we are guiding as we see it right now. So we're not assuming anything significantly changing in the current geopolitical setup. At the same time, we have quite a bit of -- as I in the prepared remarks, I highlighted large, unusually large opportunities, which we are targeting. We are currently not really sure yet how fast they're going to ramp, how fast they're going to close. But we are actually went after a piece of market, which was previously was not open to us, but I already became available due to our AI native and AI/Run capabilities, which opened us for large vendor consolidation, large transformation deals, which is for us was outside of our normal norm. So that's what's included in our current guide. Bryan Bergin: And then my follow-up on the Anthropic relationship. So good to see that come through. Can you talk about how different that model is relative to your heritage delivery approach? I'm trying to understand how difficult of a pivot that may be for you. And do you see that relationship potentially driving an inflection in your AI native revenue growth mix? . Balazs Fejes: I think Anthropic is going to be a very important relationship for -- we are -- I think we are following a playbook, which we've done before. We are -- we prepared preprepared engineers with our internal development. Once commercial products became available and certification quickly. We pivoted towards uncertified or engineering team. I just checked this morning, we are over 1,400 certified cloud architects as of this moment. So it's ramping up pretty nicely. And we will be going to the market together with Anthropic and bring to the market applied AI solutions. . I think it will be similar to the go-to-market movements like what we've done previously. But clearly, this is in the AI era. We will be focusing on AI native AI transformation to bring safe AI capabilities to the enterprise. I don't think it's a pivot, it's an expansion, and we are hoping to see acceleration from this partnership. Operator: Our next question comes from Maggie Nolan from William Blair. Margaret Nolan: Maybe to follow up on that subset of clients that are seeing a little bit of fitness there. Does the full year guidance range consider any broadening of this weakness beyond that subset of clients that are currently affected, and maybe can you help us understand if that's a specific vertical or why or why not you wouldn't see that broadening? Jason Peterson: Yes. So I think the reflection in the -- lowering the bottom end of the range, obviously, would sort of -- if we were to end up closer to that portion of the growth range that clearly maybe would reflect that we saw a somewhat broadening of the delayed decision-making. So again, we took the top down because we are sort of have a less rapid entry into the second half. We still feel good, as FB said, about some of the larger opportunities that we're looking to close here in the second half, but the bottom end of the range clearly reflect that there's some broadening of the delayed decision-making. Balazs Fejes: And talking about impacts. I think clearly, already, we see some of these impacts coming in from travel and consumer sector. It's well understood for the reason. And right now, clearly, our Financial Services or in our Hi-Tech environment, we continue to see strong demand. Margaret Nolan: Okay. And then, Jason, can you sort of bridge the gap for us between the non-GAAP operating margin that you saw in the quarter, a 14.3% to kind of the full year target range in the kind of 15% to 16% range? Jason Peterson: Yes. So I think probably the best way to look at profitability is really to compare kind of year-over-year. And so we always have seasonal factors where Q1 is lower from a profitability standpoint. You've got the reset of the social security clocks. You also generally have that slow January that we talked about. And those things usually sort of result in sort of lower profitability in Q1. I think if I -- where I feel actually very positive, if I compare Q1 to Q1, we've got improvement in gross margin, which is the first time that we've seen that in quite a long period of time. And it's consistent with the expectations that we said that we would be working on improving profitability throughout the year. What you should see, Maggie is improved gross margin as we go from Q1 to Q2. Some of that is seasonal, but again, we continue to sort of focus on profit improvement while trying to drive top line revenue growth and certainly being successful with the transformation opportunities. Operator: Our next question comes from Jason Kupferberg from Wells Fargo. Jason Kupferberg: Just wanted to see if we can put a finer point on quarter-over-quarter revenue growth expectations for Q3 and Q4. I mean we know what typical seasonal patterns look like, but would be curious what your base case looks like there, just given the moving parts in the macro. Jason Peterson: Yes. I'll talk to, I guess, maybe just about what my model looks like, and I'll let FB sort of provide more color as to the client opportunities. I mean, usually, what we would see is stronger sequential growth between Q2 and Q3 driven seasonal factors, the additional available bill days. And then we're also factoring in some subset of the deals that we're working on that those would then begin to ramp. We clearly have a higher grade in the second half than we have in the first half and again, that's driven by the opportunities that are within our line of sight at this time. Balazs Fejes: And what brings us this confidence and what we're counting on. We have quite a few deals which we already know is going to start in the Q3. We also had a pipeline of large opportunities, which we're working to close and start to ramp in Q3 and Q4. Jason Kupferberg: So yes, sorry, that's why I wanted to follow up on the. So those large opportunities. There's vendor consolidation deals. It sounds like there is -- I don't know if there's 2 or 3 of them, maybe you can clarify that, but it sounds like that you do have something in your back half guide for those, I guess, maybe on a risk-adjusted basis. If you can just clarify that? And then just say a little bit more about the nature of the work that is comprising those large pipeline opportunities for the second half. Balazs Fejes: So it's no longer just 3 or 4. We're actually talking about close to 10 opportunities at this point of time. These opportunities are outsized in terms of range, all of them are non-T&M, so different commercial models, combining AI, token in the picture themselves. They are -- it's a variation of business transformation, vendor consolidation and the size is really outside of EPAM's norm, what we typically do. Jason Peterson: And then, Jason, clearly, there's a number of opportunities. And from a risk-adjusted standpoint, obviously, we're not assuming that we control all of those. We're just capturing a small subset and then that helps contribute to the growth in the second half of the year. Operator: Our next question comes from Jamie Friedman from Susquehanna. James Friedman: I'll just ask my 2 together in the interest of time. Jason, I want to get your perspective on the outlook that you had provided longer term at the Analyst Day for -- for the period 2027, 2028. There were assumptions about the improvement in gross margins, which you delivered in the first quarter and then SG&A efficiency, I think, 20 to 30 basis points. So wondering if you could share that -- I think it was 16% objective in the margin? And then FB, I'd be interested, so in your prepared remarks, you were mentioning that you're seeing opportunities in AI-enabled vendor consolidation. So I was hoping you could elaborate on that. What's that about? Jason Peterson: Yes. It's quickly on profitability. So there's a -- we did get price in Q1. We're focused on improving some utilization. I think we've done a nice job with our cost optimization program and kind of getting us into good shape. The cost of our bench is somewhat lower. So all the things that we talked about doing, including improving the seniority index, all of that's in process. And as a result, you see better gross margin, Q1 of 2026 to Q1 of 2025. I also expect you will see better gross margin Q2 2026 to Q2 2025. So I think that whole journey of improved profitability, we're certainly, I would say, on our way. We're not expecting so much SG&A optimization this year that would come more in those out years. In this year, I think you'll see us do more with sort of go-to-market investments as we talked about during the IA Day. Then, I guess, I will turn it over to FB. Balazs Fejes: Absolutely. Thanks, Jason. So during IA Day, we kind of talked about and demonstrated our AI capabilities, we talked to you about Level 1, Level 2, Level 3 level of AI capabilities and SDLC maturity. In these larger deals, in vendor consolidations and also in enterprise AI transformation, we're deploying the best of EPAM or AI/Run Transform playbook. And this is a combination of our global capabilities augmented with AI, where we are able to bring a very differentiated and I would call, and a challenging proposition to our clients, which very much challenges the status quo in the vendor landscape. And that's what we are doing right now with our larger clients. . Operator: Our next question comes from David Grossman from Stifel. David Grossman: So I know this has come up in a couple of the previous questions, just about the visibility on the back half of the year and the guide. But historically, you've done a really good job of framing the low versus the high end and what needs to happen. So perhaps you can take some of the data points that you shared already and maybe put that in the context of the range, what happens at the end, what happens at the midpoint versus the high end? Jason Peterson: Yes. So I think probably the first thing is that we're not assuming an improvement in the economic environment. So on the lower end of the range, you probably have maybe some further worsening you also have maybe more of what we referred to earlier, where you do have some clients sort of delaying sort of spending decisions. And so again, that would probably just be incremental kind of uncertainty and incremental kind of delays in decision-making. On the higher end of the range, it's both sort of solid execution in the traditional book of business, and then probably a somewhat higher share of wins in these larger deals that FB have been talking about. Again, we have throughout the year and even when we guided during our Q4 call, we always expected a stronger growth rate in our second half, in part driven by these deals that we've kind of been focused on in developing over the last sort of quarter or two. Is that sufficient David or anything else? . David Grossman: Well, I was just curious, can you still hit the midpoint of the range if we see a continuation of the environment where these larger deals continue to get pushed out? Balazs Fejes: I think the question, David, is where the environment is the current for the mid range, I don't think we need to win too many of those deals. So actually, we're not that much counting on them on the midrange. I think -- but if the environment continues to get worse, that's clearly challenging for the mid range. So the midrange is steady execution, the usual conversion, typical EPAM style deal structures in order to achieve the midrange. David Grossman: And then if I heard you right, I think you said that North America was where you were seeing the most incremental weakness and you also said that that's where you're focusing your go-to-market investments. So Dakota market investments were similar to some of the prior cycles we've been through. So I don't know, did I get that right? And if I did, could you maybe at least provide some clarity around that dynamic and where those investments are going? . Balazs Fejes: David, absolutely. I mean already in IA Day, we called out the go-to-market investments, although we were not that specific, but actually highlighted that we are -- we brought in a new Chief Marketing Officer, who started and focusing on performance marketing. We talked to you about how the market changed moving away from a seller to a much more of a buyers market. We didn't highlight it, but we already at that point of time was thinking about the North American market itself. So what we're going to start doing is applying all the learnings and the investments, what we've done and understanding what we've done in the EMEA market and bring it to the North American market. Clearly, it's going to be investment in personnel, investment in process, investment in changes and transformation of our go-to-market motions in North America. Operator: Our next question comes from Jonathan Lee from Guggenheim. Yu Lee: You highlighted large multiyear deals in the pipeline that are larger in scale than what EPAM has historically pursued. What gives you confidence in your ability to close and execute on those agents do you have the sales muscle, governance frameworks and delivery infrastructure to manage those programs and that magnitude? And how should we think about the profile of these deals as it relates to competitive dynamics in deal size and margin profiles relative to what you currently see? Balazs Fejes: Jonathan, great question. I think Clearly, I think it was also kind of a surprise, how successful our offering has been with our clients. We didn't expect this amount of pipeline be built with these differentiated offerings. I think do we have the sales muscle to close them, to convert them to run them up. That's why we are risk-adjusting the pipeline itself. And we are not fully including them the same way as we include other deals because we actually -- we are not sure that how fast they're going to convert and how fast they're going to ramp. So that's been all honesty, right? So yes, we have the sales muscle to actually get into these opportunities. I think the offering is differentiated enough and resonates really, really well with our clients because we bring AI native capabilities to these deals, and we are disrupting the status quo. In terms of scaling these opportunities and to governance in place, we, EPAM has an experience running large programs, but in the past, those programs were built bid by bed, not as one big opportunity. So yes, we were running these opportunities before as an aggregate, but we never really wanted us won't go. So that's the difference. At the same time, I think what you asked about profitability. Clearly, what we can tell you is that our current AI native business or portfolio, which is over $125 million per quarter is run higher profitability than EPAM average. So that's what we see. Yu Lee: Got it. And just as a follow-up, where do we stand on the large network client? Did revenue stabilize in Q1 as expected? Or are you seeing incremental deterioration there? And what does this imply for the remainder of the year? . Jason Peterson: Yes. So the client did stabilize revenue as expected. I think we would see probably some very modest sequential decline over the next quarter or two. But again, something I would still put very much in a stable camp. And then in terms of the rest of the book of business there we are seeing solid growth in their book of business in the Iberian Peninsula. We're also seeing growth throughout South America. And so we feel generally good about the book of business there with the exception of some slowness in Mexico and with that large customer. . Operator: Question comes from Jim Schneider from Goldman Sachs. James Schneider: I was wondering if you could maybe comment on the extent that the large deals convert into revenue beginning in the back half and heading into 2027, what would be the impact, do you think, on margins? Or would they be coming in at or below sort of your corporate average? Jason Peterson: Yes, we're still looking at improved gross margin on a year-over-year basis. There's always seasonal impacts. And so again, Q3 would have generally higher profitability just because it's got higher billl days. And so I think what we'll all have to be looking at is just Q1 to Q2, Q2 to Q3. Sometimes, as you bring in deals, there is a modest kind of impact as you sort of do the transition or what's called KT our knowledge transfer. But I think what you'll find is that with our focus on improving profitability. In India, reducing the cost of the bench, improving utilization and focus on sort of improving fixed fee profitability. I feel comfortable that we can continue to improve profitability. . James Schneider: Yes. And then maybe as a follow-up. On capital allocation, given what the stock has done, can you give us a kind of a refresher on your latest thoughts on the relative uses of cash between buybacks at this point and incremental M&A new capabilities? Balazs Fejes: Yes. So we did the accelerated share repurchase. There's kind of a true-up piece of that, that will show up in Q2, and we will also be probably doing incremental repurchases when the market opens again next week. At the same time, I think we are looking ahead to sort of the second half of the year. You might see us begin to again prioritize sort of M&A-related investments. But certainly, with the share price at this level, you continue to see some amount of generally open market purchases of the stock. . Operator: Our next question comes from Bryan Keane from Citi. Bryan Keane: FB, can you talk a little bit about contract pricing and how those dynamics have changed over the last year or so, in particular, something like the Anthropic deal the partnership there. How does that -- how are you going to recognize revenues in that contract in that partnership? Is it any different than the model has been over the last few years? . Balazs Fejes: Bryan, it's a good question. I think it's a moving target. As we highlighted, the economics is -- continues to be a subject which we are exploring. At this point of time, we are in most client relationships or clients are bearing the cost of the tokens. I don't know how it's going to change. We are in discussion with quite a few clients, how would that transition. So Anthropic in this sense, it's not different. We -- our relationship, we will be expecting to develop software using the Anthropic stack, the models, the tools themselves. . And right now, we are in various cases. We're exploring different commercial models, how we can actually charge the tokens or the client pays for the tokens or what is the commercial model going forward. It's complicated in a sense because it's impacting certain security considerations. And it's -- I think it's an open subject, which we continue to work with our partners, with our clients, and with Anthropic themselves. In terms of, I think, pricing, I think Jason is actually -- was very pleased to see even rate increases in the first quarter. So we are actually not seeing what we call rate compression at this point of time. We're quite successful for minority -- small minority of our clients to negotiate rate increases. So overall, we are not seeing that type of market pressure. Bryan Keane: And then just as a follow-up, Jason, I saw that sequentially, head count was down, and then obviously, revenue per head was up in the first quarter. How do we think about the rest of the year to hit the guidance maybe sequentially? How should we think about the head count cadence and the revenue per head? Jason Peterson: Yes. So I think with Q1, clearly, we've talked about the lead customer in ours, and so we did see some reduction in the head count in Mexico. And we continue to make some adjustments in different locations that kind of improve utilization and decrease the cost of our bench. I do think you'll see head count additions throughout the remainder of the year. The revenue per head count is usually not a calculation that I do, and you always have to remember the foreign exchange also plays a role in that, but as FB that be indicated, we did get rate in Q1, and so that was positive and did help with profitability and throughout the remainder of the year, I think you'll see ongoing head count to support business growth. But I think you'll also see some adjustment in sort of contract structures. And so I think the whole calculation of revenue per head is probably a conversation we'll be having kind of later in the year. But again, we feel good about the growth associated with some of these larger revenue opportunities. Operator: Our next question comes from Arvind Ramnani from Truist. Arvind Ramnani: I just wanted to ask, right, like I mean it looks like you kind of lowered the guidance on sort of existing customer weakness, and I think what you have described as sort of in order to hit your guidance for the full year, there's some, I guess, prospective clients or pipeline, or some of the pipeline needs to convert. It seems like it's kind of like visibility at existing clients wasn't like kind of properly accounted for how are you getting confidence that the prospect of clients will actually convert to revenue on time in order for you to hit your guidance numbers? Jason Peterson: Yes. I think maybe the first thing just remember is I don't think any of us thought that what happened in the Middle East was going to happen and it was going to go on for as long as it's gone on for. So we are seeing some impacts from that. And then from a deal standpoint, there are a significant number of opportunities, Arvind, and we're just running on a modest share of those to convert. And so again, that's why we think that it's an appropriate guidance and why we also think that there's also opportunity to get to the higher end of the range. Arvind Ramnani: And then just on the topic of AI, right? I mean, certainly kind of -- you are seeing kind of good traction out there. I mean, is there any sort of like revenue cannibalization or workflow cannibalization or displacement of some of the legacy work as some of the AI work ramps up? Balazs Fejes: Arvind, mean clearly, there is some impact. clients shifting some of the IT budgets towards AI spending and also the increasingly automating parts of the SDLC, for example, testing itself. And probably, they are diverting investments away from digital platform, e-commerce platform build-outs towards new AI native products or a native platforms construction. So that's the shift what we are seeing right now. Arvind Ramnani: And just last question. Just with these advancements and model capabilities we have seen both across Anthropic and open AI just in the most recent model releases. Are you all proactively going to some of your clients and saying, like, hey, we can use some of these of improvements in sort of AI to kind of lower head count on certain projects? Are you offering that a few clients or not really seeing the dynamic? Balazs Fejes: So we are going to the clients with very advanced engagement model. This is what I highlighted when you were in the IA Day, we demonstrated dark factory capabilities. And yes, we are proactively talking to our clients, how we can introduce them how we can actually provide them a dark factory based for the autonomous applicable maintenance and support capabilities, how we can automate a large part of the testing flows. So this is all part of the go-to-market movement, which we launched earlier this year. Operator: Our final question today comes from James Faucette from Morgan Stanley. James Faucette: Thank you very much. Just a couple of quick follow-up questions. On margins, I think you -- Jason, you've talked about like what you're planning to do, but especially on these longer duration projects and if we're starting to factor in tokenization or token costs, excuse me, how do you think about like the levers that you need to control or what kinds of relationships and that kind of thing do you need to develop? And then I'll just throw in my second question simultaneously. I heard loud and clear, your potential interest in revisiting M&A, especially in the latter part of this year. Can you give us a little bit of view on in terms of what you might be looking at what makes sense and what valuations are doing in the types of acquisitions you could be looking at. Balazs Fejes: James, I think it's -- this is a great question, and it's so funny that so few people actually ask about economics. What you need to do is you need to control multiple aspects. You need to, first of all, control the model usage, what task, which model you are using what is the frequency of that model. You need to have the right blend of model. So what we are building out is this blending capability, which is which where for each particle task, you need to select the right model, which is able to execute, but cheap enough to deliver the ROI. At the same time, you also have to recognize that you can buy the same token from the same model from multiple sources. So you need to have the multi-sourcing capability, someone came to a trading desk, which allows you to purchase the same model, same capability from various sources. And this is -- we need to develop this capability to manage these contracts, how to manage our consumption and how to buy the same tokens related to price, availability, cash hit limits. All of these are influencing the pricing at the end. You can achieve differentiation or different in terms of pricing and profit levels, if you correctly control the sourcing and the usage of models themselves. In terms of M&A, I turn over to Jason. Jason Peterson: Yes. So I think that we continue to focus on domain capabilities, probably data assets and then some of the geographic opportunities that we talked about in the past, allowing us to expand our position, most likely in Asia Pac. And so kind of similar to what we've talked about in the past, again, I think you're not likely to see anything in the very near future, but maybe later in the year. And then just quickly from a valuation standpoint, I think we continue to see what in our eye is still a little bit of a disconnect between private market expectations and kind of public market valuations, but we continue to be engaged with the potential targets and I guess, kind of stay tuned. . Operator: This concludes the question-and-answer session. I'd now like to turn the call over to Balazs Fejes for closing remarks. . Balazs Fejes: Thank you for joining us this morning, and we're going to see you guys in 3 months. Thank you. .
Rune Sandager: Hello, everyone, and welcome to GN's conference call in relation to our Q1 report announced yesterday evening. Participating in today's call is Group CEO, Peter Karlstromer; Group CFO, Soren Jelert; and myself, Rune Sandager, Head of Investor Relations. The presentation is expected to last about 20 minutes, after which we'll turn to the Q&A session. The presentation should already be uploaded on gn.com. And with that, I'm happy to hand over to Peter for some opening remarks. Peter Karlstromer: Thank you, Rune, and thanks to all of you for joining us today. Let's start with some highlights on the quarter. Our Enterprise business experienced strong growth in the U.S. and the APAC market, while EMEA continues to experience weak demand and some level of channel inventory reductions. We started shipment of our Evolve3 range at the beginning of March, and we have been very encouraged by where we've seen so far. During the quarter, we experienced significant growth in the premium segments of headsets. This is exciting as we will be launching further additions to the Evolve3 family later this year that will gradually support our growth in Enterprise. On the margin side, we have had a soft quarter as expected due to the annualization of tariffs and inventory provisions related to warehouse movement in the U.S. and certain channel investment to support the launch and rollout of the Evolve3 headset platform. In Gaming, we continue to gain market share in the gaming equipment market influenced by continued weak consumer sentiment. While Gaming also faced some of the same margin headwinds as Enterprise due to tariffs, we have managed to control it through positive ASP development coming from the price increases implemented last year as well as a continued good cost control. We have just launched an exciting addition to our gaming headset portfolio, the Nova Pro Omni category, which is expected to contribute with growth for '26. In addition, we still have a strong product pipeline in the coming quarters, and we look forward to even more exciting launches in '26. Moving to our Hearing division, that now is treated as discontinued operations due to the announced divestment to Amplifon March 16. While we prepare for the closing of the transaction, the Hearing division continues to perform well and in the quarter across regions and channels grew with the help of ReSound Vivia, driving continued market share gains, which led to an organic revenue growth of 9%. With this summary, let me provide you with some more details on the performance across our divisions. In Enterprise, the business continues to do well in the U.S. and APAC, but due to the continued weak demand and some channel inventory reductions in EMEA, we delivered a negative 5% growth in the quarter. The gross margin ended at 53.7% in the quarter, which was around 2 percentage points lower than last year due to the annualization of tariff costs as well as some temporary effects due to an inventory provision related to the U.S. warehouse movement. We expect the gross margin to stabilize in the coming quarters. The divisional profit margin reflects the development in gross margin as well as some higher channel investment into the Evolve3 launch and rollout. The launch of Evolve3 has been very well received and is progressing better than expected, driving significant growth in the premium segment of headset. This is encouraging and supports our growth ambitions for the year as we extend the Evolve3 family. Let's move to the next slide for a bit more detail on this. Within our premium headset category, where we have started the shipment of Evolve3 75 and 85 in March, we have experienced more than 50% growth year-over-year in Q1. This is, to some extent, driven by channel stocking of the new products, but the sell-through to resellers also showed strength in the segment, which is an encouraging sign of momentum. The premium category accounts for around 15% of the Enterprise revenue. Evolve3 did contribute to growth in Q1, and we expect the effect from the launch to grow stronger over the year as we launch more products. In Q3 and in particular, in Q4, we do expect to see a significant Evolve3 contributions to absolute revenue and thereby also growth. As for the channel reductions we experienced in EMEA in Q1, we expect them to continue in the next few quarters given the current geopolitical uncertainty and the desire for several distributors to reduce the inventories. To help you understand how we plan our year, we would like to tie all this together. As several of you know, we normally see a revenue seasonality between H1 and H2 of around 47% sales in H1 and 53% in H2. Due to the short-term channel reductions and the H2 benefit of the Evolve3 rollout, the revenue seasonality will likely be more pronounced this year, which we have factored into our guidance. Let's move to the next slide and take some further look into the dynamics we observe in the markets we operate in. On this slide, we're illustrating the different dynamics that have contributed to the top line development in Q1. Our sellout in North America and APAC continued to be very strong. This has also been supported by some market share gains, in particular in the U.S. The channel inventories are stable, both in North America and APAC. And for both regions, we delivered double-digit organic revenue growth in the quarter for our core Enterprise business. Our main challenge for Enterprise is EMEA that is also the largest region. In EMEA, we are experiencing a weak market demand due to the geopolitical uncertainty. We also lost some market shares in the region, which can be expected from time to time given our more than 60% market share position. The decline is mainly related to the entry-level price points of headsets where we have seen increased competition. We do expect to regain this share with the launch of Evolve3 when we're launching these products relatively soon. Lastly, we've also seen some channel inventory reductions as our distributors navigate the global uncertainty. These effects together have resulted in a double-digit organic revenue decline in the quarter for EMEA. We do expect the challenged market conditions in EMEA to continue for the next few quarters. We focus on successfully upgrading our portfolio by rolling out the Evolve3, and we do expect this will stabilize our growth as the year progresses. Let's move to the next slide for some highlights and performance in the Gaming division. In Gaming, we delivered a negative 1% organic revenue growth in the quarter on top of a very demanding comparison base of 11% growth last year. This was driven by strong execution in a relatively soft market suppressed by continued muted consumer sentiment. The growth was supported by a good momentum in the headset segment, while low-end keyboards and mice provided some growth headwinds. Region-wise, North America contributed positively, while the business was somewhat weaker in EMEA and APAC. The gross margin of 34% was negatively influenced by the annualization of tariff costs as well as the wind-down effects in Q1 of the consumer business. This was partly offset by a positive ASP development coming from the price increases introduced last year. The divisional profit margin developed positively to 11% compared to 10.4% in '25, despite the negative development in gross margin, reflecting a continued good cost control. Let's move to the next slide for some more information on the gaming launch. SteelSeries expands our premium category of gaming audio with the introduction of the Arctis Nova Pro Omni. This headset enhances overall experience for the modern gaming, providing the best circumstances for ultimate immersion with the best ANC in gaming and an AI noise rejection baked into the microphone for impressive background noise reduction. The ability to connect to 5 devices at once with real-time audio control and infinite battery life enables complete omnipresence while the sound experience is enhanced further with a Hi-Res Wireless Certification and custom Hi-Res magnetic drivers. Coming in a new refined compelling design, this is a truly step-up in the Nova Pro headset category. We're excited about this launch and do expect the Nova Pro Omni to meaningfully contribute to SteelSeries growth from Q2 and onwards. With these updates on the Enterprise and Gaming divisions, let's move to the next item on the agenda, where Soren will provide some more details on the Hearing transaction. Soren Jelert: Thank you, Peter. On March 16, we announced the divestment of our Hearing division to Amplifon. Let me give you an update across key aspects of the transaction and its value creation. The carve-out process is well underway, and we continue to expect the transaction to close towards the end of the year as previously communicated. The transaction proceeds comprise a cash payment and the shares in Amplifon. The shares are subject to the customary lock-up period. We are excited to create an industry-leading player with Amplifon by combining our strength. We are convinced that this transaction will contribute with significant value creation for GN and Amplifon shareholders. While we do not see ourselves as a very long-term shareholder in Amplifon, we give our new strategic -- given our new strategic direction, we will be patient and wait for the value to be realized before we responsibly and in a controlled way sell our shares. The carve-out will be taxable, and we expect an upfront tax payment of DKK 1.5 billion to DKK 2 billion. However, we will also get an equal sized tax asset that can be used for tax reductions over the coming years. To unlock shareholder value, we are committed to return excess cash to our shareholders. We are currently, in the short term, targeting a leverage of 1 to 1.5x EBITDA. Shortly after closing, we plan to initiate a share buyback program. To avoid any doubt, we also like to be clear that we are not planning to do any large-scale acquisitions. So the excess cash at closing and additional cash when we exit our Amplifon shareholding is expected to be returned to our shareholders. Moreover, to address stranded costs and to set up GN for financial success, we are initiating cost initiatives to be executed during '26 that would deliver around DKK 200 million in structural cost savings. To separate Hearing and to adjust our cost base, we estimate total one-off cash costs of DKK 750 million across '26 and '27, of which around 75% is expected this year. Related to the separation and to the setup of GN for the future, we have also, in Q1, executed a number of noncash impairments. On the next couple of slides, I'll provide you with some additional details around some of these initiatives driven by the transaction. Let me first start by framing the size of the initial cash we will have available for distribution. With the cash proceeds from the transaction, net of tax, we will have an excess cash position. On top of this, we will drive a healthy operating cash flow in '27, which will further add to the positive cash position. In order to reach a leverage target of 1 to 1.5x by the end of '27, this would imply a quite meaningful excess cash holding somewhere between DKK 3.5 billion and DKK 4.5 billion, depending on the EBITDA of the business and the leverage target. As an overall planning assumption, you should expect the significant majority of this excess cash to be distributed back to our shareholders. As we mentioned, we are currently planning to initiate a share buyback program after closing of the transaction. Until the AGM in '27, we are authorized by our shareholders to hold up to a 10% treasury shares. We are currently holding 3.5% shares, so we can buy back around 6.5% shares, which equals to roughly 10 million shares. At the AGM in '27, we will then propose a cancellation of any excess shares and ask for a new authorization, which would allow us to continue to significant shareholder distribution. In addition, we also expect to reinstate yearly dividends. In the years to come, we will also have a few attractive financial assets that can be sold over time, which could drive even more shareholder distribution. We hope that this framework will help you to understand our priorities. We will come back with more details about our capital allocation priorities at our upcoming Capital Markets Day, which will also allow us to discuss the framework with our investors. Slide 14. We are focused on driving GN towards sustainable profitable growth. Let's talk about where we are and the steps we are taking in the near term. All margin numbers on this slide refer to the new GN without our hearing business. If we start with where we are coming from, in '25, our restated EBITA margin is 7.6%, which includes DKK 200 million in stranded costs as part of the transaction. While we in '26, will have limited operating leverage due to the low growth from our challenged markets, we still expect to drive a margin expansion from cost focus and also from lower average tariff exposure than we had in 2025. We'll also benefit from some of the balance sheet adjustments, which we announced today. This will, in total, lead us to an EBITA margin of 8% to 9% for the year. The effect from the cost initiatives of around DKK 200 million will further support our underlying margins with around 2% in '27. With the help of these steps, you will derive at an underlying EBITA margin of 10% to 11%. This margin level then serves as the structural margin level, which we will further improve in the years to come. We will share more of our plans around this at our upcoming Capital Market Day, which we plan for towards the end of the year. At this event, we will explain our plans for how to accelerate growth and drive margin expansion beyond where we are now, thanks to attractive markets, customer-centric innovation, selective investments and strong execution. Next slide, please. As a natural consequence of the transaction, we will be having some one-off costs related to the transaction. We estimate a total of one-off cost of DKK 750 million, of which 75% is expected to be incurred in '26. The one-off costs comprise of costs directly related to the transactions such as adviser and consultant fees, legal costs and the likes. To complete the carve-out, we will have costs for advisers, legal support, IT consultants and costs related to contract separations. As we communicated today, we will also have costs for rightsizing of the business, which mainly will serve the severance costs. As for 2026, one-off cash costs, you should assume that most of these will be in the discontinued operations as these are costs necessary to drive the carve-out, while the rightsizing costs will be sitting in the continued operations. In total, this means that roughly 70% of the one-off cash costs in '26 will be related to the discontinued operations. Finally, we have done some asset impairments across IT, R&D and facilities. The majority of these is related to a large ERP project within our Hearing division that is not part of the transaction perimeter, and we are therefore subject to an impairment to the asset. The impairments are noncash by nature and is incurred in the first half of 2026. With that overview of the status and impact of the transaction, let's move to the group numbers and the related guidance. As a consequence of the transaction, our Hearing division is now treated as discontinued operations. So from now on, we will focus on the performance of the continuing operations in GN, which comprise of our Enterprise division, Gaming division and group functions that are not part of the transaction perimeter. In Q1 of '26, the continuing business delivered organic revenue growth of minus 4% due to the challenges in the EMEA part of our Enterprise division. The gross margin ended at 48.2%, reflecting gross margin development in Enterprise, as Peter mentioned earlier. However, we do expect our more normal gross margin in Enterprise already from Q2, and we will likely also see further improvements in gaming. The adjusted EBITA ended at DKK 6 million, equal to a margin of 0% compared to 6% in Q1 of 2025, driven by the development in the gross margin as well as negative operating leverage. The cash flow development in the quarter is including the discontinued operations. In Q1 of '26, GN delivered a free cash flow, excluding M&A of negative DKK 45 million, driven by seasonality, but offset by well-managed working capital. The net interest-bearing debt ended at DKK 8.9 billion, corresponding to an adjusted leverage of 3.8x EBITDA. Let's move to the next slide for our group financial guidance for the year. First, I would like to say that we are now reintroducing our guidance on EBITA margin, which was suspended when we announced the divestment of the Hearing division to Amplifon. As mentioned earlier, we are now guiding for a full year '26 adjusted EBITA margin for continuing operations of 8% to 9%. The benefits of the DKK 200 million cost savings would then come on top of this number and will be visible from 2027. Our guidance on organic revenue growth is a result of assumptions from our 2 divisions. The performance of our Gaming business in Q1 has been fully in line with our plans for the year, while we are confirming our early applied assumptions, which were an organic revenue growth contribution of 7% to 13% for the Gaming division. As Peter mentioned earlier, the demand in EMEA and Enterprise has been weak in the first quarter, and we are now taking a more cautious perspective to the underlying market development in EMEA. Consequently, we are now assuming a modest declining global Enterprise market for the year. However, due to the early feedback around Evolve3, we remain confident in our ability to drive market share gains for the year, while we are assuming Enterprise to contribute with organic revenue growth of minus 3% to plus 3%. As a function of the divisional assumptions across Gaming and Enterprise, we, therefore, are updating our organic revenue growth guidance to 0% to 6%. And with that, I'm happy to hand you back to Rune. Rune Sandager: Thank you, Peter and Soren for the updates. That was the end of the presentation. I will hand over to the operator for the Q&A. Please limit yourself to 2 questions at a time, please. Operator: Your first question comes from Veronika Dubajova with Citi. Veronika Dubajova: I have 2, please. One, I just would love to understand what gives you the confidence in that improving growth outlook in Enterprise. And I guess maybe you can kind of touch upon, one, what gives you confidence in the growth improving, but two, also what gives you confidence in the improving margins? I know you've not given an Enterprise guidance, excuse me, but obviously, that, I think, was the piece that the market was most disappointed this morning. And then I have a quick follow-up after that, but maybe we can start there. Peter Karlstromer: Thank you so much. I think it's fair to say that we are a bit behind what we expected here in Q1, and that's also why we're making some adjustment, of course, to the outlook. But I think what remains the same is that we always believed in a much stronger second half of the year than early half of the year. And this is solely due to the Evolve3 product launches. We have now launched the first products in late Q1, and we shared some of the initial encouraging effect of this where we see a very healthy growth. And when we say growth, we're then looking on the segment as total, so the old product and the new products together, how do we perform now vis-a-vis a year ago. We do expect to see similar effects as we're launching products in the medium and the entry-level segments of the market. And this is also where the majority of our Enterprise business is sitting. So this is essentially why we are believing in a much stronger second half of the year. So this will help us then to improve the momentum, in particular, in Q3 and Q4 compared to what you see here in the beginning of the year. Then when it comes to the margins, we had some one-off effects in this quarter, and we highlighted them here in the intro. And there is something related to the tariffs first where, of course, we didn't have tariffs in the beginning of last year. And then the other one is this movement of the warehouse, which is also a one-time effect where we're taking some kind of provisions related to that. So we do expect the gross margins to bounce back already in Q2, and you should see them on more, what you say, levels that you have got used to throughout the rest of the year. And then I would say, of course, also if you look more on the divisional margins and on the group margins, they will, of course, be supported by the growth as well. So this is our thinking around it. Veronika Dubajova: And that was actually going to be my follow-up. Can you quantify the warehouse provision for us or the impact that it had on the gross margin this quarter? Soren Jelert: Veronika, the warehousing is around 1% in terms of the implications in this first quarter. And then, of course, you have the tariff also that is also -- bear in mind that the tariff is sitting on the balance sheet. So whatever was the improvement in the tariff in the quarter 1, you won't see that until a little further down the line once we start to pick the product from the balance sheet. So that's also why we are confident in that it will actually improve our underlying margins because Q1 is mostly, of course, linked to the old tariff that we saw during last year. Operator: Your next question comes from Carsten Madsen with Danske Bank. Carsten Madsen: A question to Enterprise and the comments you have about North America, where you say strong growth, but your segment breakdown points to a decline in Danish kroner of 8.5%, the dollar is down 10%. So I guess you have something like a 1.5% growth in North America for Enterprise. I don't think that is strong or am I missing something here? And secondly, the EBITA margin of 10% to 11% for 2027, what level of amortizations are you expecting that year? Because I have a little bit difficult stripping out all the balance sheet impairments today and estimating the impact on future amortizations from these. Yes. Peter Karlstromer: So thanks a lot for the question. Let me start. I think the comment I made in the intro was mostly the Enterprise core. It's essentially the core Enterprise headsets. As you probably recall, we also in Enterprise, the way we report, have BlueParrott as well as FalCom. If you look in North America, there was not any real impact of FalCom in any way. But BlueParrott had a very good quarter last year and a weaker quarter this year. So that is essentially putting some negative effect. So if you filter that out, actually, the growth we saw in the core enterprise was a very solid growth in North America. So hopefully, that helps understand. Just one more comment related to this to help you all. I mean, I think that some of you probably will also reflect and we did have some FalCom business in the quarter. So to some extent that, that positively contributed to the overall Enterprise numbers. But as I mentioned, we also had a bit of a negative contribution from the BlueParrott. So they more or less netting each other out, so to say, if you look on the global Enterprise numbers. But in North America, it's a BlueParrott negative effect. Carsten Madsen: Okay. Soren Jelert: Then to the impact of the amortizations, I mean, the majority of it, given that we already do it now, you see the positive effect of that this year, and that's baked in. Of course, as it's also a full year and part of the portfolio also is depending on it, there is a little step up next year, but the majority is this year. Carsten Madsen: But can you help us understand what the EBITDA margin guide would have been for '27 without these impairments? Soren Jelert: Yes, fair. I think approximately, it's 1% that it's -- that's the tailwind we can have from these amortizations this year. And we'll have the same next year, essentially because it will continue over multiple years. Operator: Your next question comes from Andjela Bozinovic with BNPP. Andjela Bozinovic: This is Andjela. The first one is just on Enterprise. I'm interested to hear your thoughts on the phasing of the growth for the rest of the year, especially because on Slide 7, you signaled that Evolve3 portfolio should contribute less to group growth than in Q1. And as far as I remember, you only launched Evolve in March. So just curious why should we assume less of contribution in Q2? And the second question is more like a follow-up to Veronika's question on profitability. So with the adjusted EBITDA margin of 0.3% in the quarter, just -- can you help us break down the improvement assumed for 2026 and 2027? I understand that the provision is 1 percentage point, but what else should drive the improvement from here? Peter Karlstromer: Okay. Thank you so much. Let me start with the phasing. I think that these are the base assumption. It might vary a bit. So I don't think we can read into the very details of this. But we -- I think it's back to how we launched the product. So in Q1, we launched the Evolve3 85 and 75, the premium products. Then when you launch, you're getting the initial channel stocking, which is essentially all channels are filling up the products. And then if you look on Q2, you will not have that initial stocking effect. So it's more like a replenishment of what being sold out. So it's still a very healthy contribution, but we do expect it to be slightly less than in Q1. And then why it's picking up again in Q3 and Q4 is because then we are launching more d Evolve3 products into the mid- and lower-tier segments of Enterprise. Soren Jelert: And when it comes to the buildup on the margins that, of course, was muted here in quarter 1, I think a couple of things. Of course, we do have the impairments, and that's probably an easier one, right? That's a 1%. But in general terms, the business we have left in GN has a higher share of the profitability and a higher share of also the sales in a normal year in the subsequent 3 quarters and especially in the second half of the year. So you should always expect us to earn a larger part of our earnings and also through that, have a better leverage in the second half of the year that should drive up towards the 8% to 9% in margin. So it is top line driven, but it's also a fact that we generally earn more the way our company is the seasonality in the company. And then in addition to what we then land this year, you should think of it as the 2 percentage points, they come on top of the landing of this year in terms of us addressing the stranded costs this year, but the benefit of addressing it will deploy next year and give the 2% margin uplift. Andjela Bozinovic: Just a follow-up on the first one. So basically, you assume that Enterprise will decelerate into Q2. Is that a fair assumption? Peter Karlstromer: If we look on the Enterprise core, we do think it will be relatively similar. So don't expect a significant effect in any way. If you look at Enterprise in totality, what we need to factor in then is also the FalCom business where we had a very large order last year. So if you include FalCom, we probably could see some pressure on the number from that year-over-year comparison. We do expect we will have a good year on FalCom, but it will come more towards the end of the year. So we have talked about that before. It's a little bit, of course, lumpy in the way this business is delivered. So hopefully, that helps you to think about Q2 in the right way. Operator: Your next question comes from Niels Granholm-Leth with DNB Carnegie. Niels Granholm-Leth: My first question is on your expected tax going forward. So you're talking about this tax reduction for the coming years. So would that be fully lifted in your tax in '27 and onwards? Or should we still assume 23% tax rate in your P&L? And secondly, could you just update us on the situation about nation's benefits and to what extent there is a sale process ongoing for this asset? Soren Jelert: Niels, on the tax, our base assumption is that the tax we are paying will approximately stay at the same level, but we'll, of course, get back to you if we get different clarity on that. So that would be our working assumption based on how we calculate today in the P&L, of course. And then in terms of paid cash tax is, of course, reduced as we will be able to take advantage of the tax assets we are having. Peter Karlstromer: On nations, I think no real update on any imminent sales process. The underlying business continues to develop well, and we will act together in coordination with other major shareholder when the time is right, but no real further info at this time. Operator: Your next question comes from Martin Parkhoi with SEB. Martin Parkhoi: Martin Parkhoi, SEB. Just also two questions. First on the guidance, 2 questions. Firstly, maybe just around for both. If we look at the guided interval in the old year, you had an interval range of 2 percentage points. Now you put a very narrow guidance range on the EBITDA margin of 8% to 9% in a business where your ability to forecast the development in the last couple of years has been difficult. So can you be so confident in such a strong guidance range on the EBITDA margin and also on the guidance side, maybe that's for Peter. On Enterprise, it is a little bit confusion on the commentary as also Carsten alluded to that you make the commentary on the headset business and then afterwards, we talk about, yes, BlueParrott was a little bit high last year. So can you maybe say that on the minus 3% to plus 3% Enterprise growth, what's the assumption for the core Enterprise headset business on that side? And then just as now you have revealed some details on hearing still with a very good quarter of 9% organic growth. What drove that acceleration? And have you seen your share to Amplifon increase in the quarter? Soren Jelert: Martin, basically, on the guidance for the year of us being more precise, I think we are having the insights now. We are now further into the year. And we also believe that now our outlook is more firmed up of how we see the cost patterns also pan out and also how we see the overall landscape of the top line. So it is a function of that we are closer through the year essentially, and that makes us more confident in the 8% to 9%. Peter Karlstromer: Okay. And when it comes to the BlueParrott and FalCom, for the year, we do expect similar sales this year for both as we had last year. So there is not a real effect from them on the Enterprise growth, so to say. So for the core Enterprise is the same as the guidance we have given. The comments are more because in individual quarter, there could be effects. So we're more making these comments to try to help you understand the business in that way. And then if you look on the Hearing business, I mean, yes, thank you. We had another very good quarter in Hearing. It was a broad-based growth across the 3 regions. I mean I don't want to go and comment specifically on the Amplifon business as we would not I can confirm that we still have no customers that are, I mean, 10% or higher, and that's also true in this quarter. So I would say it's been a broad-based growth across regions and channel types. Operator: Your next question comes from Susannah Ludwig with Bernstein. Susannah Ludwig: Mine is a more long-term question on the Enterprise market. So we're heading into what looks like the potential fourth year of negative growth in that business, which will now be the majority of the group's revenue following the hearing sale. Could you update us on your thoughts on midterm growth in this market? And I guess in conjunction with that, previously, you've talked about a 3-year replacement cycle. Is this still the replacement cycle that you're seeing? Or is this lengthening? Peter Karlstromer: Thank you. And we appreciate it's been a long adjustment period here after the strong COVID growth. I mean taking a step back, I mean, we very much still believe in the attractiveness of the Enterprise market. And then when we're saying that we are taking, of course, a longer-term horizon on this. If we look on the strength of the market, I think it's encouraging to see what we see in North America and APAC. The market here has actually been in growth for the, I mean, 6 quarters now in a row. What has, to some extent, surprised us is the continued weakness in the EMEA market. And it has had a period of encouraging signs of improvements and coming back to growth and then setbacks. And we have some level of setback now also, likely driven by the more macroeconomic uncertainty driven about the unrest in Middle East and so on. The indirect effects of that seems to be that there are many companies across Europe, which have tightened spending and it's affecting us also. So in terms of the long-term belief in the market, I don't think anything has changed. We are working now to develop a new kind of mid-range plan and with detailed targets and so, which we intend to share with you at our Capital Markets Day here towards the end of the year. But the attractiveness in the market, we still think it's very much there. And then in terms of your question on replacement cycles, I mean, on average, we still assess them to be around 3 years, and then the periods can be slightly longer or slightly shorter. But if you look like over some period of time, that is still our best assessment of it. I will say though also that this year is likely one of the years in a long time where we will launch most products, and we started now in the beginning of the year, and we will launch many more products throughout the year. So I do think that our guidance, you should factor in that there is, of course, a market element of it, but also what's in our control in terms of launching strong products and having good launch processes is quite a lot of what's in the guidance as well. So we're coming back to this that as we're launching more products this year, we do also believe that will support the Enterprise business very well. Susannah Ludwig: Okay. Great. And just quickly on the replacement cycle, is that the same across sort of different categories, call center, sort of office workers and frontline workers? Peter Karlstromer: It actually varies a bit across them, as you say. call center tend to be slightly less and office workers slightly longer. But given that we have the majority of the business with office worker, we're trying to weigh it, see it as a blended average. So that is around these 3 years. Operator: Your next question comes from Andjela Bozinovic with BNPP. Andjela Bozinovic: I just wanted to ask on the conflict in the Middle East and if you're seeing anything in terms of inflation, increased transport costs or raw material and especially considering you're in the launch phase in Gaming and Enterprise and you need to ship these products from Asia to North America and EMEA market. Is any of this impact reflected in the new guidance? Peter Karlstromer: Thank you so much. I would say that both direct and indirect effects from the Middle East and rest. The direct effects on us includes things you mentioned, like logistic costs are slightly elevated. You need to find new shipment routes and also, in particular, around launches, we have been using a bit more flights for transportation of the products -- so that has some impact. That is factored into the guidance. The indirect effect, we actually think is the larger ones, which we think is one of the key contributors to we see -- the weakness we see now in EMEA, which is also factored into the guidance as we have shared with you today. So everything is in the guidance, but we do expect this actually holding back the business quite a bit, mostly on the EMEA side. The direct margin impacts, I think, are quite manageable for us. So that is not anything significant. Operator: Your next question comes from Julien Ouaddour with Bank of America. Julien Ouaddour: I hope that you can hear me okay. I have one which is just like a clarification on Enterprise. So if I'm correct, you said the core Enterprise roughly down 5% again in Q2. Then we take the 5% comes from FalCom, so roughly Enterprise down 10%. So first of all, is it correct? And can you just help me to bridge the H1 performance in Enterprise to the full year guidance, especially to the upper end of this guidance? And maybe just a quick follow-up on margin. I expect that this could have a pretty negative impact on margin next quarter. So could you also help us to understand the magnitude of it and the kind of margin we should expect from this business? Soren Jelert: It was a little difficult to hear you in the end. Could you please repeat the margin question, please? Julien Ouaddour: Yes. No, on the margin side, just when the top line declined potentially by 10%, I assume some like operating leverage. So any comments about the margin at the divisional level or just like the EBITDA margin impact that we could expect from this like low growth will be -- would be helpful. Any comments? Soren Jelert: I think when it comes to the margin, we are anticipating, as we also said, that the gross profit will improve already from quarter 2, actually. And as such, it's more down to the absolute value. When you look into the growth rates, bear in mind the comparators of last year, that's, of course, important. And coming into quarter 2, as also Peter spoke to, we had a FalCom order, large order that was in quarter 2. So essentially, that will give some pressure on the growth rates for quarter 2. But from a margin -- gross margin standpoint, there, we expect the uplift to be seen already from quarter 2 and onwards. Peter Karlstromer: I can also clarify, I think you -- if I understood the first question right here, also the growth in the quarter. I mean, we had a bit of a positive effect from FalCom and a bit of a negative effect from BlueParrott. So the core Enterprise growth, I think, is very close to the reported growth for Enterprise. Operator: Your next question comes from Veronika Dubajova with Citi. Veronika Dubajova: I just want to ask a couple of technical questions around the new structure and just how we should be thinking about the next steps. Just the timing of buybacks, are you willing to do buybacks before the deal closes? Or are we waiting for the deal to close? And I guess, would you want to wait for authorization to do a bigger buyback? Or would you be happy to use the 6.5% before we get there? If you can talk to that, that would be helpful. And then just a very technical one, apologies. But from a covenant perspective, anything that we need to be aware of until the deal closes or effectively, the debt is fine even as the leverage is kind of changing optically at least in the deconsolidation process? Soren Jelert: In terms of the buybacks, what we have said today, and also stands, is that we will wait until we have closed essentially and then go for the buybacks. As I also said in my intro that we have the 6.5% left in our -- the permit we have basically to the 10%, and that's where we will go first. So that's at least on the buyback side. And then the other question was on -- on the covenants, yes, we -- of course, yes, covenants, we are in a good balance there and also have commitments from our banks in terms of this process. So that is in good control. Operator: That does conclude our question-and-answer session. I will now hand back to the company for closing remarks. Rune Sandager: Thank you very much, operator, and thank you, everybody, for joining on the call.
Operator: Good day, and thank you for standing by. Welcome to the MKS Q1 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Paretosh Misra, Vice President of Investor Relations. Please go ahead. Paretosh Misra: Good morning, everyone. I'm Paretosh Misra, Vice President of Investor Relations, and I'm joined this morning by John Lee, President and Chief Executive Officer; and Ram Mayampurath, Executive Vice President and Chief Financial Officer. Yesterday, after market close, we released our financial results for the first quarter of 2026, which are posted to our investor website at investor.mks.com. As a reminder, various remarks about future expectations, plans and prospects for MKS comprise forward-looking statements. Actual results may differ materially as a result of various important factors, including those discussed in yesterday's press release and in our most recent annual reports on Form 10-K and any subsequent quarterly reports on Form 10-Q. These statements represent the company's expectations only as of today and should not be relied upon as representing the company's estimates or views as of any date subsequent to today, and the company disclaims any obligation to update these statements. During the call, we will be discussing various non-GAAP financial measures. Unless otherwise noted, all income statement-related financial measures will be non-GAAP other than revenue and gross margin. Please refer to our press release and the presentation materials posted to the Investor Relations section of our website for information regarding our non-GAAP financial results and a reconciliation to our GAAP measures. Our investor website also provides a detailed breakout of revenues by end market and division. Now I'll turn the call over to John. John Lee: Thanks, Paretosh, and good morning, everyone. 2026 is off to an outstanding start for MKS. First quarter revenue, gross margin and EPS all came in at the high end or above our guidance ranges, and our Q2 guidance shows that we expect this momentum to continue, driven by strong bookings across our end markets. In the semiconductor market, MKS has a long-standing track record of outperforming WFE in up cycles. We are in an excellent position to capitalize on chip makers' ambitious AI-driven CapEx plans, which are accelerating technology inflections that enable more complex vertical structures in semiconductor devices. In Electronics and Packaging, our leading position in chemistries and chemistry equipment sets us up for long-term growth with strong margins. Similar to semi, AI is driving increased complexity and layer counts in advanced circuit board manufacturing. Together, this translates into rising deposition and etch intensity in semi and more equipment in chemistry for PCB plating. And our specialty industrial portfolio is expected to continue delivering steady performance over the long term with incremental cash flow generation as we leverage our leading technologies across this end market. We are well equipped from a capacity perspective to support the demand growth we are seeing today, and we are positioned to support higher levels of growth into the future as we prepare to open our new supercenter facility in Malaysia this June. MKS' strong position is a function of a broad portfolio of foundational technologies, strengthened by design wins through the down cycle that are now powering results as demand increases. We continue to prioritize investing in collaborative development programs with our customers that are driving new design wins. These investments are yielding a broad array of advanced products like our enhanced precursor monitoring capabilities, ultrafast lasers for back-end semi applications and dissolved gas solutions for leading-edge nodes, among others. Our commitment to investing in R&D on a through-cycle basis is a key reason our customers continue to partner with us, and we are excited about the opportunities that these partnerships are creating for MKS. Starting with the semiconductor market. Revenue for Q1 came in just above the high end of our expectations, growing 13% year-over-year and 7% sequentially. The growth was broad-based across products targeted to DRAM, NAND and foundry logic applications. The sequential revenue growth was the best we've seen in some time, driven by our vacuum and power products serving deposition and etch applications, our plasma and reactive gas offerings for advanced logic nodes and our photonics solutions targeted to applications in lithography, metrology and inspection. Notably, our Power Solutions growth reflects increasing NAND equipment upgrades. AI is driving demand for more enterprise storage needed to support growth in inferencing applications, and that is leading to the faster migration to higher layer counts. Looking into Q2, we continue to see strong order activity, especially in remote plasma and microwave for advanced DRAM applications, dissolved gas for logic applications and lasers for back-end applications. As a result, we expect semiconductor revenue to accelerate, growing high teens sequentially and over 25% year-over-year. Turning to Electronics and Packaging. Revenue surpassed the high end of our expectations, up 6% sequentially despite normal seasonality related to the Lunar New Year and up 27% year-over-year. This strength was led by flex PCB drilling systems following consumer electronics seasonality as well as continued strong performance in chemistry and chemistry equipment. Excluding the impact of FX and palladium pass-through, chemistry sales increased 22% year-over-year, driven by AI-related advanced PCB manufacturing and high-end smartphones. We continue to see a very robust order environment for our laser drilling equipment, chemistry and chemistry equipment. To that end, we expect Q2 electronics and packaging revenue to grow in the high single digits sequentially and over 30% year-over-year with strength in both chemistry and chemistry equipment. Laser drilling orders remain very healthy as PC manufacturing complexity increases across end market applications. The strength we are seeing is primarily in flex for smartphones and wearables, but also for rigid PCB laser applications related to the low earth orbit satellite market. Overall, our performance in Q1 and guidance for Q2 indicates that we are not currently seeing any material impact from higher memory pricing on the consumer electronics end markets. In Specialty Industrial, performance was steady as anticipated with a modest sequential decline primarily due to seasonality, but an 8% growth year-over-year, driven by strength in certain applications such as Datacom and defense. In Q2, we anticipate a slight uptick sequentially. We remain confident in Specialty Industrial as a steady contributor to our business with attractive margins and incremental cash flows. As we look to Q2 and beyond, we believe we are in an excellent position. Our visibility is improving in a rising demand environment and the fundamental trends of rising complexity and increasing layer counts favor MKS across our key end markets. Order volumes are healthy and serve as a leading indicator of our deeply embedded position in leading-edge processes and systems critical to addressing advanced electronics in the AI era. Foundational nature of our products can be seen in our gross margin performance, which underscores the value we are delivering to customers. We are focused on capitalizing on the robust set of opportunities in front of us, and we're well prepared to do so with the capacity in our global production footprint. With that, I want to thank our MKS teams for their dedication and outstanding execution, our customers and suppliers for their partnership in a dynamic demand environment and our shareholders for their interest and support. Now I'll turn it over to Ram. Ramakumar Mayampurath: Thank you, John, and good morning, everyone. We delivered an excellent first quarter. We are seeing increased demand across our key end markets, and we remain focused on disciplined execution and driving profitable growth. Let me begin by reviewing Q1 results in detail. MKS reported a revenue of $1.08 billion, up 4% sequentially and 15% year-over-year. First quarter semiconductor revenue was $466 million, up 7% sequentially and 13% year-over-year. The result was driven by strengthening demand, especially in DRAM and logic and foundry applications. The sequential increase was led by our vacuum products and plasma and reactive gases offerings. We also saw an uptick in revenue related to NAND upgrade activity, which benefits our RF power business. Year-over-year comparisons reflect broad-based strength across many product categories, consistent with an improving semi demand environment. First quarter Electronics & Packaging revenue was $321 million, an increase of 6% quarter-over-quarter and 27% year-over-year. This sequential improvement reflected higher flexible PCB drilling and chemistry sales even with the seasonal impact of the Lunar New Year. The compelling year-over-year comparison was driven by healthy underlying growth across chemistry, flexible PCB drilling equipment and chemistry equipment. Chemistry sales in the quarter were up 22% year-over-year, excluding the impact of FX and palladium pass-through, underscoring the accelerating demand from AI-related applications. In our Specialty Industrial market, first quarter revenue was $291 million, a decrease of 2% sequentially, reflecting Lunar New Year seasonality. Revenue was up 8% on a year-over-year basis, supported by modest improvements across several of our key market categories. Turning to gross margin. We reported first quarter gross margin of 47%, which is the high end of our guidance. As a reminder, Q1 2025 did not include incremental tariff impacts. We're seeing benefits from higher volume and favorable mix, including higher chemistry revenue, which more than offset the impact of higher palladium prices, which are passed through at 0 margin. First quarter operating income was approximately $235 million, yielding an operating margin of 21.8%, which is well above our guidance midpoint. Operating expenses of $271 million included higher R&D investments and a seasonal increase in stock-based compensation. First quarter adjusted EBITDA was $277 million, yielding a 25.7% margin and also at the high end of our guidance. Net interest expenses was $37 million compared with $45 million in the first quarter of 2025, reflecting the benefits of the financing transactions we closed in the first quarter as well as continued proactive principal prepayments. Our first quarter effective tax rate was 20.9% and in line with our guidance. We started the year strong with first quarter net earnings of $157 million or $2.30 per diluted share, which is above the high end of our guidance. Let me now turn to cash flow and balance sheet. We closed the quarter with $1.5 billion of liquidity comprised of cash and cash equivalents of $569 million and our undrawn revolving credit facility of $1 billion. Free cash flow was $29 million. As a reminder, Q1 is typically the low point of the year due to timing of variable compensation payments. In addition to this, we are also seeing an increase in working capital related to the ramp in demand. As we have said before, our first capital allocation priority is to make the investments needed to support business growth. Additionally, we continue to focus on proactive deleveraging, including another payment of $100 million on our term loan earlier this week. Net debt at quarter end was $3.6 billion. That combined with trailing 12-month adjusted EBITDA of over $1 billion resulted in a net leverage ratio of 3.5x. Finally, during the first quarter, we increased our dividend by 14% to $0.25 per share or $17 million. Let me now turn to second quarter outlook. We expect revenue of $1.2 billion, plus or minus $40 million. By end market, our second quarter outlook is as follows: revenue from our semiconductor market is expected to be $550 million, plus or minus $15 million. Revenue from our electronics and packaging market is expected to be $350 million, plus or minus $15 million, and revenue from our specialty industrial market is expected to be $300 million, plus or minus $10 million. Based on anticipated revenue levels and product mix, we estimate second quarter gross margin of 47%, plus or minus 100 basis points. We expect second quarter operating expenses of $275 million, plus or minus $5 million. We estimate second quarter adjusted EBITDA of $328 million, plus or minus $26 million. CapEx for the year is expected to be in the range of 4% to 5% of revenue. We expect a tax rate of approximately 20% in the second quarter and our full year tax rate to remain in the 18% to 20% range. Based on these assumptions, we expect second quarter net earnings per diluted share of $2.90, plus or minus $0.30. Wrapping up, we are very excited to see the growth opportunities ahead for MKS. We continue to execute at a high level, and we are in a strong position with our manufacturing capacity and capabilities. We have continued to strengthen our balance sheet with a clear and disciplined capital allocation strategy, and we remain focused on driving profitability, cash flow and improving EPS to create value for our shareholders. Thank you for joining today. And with that, I'd like to turn the call back over to John. John? John Lee: Thanks, Ram. We are pleased with the results this quarter and look forward to keeping you posted on our progress. On that note, I wanted to share that we are planning to host our next Investor Day on December 14 of this year in New York City. We're excited to share more about what we have built at MKS and our plans for the future. Stay tuned for more details. Now operator, let's open the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Jim Ricchiuti of Needham & Company. James Ricchiuti: Just as we think about the semi business, wondering, are you still -- I think last quarter, John, you were talking about the fact that you were shipping to demand in semi. Are you still doing that? Or are you seeing the production ramp now that is more consistent with customers' plans to build inventory ahead of the stronger cycle that we're seeing. John Lee: Jim, thanks for the question. I would say this, the best people to answer that is probably our customers, but they have been very clear about what they need for their quarters in terms of shipping for their revenue and also their desire to build inventory. And I believe we are in a great position to meet that right now. So I assume some of it is to build inventory at this point, Jim. You can see from our guidance that our supply chain has revved up and we're starting to accelerate our factory builds because our supply chain is delivering to us. So I think in general, I think that is probably the case. James Ricchiuti: On the E&P side, I think you alluded to strength in the laser drilling business as a contributor to the growth. I'm trying to reconcile the strength in that business because normally I associate it with smartphones. And I think right now, we're seeing concerns about overall unit demand in light of memory prices. So I'm wondering what might be driving that? And then just more broadly on the E&P side of the business, can you give us any sense as to how the equipment pipeline looks in Q2 and beyond, just given the demand we're seeing and capacity adds from your customers? John Lee: That's a great question, Jim. So there are 2 drivers. One is the advanced smartphone build, and that's really what's driving our flexible PCB drilling. So you're correct there. But the driver is the high-end smartphones, and that's why we're seeing the good strong demand in our flex drilling. The other is AI, of course, and that's driving the larger E&P market for us and our business for us, including chemistry equipment. So we're seeing continued strength in chemistry equipment as well as continued strength in flexible PCB drilling. Operator: Our next question comes from the line of Steve Barger of KeyBanc. Steve Barger: Great to see both sides of the business really pulling in a strong way. First question for me. We've talked a lot about the potential for NAND tool upgrades over the past 2 or 3 quarters. But as everyone in the industry tries to ramp capacity across device types, can you talk about non-NAND opportunities for upgrades in front of new tool shipments? John Lee: Steve, so you're right, we did start seeing some of these NAND upgrades as we called out on our prepared remarks. Regarding DRAM and logic foundry, I think most of that, our understanding is it's just greenfield. So it's really for new tools for advanced DRAM and advanced logic and foundry applications. Certainly, there are some upgrades, I'm sure. Certainly, our customers have said their upgrade business continues, but certainly not at the rate it used to in the past couple of years. So we believe that most of what we're shipping now are for more advanced tools for the more advanced nodes for DRAM and logic foundry. Steve Barger: Got it. And then on E&P, the front-end names and the chip makers are saying visibility in the cycle is the best it's ever been. Are you hearing that same message from PCB and substrate makers? Are they giving you longer forecast than normal? And are you seeing formerly Tier 2 and Tier 3 players trying to move upstream to get into more complex substrates? John Lee: I would say, in general, that's true, Steve. And we can say that because of the strength of our chemistry equipment orders. So that is really a great indicator of the visibility that our customers are seeing, their plans for meeting that visibility. And last quarter, we said the equipment -- chemistry equipment continued to be strong in bookings. And we can say that this quarter, that is still the case. So given that, I think we would agree that the visibility that our customers and PCBs are seeing is giving them confidence to order this equipment from us. Operator: Our next question comes from the line of Melissa Weathers of Deutsche Bank. Melissa Weathers: Congrats on some really nice results here. I wanted to ask on the supply side of things. I think if we track the number of fabs that are expected to come on, whether it's logic or foundry or DRAM over the next couple of years, like we're seeing some pretty massive WFE numbers. So as you think about your ability to supply, just any color that you have on how much WFE you can serve? I know you have the Malaysia factory coming online very soon, too. So can you just talk about any kind of supply side metrics that we should understand that can help us frame the next couple of years as these fabs come online? John Lee: Yes, that's a great question. So let me break it down to kind of a near term, like 2026, where WFE estimates are in that $140 billion range. We can meet that. We had already put in capacity, as we said maybe a couple of years ago for $125 billion WFE with a 25% to 30% surge. So we are fine for 2026 in terms of our capacity. And we believe our supply chain is more robust as well to support that. Having said that, we have already started plans and ordering equipment to expand that capacity for 2027 to meet the 2027 needs, which is in that $170 billion to $180 billion WFE. In order to do that, we do not need any more new buildings. We have enough buildings, especially with Malaysia coming online. And then beyond that, of course, we'll have to see whether we need to continue expanding there, but we're ready to do that as well. Melissa Weathers: Great to hear. And then for my second question, I wanted to touch on the AI side of things and some of these next-gen AI processors. I think there's a story a couple of weeks back just with some concerns on warpage and how existing packages are kind of struggling to hold all the HBM and all the GPUs on top of them. So I guess as we think about next-gen packaging architectures, can you talk about the trends that you guys are seeing, where you see the direction of travel going over the next few years and what that could mean for your E&P business? That would be helpful. John Lee: Sure. Yes. You're right. There's a lot more chips on top. The boards for AI are getting bigger and there are more layers. And so all those things would drive potential warpage of the boards. But the whole industry is working on these kinds of technical problems. A couple of ways to solve it is, of course, glass cores. That's a big topic right now. Today, though, most people are still using just regular non-glass cores and making them thicker. And they're working on making sure that the bonding between the various layers of the boards is stronger. That's an area of opportunity for MKS. We are one of the market leaders in the chemistry needed to bond layers to each other. We don't talk about that too much. We're really talking about plating and putting the copper lines in, but obviously, bonding the layers together is also something difficult and also a big contributor to yield. And we like our position there. We like some of the products we're offering there. So you're right, these are all the kinds of technical problems one would expect. But every time there's a technical problem, it's also an opportunity, and we at MKS certainly love those opportunities. Operator: Our next question comes from the line of Matthew Prisco of Cantor Fitzgerald. Matthew Prisco: I guess starting on the semi side, how have customer conversations kind of evolved over the past 90 days? Where are you seeing the greatest change? What are you seeing in terms of visibility? And maybe how are you thinking about your ability and the magnitude at which you can outgrow WFE at this point in the cycle? John Lee: Thanks for the question, Matt. Certainly, our communications with our customers have continued to be very close. And of course, they have communicated their needs very clearly for us. So I don't think there's any change in that. I think we are always going to be knowledgeable about their needs going forward. I would say MKS has demonstrated historically the ability to outgrow WFE certainly during a ramp. And it's really obviously because we have to be shipping our stuff first before our customers can ship theirs. And then to Jim Ricchiuti's earlier question, our customers are going to want to build inventory as well. And I think I've talked about the fact that the industry thinks that this ramp is -- this cycle is going to be a lot longer than maybe previous cycles. And so that drives us to build inventory even more, it drives our customers to build inventory even more. So if it's a 2-year cycle or 2.5 years and beyond, then we have to kind of run through the tape at the end of 2026. Matthew Prisco: That's helpful. And then shifting to the gross margin side. Can you walk us through the primary drivers of the better-than-expected results? And then into 2Q, I would think you get better seasonality out of chemistry, which is a higher-margin business and all that. So kind of why is that flat quarter-over-quarter? Then just how do we think about the levers through the year? And any change in that long-term fall-through as the business evolves with AI-related dynamics? Ramakumar Mayampurath: Matt, I'll take that. We are very happy with the gross margin performance in Q1. As you can see with the right cost structure, when the top line came back, we are seeing the 50% conversion. Volume certainly helped us in Q1 and continue to help us in Q2. Operational excellence programs will continue to work on the product cost. But for the Q2 guide, we are also taking into account mix primarily the growth in equipment and the VSD business. The VSD business, as you know, is ramping and the gross margin there is slightly below the corporate average. The Op income on VSD is great, but the gross margin is slightly below the corporate average. And then we're also taking into account inflation on certain key raw material like palladium. So all that included, we are guiding 47%, plus or minus 100 bps. Overall, a 50% conversion is a good proxy to use on incremental sales. Operator: Our next question comes from the line of Shane Brett of Morgan Stanley. Shane Brett: My first question is just how should we think about the consumer electronics exposure in your E&P chemistry business? And just how are you thinking about the second half relative to the first half? I'm asking this because my worry is that there may have been some pull-ins on the consumer electronics side, but please tell me if otherwise. John Lee: Yes. Thanks for the question, Shane. I would say this, there's 2 dynamics for the second half in our E&P business. One is AI, which is a great tailwind. And the other is potentially consumer electronics kind of going through its cycle seasonality, but also as we -- the industry has talked about potentially fewer units because of the cost of memory. We are more levered to high-end smartphones, let's say, and PCs as well. But we are a market leader. And so we do have chemistry in the entire market. . So I think I've said in the past, if the consumer products go down single-digit percent in terms of units, AI will be more than enough to make up for that and then some. Of course, if it goes down even more, we'll see some of that. So I think from a modeling perspective, we know that AI will allow us to outgrow in the second half, if you will, the rest of '26. But you want to add a little bit of that consumer products mix in there to meet the model a little bit. Shane Brett: Got it. And for my follow-up, Newport's ULTRAlign towards ultra line seems to have caught a bit of attention as it's part of the kind of CPO test supply chain. But can you give us some color around your fiber alignment stage business? And I'm not sure if it's segmented into semi or E&P, but can that shift the needle for you in '26 or '27? John Lee: Yes, Shane, I think you meant the Datacom business. And if that's what you meant, then certainly, that's been a great grower. It is in our specialty industrials category as of today, but it is driven by AI. Our optical to electronic converting -- conversion product line helps test makers to build test stations to test datacom. And of course, that is a great market right now. It is still a relatively small part of our business, but it's been growing quite nicely to the point where it's actually helped our just entire specialty industrials market grow a little bit quarter-on-quarter. So we're really happy with that business and how it's growing. Operator: of Citi. Yiling Sun: I guess my first question is, just talk about within your chemistry part of the business, there could be some softness in the smartphone consumer electronics related market and the AI is going strong. So I was just wondering, last year, you talked about AI is maybe 10% of your chemistry portfolio. So I'm wondering this year, what percent -- how big of AI is expected within your chemistry. John Lee: Elizabeth. So yes, it's a good question. I think last year, we said it was about 10% on average for the year, but it was a quarter-on-quarter-on-quarter growth. So coming out of probably the end of '25, it was on the higher end of maybe closer to 15%. So we're kind of expecting that range right now. That's what we're seeing right now. Of course, it just depends on how fast AI grows and the chemistry that goes with it and potentially how much consumer products might go down, if at all. So I think in that 15% range is the right way to think about our chemistry revenue -- our AI part of our chemistry revenue. Yiling Sun: Got it. And just a follow-up on the gross margin side. So last time you talked about your goal is to get gross margin to 47%. And now since you are already at it and you're guiding Q2 at 37% as well. So just wondering like what is kind of the updated gross margin maybe this year and going into next year? Ramakumar Mayampurath: Yes. Elizabeth, actually, our goal was 47% plus. So we're still yet to get to that plus factor. That will be our primary objective to continue to stabilize a 47% plus number. And there are ongoing programs to improve gross margin, both from manufacturing excellence, procurement and from design improvement side and volume will help. So not that there isn't any -- there aren't any headwinds. There are headwinds from inflation and other possibilities, but we will continue to work on driving it forward. And you'll get more color on the Investor Day. Operator: Our next question comes from the line of Michael Mani of Bank of America. Michael Mani: First on the semi market. If you look at the company's history with the semi markets growth relative to WFE, I think it's been around 200 bps from a CAGR perspective in terms of outperformance. But in years when WFE is really ramping, your performance in semi market is actually quite remarkable and grows -- outgrows the industry significantly. With that being said, when you look at like the next couple of years, there seems like a lot of great tailwinds that work in MKS' favor, right? So a lot of that is up in intensive inflections, more verticalization, if we get NAND greenfields on top next year, that's icing on top. And then also some new inflections potentially like square DRAM, which also could be great for you. So I guess when you compare this coming up cycle and your opportunity set versus prior ones, I mean, what gets you more excited? Like would you say like the ability to outperform here relative to other cycles could be greater and greater for longer? John Lee: Michael, that's a great question. I think the way we think about it is, certainly, historically, we've shown that we can really outperform during that up cycle when there is a lot of etch. That's been historically our strongest part of the semi market. And it's also the one that goes up and down the most in terms of amplitude. I think in the past, we've done that, but we've done it even more sometimes when there was a NAND component to it because of our exposure in RF power. So this time, there may be some NAND may not be in terms of upgrade versus greenfield. So I kind of want to put that into perspective. I think relative to the previous cycles, we are now a much broader-based supplier in semi in terms of the fact that we're supplying lithography, metrology and inspection markets. And those don't swing as much. Certainly, in a ramp, we would have the same kind of dynamic. We'd have to ship more of our stuff before our customers could ship more of theirs. But the swings aren't as much. So I think that's one other factor taking into account. And then the third one is, of course, in the past cycles, we were able to ship to many Chinese equipment OEMs where that business is certainly much less now. And they're a bigger part of WFE. So the denominator is a little bigger because of their contribution. So I think those are the puts and takes. But in general, when dep etch accelerates, we do, do a lot better. Michael Mani: Very helpful. For my follow-up on E&P. Are there certain customers within the PCB maker base that we should think of MKS is more levered to or not given that I mean they're all spending or hiking their CapEx plans significantly. But is there leverage to any particular type of player or one supplier in the market? And then more specifically, you've noted very strong share overall, especially in flex PCB drilling and chemistry. But in your electroplating business, I think maybe in the past, that's where the company has been a little under-indexed, but maybe there's been more focus on share gain progress there. Is that -- how do you feel about share gains there over the next couple of years? Like what are you doing to maximize your progress there? John Lee: Yes, it's a good question, Michael. I would say this, the top 30 PCB makers are all our customers, and we have very good position in all of them. I would say that some of them are investing more heavily than others. I wouldn't say though that there was a trend that only the most advanced ones are investing versus maybe people are trying to catch up. It's kind of across the board. So I wouldn't say there was any particular customer that was going to be more indexed for us. Now over time, there could be consolidation, et cetera. But right now, I think it's broadly the industry that's driving the entire growth of our equipment for chemistry as well as our chemistry revenue. Regarding market share, as we have said many times, we address 70% of all the steps in PCB manufacturing. And overall, we have the highest market share. However, you're right, we don't have the highest market share in every one of those various steps. And there are areas where we could do better, and those are opportunities for us. I think that how do we gain share? Our strategy has always been being the broadest portfolio provider allows us to see inflections faster as well as allows us to solve the problems, therefore, faster for our customers. And really, that's the opportunity to gain share, whether it's in a particular step where we don't have much share or in a step where we do have strength, but to continue growing that share. So I think that's been our strategy. And -- but you're right, there are still opportunities for us to grow. Operator: [Operator Instructions] Our next question comes from the line of David Liu of Mizuho. Jing Xiao Liu: On for Vijay here. Congratulations on the great guide. Maybe a quick modeling one. What was the tariff impact on your June quarter guide? And how much is expected for the rest of the year? Ramakumar Mayampurath: Yes. So we are seeing -- so we have neutralized the tariff cost dollar for dollar as we reported earlier. We're still seeing a little bit of a gross margin impact from the math. And we continue to see about 30 to 40 bps of impact, and that's included in the Q2 guide. Jing Xiao Liu: Okay. Got it. And then you guys mentioned LEO rigid PCB opportunity. Can you guys maybe size the opportunity, the MKSI content there and maybe how much growth you see going forward? John Lee: I'll take that one. So the LEO market is certainly something that's actually growing very quickly. We were designed in as a process tool of record for laser drilling, several years ago, we talked about it. And we continue to maintain that process tool record. So as that market grows, we are benefiting from it. It's a pretty healthy growth rate for us, but LEO market is a subset of the entire rigid PCB market. But as you probably read, the LEO market, more and more people are getting into it. It makes sense from a telecommunication standpoint. So we're just really excited about being the process tool record in that growing market. Operator: [Operator Instructions] This concludes our question-and-answer session. I would now like to turn it back to Paretosh Misra for closing remarks. Paretosh Misra: Thank you all for joining us today and for your interest in MKS. Operator, you may close the call, please. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Ladies and gentlemen, welcome to Swiss Re Q1 Results Conference Call. I am Valentina, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions]The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Elena Logutenkova, Head of Media Relations. Please go ahead. Elena Logutenkova: Thank you, and good morning from my side as well to everyone. I am joined today here by our Group CFO, Anders Malmstrom, and Andres will give you a brief overview of our first quarter 2026 results, and then we'll be very happy to take your questions. Anders, over to you. Anders Malmstrom: Thank you, Elena, and good morning, everyone. Swiss Re delivered a net income of $1.5 billion in the first quarter. All business units posted increased earnings, which were also supported by a low natural catastrophe experience and a strong investment result. Property and Casualty Reinsurance delivered a 43% increase in net income to $754 million and a combined ratio of 79.5% for the first quarter against a target of below 85% for the full year. Large natural catastrophe losses for P&C Re amounted to $133 million, driven by Storm Kristin, which made landfall in Portugal in January. April renewals in P&C Re saw a continuation of the trends we observed in the January renewals broadly in line with what we had expected when we set our targets at the end of 2025. The April renewals are driven by markets in Japan, India and parts of Asia Pacific, representing a modest portion of our overall business at 12%. Our focus on prioritizing portfolio quality over volume remains unchanged as we continue to actively manage the cycle. Competition intensified with different pictures in different lines. We generally defended our market position and importantly, maintained underwriting discipline on terms and conditions. If you take the January and the April renewals together for a more complete picture, overall nominal pricing has been flat in total. We also made some prudent increases to our loss assumptions. And once those are taken into account, the net price change stands at a negative 4.4%. Overall, volume is down slightly with a 2% reduction. We expected a more challenging 2026, and this is clearly what we are seeing in practice as the year plays out. This is simply the nature of our industry, and therefore, you will continue to see us applying discipline and cycle management. Corporate Solutions achieved a 26% increase in net income to $262 million with a combined ratio of 85.1% against a full year target of below 91%. While Corporate Solutions is clearly also having to manage downward price pressure in property, we continue to see underlying growth in our strategic areas of focus, including international programs and alternative risk solutions. Life & Health Reinsurance delivered a 12% increase in net income to $491 million in the first quarter. Following last year's portfolio review, this business is on a stronger footing and has made good progress towards its full year net income target of $1.7 billion. As we announced yesterday, we have strengthened the Life & Health Re team with the hire of Dean Galligan as Head of Transactions, Life & Health Re. This is a new role, which brings together all of our Life & Health transactions expertise and will drive Life & Health Re's transaction-led growth areas, such as our longevity business. Life & Health Re also launched Magnum XP and Promise XP. These are a collection of AI-enhanced tools to support primary insurers with underwriting and claims management. We have already seen this suite of products adopted in all regions, the Americas, EMEA and APAC. The client benefits are clear. These tools speed up the key processes needed to get people into the insurance safety net or make better, more consistent decisions earlier in the claims journey. Turning to the outlook. Our goals are unchanged, deliver on our financial targets and maintain the group's overall resilience. Against the backdrop of geopolitical turbulence, we set aside around $400 million in additional reserves in the first quarter for potential inflationary impacts of the ongoing Middle East conflict. We delivered strong earnings in the first quarter, putting us on a good path towards our 2026 financial targets. With an increasingly challenging market environment, our P&C businesses will continue to focus on disciplined underwriting and cycle management. At the same time, we expect Life & Health Re to make a growing contribution to balance the group's overall performance going forward. With that, I would like to hand back to Elena. Elena Logutenkova: Thank you, Anders. We would be ready to take your questions. Now operator, could you open the line for questions, please? Operator: [Operator Instructions] The first question comes from [ Tyson Dem ] from S&P Global Market Intelligence. Unknown Analyst: Got a couple if I may. Just one on the Middle East reserve you set aside $400 million. I think I'm right in thinking that's $350 million for P&C Re and $50 million for Corporate Solutions. I just wonder if you could say you mentioned it was to do with inflation or potential effects of inflation. I was just wondering if that's all that the reserve is for if it's for other things or how you're thinking about potential claims from the war? And then the second question really was just around life and health reinsurance. The first quarter performance suggests that you actually beat your $1.7 billion target. So I'm just wondering if there's things that you're expecting later in the year that will sort of bring that down to EUR 1.7 billion at year-end. Anders Malmstrom: Okay. Very good. Thank you for the question. So maybe if we start on the Middle East. before I go into directly answer your question, so overall, we did not have any direct claims coming from the war. So [ Swiss Re ], because we have all the war exclusion. So no direct exposure, but that's really the secondary risk that we see coming from the Middle East. And when you think about all the disruption in the supply chain and then in particular, the higher energy prices, I think that's where we strongly believe that we're going to see inflation picking up over the next time. In certain areas, we've already seen that. And that's why inflation is probably the biggest impact that comes from the Middle East war. And so that's why the $400 million is, as you rightly state, $350 million for P&C Re and $50 million for CorSo. On the Life & Health side, we obviously have a really good result. We're very happy with that. It's a consequence of all the repositioning and the strengthening that we've done. It's also, of course, then supported by positive claims development in the U.S. on U.S. mortality, in particular, we had lower large claims and large claims is subject to volatility. So we can't expect that we see every quarter the same positive large loss on a large impact from large claims. So that's why I think we're well on track to that. But I wouldn't say that this is a trend in mortality. This is just normal volatility that we expect. Operator: The next question comes from Nathalie Olof-Ors from AFP. Nathalie Olof-Ors: I will have 2 questions. One is on France on the floodings. In France, if you've seen an impact or if you could give us an indication of what you've seen with these floodings. And then on the reserves, I think I missed the number. You said $400 million and provided the details for CorSo and P&C. Can you give us an indication as to how the Middle East is going to have an impact? Why do you think it is important to put money aside? And what can the effect be? Anders Malmstrom: Okay. Very good. So on the France flooding, this is probably too early to say what this means a Q2 event to my knowledge. So we don't have data. We don't see right now there's going to be a big reinsurance event. Obviously, always -- first, it goes to the primary insurers and then if it hits the triggers, then it would go back to the reinsurers. So that's too early to know that, but we don't expect that to be a material impact for reinsurance. So back to the Middle East. So the reserve overall for the group that we set up here is about USD 400 million, USD 350 million for P&C Re and $50 million for Corporate Solutions. And as I stated before, when we look at the exposure coming from the Middle East conflict from the war itself, we have war exclusions in our programs, which means the direct exposure is very limited. We do in the specialty lines, sometimes have more inclusions, but that's separate, and we did not have any claims so far that were material note. Now the impact of the war is really the second order impact. When you think about the significant increase in energy prices, that will drive inflation. Also the disruption in supply chain will drive inflation. And so that's why we thought it's prudent to put money aside for higher inflation. This is for business that has already been written because -- not claims that happen, but claims will come, can be property prices, can be construction, can be whatever. And I think that's where we believe that higher inflation will have an impact. And that's the main reason we put that money aside. Nathalie Olof-Ors: You mean that the claims are going to -- that inflation is going to inflate the cost of... Anders Malmstrom: Of the claims. Nathalie Olof-Ors: Claims. Anders Malmstrom: Correct. Yes. Nathalie Olof-Ors: Can you give us a few examples from what I remember, there was -- after the COVID, there was an inflation in the price of auto parts versus the scarcity of parts. Can you remind us what you saw with the COVID and in '22 after the war in Ukraine? Anders Malmstrom: Yes. So I don't have the data in front of me for COVID and for the war. But maybe I just can give a bit -- without going too much into details, I mean, higher energy prices increases the production of products, increases the transport of products and throughout the value chain, you can have an impact that drives prices up. And that's really what we want to reflect here with this additional reserves. We have not allocated it to specific claims. We just believe -- strongly believe that it will have an inflationary impact. Nathalie Olof-Ors: Perfect. Operator: The next question comes from Daniel [Pula] from [indiscernible]. Unknown Analyst: Good morning. Can I ask you 2 questions. The first is about the Life & Health business. Could you please explain a little bit the rationale -- the business rationale of your longevity business and its importance? And the second question is about about your investment results, they were apparently very good in the quarter. The stock markets are back on record price levels and the financial markets seem to be in a quite optimistic positive mood in general, although if you look around us, things do not really support this optimism. I was wondering what the projections are in terms of your investment policy. Anders Malmstrom: Okay. So let me start on the Life and Health side. So longevity transaction has become a bigger demand in the industry as you see much more pension risk transfers where companies take -- primary insurers take over pension liabilities from the industry, people. And one of the risks that the primary insurers face is longevity risk, meaning that people live longer than was originally expected. And so that's an area where reinsurance and risk in particular here, can support the primary insurers to take that risk off their balance sheet. And I think for us, this is a good opportunity also to then balance within our portfolio, the mortality exposure that we already have on our books. Reinsurers are traditionally very strong on the mortality side. Longevity goes exactly in the other direction. And so it's a good way on one hand, to support our clients for risk they would like to reduce and on our side to then use the diversification benefits of having risks that go in opposite directions, meaning that if you have a mortality improvement, it helps on the mortality side and it then impacts the longevity side. So a very natural way to manage biometric risk as an insurance company and as a reinsurance company. So that's really the business rationale, and that's also why we were very keen to also now do the first transaction in the U.S. where we have most of our mortality exposure. So your question -- second question about investment results. Maybe 2 things to say. Our strategic asset allocation has very -- is a very conservative one. They have very little equity exposure. We have some private equity but very, very minor. It's mostly fixed income, but it also has a real estate book. And in the real estate book, that's where we do -- I call that normal maintenance of the real estate portfolio, we realized some gains through the sale of some real estate. And that's why we see a higher investment result in Q1. So the overall investment result was 4.6% what we call the recurring one is 4.1% and the reinvestment, so how can you reinvest money right now it's about 4.3%. So that should give you a bit the overall composition of our results. Operator: The next question comes from Rachel Dalton from Insurance Insider. Rachel Dalton: I noticed in your disclosure about the P&C reinsurance service results that there was a note about additional reserves for attritional losses. Could you give us any further information about that, please? Anders Malmstrom: Yes, sure. So it's always when you go through the quarter, this is a normal process. You obviously, at some point, you have to cut off the date where data comes in. And then you look through the process and say, okay, is there anything else that happened? In the meantime that you don't have all the data yet, but you know that there's something coming that where you put up an IBNR reserves, which means it's reserves for claims that have already occurred, but not yet been reported, and that's what we've done at the amount of around USD 100 million. Operator: The next question comes from Thomas Pohl from AWP. Thomas Pohl: I just wanted to ask again, I'm a bit astonished that you have absolutely no impact from [ Middle ] East conflict. You have a war exclusion you say, but does this also cover this turbulences or disruptions at transport, aviation and the kind of problems that occur now with the closing of the strait of and all the problems around it. Could you say a little bit more about that, please? Anders Malmstrom: Yes. So maybe the first point here is that, yes, it is an escalation of -- it's a war right now, but it's an escalation of a conflict that's there since a long time. So we always took a cautious approach to that area specifically. So it's not a new conflict, something new that came up and was not there before. It's just an escalation of that one. As I mentioned before, we have the war exclusions, which means the direct impact is extremely limited here. And so that's why you don't see more impact coming from that event, even though it is obviously a problematic event and an event that we continue to monitor here. Thomas Pohl: But you don't see -- like I said, in like aviation, insurances or transport that the goods don't arrive at time. Is that not a thing that will hit back to you also? Anders Malmstrom: No, no. That will not hit back to us. Because as I mentioned, I mean, this is an area where we already have a cautious approach. Operator: The next question comes from Francis Churchill from Insurance Day. Francis Churchill: How you think about the mid-year renewals? How are you feeling about what ratings doing? And are there any opportunities you see coming up in the mid-year? Anders Malmstrom: Yes. Look, I think we don't speculate and we don't give any kind of forward-looking statements about what we see -- what we can expect for midyear. I think you saw the January 1 renewals. You saw the April 1 renewals, which will only be reflected in the Q2 numbers. They're not reflected in the Q1 numbers. They all looked very similar. So the same impact on those. But we don't really know exactly what's going to happen, and we also don't give forward guidance on the renews. Operator: The next question comes from Jonathan Progin from Finanz und Wirtschaft. Jonathan Progin: I'm wondering about your cycle management. I mean we are seeing prices going down broadly. I mean, not in every business segment, the same amount of the price reduction, but still. And I remember Chubb's Evan Greenberg called the softening kind of like dump. -- what's your view on prices in more general sense? Is this like a -- still reasonable prices? Or do we see a lot of capital -- do you still see a lot of alternative capital flowing in and make it hard for you as a traditional reinsurer to reinsure business and provide your services to reasonable prices. So I mean, just what's your take on it? How does it have to change in your view very, very -- in the next few quarters? Or what's your take on it, not going like too much forward guidance, that's still like describing the current situation and how it's hard for you to do business? And then maybe two additional questions to your strategy going forward in M&A. Where do you see potential additions to your current company structure more like on the P&C Re side or more on the CorSo side, Corporate Solutions? And maybe are you looking for a Lloyd's syndicate? And also, what can we read into the moving the credit maturity new business from P&C Re to CorSo in 2026? Is that like do you want to have it in the CorSo business because you are maybe looking for what sort of potential deals? If you can give some light on that. Anders Malmstrom: Okay. Very good. Let's start on the cycle management. Maybe a few comments here. So first of all, when we talk about cycle management for us, it's important that we keep relevance, which means we keep the market share. And that's what we have done. But at the same time, also keep discipline on the underwriting. So I think terms and conditions are a key part here, and we were able to keep the terms on conditions. We haven't written any aggregates that could change the risk profile. So that's that's for us what it means about cycle management. Simply to your question about price adequacy, in our view, prices are adequate. So otherwise, we wouldn't write it. If prices become inadequate, we obviously have to take actions. We don't want to write inadequate business within adequate prices. So for us, still adequate. We kept market share. But when you see the decline, this is really just the pricing cycle that impacts that. To your second question about M&A, we were very clear that M&A, if we want to do M&A, has to support the core businesses. And we would never do M&A just to do M&A. It has to have a strong business rationale. And then if you basically go through the business units, quite naturally, we would pass on P&C Re. Because P&C Re, there's no benefit in doing acquisitions because there's more capacity and the question, how much capacity you want to deploy and you get to a natural market share and you would lose that new business fairly, fairly quickly. So no interest there. It's very similar on the Life and Health side, we don't really see there a strong rationale to do M&A. So that leads you then to CorSo. And on the CorSo side, we always said we would like to strengthen the business if it helps diversify the business. We have a few areas like credit and surety, where we say this is a good business. Also that's non-correlated to the, call it traditional property insurance business. And that's also one of the rationales why we said, okay, let's centralize the credit and surety business in CorSo have one center of expertise. And also, that's why we did the small acquisition with QBE that we announced earlier in the year, which strengthened the credit and surety business here. So you should always see that if we do M&A, then it has to support the business rationale. We've done the small transactions. We don't have to do anything else if we don't find the right opportunity, and it has to be at a reasonable price. Otherwise, we would not be. So that should give you a bit of the rationale around how we think about M&A. We really have to have strong business support. And you cant -- you shouldn't expect anything big here anyway. Jonathan Progin: All right. Can I just pose an additional question, not maybe very related to your business activities, but it affects you as a big Swiss company. In June, we will vote on the popular initiative to cap the population in Switzerland to 10 million. What's Swiss Re's take on it? Surely, you will have a position there because it will affect you as a multinational company with a lot of expats working in Swiss Re and you want the best talent to be able to come to Zurich or to Switzerland to work for you. Do you expect anything that will affect your business negatively if the initiative will be accepted by the population? Or I mean, how do you prepare internally for one or other outcomes of the initiatives? Can you maybe give us some answer here? Anders Malmstrom: Yes. I mean, look, first of all, we don't make any statements to popular votes. To political processes. That's not our job to do. That's the political process in Switzerland. I think you stated it well. For us, what is important is that we have access to the best people. Zurich is a key location for us. It's the main location. It's the headquarter. And we have access here to the best people, people come here as well. And then we have about, I think about 70 nationalities working for Swiss Re just here in Zurich. And so for us, this is crucial. I think we made that very clear. Other than that, I think it's now up to the political process to go through and then we see where this goes. Operator: The next question comes from Anna Sagar from InsuranceERM. Anna Sagar: I was just intrigued as to Swiss Re's appetite for longevity reinsurance given the 2 billion transaction with the team in the U.S. I was wondering if the U.S. was the primary geography that Swiss Re was focused on or if there are other areas -- other geographies or other regions that it would look to expand into? And also if you could talk a bit about your current capital management strategy and any plans for capital returns to shareholders, that would be greatly appreciated. Anders Malmstrom: Yes, sure. So on longevity reinsurance, when you look at where is the market, where are the opportunities -- there's clearly the U.K. that stands out. You've seen the most transactions in the U.K. We've also seen now a lot of transactions happening in the Netherlands due to the pension reform. You haven't really seen a lot of transactions in the U.S. The main reason is that in the U.S. -- in the U.S. capital framework, there is no charge for longevity risk, which means there's very little incentives for a U.S. primary insurer to reinsure longevity because it doesn't really reduce their capital needs. This has changed since many U.S. companies go through the reinsurance through Bermuda to have a more economic model. Bermuda framework is much more economic than the U.S. framework. Bermuda has a capital charge. And then it becomes interesting also for the primaries to say, okay, I can now capital manage through longevity transactions. But I would say going forward, I would still see this is a slow start now with U.S. liabilities. It's much more -- you will see much more transactions. And I'm not talking about Swiss, I'm talking about the market transactions in the U.K. and also Netherlands going forward. And then your second question about capital management strategy. I mean, I can reiterate what we said. Obviously, first and foremost, we want to maintain and increase the dividend payout and then we supplement that dividend payout with what we call a sustainable share buyback program when we achieve our full year targets. And then I think for the remainder, if there's opportunities to deploy the capital in the business at the right returns, we obviously do that. If not, and we have excess capital above our target range, we would then give that back to shareholders. So that's clearly the strategy. That's also what we have done now at the end of last year, beginning of this year. Operator: The next question comes from Noele Illien from Bloomberg. Noele Illien: You mentioned the sale of some real estate boosting the investment results. Is that a strategy -- is that -- was that a one-off? Or is that -- are you continuing to sell off some real estate in the coming quarters? And I think most of my other questions have been asked. Anders Malmstrom: Okay. Yes, sure, quickly on the real estate, yes, this was a one-off. I mean this is not a strategy to -- I mean, to reduce the real estate exposure, not at all. We like real estate. It is a big part of our asset allocation. It's just normal maintenance, I call it, normal management of the real estate portfolio that we have that from time to time, you realize gains. Yes. But you should not expect that to repeat in the next quarters. Noele Illien: Okay. And was the sales in any particular region? Anders Malmstrom: It was Switzerland. Operator: The next question comes from Glenn Turpa from Intelligent Insurer. Unknown Analyst: I would like to better understand underlying growth in Corporate Solutions. You've mentioned a couple of one-offs that presumably are skewing the numbers, the non-renewal of MedEx and the shift to credit and surety. Maybe by line and by revenue versus new business CSM that you may have into the portfolio? Is there a better view we can have? And once I do have a better view of underlying revenues, and if we were to compare it to the decline in the P&C reinsurance book, I'd be curious to know if that is representative of your appetite of your outlook. Corporate Solutions seems more stable. And is it your preferred flavor for 2026? Anders Malmstrom: Yes, sure. I can give a bit background. And maybe I'll start just the revenue decline that you actually saw in P&C Re is really just related to the pricing cycle that we have seen. That's the main driver here. Now if we then go to Corporate Solutions as you rightly state, I think we had a decline mainly driven by the non-repeat or the non-renewal of the Irish MedX, which we talked about already last year. So that's now fully non-renewed in a way. So if you actually take that out, it's pretty much a flat revenue development. Now we had some support also from FX. So if you take FX out, maybe it would have been a slight decrease. But the key point here is the underlying business where we actually see growth in CorSo is really coming from the international programs. That's an area we had really good success. It's also an edge where CorSo can play, and we have good progress there. And then also on alternative risk transfers. These are the 2 areas where CorSo really was able to grow the business throughout the period now. Yes. And then I would say the accident and health, I would say that's more a -- I call that more business volatility, still an area that we like, that we want to maintain that we might want to grow further. So that are the areas where you should continue to see CorSo perform. Unknown Analyst: And the relative appetite then to P&C considering you're calling it your following prices and maintaining market share? Anders Malmstrom: Yes. I mean on the P&C Re, clearly, we want to keep the relevance. We want to keep the market share. We're not want to shrink them, not at all. We just manage the factor here. Prices are adequate, as I said. But revenue is just following the pricing cycle. Operator: We now have a follow-up question from Daniel [Pula] from [indiscernible]. Unknown Analyst: Yes, quickly. Just quickly, the $400 million provision, what is the underlying inflation projection you have to that number? And one other observation I just made, which I made me a bit curious. In the past, you didn't -- that's at least my perception, talk so much about market share and keeping market share. It was like almost a little bit considered given that the largest reinsurers would stick to more or less their market shares over the cycle, and it wasn't really an issue that was publicly -- at least publicly debated. Now you stress the importance of keeping that market share has something changed in that market? Are you being challenged more than in the past? Anders Malmstrom: Yes. Maybe I'll just start with your second one. This has not really changed in a way. I think it's just the way we want to explain the development of the premiums and prices that you see because you've seen then the decline in property and cat that you see an increase in casualty. And both of them are not driven by the change in risk we are taking. They're really driven by how the prices develop. That was really the main reason that we wanted to highlight the market share discussion. On the inflation question, we don't disclose our underlying inflation assumptions. But I mean, they're based on the public available inflation data that you see disclosed in the market. And here, we just took the -- obviously, you have to go in and it's judgmental. You don't know exactly where the energy prices will end up for the year, but we have the assumption that we will see significant -- we see a continuation of increased energy prices, and that's how we then calculated the impact here. Operator: That was the last question. I would now like to turn the conference back over to you, Elena Logutenkova, for any closing remarks. Elena Logutenkova: All right. Thank you, everyone, for joining our call this morning. If there are any further questions, please feel free to reach out to Media Relations. And otherwise, we wish you a lovely day. Bye-bye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Welcome to the RXO First Quarter 2026 Earnings Conference Call and Webcast. My name is Ellie, and I will be your operator for today's call. Please note that this call is being recorded. During this call, the company will make certain forward-looking statements within the meaning of federal securities laws, which, by their nature, involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those in the forward-looking statements. A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filings as well as in its earnings release. You should refer to a copy of the company's earnings release in the Investor Relations section on the company's website for additional important information regarding forward-looking statements and disclosures and reconciliations of non-GAAP financial measures that the company uses when discussing its results. I will now turn the call over to Drew Wilkerson. Mr. Wilkerson, you may now begin. Drew Wilkerson: Good morning, everyone. Thank you for joining today. With me here in Charlotte are RXO's Chief Financial Officer, Jamie Harris; and Chief Strategy Officer, Jared Weisfeld. There are 4 main points I want to convey this morning. First, we're seeing clear signs of improvement in the freight market, primarily driven by supply side tightening despite overall soft demand, typical seasonality and severe weather in the first quarter. Second, we have significant momentum within the business. Our brokerage full truckload volume improved every month as the first quarter progressed. Additionally, our spot mix increased by 500 basis points sequentially in the first quarter, resulting in a strong gross profit per load improvement. Spot mix also increased in April. Third, we continue to secure major customer wins. In brokerage, we're converting our significantly larger sales pipeline. In managed transportation, we were awarded more than $100 million in freight under management in the first quarter, and our late-stage sales pipeline increased by more than $200 million. We also saw traction with our new middle mile solutions offering. Lastly, we've accelerated our deployment of Agentic AI, which is driving significant improvements in volume, margin, productivity and service. I'll start with an update on the freight market. We believe a supply-driven recovery is taking shape. Capacity continues to exit the market, a trend that began to accelerate late last year due to regulatory changes and enforcement. We have even more conviction that these capacity reductions are structural in nature. In addition to improving the overall safety of the industry as well as helping to combat theft and fraud, this has set the market up for a multiyear recovery when demand improves. For now, demand remains soft. Our customers are still managing through macroeconomic uncertainty, and we have yet to see a sustained increase in the demand for goods. Shippers are becoming increasingly selective about who they work with and are choosing proven scale brokers like RXO. In the first quarter, we were recognized with Carrier of the Year awards from Heineken USA, Graphic Packaging and Rise Baking. Our customers value our exceptional service, our robust and rigorous carrier betting process and our financial stability. These are the hallmarks of the RXO brand and they're why about half of the Fortune 500 entrust us with their freight. With that as a backdrop, we launched what has so far been a very successful strategy for this year's bid season. As we said previously, we've been working with customers to optimize service, volume and price. On average, through bid season, contract renewal rates, excluding the impact of fuel, are up mid- to high single digits. These new rates began phasing in, in late Q1 and will continue to go into effect throughout the second quarter, helping to improve the profitability of our contractual book of business. When you take a closer look at contract business that has been awarded to RXO over the last month, rates have increased on average by low double-digit percentage. As a result, we now expect that our full year 2026 contract rates will increase by high single digits. Our prior expectation was for low to mid-single-digit growth. We're servicing our customers' freight throughout all phases of the market cycle, and that's translating to real business momentum. Historically, we've had about a 40% win rate on our brokerage late-stage pipeline. Last quarter, we highlighted that the pipeline was up more than 50% year-over-year. I'm happy to report that we held our win rate at about 40% in the quarter, even though the pipeline was significantly larger than it's been historically. Now let's discuss our first quarter. In brokerage, overall volume declined by 8% year-over-year. Less than truckload volume growth of 5% was more than offset by a 12% decline in truckload volume. Volume trends are improving, however. Our success in converting our brokerage sales pipeline opportunities and improving our spot mix has resulted in full truckload volume that improved every month throughout the quarter. Another encouraging data point is that we've achieved a significant increase in our brokerage spot mix over the last few months. Our spot mix increased by 500 basis points sequentially, which directly contributed to an improvement in gross profit per load. Spot volume increased as a percentage of the truckload mix every month in the first quarter and increased again in April. This is the power of the RXO model. Our focus on providing exceptional service and deep customer relationships through all parts of the freight cycle is enabling us to win spots, projects and mini bids now that capacity is tight. You can see the results in the rapid increase in our spot mix and gross profit per load in the first quarter. In complementary services, Managed Transportation continues to win. We were awarded more than $100 million in freight under management in the first quarter. These wins are significant because they result in an increased synergy loads for RXO's other lines of business. Our late-stage sales pipeline is extremely robust and increased by more than $200 million sequentially. This pipeline is composed of high-quality new names and long-tenured existing enterprise customers with whom we built successful deep relationships. We're also very excited about the early traction of our middle mile solutions offering, which leverages our network of carriers and RXO hubs to integrate first, middle and last mile logistics into a single comprehensive network. The new service eliminates the need for multiple vendors and provides consistent visibility and control, creating stickiness with our customers. We launched this solution in February, and our sales pipeline is already more than $70 million. We've secured more than $20 million in wins. Shippers continue to choose RXO because we help them solve complex logistics challenges with unique high-tech solutions that leverage our scale and infrastructure. While last mile stops declined by 8%, in part due to the impact of severe weather, we're seeing more positive trends within last mile to start the second quarter. RXO remains the provider of choice for the best-known brands in the big and bulky space. Our exceptional service and massive scale in last mile continue to enable us to gain profitable market share. Overall, RXO's EBITDA was $6 million in the quarter at the low end of the range we provided to you due to severe weather, which impacted our deliveries in last mile. In the second quarter, we expect our EBITDA to increase significantly, driven by stronger volume across the business and a more favorable spot mix and higher contract rates in brokerage. We expect brokerage volume to be about flat year-over-year in the second quarter and truckload volume to resume its outperformance versus the market as early as the middle of the year. Jamie and Jared will talk more about our outlook in detail later in the call. Turning to technology. In the first quarter, we made significant progress on our road map, especially when it comes to putting AI into action. The systems integration we completed last year have enabled us to move faster to build and launch smart AI tools that tap into RXO's decades' worth of data. Everything our technology team is currently working on is centered around moving beyond basic repetitive task and towards smart, proactive decision-making. We have many examples of how our efforts are already driving real results across the company, and I'd like to share an exciting one. Late in the quarter, we rolled out an important part of our tech road map, an AI spot agent in reps inboxes that adds to our already best-in-class quoting capabilities. While it's still in the very early days, the initial results are promising. Reps that have adopted the tool early are seeing an increase in volume and gross profit per load when compared to the rest of the brokerage organization. We expect the broader organization to be fully ramped up on the tool over the next few quarters. As we continue to mature our capabilities, we remain committed to getting these types of powerful tools into more hands. We're focused on multiplying the impact technology brings to every function within our company to improve volume, margin, productivity and service. In summary, RXO has a unique algorithm for long-term success, larger scale, focus on profitable growth, investments in technology, long-term cash generation and a slimmer cost structure. This is the point in the cycle that really begins to show the power of the RXO model. We remain focused on providing exceptional service, comprehensive solutions, continuous innovation and deep customer relationships. And all of that is enabling us to win spot, project and mini bid business as the market recovers. We're in the early innings of what we believe will be a sustained robust recovery. RXO is well positioned to be a major winner. Now Jamie will discuss our financial results in more detail. Jamie? James Harris: Thank you, Drew, and good morning. Let's review our first quarter performance in more detail. For the quarter, we reported $1.4 billion in total revenue, gross margin of 14.2% and adjusted EBITDA of $6 million. Gross margin and adjusted EBITDA were negatively impacted by severe weather conditions in the quarter. There was an approximate $3 million impact, mostly in our last mile business. Our interest expense in the quarter was $9 million, and our adjusted loss per share was $0.09. You can find a bridge to adjusted EPS on Slide 7 of the earnings presentation. You'll note that we had an $11 million debt extinguishment loss as a result of refinancing our 2027 senior notes. I'll talk more about this in our capital structure later. Turning to our lines of business. Brokerage revenue was $1.1 billion, up 3% year-over-year and was 74% of our total revenue. The year-over-year revenue growth was driven by increased freight rates, increased truckload length of haul and higher fuel prices. We also captured more spot opportunities in the quarter with our spot mix increasing sequentially by 500 basis points, which is also accretive to revenue. Cost of transportation increased in the quarter due to a continued tightening of the full truckload market, driven largely by regulatory enforcement and higher fuel prices. These factors contributed to brokerage gross margin of 11.4% towards the low end of our outlook. Brokerage gross margin declined 50 basis points sequentially, driven by increased truckload length of haul and fuel prices. Higher fuel prices were an approximately 20 to 30 basis point headwind to brokerage gross margin. Rising fuel prices lead to increased revenue without a meaningful corresponding increase in gross profit dollars as fuel costs are a pass-through over time. Truckload gross profit per load increased 9% sequentially. This is reflective of the significant increase in spot loads and an increase in contract rates due to tightening capacity. We expect overall gross profit per load to improve in the second quarter given increased spot volume and higher contract rates. Complementary services revenue in the quarter of $388 million was down 7% year-over-year and represented 26% of our total revenue. Complementary services gross margin was 19.8%, down 40 basis points sequentially and 120 basis points year-over-year. Most of the sequential decline was due to the impact of weather. Within complementary services, Managed Transportation generated $123 million of revenue in the quarter, down 10% year-over-year. As a reminder, last quarter, we talked about the restructuring of our Express service offering within Managed Transportation, which explains most of the year-over-year revenue decline in Q1. Revenue associated with this offering is being serviced across other lines of business within RXO. Encouragingly, our automotive business within Managed Transportation increased slightly year-over-year, and we are well positioned to capitalize on any improvement in demand. Our last mile business generated $265 million in revenue in the quarter, down 5% year-over-year with stops down 8% year-over-year. This was lower than our expectations of down mid-single digits due to the previously discussed weather impact. During the quarter, we also saw continued weak demand for vegan bulky goods. While demand generally remains soft, we are seeing more favorable trends within last mile to start the second quarter with improvement across our RXO hubs and back of store business. Now turning to Slide 8. Let's discuss our capital structure and balance sheet. During the quarter, we refinanced our 2027 senior notes. The new notes have a maturity of May 2031 with a coupon of [indiscernible]. At the end of the first quarter, our total available liquidity was $386 million. With the successful refinancing of our senior notes in February and our new asset-based lending facility that we announced last quarter, RXO has a strong capital structure and liquidity position that gives us the flexibility to invest and grow across all phases of the freight cycle. Quarter end net leverage was 3.7x LTM bank adjusted EBITDA due to the lower levels of profitability. We anticipate our leverage ratio to move lower in the second half of the year. Moving to Slide 9. Let's talk about cash. For the quarter, our adjusted free cash flow was negative $15 million and was impacted by lower levels of profitability and some timing considerations. CapEx is higher in the first half of the year, but is expected to decline approximately 30% in the second half, primarily due to lower real estate and software expenditures. In addition, as a result of the refinancing of our senior notes, we accelerated the associated interest payment of $7 million into the first quarter, which usually occurs in the second quarter. Our bond interest will be paid semiannually beginning in the fourth quarter of this year. Given our asset-light business model, we remain confident in the 40% to 60% conversion over the long term and across market cycles. From a cash balance perspective, we ended the quarter with $21 million of cash. Cash increased by $4 million sequentially with no change to the ABL balance. In the quarter, we had $12 million of cash outflows associated with our bond refinancing and $9 million of restructuring and integration activities in line with our expectations. Now let's move to Slide 14 and discuss our outlook. Within our brokerage business, we're seeing improvements as a result of our bid season strategy and the action we've taken to capitalize on spot opportunities combined with increased capacity in the market. As I mentioned earlier, we're also seeing encouraging trends within our last mile business in addition to typical seasonality. For the combined company in the second quarter, we expect to generate between $27 million and $37 million of adjusted EBITDA. This reflects the strong contribution margins in our business attributable to both volume and price. Our 2026 modeling assumptions remain unchanged. Jared will provide more details on our outlook shortly. As we think about the macro economy, we are optimistic. While consumer confidence has recently decreased given geopolitical concerns and higher oil prices, there are many bright spots in the macroeconomic data. Improvements in the industrial economy are noteworthy. The ISM manufacturing PMI has been in expansionary territory every month this year. Additionally, data last week showed a strong increase in capital goods orders, which is a good leading indicator of business investment. Also, year-to-date tax refunds are up double digits, helping to support the consumer. We're entering the second quarter with strong momentum across all of our lines of business. The truckload market remains tight despite soft demand. Any sustained broad-based improvement will set up for a sharp inflection and RXO is well positioned to win. Now I'd like to turn it over to Chief Strategy Officer, Jared Weisfeld, who will talk in more detail about our results and our outlook. Jared Weisfeld: Thanks, Jamie, and good morning, everyone. Let's start by reviewing our quarterly brokerage performance in more detail. Overall brokerage volume declined by 8% year-over-year. LTL volume increased by 5% year-over-year and represented 28% of brokerage volume in the first quarter. Truckload volume declined by 12% year-over-year and represented 72% of brokerage volume. Truckload volume was in line with the expectations that we communicated to you last quarter. Importantly, full truckload volume improved every month throughout Q1. Year-over-year trends have started to improve and truckload volume in the month of April was down only 2% year-over-year. Spot represented 3% of our truckload volume in the quarter, increasing by 500 basis points sequentially and 600 basis points year-over-year. Spot increased as a percentage of the mix in every month during the quarter and increased further in the month of April to 35%. Contract volume was 67% of our overall truckload volume in the quarter. Moving to revenue per load on Slide 10. In the first quarter, truckload revenue per load increased by 8% year-over-year. This was the fastest increase in 4 years, driven by supply side tightening. Note, this excludes the impact of both fuel prices and length of haul. Revenue per load benefited from a richer mix of spot freight and new contract rates also went into effect as a result of bid season. Revenue per load growth accelerated in the month of April, increasing by 12% year-over-year, excluding the impact of higher fuel prices and length of haul. It's important to note that industry-wide line haul rates have increased by approximately 20% since the third quarter of last year, primarily due to supply side market tightening. We continue to work with our customers to optimize service, volume and price. Given the current environment, we now expect contract rates to be up high single digits, which compares to our previous forecast of up low to mid-single digits just 90 days ago. This, combined with a higher spot mix, should result in even stronger revenue per load trends. Let's now discuss current market conditions and brokerage margin performance on Slide 11. The truckload market remains tight. Freight market KPIs were at their highest level in 4 years and industry-wide tender rejections eclipsed 15% in the quarter. Importantly, this tightness was despite muted demand and a seasonally slow quarter. Tighter market conditions have been primarily driven by structural supply side changes largely due to enforcement actions related to non-domiciled CDLs and English language proficiency. From a profitability standpoint, truckload gross profit per load increased by 9% from the fourth quarter as a stronger spot mix offset the squeeze in our contractual book of business. We expect our spot mix and gross profit per load to improve again in the second quarter. Of note, in the month of April, truckload gross profit per load was approximately 10% higher when compared to the first quarter. Turning to Slide 12. As we just discussed, truckload gross profit per load increased by 9% in the first quarter, given a richer spot mix, offsetting the squeeze in our contractual book of business. This was the largest sequential improvement in truckload gross profit per load in more than 3 years. Moving to Slide 13. RXO's LTL brokerage volume continues to outperform the broader LTL market. We're winning LTL business with existing truckload customers and new customers that trust us with their freight because of our excellent service, increasing the stickiness of these relationships. Last year, we grew our LTL volume significantly. Recently, we've expanded the scope of some of that business and transitioned it to managed transportation. This is another example of the power of the RXO model. Once a customer is on the RXO platform, we can quickly adjust to their business needs by providing complementary services. Doing so increases the stickiness of our customer base. For our outlook, I'd like to review the significant progress we made in the quarter, increasing the adoption of Agentic AI solutions, which you can find on Slide 6. We continue to focus our technology investments on driving improvements across our key pillars: volume, margin, productivity and service. Starting with volume and margin. As Drew mentioned earlier, we broadly deployed a new proprietary Spot Quote agent and the early results are encouraging. Reps that are using the agent are seeing an increase in both volume and gross profit per load as the agent helps unlock incremental volume opportunities with strong contribution margins. We also extended the adoption of our proprietary sppotBot and API tools. Continued investment is yielding tangible results. The amount of truckloads that were quoted digitally improved by 30% sequentially. We also continue to streamline our tech to make it easier for carriers to do business with RXO. Last quarter, we began testing a new matching algorithm. And as a result, digital offers from carriers have increased by about 15%. From a productivity standpoint, we continue to expand our Agentic AI deployments, which automated more than 500,000 phone calls in the quarter. Our people are becoming more productive and spending more time with our customers and carriers to drive creative solutions for their business. We're also innovating to drive even better service and decrease risk. We introduced an AI fraud protection agent in the quarter, providing additional protection for shippers that rely on RXO to move their high-risk freight. We continue to apply AI to structurally improve our long-term margin profile by driving more volume through our business at a lower cost to serve. I'd now like to give you some more details on our second quarter outlook, starting with brokerage. Given our success in converting our late-stage pipeline during bid season, we expect truckload year-over-year volume trends to materially improve in Q2. We expect sequential growth in volume, which will translate to approximately flat volume year-over-year. We continue to expect our truckload volume to resume its year-on-year outperformance versus the market as early as the middle of the year. We also expect our LTL volume to be approximately flat year-over-year. This accounts for the part of the business that has recently transitioned to managed transportation. Importantly, based on the strength of our LTL pipeline, we anticipate LTL returning to year-over-year volume growth in the second half of the year. Moving to truckload gross profit per load. We expect tight market conditions to persist for the remainder of the second quarter. However, given the team's strong execution, we expect a higher spot mix and the phasing in of higher contract rates to result in another quarter of truckload gross profit per load improvement. That is despite an expected moderation from April to May given seasonal market tightness and DOT checkpoint weak. Let's now talk about complementary services. In Managed Transportation, we're winning new business and the pipeline remains strong. Our automotive business has also returned to growth, and we expect Managed Transportation results to improve when compared to the first quarter. In last mile, while big and bulky demand generally remains soft, the second quarter is our seasonally strongest quarter, and we're seeing improved business momentum. We expect last mile stops to be down a low single-digit percent year-over-year, improving from the first quarter. Putting it all together, we expect RXO's second quarter adjusted EBITDA to be in the range of $27 million to $37 million. We see a clear path to achieve the high end of our outlook. The midpoint of our range assumes market conditions that are similar to those that we've experienced over the last few years with gross profit per load compressing from April to May, no meaningful uptick in demand. While we're encouraged by the anticipated rapid sequential growth in EBITDA, we're even more excited about our path to normalized earnings and the market setup. To close, we're entering the second quarter with strong momentum, improved profitability and a growth mindset. In brokerage, truckload volume is firmly on a trajectory toward growth and outperformance. Managed Transportation continues to win new awards with a growing pipeline and automotive has returned to growth. Last mile is seeing improved trends, and we have a huge opportunity within the middle mile. We are aggressively investing in artificial intelligence, leveraging our massive scale and proprietary data. And the supply side changes occurring in the truckload industry represent the biggest structural transformation in almost 50 years and are setting the stage for a multiyear recovery. RXO is capitalizing on these changes by staying close to our customers, delivering superior service and winning spot opportunities. RXO is well positioned to deliver strong shareholder returns over the long term. With that, I'll turn it over to the operator for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Stephanie Moore of Jefferies. Stephanie Benjamin Moore: I guess with your spot mix up, I believe you said 600 basis points year-over-year. I mean this is a pretty stark contrast to your largest competitor where contract exposure was up 500 basis points. So maybe -- so how are you thinking about your strategy at this stage in the cycle? And what, I guess, company-specific actions are driving your ability to execute on the increased spot volumes? Drew Wilkerson: Stephanie. First, obviously, we've got a lot of respect for Robinson and the team, and they've had good results. But we've been very clear for the last several years that this is the part of the market that we win in. We've got a model that's built on service. When you think about service, we talked about several customer awards that are awarding us with Carrier of the Year awards. You're seeing it in our pipeline. You're seeing it in the conversion of a larger pipeline. We talk about solutions. There's always optimization that goes into customers' freight and making sure that we are looking at the different modes of transportation that we can service them from. But even the different lines of business, you saw us convert some customer business from brokerage into managed transportation. You see the new middle mile solutions offering. On the technology side, we're using AI to continue to get more efficient within the business. We're driving more loads. You heard me talk some about that. And the most important thing is relationships with customers. Our top customers have been with us for 16 years on average. They trust us. They know that when there's any disruption in the market that there are spots, projects and mini bids that RXO is the place that they turn. We're in the early innings, and we're just now starting to see the lift off of that. Stephanie Benjamin Moore: That's helpful. And actually, a pretty good follow-up to a question that I had or a pretty good segue into a follow-up that I have. As you think about some of the investments that you have and that you just called out, especially in AI and just technology, how do you balance, I guess, AI and tech investments with your people and your relationships, particularly at this point in the cycle? Drew Wilkerson: We value the relationship first. We are a relationship business. We win because of the relationships that we have with customers. Customers come back to us because of what we've done before and it's the people that they do business with. When you look at the tightening that happened in the market in December and January, it was our team and our people that they were reaching out to. But we're using technology to fundamentally change the business and drive more productivity within it. You saw our productivity was up 15% on a year-over-year basis. You continue to see us be able to quote more loads with the quoting tool that I talked about, the adoption that we've already got on that, the people who are using it are winning 15% more volume versus what they were winning. So we see clear ways to improve the relationship off of the technology that we're using. Operator: Your next question comes from the line of Brandon Oglenski from Barclays. Brandon Oglenski: Drew, I get it was a difficult quarter, but just looking even at the guidance for 2Q, I think at the high end, earnings are still down year-on-year. I know you got a lot more spot mix, which I thought historically is what really can drive that incremental gross profit as you look forward. So -- and again, maybe 2Q is still not where you want to be. But I think even Jared was alluding to it earlier. Just what is the right normalized earnings power for this business, if you don't mind? Drew Wilkerson: Yes, Brandon, we've been very consistent on normalized earnings. At a midpoint in the cycle, this is a mid-single-digit EBITDA business. And at an up cycle, it's a high single to low double-digit EBITDA business. even on our Q2 guide, we are multiples away from what normalized earnings, but we see a clear path, and we see that we're in the early innings of heading towards that. Brandon Oglenski: Okay. I appreciate that. And then maybe -- Jared, can you elaborate more on the spot business and how that impacts profitability here? I thought maybe with how much it improved in 1Q, maybe things could have been a bit better, but maybe we're misinterpreting that. Jared Weisfeld: Sure, Brandon. So when you look at the progression of spot mix, we increased spot mix by 500 basis points sequentially from Q4 to Q1. That was up 600 basis points year-over-year. We saw spot increase as a percentage of the mix every month throughout Q1. That momentum continued into Q2. April spot mix was up again relative to March and relative to Q1. We are assuming that we have spot mix increase again in Q2 as a whole relative to Q1. And that spot mix carries a very strong incremental contribution margin. When we think about that spot mix relative to contract at this part in the cycle, it is multiples that of contract. And to Drew's point earlier, we're servicing our customers freight exceptionally well throughout all parts of the freight cycle, and that's what's allowing us to win, and we're doing this, and we believe that's idiosyncratic to RXO. I think one point I want to reiterate, this is still a very soft part of the freight cycle, and we're able to show a significant improvement in our spot mix, and that's allowing us to achieve almost a 6x increase in terms of adjusted EBITDA from Q1 to Q2 at the midpoint of our outlook, and we also see a clear path to achieve the high end of our outlook. Operator: Your next question comes from the line of Ravi Shanker of Morgan Stanley. Ravi Shanker: Drew, as you highlighted, there are a number of new regulations impacting supply on the TL side, but there are some potential catalysts that may be impacting supply on the brokerage side as well, particularly a renewed focus on Canadian carriers and the potential Montgomery case in front of Supreme Court. Would just love your views on how much of an endemic issue is this and what impact there could be for the brokerage industry and maybe even RXO, both as a risk and opportunity going forward? Drew Wilkerson: Yes. I'll start with the current regulations, and then I'll move on to the Montgomery case. If you look at the current regulations, it's clear that it's driving a higher quality of carriers across the network. We've got a very robust, rigorous carrier vetting process. We built the business off of just-in-time automotive shipments off of high-value cargo shipments. So the bar to haul loads for us is very high. We continue to increase the standards on being able to haul loads for RXO, and I think that's been a differentiator for customers. When customers look to who they're doing business with now with everything that's going on, they want to talk through what is your carrier vetting process and who you're using. And we're winning because of that right now. Shifting to the Montgomery case, I think from my opinion, it is clear that the side of the industry is the right side. I think the law is clearly written off of that way. But running our company, we've got a playbook for everything, and we're prepared for anything. And if the case goes on the Montgomery side, I think that will drive out the tail on brokers and will create a lot of opportunity for organic growth very quickly in our business, and it also creates some opportunities on the M&A side for consolidations. Ravi Shanker: Got it. That's very helpful. And maybe, Drew, I think you said that your Agentic tools made 500,000 phone calls in the last quarter, if I got that stat right. Can you just give us a frame of reference, like what percentage of total calls was that? And kind of is there a target for where that goes over time? Drew Wilkerson: It's a very low percentage of the number of calls, Ravi. And I think that that shows how far we can go and that we're in the very early innings of this. We're just -- the journey is just starting, and we've got a lot of upside off of what we're doing there. Operator: Your next question comes from the line of Chris Wetherbee of Wells Fargo. Christian Wetherbee: I want to dig a little bit more on to the spot moves because that seems to be sort of the big piece in the quarter here. So I guess when you think about competitively, where do you think the share is coming from? Because it sounds like you still think the sort of demand environment is muted. So it doesn't feel like it's kind of organically coming through with more volume. It just seems like you're capturing share from other folks. Just kind of curious how you're thinking about that market dynamic. Drew Wilkerson: Yes. On the spot market, a lot of times, those are open bids. So it's not a clear indication of where it's coming, but we're also not picky on where it comes from. Our goal is to service the customer and make sure that we are the ones that they are calling. I think you're still in the early innings. Tender rejections are still sitting in the low to mid-teens right now. And that, in my opinion, will continue to rise when you look at the capacity that is coming out. of the market. And any signs of demand returning will take it even higher. So I think there's more opportunity that is coming down the pipe off of that. For us, it's about how well we position ourselves. And are we the ones who customers come to and that they trust whenever those -- there are those opportunities. And we've got a team that set up war rooms of different solutions that we could provide for customers as the market was tightening, different ways that we could service them in the spot market. We've seen where carriers are handing back a lot of freight as the market tightens, and we've been the place that customers have gone as that's happened. Christian Wetherbee: Okay. Super helpful. And then I know you mentioned contract high single digits. Just want to -- any sort of color in terms of how that process is going and then maybe what sort of the exit rate of bid season might look like if it's sort of above that high single-digit number? Just kind of curious because obviously, we haven't seen demand come back. It seems to be mostly driven by supply. It seems like there's upside potential if things get a bit better. I'm just kind of curious your thoughts around that. Drew Wilkerson: Yes. This has definitely been a supply-driven recovery. This is the first time in 20 years of doing this that I've seen a supply-driven recovery that has been sustained. When you look at demand, demand is a catalyst to take it even further off of where we are today. Right now, on the supply side, I do think that supply will continue to come out, which, as I said earlier, I think will take tender rejections up even further. Contract rates, when you look at what the exit rate was over the last 4 weeks, we were in the double digits. We've had several that have been in the low teens, even mid-teens coming up. And we're largely through the pricing piece on bid season. we're in the implementation phase of going through the second quarter, which will continue throughout the second quarter. And I'll say that this year is a little bit different. This has been an ongoing conversation with customers about what's going on in the market on the regulatory side, what to expect from a capacity standpoint, what are we doing from a carrier vetting process. So I think this will be a yearlong of conversations, and we've got a tool in the curve that customers view as their truth sum of what's going on in the market. Operator: Your next question comes from the line of Scott Group of Wolfe Research. Scott Group: So I get all the spot mix stuff. But if overall volume is in truckload is down 12% and spot mix is up 6%, I think the math implies that contract volume is down something like mid- to high teens. So maybe just, Drew, some thoughts on why we're seeing such big declines in contract business and how you think about that sort of evolving going forward? And maybe just along the same lines, I think you said LTL volume flattens out in Q2, but then reaccelerates. So maybe just color on LTL as well. Drew Wilkerson: Yes. So Scott, like if you look at it, demand is still soft. It's a muted environment on the demand side. And so the fill rates are not there. If you look at the overall industry tender-wide rejections, they're sitting in the low teens right now, especially as you're implementing new bids. And we've said all along that we're optimizing service solutions and price for customers, and I feel good about where we're executing off of that market. On the LTL piece, we talked about that being roughly flat on a year-over-year basis in the second quarter. I think we'll get back into growth mode as we get into the back half of the year on that. The pipeline is strong there. Scott Group: Okay. And then when I just think longer term, I think you said earlier, mid-cycle mid-single-digit EBITDA margin, peak of the cycle, high single. If I just look back '21, '22, right, last peak, we got like a 5% or 6% EBITDA margin. So -- what's changing here? Maybe it's Coyote, I don't know, but what's changing here that we get meaningfully better sort of peak margin this time around? Drew Wilkerson: Scott, I'll have to let Jared or Jamie weigh in. But in '21 or '22, I know for the brokerage business, the margins were much higher than the numbers you just talked out. As a matter of fact, in '22, we highlighted on one of the XPO earnings calls that brokerage margins hit double digits. Unknown Executive: Yes. You have it, Chris. So Scott, that's the right way to think about it. Historically, if we look at our peak EBITDA, you can think about, call it, high single digits, low double digits. We do also think that there is an opportunity to continue to leverage AI to fundamentally improve the structural profitability of this business. So it's not a mix issue. And when we think about where we are right now, entering Q2, certainly with improved momentum and significant EBITDA growth, to Drew's point, we are still multiples away from normalized earnings. Drew Wilkerson: And Scott, with more scale, I think the margins can go higher with what we're doing on the AI side, we talked about the spot quoting tool that our team is using now and the team that has ramped up on that first to seeing volumes up 15%. That's going to pull down cost to serve. So I think those are all things that can be upside to the numbers that we're talking about. Operator: Your next question comes from the line of Tom Wadewitz of UBS. Thomas Wadewitz: So I've got 2. I wanted to -- you touched a little bit, Drew, on Montgomery. I want to drill down on that a bit further. I think there is a sense that kind of heads you win, tails you win on this case, right? Like if you lose -- if CH loses Montgomery, then small carriers exit. But I just want to see if you could elaborate a bit further on the mechanism for that pressure on small brokers. It seems to me like the insurance costs that brokers are paying today are not very large. I'm guessing you pay a couple of million dollars a year in insurance. And so even if it doubles, it's like -- I just -- I don't know if that's the mechanism to drive small carriers out? Or is it like shippers just won't use them and so they lose the demand side. I just want to see if you could drill down a little bit more on how you think that might drive small carriers out if CH and TQL lose the Montgomery case? And then I had one follow-up after that. Drew Wilkerson: Yes. So again, I want to be clear. We think that the industry is on the right side of this and that the law is clear on how it is written and it should be ruled in favor of the industry. If it does not err on that side, insurance costs, I wish our insurance costs were a couple of million, Tom. They're definitely more than that. And I think that, that is definitely something that would be a headwind for smaller players. Shippers requirements will also go up. And the carrier vetting process is we're already seeing that play out with shippers right now given what's going on in the regulatory. I think that's something that will kick it into high gear even faster than what it has been. And they're going to want to look to do business with people who have scale, who have good technology, people that have delivered for them in the past and people who have financial stability. And thankfully, we check all of those boxes. Unknown Executive: Yes. And I would add to that from an insurance market standpoint, the carrier -- the insurance carriers are going to be looking to brokers who have good vetting processes, have invested in carrier compliance and the requirement for more insurance that Drew talked about will be harder for smaller players to acquire or procure from the market, I think. Thomas Wadewitz: I guess if you're a small broker and you work with small and midsized shipper, do you think they will have the higher requirements, too? Or is it more like large shippers that drive the pressure? Drew Wilkerson: I think large shippers will set the tone, but small shippers will certainly want to follow what the benefits that large shippers are receiving. Thomas Wadewitz: Okay. All right. Yes. Other question is just on kind of like what the mix of loser loads or kind of negative gross margin loads looks like. I think -- is that pretty elevated right now? And is that something like you see that improve quite a bit as you look forward? I think it's just like looking under the hood a little bit, just kind of what's happening with that in terms of kind of what's normal and where are you at for negative gross margin loads? Drew Wilkerson: Yes. Negative gross margin loads are definitely up. The other thing that is also up is our high-margin winter loads that is also up significantly, and those go hand in hand. If I think back to 2022, that was our strongest profitability, as I just highlighted to Scott, that was our highest negative margin load percentage as a business. And again, because customers trust us because we deliver for them, that was also our highest high-margin loads during that time period as well. So it's about creating solutions for customers, being the carrier of choice for customers as the market tightens. And I think that this is the first inning of us proving that that's who we are. We've told you for multiple years that as the market tightens, customers will come to us with spots, projects and mini bids. This is the evidence that, that is happening, especially as things are getting re-rated and turned back to customers, we're seeing big wins there, both on the spot and the contract side. So yes, negative gross margin loads are elevated, but so are high-margin loads. And we look at the customer as a total profitability, not off of one load. Thomas Wadewitz: So you don't necessarily need the bad loads to go down. It's just you're making more money on the broader mix. Is that kind of the way to look at it? Drew Wilkerson: We look at the total customer profitability. I think it would be shortsighted to look at it on a load basis. Operator: Your next question comes from the line of Ari Rosa of Citigroup. Ariel Rosa: So I wanted to go back to this point about truckload volume being down 12% year-over-year. Just I was hoping you could help us contextualize that number. Maybe you could give your view on kind of how much the overall market was down relative to that 12%? And just help us understand like how much of that was RXO being -- making a deliberate decision to move away from certain loads? Or like how are you moving relative to the market? And what gets you back to taking share? Drew Wilkerson: Yes. We talked about some headwinds in the business heading into it. So I think off of memory, cash freight index was down around 6% and our truckload volume was down around 12%. But you also see the rate of change where we talk about it being flattish on a year-over-year basis in the second quarter. So the rate of change exiting from Q1 to Q2. And the biggest thing driving the rate of change is, one, our conversion on our sales pipeline, we're winning there, and we're winning in big ways off of big numbers. And we're also seeing a lot more spots. So I mean, I think there's 2 things that are driving the improvement in the rate of change from what you're seeing from the first quarter to the second quarter. Ariel Rosa: True. But what is it that's driving the delta between the 6% and the 12% in the first quarter? Just because that's what I'm not clear on. Drew Wilkerson: Yes. I think whenever you look at the 6% to the 12%, we talked about the pricing strategy last year. And I think we highlighted that 2 or 3 earnings calls ago where we said that this was going to be the position we were in. And there wasn't a lot of spots out there in the fourth quarter. Spots really started to come on in February. So you saw December and January where there wasn't a lot of spots and you were still seeing contracts hold up. As soon as the spots started to come in, that's whenever you started to see the rate of change in the business. I think it's obvious whenever you saw that April was down too. Ariel Rosa: Okay. Got it. Understood. And so just as a second question, I was hoping you could talk a little bit more about your approach to AI. It sounds like you're getting some traction there. That's great. Obviously, people have responded well to that in the market. Help us understand what it is that RXO is doing different? Like how much of your approach to AI is built off of proprietary technology? How quickly you expect it to scale, et cetera? If you could just give us more color there, I think it would be helpful. Drew Wilkerson: Yes. I'll let Jared come over the top on some of the tools. But I mean, when you look at our AI strategy, it's built for who we are. It's built to be able to adjust with what's going on in the market. It's built tailor specific for our customers, especially large enterprise customers. We've built new tools as we start to ramp up the SMB parts of our business. We're building things in there on the carrier side. Anything that is customer, carrier or employee-facing, we view as secret sauce. And those things we really want to lean in and use proprietary tools. If there's something that we view that is not as critical, then we're open to using some things off the shelf there. Unknown Executive: And Ari, to build on what Drew was saying, the 4 key pillars that we talk about have remained consistent between volume, margin, productivity and service. We're a tech-enabled organization. But as we highlighted earlier on, it's all about the customer relationship. It's all about the carrier relationship and then how do we leverage technology in a way that makes our people more productive. We saw our productivity was up 15% over the last 12 months, measured by loads per person per day. We're really excited about some new tools that we've launched recently, including our Agentic AI e-mail spot quote functionality where we've seen significant traction over the last couple of months, and that's still in the very early innings. So as we go ahead and start to broadly deploy these tools across the organization, and we think about the opportunity to decouple volume growth from headcount and make our people that much more productive, it speaks to the long-term contribution margins that are attributable to AI and technology. Operator: Your next question comes from the line of Ken Hoexter of Bank of America. Ken Hoexter: So you set the scale for EBITDA outlook for 2Q. Thoughts on maybe seasonality, pace of growth, maybe a little further out third quarter, full year. And then, Jared, on that last point, as you get more automated on quotes, thoughts on staffing. I don't think you disclosed headcount, but how are you thinking about early efficiency gains on reshaping the workforce? Jared Weisfeld: Sure. I could start. So as you know, Ken, we give an outlook one quarter at a time, but can certainly provide a little color on Q3. Typically, Q3 does decline when compared to Q2 in last mile. Q2 is the strongest quarter of the year from a seasonal perspective. But I would certainly say there's nothing typical about this year, right? As Drew just mentioned, starting in Q3, you'll see the full implementation of the contract rates that we're talking about right now in Q2, which are coming in right now, to some extent, low double-digit, mid-teen type increase. So that will continue. Volume will be a function not only of the market, but also our successful conversion of the pipeline that we've talked about, managed trends, also implementing new awards in the second half of the year and any sustained increase in demand, including automotive, could be substantially better than that. So last year, Q2, Q3 went down about 15% sequentially, but would certainly reiterate that we've got a lot of strong momentum in Q2 right now, and we'll see -- we expect further momentum in Q3. And on the -- what was a follow-up on technology, Ken? Ken Hoexter: Yes. Just your thoughts on staffing, right? As you become more automated, does that -- since you don't disclose that count, how do you think about early efficiency gains reshaping that workforce? Drew Wilkerson: If you look at our brokerage headcount, -- can it was down double digits on a year-over-year basis. I think we've talked earlier in the call about this being a relationship business. Relationships matter in this business. Our people matter to this business. But what's going to happen is they're going to get more productive over time and the more tools that we implement. So the rate that we add heads will not be at the rate as we start to grow -- outgrow the market, which we've said we'll start to outgrow the market around the middle of the year, maybe sooner. Ken Hoexter: Wonderful. And then just one follow-up quickly, if I can. The truckload volume improved each month in 1Q. Is that a year-over-year comment? Is that in line with normal seasonal or sequential progression? Jared Weisfeld: That's that comment with respect to -- on an absolute basis, we've seen an improvement within our truckload business every month throughout Q1. that is then translating into an expectation of a sequential volume increase from Q1 into Q2 from a truckload perspective, driven by the success that we've had converting that late-stage pipeline. And then Ken, that will then translate to about year-on-year flattish from Q2 -- in Q2 relative to Q2 last year, which is certainly significantly improved relative to Q1, and we then expect to start to resume our outperformance versus the truckload market as early as the middle of the year. Operator: Our last question comes from the line of Bruce Chan of Stifel. J. Bruce Chan: Maybe just to follow up on the headcount productivity question. It seems to me like you're in a better position to implement a lot of these tech and AI programs now that the tech stacks are more harmonized. You listed a lot of different initiatives. Maybe if you could just help us to quantify the impact of those? Any KPIs that you're seeing in terms of productivity or GP per head or maybe margin contribution that you can give us to help kind of illustrate what the impacts might be to the bottom line? Jared Weisfeld: Bruce, it's Jared. So on the productivity side, we're seeing some real tangible benefits. Productivity in the second quarter was up about 15% when compared to the prior 12 months, benefiting from those investments. And I'll go back to those 4 key pillars that we talked about earlier in terms of how we think about our technology strategy across volume, margin, productivity and service. And the one tool that we've been talking about that we're quite excited about is some of the benefits that we're seeing from the Agentic AI e-mail spot quote functionality because not only does it enable incremental volume and margin opportunity, it comes with a pretty strong contribution margin to the business. So as we think about scaling the business longer term, decoupling volume growth from headcount, it could really add some pretty strong contribution margins longer term. Operator: I would now like to hand the call back to Drew Wilkerson for closing remarks. Drew Wilkerson: Thank you, Elli. RXO has significant momentum across all of our lines of business. Our full truckload volume improved every month of the first quarter. We're winning more spots, projects and mini bids, thanks to the exceptional service we provide and our spot mix increased by 500 basis points sequentially in the first quarter and 600 basis points year-over-year. We've had an outstanding bid season and expect full year contract rates to increase by high single digits year-over-year. We expect to resume our market outperformance when it comes to brokerage volume as early as the middle of this year. In complementary services, we continue to win. We've secured more than $100 million in new managed transportation awards, and our new Middle Mile solutions offering has already built a $70 million pipeline in just its first few months. Our technology is a force multiplier. We put Agentic AI in action and our proprietary tools, including our AI spot agent have already delivered increases in both volume and gross profit per load for our reps. We're at the beginning of the recovery, and we're uniquely positioned to be a major winner. RXO has significant long-term earnings power. Thank you for your time today, and we look forward to seeing you at the upcoming conferences. Operator: Thank you for attending today's call. You may now disconnect. Goodbye.
Operator: Greetings, and welcome to the Collegium Pharmaceutical's First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded. I'll now turn the call over to Ian Karp, Head of Investor Relations at Collegium. Thank you. You may now begin. Ian Karp: Great. Thanks so much, and welcome to Collegium Pharmaceutical's First Quarter 2026 Earnings Conference Call. I'm joined today by Vikram Karnani, our President and Chief Executive Officer; Colleen Tupper, our Chief Financial Officer; and Scott Dreyer, our Chief Commercial Officer. Before we begin today's call, we want to remind participants that none of the information presented today is intended to be promotional and that any forward-looking statements made today are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. You are cautioned that such forward-looking statements involve risks and uncertainties as detailed in the company's periodic reports filed with the Securities and Exchange Commission. Our future results may differ materially from our current expectations discussed today. Our earnings press release and this call will include discussion of certain non-GAAP information. You can find our earnings press release, including relevant non-GAAP reconciliations on our corporate website. And with that, I'll now turn the call over to our President and CEO, Vikram Karnani. Vikram Karnani: Thank you, Ian. Good morning, everyone, and thank you for joining our first quarter 2026 earnings call. At Collegium, we are building a leading diversified biopharmaceutical company committed to improving the lives of people living with serious medical conditions. In the first quarter, we made meaningful progress on our 2026 strategic priorities and took an important step forward with the proposed acquisition of AZSTARYS, a differentiated commercial ADHD treatment for people 6 years and older. The addition of AZSTARYS accelerates our growth trajectory by strengthening our position in ADHD, complementing JORNAY PM and extending revenues into the late 2030s. This strategic acquisition reinforces our long-standing commitment to improving patient care while delivering long-term shareholder value. In the first quarter, we also made meaningful progress on our other 2026 strategic priorities, driving additional growth for JORNAY and continuing to enhance the durability of our pain portfolio. For JORNAY, we delivered continued strong growth across prescriptions, prescribers and market share. Prescriber adoption reached another all-time high this quarter, reflecting the positive impact of our sales and marketing investments. We also delivered another solid quarter for our pain portfolio with total pain portfolio net revenues growing 4% year-over-year, driven by growth from both Belbuca and Xtampza ER. Steady cash flow generation from our pain portfolio continues to provide a strong financial foundation that supports our disciplined approach to capital deployment and business development. We are off to a strong start in 2026 and remain well positioned to continue executing against our strategy and deliver long-term value for our shareholders. In the first quarter, we demonstrated strong execution across our entire portfolio. JORNAY prescriptions grew by 14% year-over-year and generated $38.9 million in net revenue, up 36% year-over-year. Our pain portfolio generated $154.6 million in net revenue, up 4% year-over-year, reinforcing our confidence in its continued durability. We achieved both top and bottom line growth with total net product revenues up 9% and adjusted EBITDA up 9% year-over-year. In addition, we generated more than $57.1 million in cash from operations and ended the quarter with over $421.8 million in cash, up $35 million from the end of 2025. With a clear focus towards the future, we also successfully executed a key element of our capital deployment strategy, announcing the proposed acquisition of AZSTARYS in March. As mentioned, this acquisition will add a differentiated and highly complementary medicine to our existing portfolio, strengthening our position in ADHD. We believe AZSTARYS has significant future growth potential, and we plan to leverage our established commercial infrastructure and expertise to maximize its performance. The acquisition is expected to strengthen our ADHD portfolio, broaden our revenue base, support margin expansion and extend the longevity of our portfolio with patent protection through December 2037. The required waiting period under the Hart-Scott-Rodino Act has now expired, and we remain on track to close in the second quarter of this year. Turning now to other recent corporate updates. In the first quarter, our partner, Hikma Pharmaceuticals, launched authorized generic versions of both Nucynta and Nucynta ER. Our authorized generic agreement with Hikma supports our strategy to maximize the life cycle of our pain portfolio while maintaining patient access. This agreement provides us with a significant profit share, positioning us to compete effectively with potential third-party generics. In March, we launched our Embrace Your Sparkle campaign with Paris Hilton, who is treated with JORNAY to help manage her ADHD symptoms. This campaign aims to encourage broader understanding and open dialogues about ADHD. Together, we are reframing common stereotypes and highlighting experiences that are often part of living with ADHD, including the importance of talking to a doctor and finding an individualized treatment plan. In February, we announced a new partnership with Boston Legacy Football Club, a member of the National Women's Soccer League. Aligned with our commitment to healthier people, stronger communities, we are sponsoring a sensory room that will be available at every home game this season to help create an inclusive experience for all fans. In partnership with the organization known as Children and Adults with Attention-Deficit/Hyperactivity Disorder, also known as CHADD, we are designing this room to support comfort and regulation for fans who may need a break from the visual and auditory stimulation of a match day experience, helping ensure a positive and inclusive guest experience. More recently, in April, we announced updates to our Board of Directors. Dr. John Fallon will retire from our Board at our Annual Meeting of Shareholders on May 14. We thank Dr. Fallon for his years of service to our company, Board and shareholders. In addition, Michael Donovan has been nominated to join our Board, and his nomination will be presented for shareholder approval at the 2026 Annual Meeting. Mr. Donovan most recently served as an audit partner at Ernst & Young, where he has held several leadership roles. He brings financial expertise gained from over 36 years of extensive business, accounting and financial experience serving public and private companies in the life sciences industry. Finally, we remain dedicated to our commitment to leading with science. In the first quarter, we presented real-world data highlighting our ADHD and responsible pain medicines at the American Professional Society of ADHD and Related Disorders and PainConnect. These are important meetings for scientific exchange, and it was encouraging to see our medicines highlighted. As we look ahead to the rest of the year, we remain focused on 3 key priorities. First, we will continue to drive growth for JORNAY. In 2026, we expect to deliver $190 million to $200 million in revenue, an increase of 31% at the midpoint of our guidance range. As Scott will touch on later, we are seeing the positive impact of the sales and marketing investments we made in 2025 to raise awareness of JORNAY and drive growth. Second, we will continue to maximize the durability of our pain portfolio. Our pain medicines generate significant revenues and cash flows that will continue to support our future aspirations. And third, we remain committed to executing our capital deployment strategy, which balances business development, debt repayment and opportunistic share repurchases. In the near term, we are focused on closing and then seamlessly integrating AZSTARYS into our product portfolio, further accelerating our growth trajectory and increasing our impact within the broader ADHD community. We are confident that we can achieve our strategic priorities and remain well positioned for growth as we work to help improve the lives of patients and create long-term value for our shareholders. With that, I will turn it over to Scott to discuss commercial highlights. Scott Dreyer: Thanks, Vikram, and good morning, everyone. Our lead growth driver, JORNAY PM is off to a strong start to the year, building on the positive momentum we generated in 2025. In the first quarter of 2026, we grew prescriptions, prescribers and market share year-over-year. JORNAY is a highly differentiated medicine and the only ADHD stimulant with once-daily evening dosing that provides symptom control upon awakening through the afternoon and into the evening. Many patients, including pediatrics, adolescents and adults, report challenges starting their day, which is an area of key differentiation for JORNAY as it's already starting to work when patients wake up in the morning. In addition to efficacy upon awakening, symptom control throughout the day is important for most patients because it can eliminate the need for an additional booster at school or work and JORNAY delivers efficacy that lasts throughout the day. HCP perceptions of JORNAY are very positive and have gotten even better following enhanced commercial efforts. Based on new market research conducted in the first quarter of 2026, HCPs continue to give JORNAY a high favorability rating and rank JORNAY as the #1 branded ADHD medicine in terms of product differentiation with the score significantly higher than all other medicines in the same category. In addition, 70% of surveyed HCPs indicate a strong intent to increase prescribing, which was the highest among all other branded ADHD medicines. As we've previously highlighted, since acquiring JORNAY, we've made targeted investments strategically designed to increase awareness, specifically by increasing the size of our ADHD sales force and launching new digital marketing programs. We're highly encouraged by the latest market research, which shows that HCP awareness of JORNAY has significantly improved since last year. Unaided recall among targeted HCPs increased to 67%, up from 52%, approaching the awareness levels of established brands like Vyvanse and Concerta. Patient and caregiver requests for JORNAY also increased, and market research shows that when a patient or caregiver specifically asks to try JORNAY, more than 70% of HCPs will honor that request. We were particularly pleased to see that Collegium was ranked #1 in reputation among pharmaceutical companies specializing in ADHD. Health care providers rated Collegium sales representatives favorably, particularly in comparison to our competitors. And our messages around efficacy were seen as impactful and easily recalled. These results indicate that we're focused on the right messages and that our sales force is highly effective in delivering them. JORNAY continues to be the fastest-growing stimulant for the treatment of ADHD. In the first quarter of 2026, over 206,000 prescriptions were written, up 14% year-over-year. Importantly, we saw growth across both patient segments of the business, pediatrics and adults. In the first quarter of 2026, the pediatric and adolescent segment, representing about 80% of total prescriptions grew 12% year-over-year. The adult segment, representing about 20% of total prescriptions grew 23% year-over-year. JORNAY's broad prescriber base also hit an all-time high of approximately 30,000 in the first quarter, up 17% year-over-year. We continue to see growth in new prescribers along with increases in depth of prescribing among our targeted physicians. JORNAY's market share of the long-acting branded methylphenidate market grew to 26% this past quarter, up 5.8 percentage points year-over-year. In addition to increasing awareness among HCPs, caregivers and patients, 2026 growth opportunities include initiatives to increase depth of prescribing, improve patient persistency and deepen penetration in the adult market. Our research indicates that adult patients place greater importance on the need for morning efficacy than HCPs. We believe closing this perception gap between adult patients and their providers will help drive future prescription growth. Turning now to the proposed acquisition of AZSTARYS, which represents a highly complementary and differentiated addition to our ADHD portfolio. Despite several different treatment options available today, many patients struggle to find the right individual treatment solution. Market research indicates that on average, ADHD patients try about 3 different ADHD medicines before finding the right treatment. One benefit of adding AZSTARYS to our ADHD portfolio is that it's complementary to JORNAY, and it meets the needs of a different patient type. For patients who need efficacy upon awakening in the morning and throughout the day without the need for a booster medicine in the afternoon, JORNAY represents a unique treatment option. AZSTARYS is the first and only ADHD treatment with both fast and long-acting medicines in one capsule, providing patients with rapid efficacy about 30 minutes after they take it that lasts later into the evening. This is important because it offers flexibility for patients. For example, patients who may not have a consistent schedule and need rapid efficacy after they take their prescription in addition to duration of effect may be particularly drawn to AZSTARYS. Based on this different profile compared to JORNAY, AZSTARYS usage is a bit more weighted towards adults than JORNAY, with about 1/3 of prescriptions in adults and roughly 2/3 in children and adolescents. HCP perceptions of AZSTARYS are also very positive. In the same new market research I noted earlier, health care professionals rated AZSTARYS high in terms of product differentiation and brand favorability. Approximately 54% of HCPs indicated a strong intent to increase prescribing of AZSTARYS -- like JORNAY, we know that if a patient or caregiver specifically asked to try AZSTARYS, 70% of HCPs will honor that request. We're encouraged by these results, and it shows that perceptions of AZSTARYS are strong. We're receiving highly positive feedback from prominent KOLs regarding the potential addition of AZSTARYS to the Collegium portfolio, particularly regarding the opportunity to bring 2 best-in-class products together, 2 methylphenidate treatments that address distinct patient needs. KOLs also view this as an opportunity and an important signal for Collegium's long-term commitment to advancing care in ADHD. Like JORNAY, we see opportunities to raise awareness among HCPs, patients and caregivers by leveraging our commercial expertise and infrastructure. In summary, AZSTARYS is highly complementary to JORNAY, and both brands offer differentiated treatment options for different patient types in the stimulant segment of the market. The stimulant segment is large. In 2025, about 98 million stimulant prescriptions were written, and AZSTARYS and JORNAY each generated over 760,000 prescriptions. Given the differentiation of each brand and the size of the stimulant segment, we believe there's significant opportunity to increase market share moving forward. And importantly, the combination of both JORNAY and AZSTARYS into a single commercial organization will better serve the growing ADHD patient community and increase our standing among health care professionals. For the remainder of the year, we'll focus on driving accelerated growth for JORNAY and seamlessly integrating AZSTARYS into our ADHD portfolio following the acquisition close. We continue to launch new marketing efforts aimed at raising awareness of JORNAY among health care providers, patients and caregivers. Earlier this year, we launched our Embrace Your Sparkle campaign with Paris Hilton to help encourage a broader understanding and open dialogue about ADHD. Finally, we remain committed to maintaining broad patient access for JORNAY. As we announced earlier this year, we secured new formulary access under a major commercial health plan, which went into effect on May 1, increasing JORNAY's coverage for an estimated 4.5 million covered lives. Driven by these strategic investments and continued commercial execution, we're confident we can deliver significant prescription growth and achieve our JORNAY net revenue guidance. Lastly, as we approach the expected close of the AZSTARYS acquisition, -- we're focused on rapidly integrating this medicine into our portfolio and leveraging our commercial infrastructure and capabilities to drive additional growth of the brand while generating meaningful operational efficiencies. We look forward to keeping you updated on our continued progress. Turning now to our pain portfolio. Collegium is the leader in responsible pain management with a unique and differentiated portfolio of medicines. Belbuca, Xtampza ER and Nucynta ER collectively represent about half of the branded ER market. Our pain portfolio is highly differentiated with strong brand fundamentals. Belbuca remains the only long-acting opioid medicine that uses buprenorphine buccal film technology. In market research, it was ranked as the #1 branded ER opioid in terms of differentiation and favorability. Similarly, Xtampza, the only extended-release oxycodone medicine that uses our proprietary best-in-class abuse-deterrent technology, DETERx, was ranked as the #1 ER oxycodone medicine in terms of differentiation and favorability. In the first quarter, we delivered consistent performance in our pain portfolio, which continues to fuel the financial foundation of our business. We grew revenues for both Xtampza and Belbuca year-over-year, in line with our expectations. Revenues from the Nucynta franchise, including revenues associated with our authorized generics were stable, which was also in line with our expectations. As expected, prescriptions for all products were pressured by typical first quarter dynamics where deductibles reset and out-of-pocket costs increased for patients. Overall, performance across the pain portfolio was positive, reinforcing our belief that the life cycle of these medicines may prove to be longer and more robust than is currently appreciated in the market. We remain committed to maximizing the revenue from our overall pain portfolio while maintaining broad payer coverage. In closing, our commercial team started the year strong, delivering solid performance across both ADHD and pain. For the rest of the year, we'll concentrate on driving further growth for JORNAY, maximizing the value of the pain portfolio and seamlessly integrating AZSTARYS. I'll now hand the call over to Colleen to discuss financial highlights. Colleen Tupper: Thanks, Scott. Good morning, everyone. We are encouraged by our first quarter results, which reflect significant JORNAY PM growth, consistent pain portfolio performance and robust cash generation. Total net product revenues were $193.5 million in the quarter, up 9% year-over-year. JORNAY net revenue was $38.9 million in the quarter, up 36% year-over-year. It is important to note that JORNAY's year-over-year comparison is impacted by approximately $4 million of destocking that occurred in Q1 of 2025. This created a lower prior year comparator. Belbuca net revenue was $52.6 million in the quarter, up 2% year-over-year. Xtampza ER net revenue was $50.8 million in the quarter, up 7% year-over-year. Total Nucynta franchise net revenue was $47 million in the quarter, flat year-over-year. This includes $2.7 million in revenue from the profit share on the authorized generic versions of Nucynta and Nucynta ER distributed by Hikma. GAAP operating expenses were $86.4 million in the quarter, up 14% year-over-year. Non-GAAP adjusted operating expenses were $69.3 million in the quarter, up 11% year-over-year. The increase in operating expenses includes the targeted investments we made to drive JORNAY growth, including the expansion of our sales force and new marketing campaigns. As a reminder, 2026 results will include the full year impact of these investments. GAAP net income was $14.5 million in the quarter, up 500% year-over-year. Non-GAAP adjusted EBITDA was $103.9 million in the quarter, up 9% year-over-year. GAAP earnings per share was $0.45 basic and $0.40 diluted in the quarter compared to $0.08 basic and $0.07 diluted in the prior year quarter. Non-GAAP adjusted earnings per share was $1.76 in the quarter compared to $1.49 in the prior year quarter. Please see our press release issued earlier today for a reconciliation of GAAP to non-GAAP results. We generated operating cash flows of $57.1 million in the first quarter. And as of March 31, 2026, we had $421.8 million in cash, cash equivalents and marketable securities, up $35.1 million from the end of 2025. Our strong financial position enabled us to continue to execute our capital deployment strategy and enter into an agreement to acquire AZSTARYS. As previously announced, we plan to acquire AZSTARYS for $650 million in cash. Corium shareholders may also be eligible for up to $135 million in potential additional payments contingent on future commercial and manufacturing milestones. We plan to fund the acquisition through a combination of $350 million in cash on hand, a testament to the strength of our underlying business and $300 million from our delayed draw term loan. We estimate that our net debt to adjusted EBITDA will be approximately 2x following the close of the transaction and our future cash flows from operations will continue to support -- will support continued rapid delevering. Importantly, we expect the deal to be immediately accretive to adjusted EBITDA and estimate that AZSTARYS will generate over $50 million in pro forma net revenues in the second half of 2026. We also expect to generate more than $50 million of cost synergies within 12 months following deal close based on our ability to leverage our existing ADHD commercial infrastructure. The addition of AZSTARYS is also expected to meaningfully extend our revenues through 2037 as AZSTARYS is protected by 6 Orange Book patents, most of which don't expire until December 2037. We are on track to close the acquisition in the second quarter of this year. We are reaffirming our current 2026 financial guidance, which reflects our existing business, not including the impact of the proposed acquisition of AZSTARYS. We expect total product revenues in the range of $805 million to $825 million. This represents a 4% increase year-over-year, driven by JORNAY growth and durable revenues from our pain portfolio. We expect JORNAY revenue to be in the range of $190 million to $200 million, a 31% increase year-over-year. We expect JORNAY gross-to-net to remain stable in 2026 in the mid-60% range. As a reminder, gross to nets tend to fluctuate on a quarterly basis, and we expect gross to net to be highest in the first quarter and higher in the first half of the year compared to the second half due to typical seasonal dynamics. We expect adjusted EBITDA in the range of $455 million to $475 million, up 1% year-over-year. We plan to provide updated 2026 financial guidance for the combined business, including AZSTARYS after the acquisition closes. Our capital deployment strategy is focused on creating long-term value for our shareholders by executing on business development, paying down debt and opportunistically returning capital to shareholders. Our proposed acquisition of AZSTARYS is a result of our thoughtful and disciplined business development approach. We have a long track record of successful business development and a proven ability to rapidly integrate commercial products and accelerate their growth. After closing the AZSTARYS acquisition, we estimate that our net debt to adjusted EBITDA will be approximately 2x, and we remain committed to rapidly delevering consistent with our capital deployment strategy. Finally, we continue to consider opportunistic share repurchases as an important tool to return value to shareholders. Since 2021, we have returned $222 million in value to shareholders and currently have $150 million remaining in the share repurchase program that has been authorized by our Board through December 31, 2026. I will now turn the call back to Vikram. Vikram Karnani: Thank you, Colleen. 2026 is off to an exciting start. We are focused on our strategic priorities of driving significant growth for JORNAY PM, maximizing the durability of our pain portfolio and executing on our capital deployment strategy, including closing and rapidly integrating AZSTARYS into our portfolio. The addition of AZSTARYS strengthens our ADHD portfolio, accelerates our growth trajectory and increases our top and bottom line potential. This represents an important strategic step forward as we build a leading diversified biopharmaceutical company, create long-term value for our shareholders and deliver meaningfully differentiated medicines for patients. We are grateful to the patients who rely on our medicines, the health care professionals who care for them and our employees whose execution continues to drive our progress. I will now open up the call for questions. Operator? Operator: [Operator Instructions] Our first question today comes from the line of Brandon Folkes with H.C. Wainwright. Brandon Folkes: Congrats on a very good quarter. Maybe just 2 from me. Can you talk about once you bring AZSTARYS into the portfolio? How do you balance the focus on going deeper with both brands in the current 30,000 prescribers you called out on JORNAY? Are you looking to grow the breadth of prescribers once you bring in AZSTARYS? And then can you just update us on your thinking in terms of positioning the 2 brands in the reps bag and in terms of prioritizing a reps call in front of a physician? How do you balance those 2 products? Is it different per physician? Just help us think through that. Vikram Karnani: Thanks, Brandon. Maybe I'll kick us off, and then I'll invite Scott to offer some more color. So it's important to remember that AZSTARYS and JORNAY are highly complementary to each other. And as a reminder, the reason for that is because they appeal to different patient types. right? I think in our prepared remarks, we mentioned that if a patient needs efficacy upon awakening in the morning, physicians think about JORNAY as the appropriate medicine for them. However, if you are a patient that has less structured schedule, for example, and are more in need for rapid onset of action and that impact lasting throughout the day, AZSTARYS may be more appropriate for you. So at the core of our commercial strategy and our positioning is that important differentiation between those 2 medicines and the patient types. Maybe Scott can elaborate a little bit further on the go-to-market balance between having those 2 products in the same bag. Scott Dreyer: Yes. I think in terms of the positioning and the balance, one thing that's important to reinforce is there's also obviously a high overlap of physicians. So I mentioned the 30,000 prescribers for JORNAY. AZSTARYS in the first quarter had almost 26,000 prescribers and they're high overlap. So it's the same targets that we're going to. You asked if we're here to grow both, the answer is yes. We're looking to grow products. And the positioning is very clear. The positioning is focused on the differentiated patient type that Vikram mentioned. At the physician level, we'll determine prioritization of order. But the biggest thing to take away is we will grow both products with a focus on those clear patient types. The other thing I'll just reinforce is the physician perceptions of both drugs are so strong. So in my commentary, I mentioned JORNAY is #1 on product differentiation and favorability, high future intent to prescribe. AZSTARYS is ranked just a little bit below that, also very high on product favorability, differentiation, future intent to prescribe. So you put all that together, and it just puts us in a place to leverage the breadth of this portfolio and grow both brands going forward. Operator: The next question is from the line of Les Sulewski with Truist. Jeevan Larson: This is Jeevan on for Les. Yes. So I was wondering if you could just describe how your success with JORNAY reads through to a similar trajectory for AZSTARYS. And also, how should we think about your longer-term strategy in ADHD versus maybe expanding into adjacent CNS or psychiatric complaints? Vikram Karnani: Yes. Thanks, Jeevan. Maybe Scott take the first one, and I can pick up the second one on future adjacencies. Scott Dreyer: Yes. No, it's a great question. Look, the first thing I want to reinforce is when you look at AZSTARYS Corium did a really good job launching the product, right? They got momentum going. They grew the brand. I mentioned prescribers, but with limited resources. And so when I look at the overlaps of what we've done with JORNAY, part of this acquisition is the fact that we can effectively leverage our expertise, leverage the learnings, what we've done from both a physician and a consumer standpoint and our financial wherewithal to invest in AZSTARYS from here to grow. And that's the focal point of kind of what we'll do as we'll bring both brands together. Vikram Karnani: Yes. And I'll take the question on adjacencies. Look, as we've said before, our business development approach remains focused on acquiring commercial or commercial-ready medicines that are primarily in the areas where we already have made significant commercial investments. To the extent that, that is actionable and to the extent that there are differentiated medicines at the right profile, that would be an area of focus. However, we are also aware of the fact that we are open to exploring other adjacent areas, both within CNS, but also outside of it. The bar is higher from a business development standpoint there. We want to make sure that we are acquiring assets that can be grown through efficient sales and marketing approach. And part of that is leveraging what we have or those areas that may not need significant investments in sales and marketing. And we've talked previously about an example of that being rare disease. So our strategy remains unchanged in terms of how we are looking for further growth through further business development. Operator: The next question is from the line of Dennis Ding with Jefferies. Unknown Analyst: This is [Anthea] on for Dennis. Congrats on the quarter. Two questions from us. One, we'll see early data from an orexin agonist in ADHD in the second half. So I'm just curious how you're framing readouts from that class of drugs? And if you expect any impact to JORNAY or AZSTARYS? And then secondly, how should we think about the impact of the Nucynta AG and other generics over the next several quarters? I think IQVIA is showing 75% and 50% share of the branded still in ER and IR. Is that aligned with what you were expecting and what's contemplated in the guidance? And do you expect that to stabilize? Vikram Karnani: Thank you. I think if your first question, if I understood you correctly, was around the early data that you're seeing from a different class of medicines, look, I think there's a lot that still needs to be proven out. We look at the data. We're following the data. But until something -- until we have more information until these drugs are further along in their development programs, I don't think we would want to speculate or comment. What we believe we have in the near future is our 2 potentially very differentiated medicines in AZSTARYS and JORNAY PM. And we look forward to continuing to drive growth for both products, as Scott said, within the ADHD community. And with that investment, that makes us one of the most committed organizations that are serving the ADHD community. Colleen, do you want to take the Nucynta question? Colleen Tupper: Yes, absolutely. On the Nucynta front, what I would say is our 2026 revenue guidance remains unchanged. The total revenue -- net revenue guidance of $805 million to $825 million contemplates the impact of the various generic dynamics. And thus far, we don't see anything that changes our expectations. Operator: Our next question is from the line of Serge Belanger with Needham & Company. Serge Belanger: First one regarding the ADHD portfolio. Can you remind us about access, whether both JORNAY and AZSTARYS will have comparable access once both products are under your control? And then secondly, regarding the pain portfolio, had a pretty nice performance over 1Q. I know that the scripts were down pretty significantly for a couple of products year-over-year. So just curious what drove the performance here? I know you took a price increase, but were there other factors that led to the better performance than expected? Vikram Karnani: Yes. I think on the ADHD portfolio, I think it's important to understand, both JORNAY as well as AZSTARYS are in a very good position from an overall payer coverage standpoint. So access is available to patients. And I think for us, from a forward-looking standpoint, we will -- we've always been committed to making sure that we provide or we support broader coverage, broader access and support patients via -- and reduce or try to help them control their out-of-pocket expenses with a good co-pay assistance program, and that will be our approach going forward. And on the pain products, the specifics on the financials, maybe Colleen take that question, please. Colleen Tupper: Absolutely. So for both Xtampza and Belbuca, as expected, Q1 dynamics were at play on the volume front. The year-over-year growth is driven by profitability improvements in line with our payer strategy, combination of the price increases and a little bit of gross to net benefit as well. Operator: The next question is from the line of David Amsellem with Piper Sandler. David Amsellem: A couple for me. First, on the sales force for ADHD, can you just remind us what portion of ADHD prescribers or ADHD volumes your current sales organization covers? And then over time, what do you aspire to in terms of coverage of both prescribers and volumes? -- in terms of your commercial infrastructure for ADHD. So that's number one. And then number two, as you look at JORNAY and maybe to a lesser extent, AZSTARYS, heavily weighted towards pediatric use. I guess over time, what's your view on the mix between peds and adults and where that could evolve to for both products, particularly JORNAY since it's been so heavily skewed towards the pediatric setting? Vikram Karnani: Yes. Thanks, David. Scott, maybe you want to take both and if you have any other commentary on that. Scott Dreyer: Yes, sure. So first, starting off with sales force. If you look at how we're currently structured, I think the main thing I want to reinforce is we size to effectively cover the market, right? So there's no piecemeal approach to our sizing. If you look right now, it's a pretty concentrated business. So about 20,000 physicians cover 1/3 of all TRxs in the country, right? And so we go to about 25,000. That gives us about 60% coverage of the branded market. And that's exactly as optimal as we can do without going to white space and being inefficient. So we're sized right. Now as we bring in AZSTARYS, we're doing the work to figure out exactly any tweaks we'd make on the footprint. But the main thing I want you to know is we will optimally size to cover the market, and that's what we do now. Second, when it comes to JORNAY, what was the second question? Vikram Karnani: The second question was about the mix of adult and peds. Scott Dreyer: Yes. So mix of adults and peds. So the first thing is you look, they're both methylphenidate products, right, David. And so that market is about 70%, 30% peds. AZSTARYS leans a little bit more to adult, we think mostly driven by the profile of the drug and the fact that you take it and get 30-minute efficacy quick, it's a little more flexible dosing for flexible schedules. That pushes it a little more adult. For JORNAY in the 80-20 that we're at now, we do expect to continue to penetrate more into the adult market, which would drive a little bit of a mix difference. And the primary driver of that is what I mentioned is this insight we have that there's a bit of a disconnect that adult patients, about 50% say they actually need efficacy immediately upon awaken, right? What JORNAY provides, you wake up, the drug is already working, and yet HCPs don't view that need as highly. And so we'll be leaning into that and expect that our growth will continue there. Overall, we're growing volume very well in both segments right now. So right, 14% in the first quarter. That was 12% year-over-year ped growth. That was 23% adult growth. So we're growing now, but we expect the mix to continue to shift. Operator: At this time, this will conclude our question-and-answer session. I'll hand the floor back to Vikram for closing remarks. Vikram Karnani: Thank you. Thanks to everyone for joining our call, and hope you have a wonderful day and weekend. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time. We thank you for your participation, and have a wonderful day.
Operator: Greetings. Welcome to the Gladstone Capital Corporation's Second Quarter Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Erich Hellmold, General Counsel. Thank you. You may begin. Erich Hellmold: Good morning, and thank you for that nice introduction. This is the earnings conference call for Gladstone Capital for the quarter ended March 31, 2026. Thank you all for calling in. We're always happy to talk to our shareholders and analysts and welcome the opportunity to provide updates on our company. Now I'll have Catherine Gerkis, our Director of Investor Relations and ESG provide a brief disclosure regarding certain regulatory matters regarding this call. Catherine Gerkis: Thank you, Erich, and good morning. Today's call may include forward-looking statements, which are based on management's estimates, assumptions and projections. There are no guarantees of future performance, and actual results may differ materially from those expressed or implied in these statements due to various uncertainties, including the risk factors set forth in our SEC filings, which you can find on the Investors page of our website, gladstonecapital.com. We assume no obligation to update any of these statements unless required by law. Please visit our website for a copy of our Form 10-Q and earnings press release for more detailed information. You can also sign up for our e-mail notification service and find information on how to contact our Investor Relations department. Now I will turn the call over to Gladstone Capital's CEO and President, Bob Marcotte. Robert Marcotte: Thank you, Catherine. Good morning, all. I'll cover the highlights for the quarter and conclude with some comments on our near-term outlook for the company. Beginning with our last quarter's results. Fundings last quarter totaled $44 million and included 3 new private equity sponsored investments totaling $34 million and $10 million of additional advances to existing portfolio companies. Exits and prepayments declined relative to what we experienced in 2025 and came in at $46 million, so assets were largely unchanged for the quarter. Interest income for the period declined slightly to $23.2 million, with a 30 basis point decline in the average SOFR rates compared to last quarter as our weighted average debt yield was 11.8% for the period. Other income for the period came in at $2.8 million, which was up $2.2 million from the -- on prepayment fees and dividends. Interest and financing costs declined with lower SOFR rates and reduced unused commitment fees. Net management fees rose $875,000, with the lower origination fee credits. However, net interest -- net investment income rose $574,000 to $11.8 million for the period. Net portfolio appreciation came in at $4.2 million, largely driven by the unrealized appreciation of 3 of the larger companies in our portfolio, which continued to scale. With respect to the portfolio, the portfolio growth for the period did not have a material impact on our investment mix or spread profile as first lien debt and total debt investments came in at 70% and 90% of the portfolio cost, respectively. Our healthcare-related industry concentration declined and is expected to fall further in the short term with a pending exits as we do not -- and we do not have any existing software-related exposures. As of the end of the quarter, our 3 nonearning debt investments were unchanged with a cost basis of $28.8 million or $13 million or 1.6% of debt investments at fair value. In addition, our PIK income for the quarter declined to $1.7 million or 7.4% of interest income. Since the end of the quarter, we funded 2 new portfolio companies representing a total of $44 million of senior secured debt. And while earning assets have increased since the end of last quarter, we are expecting a couple of exits in the near term and are actively managing a healthy pipeline of investment opportunities, which should more than cover any repayments and support our continued modest asset growth. The strength of our investment outlook represents a combination of the resilience of the growth opportunities within the lower middle market and add-on financing opportunities within our existing portfolio. In particular, we're seeing strong demand for precision manufacturing businesses where customers are looking to move sourcing back to the U.S. or scale in support of building defense-related backlogs. We ended the quarter with a conservative leverage position and net debt at a modest 92% of NAV and expect to continue to leverage our floating rate bank facility to support our floating rate assets thereby mitigating the impact of short-term rate decline. Our current line of credit facility totals $365 million. And as of the end of the quarter, borrowing availability is more than $150 million which is ample to support our near-term investment activities. And now I'll turn the call over to Nicole Schaltenbrand, Gladstone Capital's CFO, to provide some details on the fund's financial results for the quarter. Nicole? Nicole Schaltenbrand: Thanks, Bob. Good morning all. During the March quarter, total interest income declined $700,000 or 2.9% to $23.2 million as the average earning assets rose $21.7 million or 2.8% while the weighted average yield on our interest-bearing portfolio declined 40 basis points to 11.8% for the period. Total investment income was $26 million as dividends and fee income rose $2.2 million from the prior quarter. Total expenses rose $900,000 or 6.8%, driven primarily by $900,000 of higher net management fees due to higher average assets and lower closing fee credits versus the prior quarter. Net investment income for the quarter rose $11.8 million or $0.52 per share or 116% of cash distributions per common share. The net increase in net assets resulting from operations was $15.5 million, or $0.68 per share for the quarter ended March 31 as impacted by the valuation appreciation mentioned by Bob. Moving over to the balance sheet. As of March 31, total assets rose to $925 million, consisting of $907 million in investments at fair value and $18 million in cash and other assets. Liabilities declined $3 million quarter-over-quarter to $442 million as of March 31, with the decrease in LOC borrowings. The remaining balance of our liabilities consist primarily of $149.5 million of [indiscernible] convertible debt due 2030, $50 million of 3.75% notes due May 2027 and $35 million of 6.25% of perpetual preferred stock. As of March 31, net assets rose $5.3 million to $483 million, and NAV per share rose from $21.13 to $21.36. Our gross leverage as of March 31 rose to 91.8% of net assets. Monthly distributions for May and June will be $0.15 per common share, which is an annual run rate of $1.80 per share. The Board will meet in July to determine the monthly distributions to common stockholders for the following quarter. At the current distribution rate for our common stock and with a common stock price at about $19.21 per share yesterday, the distribution run rate is now producing a yield of about 9.4%. And now I'll turn it back to Bob to conclude. Robert Marcotte: Thank you, Nicole. In sum, it was another solid quarter for Gladstone Capital. The team continued to deliver strong earnings performance bolstered by prepayment fees and portfolio distributions which more than cover the current shareholder dividends. The team is doing a good job managing the portfolio, sourcing attractive private equity-backed lower middle market investment opportunities. The company is also in a very strong balance sheet position with ample borrowing capacity to prudently grow our investment portfolio and deliver the earnings to support our shareholder dividends and now we will -- operator tell our callers how to submit their questions. . Operator: [Operator Instructions] Our first question comes from the line of Erik Zwick with Lucid Capital Markets. Erik Zwick: I wanted to start with a question, just thinking a little bit about the future path of the portfolio yield. If the Fed funds futures curve is right, there shouldn't be -- market is not expecting any changes. So base rate should be more stable. But wondering if you could talk a little bit about the spreads that you saw for your April activity as well as what's in the pipeline and how those compare to the weighted average spread for the existing portfolio? Robert Marcotte: Thank you, Erik. Good question. The activity on the quarter, we really didn't see any compression in spreads what we were closing essentially is on par with our prior quarters. So we really don't see any degradation, and that's really coming from a couple of things. One, it's a disciplined approach and an added value approach in the lower middle market. We've never seen quite the same competition as upmarket transactions. Obviously, in the last quarter, there's also been a bit of a selloff with spreads backing up upmarket from us. And so we've seen less competitive pressure from larger transactions, which are probably backed up 50 to 75 basis points. So we really don't see, at the moment, much in the way of degradation on the outlook. So with closing spreads in the range of roughly 7% on average last quarter, I wouldn't expect much to impact there. We do have some impact as companies get larger, there is some trade-off, but for the most part, it's pretty stable. The other thing is I do expect that we will be funding add-ons to existing portfolio companies in the next quarter, which tend to be consistent with the existing spreads on those transactions. So I think you're correct that in the near term, the pressure on margins are going to be fairly limited. When we originally reset the dividend, we were anticipating a curve where we might have 2 or 3 rate reductions over the course of 2026. Obviously, that's not happening. And the combination of lower upmarket pressure is part of that process, which is one of the reasons why we feel pretty confident in where we stand today with respect to dividend coverage. Erik Zwick: That's great. And good to hear. Looking at just the dividend income in the most recent quarter, it was up quarter-over-quarter. I'm curious if that was driven by kind of one large dividend or if there were multiple companies that contributed to it, whether you view those more as kind of onetime or if they'll be recurring? Robert Marcotte: There are really 2 components of the income. One was the prepayment fee which we broadcast at the end of last call, last quarter. The second one was a fairly large dividend, a single transaction of a company that had been scaling and we owned a slug of the business. I would expect that there may be some additional distributions coming, but they do tend to be onetime events. So I think we do have some companies that are deleveraging that are performing well. And if the private equity sponsor feels so compelled and there aren't good acquisition opportunities, distributions is something that they will look to do. We should expect that we'll see more of those in the future, but I would not -- I would continue to characterize them as onetime events, but we are monitoring that and expect some of that to be realized over the course of 2026. Erik Zwick: And last one for me. I know you addressed this a little bit last quarter, but just your thoughts on kind of repurchasing shares at this point, whether you view that as a good use of capital, certainly, the stock has come back a little bit from the lows a couple of months ago, but trading at a 10% discount to NAV today, curious how you view that opportunity. Robert Marcotte: Erik, we are seeing tremendous opportunities to continue to execute our plan and strategy. And based upon where that returns are being generated, scale is important. So I don't think you'll likely see us buying shares in. I think we are going to be looking to scale the capital base to capitalize on our market position in the lower middle market. The long-term returns on our portfolio have been pretty good. We think it's best interest of the shareholders to continue to scale that opportunity and this is, frankly, a good time. Turmoil, the uncertainty and the issues in the marketplace provide a nice window for us to continue to execute against our long-term strategy. We've been doing this for 25 years. I think the idea is we can continue to grow it and produce good returns for our shareholders. Operator: Our next question comes from the line of Christopher Nolan with Ladenburg Thalmann. Christopher Nolan: Bob, congratulations on the promotion. And please pass our best wishes to David Gladstone. On the nonaccruals, it stepped up a little bit and your asset quality is good. Can you share with us some observations you're seeing in the market? I mean is higher fuel prices just generally creating increased stress in lower middle market, middle markets? Is it less sponsor support? Because I'm seeing increased nonaccruals across multiple BDCs, incrementally, nothing huge yet, but I'd like to get a little broader perspective, if possible. Robert Marcotte: Sure. The only reason that our nonaccruals went up in fair value is because one of them, in particular, is performing very well. And so we're optimistic that it will be turned to a cash paying and go off nonaccrual. It's been a while for that Xcel situation to turn around, but we're feeling very good about it, given where it's executed. So it's not bad that it went up. It's actually good in a weird way. In terms of your specific question around energy, we don't tend to have a lot of energy-related businesses or energy-impacted businesses. I will say that we do have businesses that might provide services and there are energy costs in delivering their products. And certainly, the delivery companies, the FedExs of the world, were very quick in adjusting their rates. And so passing through surcharges has been something that I think we've encouraged and our portfolio companies have been pretty adamant on and that's really been kind of a neutral event. It's not necessarily negatively affected their business, and it's well understood cost of doing business. In terms of other energy-related matters, I would say we're seeing a little bit of slowing or uncertainty as we've said in the past we do have 1 or 2 investments that are related to the auto market. And energy and auto is a little bit up in the air right now. Certainly, whether it's electric vehicles or whether it's transitioning model years or general auto sales, they're soft. So we are closely monitoring some of those. We feel the business is on the right programs, but the volume in that market is relatively soft. Beyond that, obviously, one of the benefits is we have zero software. So some of I think what you're seeing is just momentum and decision-making in the software side of things. I don't think anybody is making any fast moves to grow the revenue or to expand their software investments at the moment. I think we're all pretty impressed at the relatively low cost and incredibly efficient AI-related tools that we're all toying with. So I think that's affecting a significant number of others, and we really don't have that exposure. So right now, I would generally say we don't see a ton of slowing. We don't see much in the way of direct impact of energy. I would almost argue it's the other way around because we do have some precision manufacturing businesses. They are seeing huge inbound order requests and frankly, we're being asked to fund capital expenditures to grow those businesses. So we kind of feeling like it's a decent opportunity for us if we're close to our businesses to take share and scale some of our opportunities. Christopher Nolan: And just as a follow-up, in general, are you seeing private equity sponsors being a little bit more hesitant in general or any equity providers or is it just sort of pretty stable? Robert Marcotte: I definitely think that private equity sponsors are being very diligent. Deals are not closing at the same pace. I think there's a lot of making sure the numbers are real, and there's no ambiguities. I think there's a fair bit of being cautious. But most of the businesses that we see, it's really about the long-term growth, not the financial structure, not the financial timing. Most of the lower middle market businesses on average are trading plus or minus 7x on EBITDA. That is a business that you can buy and grow and absorb some variability and headwinds and still make good money. If you're trading a large-scale business at 9.5, 10, 12x, you don't have the cushion to be able to absorb that. So I suspect you're seeing much more caution upmarket because the window of growth and equity appreciation is far narrower and the exit multiple that you can get to is going to be harder to achieve. For us. the idea of trading at that lower multiple in the lower middle market, you've already got 2 to 2.5 turns of potential appreciation just from scaling the business. And that drove one of -- a couple of our marks on the quarter. When we go into a business and trades at a lower multiple, and next thing you know it's $25 million or $30 million of EBITDA and the multiple for those businesses is 2 to 3 turns higher that's a natural appreciation that we as well as the private equity sponsors are able to achieve. So I guess it's just a much more forgiving entry point that is part of the process as long as the numbers are solid. Sorry to take so much on it, but that's a fundamental value to the lower middle market. Operator: Our next question comes from the line of Robert Dodd with Raymond James. Robert Dodd: Yes, congratulations, Bob. Just kind of sticking with that point, I mean, the color on strong demand from precision manufacturing, I mean, it sounds for me saying that's primarily for add-ons to those already in your portfolio. And then if we step back, I mean, to your point, the upper market valuations are tighter, spreads seem to be showing maybe -- not just precision manufacturing maybe widening, certainly widening in software, but you don't have any of that. . But to your point, is -- are you starting to see any spread expansion in your end of the market, I mean I would think if something like precision manufacturing, where the demand dynamics, like you say, onshore defense et cetera, are so good. But might be increasingly crowded from a competitive perspective for new deals, right? Obviously, the ones you already have. I mean, so do you think those markets that you're in are going to be more resistant spread expansion even if it moves in the upper market? Or any thought on how the pricing for those kind of -- the kind of businesses you do might evolve even if the upper market moves on a pricing front. Robert Marcotte: I would not expect spread to be widening in our market. Just for broad strokes, the upper markets were dipping down sub-5 over LIBOR and that ROE at the leverage point was starting to get tight. The fact that the funding costs have backed up has probably pushed those spreads up to 5.5% or 5.75% or something like that. We've always been, let's say, mid-6s and I don't think that I would expect that to expand much. It's more of a relative play at 150 basis point spread to a upper market deal, the sponsor is going to say you're way too expensive. I'd rather continue to shop it at a 50 to 75 basis point spread, they're not going to say it's not worth my time given the size of the transaction. So I think we will see less competitive spread pressure because the sponsors understand smaller deals are going to be more expensive and on a relative basis. I think the other point that I would make is, once these large platforms are as large as they are, it's very hard to go back down market, right? Once you're as big as you are, and there's not a ton of capital coming into the lower middle market. I mean, look at where the BDC equities are trending, look at who the brand names are that are raising the new funds. The only people that are actually accessing the capital markets or accessing funding sources that might compete with us would be the SBICs. And they are, by definition, somewhat constrained in their overall size. And government SBA financing is not exactly cheap these days either. So we find ourselves particularly well positioned to compete with those folks, and we obviously have a scale advantage over them. So I don't think it goes down, but I think the pressure is less and the opportunities are going to be as -- continue to be relatively positive for us to see modest asset growth within our desired balance sheet leverage constraints. Operator: Our next question comes from the line of Sean-Paul Adams with B. Riley. Sean-Paul Adams: It looks like the quarter was quite solid. Nonaccruals kind of went up in fair value, but it looks like they could be on the decline. So those legacy 3 positions might go down to 2. You guys experienced NAV accretion in a quarter where there's just been a wave of NAV losses. And the zero software exposure usually means materially less impact to this widespread market repricing. You talked a little bit about spreads. And besides potentially that auto exposure, is there just any concern about just future declines in net origination volume potentially from any other partners trying to come downstream and operate in this lower middle market segment. Robert Marcotte: Sean-Paul, it's hard. I think I would make 2 observations. One, we spend a lot of time focusing on the underlying businesses. What's the long-term growth story? What's the market position. We don't look at these as financial transactions, we look at these as businesses, what is the organic growth of this company and what's the ability of the sponsor and our ability to support and be a partner in growth of the business. . It's a very different view in looking at the business than a financial transaction that somebody is looking to invest their capital and it's a spread and a leverage decision that they make when they buy that paper. That's a different mindset, and we've always had that business orientation and focus and that's where we align ourselves with the underlying sponsor. I think that's relatively unique. And the larger transactions, the larger funds, it's about putting money out and scaling and taking advantage of the opportunity, not necessarily as focused on the underlying business. So you add the fact that it's a lot more efficient to raise capital in $1 billion increments, I mean what's the math? Last year, in 2025, more than 90% of the private capital raised were in funds bigger than $1 billion. $1 billion fund is not going to come down market to compete with us. It just -- it doesn't make economic sense. They can't put out the money fast enough to be able to achieve their investment opportunities. We may see -- we have -- there are plenty of guys out there that are in our ZIP code. It's 4 or 5 folks, but we're also talking about a market that's broad and deep. And if we're looking at [indiscernible] deals a year and all we need to do is 20, that's a good flow of opportunities that we can cherry-pick to make our investments. I don't think the big guys think that way. They think about they need to get a certain percentage share, they need to get a certain investment, they need to make a certain investment scale and they're going to continue to stay up market. I think it's going to be very difficult for them to come down market and think and focus on the lower middle market the way we are. Thank you, all. I appreciate the time. Do you want to wrap it? David Gladstone: We're going to take a minute. This is David Gladstone. [indiscernible] maybe poor. Accident in our area, so it kind of clogged up everything. There is no accident at this company. It's very straightforward. We've watched all the private lending companies go over to the high technology area and God bless them. I hope they make it. We're just going to continue to do what we've done for the last 20 years, and that is look at solid small businesses and midsized businesses and finance them where they need it. So since there are no other questions, we'll see you next quarter. That's the end of this call. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.
Antonia Junelind: Good morning, and a warm welcome to the presentation of Skanska's First Quarter Report for 2026. I'm Antonia Junelind, Senior Vice President for Skanska's Investor Relations. And here in the studio, I've got our President and CEO, Anders Danielsson; and Group EVP and CFO, Pontus Winqvist. They will take you through the first quarter results in just a minute, and they will also provide you with a general business update and the market outlook. And after the initial presentation, we will move over to questions. We're expecting questions from our invited guests. So both from the online audience. If you do have a question, please use the telephone conference number provided. And if we got questions in the room, we will also accept them, of course. And I would ask you to start by stating your name and organization. But we will get back with more information on that. So now we're moving over to a comment on the first quarter performance, and Anders. On the first page here, we see a beautiful bridge. And this is an order that we booked in the first quarter, Vincent Thomas Bridge. Anders Danielsson: Yes, indeed. You can see it on the picture here to the right. And it's a proof of the very solid market we see now, especially in the U.S. when it comes to the traditional infrastructure. And we are well positioned to take advantage of that market. And I'm sure you have noticed the press releases we have sent out the last week, one of them a bridge replacement in Boston, which was booked for SEK 9.3 billion. So solid market indeed. Antonia Junelind: Perfect. Okay. How about Q1 then? Anders Danielsson: Yes. Let's move into the first quarter. And we have had a solid start of the year, very encouraging. Construction started the year on a good performance, and we had come back to that. But good margin in the first quarter. Residential Development, with the strong performance in Central Europe, a bit softer still in the Nordic operation. We started two projects divested to, it was in Commercial Property Development. Investment Property Portfolio was delivered very stable margin and good performance there. And the operating margin in Construction, 3% in the isolated quarter. You can see it's above the last year comparison. And if you look at a rolling 12-month basis, we had 4.2%, really encouraging and also above our recently increased target. Return on capital employed in Project Development ended up at 2.1% on a rolling 12, return on capital employed in Investment Property, decent, 4.7%, rolling 12 same as the last time. And the return on equity, 10.4%. So we have also a robust financial position. So we are -- and that's very important for us because that gives us a competitive advantage where we can start a project when we think it's right. And we managed to reduce the carbon emission with 66% so far compared to the baseline year in 2015. So I will go into each and every stream now. I will start with Construction. Revenue here is slightly decreased compared to last year. We'll go into the details. Order bookings is good. You can see we have a book-to-build of 107% on a rolling 12-month basis, which means we're winning more order than we produce, which is important for the future. So if you look at the backlog, order backlog in Construction, it's on a record high level still. So historically, very, very good position here. And operating income, SEK 1.1 billion, which represent again 3.0% operating margin. So healthier result in a seasonally slower first quarter, and very encouraging to see that all geographies are performing. That's important as well. So the order intake was good, then backlog remains on a high level. Let's go into Residential Development. Here, we have pretty much the same revenue as last year. It's still slow in the Nordic market, but very good performance in the Central European market. We're selling a lot of apartments, and we have a really good profitability from those. So that's very, very encouraging for the future. We started one project in Central Europe and one in Finland, a smaller one. And we also have a strategic land acquisition, both in Sweden and in Poland. And that's also depending on we have a really good financial position to be able to do that. We'll walk into Commercial Property Development. They had operating income in the quarter, SEK 71 million. Also a gain on sale of SEK 174 million, which represents a return on the capital employed of 1.4%. We have 17 ongoing projects, which represent above SEK 15 billion (sic) [ SEK 15.4 billion ] upon completion in total investment. We have 18 completed projects right now, there is -- the value of those is SEK 18.4 billion in total investment, and decent leasing ratio in those completed projects of 72%, which means that we get some positive cash flow from those assets. Two divestments in the first quarter, and we also started two new projects and several project was handed over to external buyers during the quarter. And we have a good average leasing rates both in the ongoing and in the completed, as I said earlier. Investment Properties. Operating income, SEK 81 million, the economic occupancy rate is stable, 84% right now. Pretty much the same level as last quarter and also compared to last year. And the portfolio consists of seven high-quality office building properties in the three larger cities in Sweden, which represent a value of SEK 8.3 billion. So a solid performance in the first quarter. I will now move back into the Construction stream again and look at the order bookings. Here, you can see the order backlog over time on the blue bar. And as I said earlier, we are on a record high level, and you can also see it here in this slide. Here, you can see the -- also the rolling 12 months basis, the lines here on book-to-build revenue, order bookings and order bookings per quarter. And I can say, as I said, record high level. And when you look at the first quarter, we were able to book data center and semiconductor facility of SEK 6.9 billion in the first quarter. So it's a strong market and contribution here. So when I look into the different geographies, we can see the -- we are on a very high level when it comes to book-to-build, 107%, and we have a good duration. We have 19 months of production, and the tendencies here that the duration of the project is getting more extended, it takes longer time. And so we have a good position here. And basically, in all geographies has contributed to this order backlog. Which is good. With that, I hand over to Pontus. Pontus Winqvist: Thank you, Anders. Then going a little bit deeper into the numbers. And you heard from Anders regarding the order situation. And you can also see that we have a slightly decline in revenue during the first quarter. It's also the [indiscernible] Revenue. and it's also so that we -- in some cases, especially in U.S., we have an uneven profit or revenue recognition of the backlog cause some projects are moving faster through revenue, and that could be a little bit different between the different quarters. And it was quite significant, such an effect in the first quarter. If you then go down and looking into the operating income, it's basically in line with the level that we saw the same period last year, but it is an increase if we go to the local currency. Actually, the operating profit increased by 5%. So then going more into the different geographies within Construction. There, you can see that we had improvement or same margin level that we had last year, and we had an average margin of 3%, which I must say, is quite strong for the first quarter with normal winter and seasonal effect. But in this quarter, I said it was a little bit more than normal. You can also see there that the operating income is on a healthy level on all units. Going then into RD. You can see that the revenue here is on a similar level as we saw last year, and also that the margin is increasing. You heard from Anders that our European Residential Development business is performing on a high level while there are some challenges, I would say, in the Nordic businesses. We keep the selling and administrative costs on the same level as we did last year. And you can also see that, that is impacting an increase in our gross margin. Looking then into the different geographies. And here, you can see that we had a negative result in the first quarter in the Nordics, while the Central European business again is contributing with a strong margin above 20% and the result then of SEK 138 million. So this is, of course, I would say, probably stronger than what you can expect going forward from that business. But on the other hand, we should expect better development from our Nordic operations. If we then look into the number of sold and started units. You can see that we started 212 units, and the absolute majority, 176 of those was started in the Central European units. We had a smaller project then that was started in Finland. And if you look into the number of sold, we are on basically the same levels that we have been last year, which you also can see on the rolling 12-month basis that we are hovering around 1,500 units for the moment when it comes both to started and sold units. Then looking into what we have in production, you can say that we have around 3,000 units in production, also this stable level. You can also see that it's slightly improvement of the number of sold and a slight decrease on the number of unsold completed homes. Worth to mention there is that we see that we are selling more of these uncompleted homes in the Nordic, which is good because they are the low margin units that we have, and it's actually increasing somewhat of the unsold units within the Central European business, and that is good. Of course, we have a very strong market there. So there, it's more a potential to have units to sell, which haven't really been the case in the Nordics. Going then into CD with a revenue of SEK 1.2 billion. We divested two projects during the first quarter. And you can see there the gains coming out from this business or from the gains, SEK 174 million. We also have an impact there from previously divested projects that we have sold, but they are not really completed. So then we are recognizing profit gradually when we are, I should say, reducing the construction risk from a development perspective on that divestment. So that, having said that, we have said that a couple of times before, but sometimes that is a part of the business that we are releasing gradually profits from divested projects that still are under some kind of construction. There have also been a small land divestment included in that number. Looking into this slide, the unrealized gain from our Commercial Development business. You can see it's very stable, not very much has happened since the first quarter. What you can see and what I also think is important to highlight is that the absolute majority of the unrealized gain is from the ongoing projects, and it's quite little of unrealized gain that we have in our completed portfolio within our CD business. This is normally a popular slide where you can see our profile when to complete and what is completed, and the dots there that you see, they are representing the occupancy rate in those projects. So you see that we have completed -- a completed portfolio within CD of [ SEK 17.6 billion ] or something with an occupancy rate there of 71%. And then you can see that we will complete here during Q2, nothing in Q3 and so on with the different leasing ratios. And if you're following this and comparing this with previous slide, you can also see that there are slight improvements in some of those future completing projects. Leasing during the quarter was 18,000 square meters, of which, three came from -- 3,000 came from rental residential. You can see on a stable level. But of course, we would like to lease out even more, but you can also see that there is a healthy difference here between the occupancy rate and the completion rate. We continue to have a higher occupancy rate in our portfolio than the completion ratio. Going then into Investment Properties. I think it was a very stable quarter here, you can say that the revenue operating net is basically on right now, a very stable level and same level as we have seen in the last quarter. Also the occupancy rate is basically on the same level, 84% that we have seen during the last quarter. And there has been no revaluation in this portfolio and the yield for the portfolio is 4.7% as we have seen then for a couple of quarters. Going then into the total group statement. Here, you can see that the operating income from the businesses is actually increasing. It's up 18% if you go into local currencies, that will be 5% in Swedish krona. Looking into this cost, central costs here, you have a slight increase. It's also a slight lower contribution from our PPP business that's included in that. And it's also, I think, if you -- of course, here, we see something that sometimes that the estimations regarding our central items is not perfectly correct, but I think the rolling 12-month basis is what you should expect on an annual level when it comes to central. Then there will be some effects during the different quarters. And that is especially if you see a major impact from the PPP portfolio in that line. Otherwise, elimination, I mean they will also vary a little bit dependent on which project we are starting and selling because the majority there is, of course, the profit that is coming from Construction for our internal projects that is then eliminated on a group level, and that will then be reversed when we are selling those properties. Taxes, SEK 316 million, 24%, quite representative, I would say, both for the quarter and what we could expect going forward with the business mix that we have right now. Cash flow. We had an operating cash from the businesses of minus SEK 1.3 billion in the quarter. That is mainly because we have some development in the working capital, and we also have net investments in our Residential Development business that is impacting this. Looking into our free working capital within construction. And as you can see, it's also here on a very stable level. It's an underlying outflow of SEK 1.1 billion, but that is met by a positive currency effect of the same amount. So you can see it's the same as we had during the fourth quarter, which also takes us up when it comes to the relative number if we compare this with the revenue, it's up from 18.3% to 18.6%, which, of course, from a historical perspective is a very strong and high number. And then if we look into our group investments and divestments and capital employed, I said that we had some slight outflow from our investments in RD. If you also dig a little bit deeper into this, you see that we had actually a net divestment situation from CD. But you see that the capital employed is increasing somewhat, and that's because of currency effects. We had SEK 1.1 billion in, you can say, increased value in Swedish krona in the capital employed, and basically our U.S. properties because the currency, the relative strong currency or strong U.S. dollar during the first quarter. And our liquidity situation has continued strong, I would say, as you can see here, we have available funds of SEK 27.7 billion, and we can draw funds of above or around SEK 20 billion within 1 week, if that would be necessary. So then the financial position of the group is, as you can see here, on a high and stable level. You can see that our adjusted interest-bearing net receivable that we are following here is going down by around SEK 2 billion, and the reason for that is, first, we had, as I said, SEK 1.1 billion in cash outflow, but also then that we are increasing the number of restricted cash, and that's cash that we have in our joint ventures together with other partners. It's our cash, but we deduct that number from our adjusted net cash position. So it's actually that we are getting more and are reducing that in this measurement that we are following. So by that, Anders, I'll leave it to you to talk a little bit about markets. Anders Danielsson: Sure. Thank you. So I look at the market stream by stream, starting with Construction. We continue to have a strong civil market in the U.S. And we don't see any slowdown there, and it's very encouraging. And a stable market when it comes to the building sector. We are in the so-called social infrastructure, if you will, we're building schools, university, hospitals, airports and, of course, data centers. If I go to the European market, the civil market in Europe is stronger than building because we are more exposed to the residential market and the commercial market in Europe, but we do see a strong civil market and stable in most countries, driven by infrastructure investment in defense facilities and also the energy sector. So that's encouraged. And in the short term, we don't see any impact from the Middle East conflicts, but it's, of course, something we watch very carefully going forward. Residential Development, again, strong market and activity in Central Europe in the Nordics. The fundamentals are there. There is a demand and underlying need for apartments, and there have been some regulation easing up the mortgage and the amortization rules and so on. So that helps, of course. But what needs to happen, the consumer needs to get their confidence back. So we need to see some stability in the world and also that the economy is growing more than it's doing right now. Commercial Property Development. Transaction market is gradually improving, especially in Central Europe and in the Nordics. It's still slow. Investors are still hesitating in the U.S. market. And we can see that also the leasing activities are higher in Central Europe and Nordics. But we also see that our asset in the U.S. market is attractive. So we lease out there as well and have a decent health leasing ratio in the U.S. as well. Investment Properties. It's a polarized occupier market. You need to have Class A buildings in the right location, and that's exactly what we can offer in the market. So we have a stable leasing ratio, as you have seen, and we also have a stable performance. So that's about the market. So I just want -- before I leave it to -- hand over to Antonia to open up Q&A. So just to summarize, solid start of the year. Construction started in a very good way of good performance. Residential, splitted picture here, as we have been talking about. We started two projects and divested two projects in the Commercial Property Development. And again, Investment Properties, still stable result. And of course, we are maintaining our financially very strong position. With that, I hand over to Antonia. Antonia Junelind: Thank you very much. Okay. So it's time now for your questions. So first, to the online audience. If you have a question for us here, then just use the telephone conference number provided and follow the instructions by the operator, and we will be back to come back to you soon. But we will start with questions from our guests here in the studio. And I will ask you to limit your questions to maximum two at the beginning. And then if we have time for more, we will come back. And I can see that we have a question up front here. So can you please start by stating your name and organization. Stefan Erik Andersson: Stefan from Danske Bank. So the first question is on CD. You made two divestments there, and I was surprised about the realization profit there because looking at the bookers building, the biggest one. It seemed like you made a loss there of SEK 50 million, SEK 60 million or something like that given the press release when you started the project. So I'm just trying to understand, was it a dramatic profit on the elderly care center that you sold? Or is there some one-offs that I need to understand? Pontus Winqvist: You know that, Stefan, that we are not commenting project for project, but I think you are not really correct if you're assuming a big loss on that divestment. It wasn't. Stefan Erik Andersson: When you press released that you started it, you said SEK 450 million in investment and you sold at SEK 400 million. So that's why I... Pontus Winqvist: Okay. I don't know exactly what stand in the press release and the outcome. But what I know that it wasn't a big loss. So then things have happened, and that's quite common that the project changed a little bit after we have released the press release from the project start, it might be some different areas, et cetera. But you shouldn't have expected a big loss on that because it wasn't a loss at all. Stefan Erik Andersson: And the second question there is on IP. You had ambitions when you started that to grow that, and we haven't seen growth in a while. Could you maybe just elaborate a little bit on that if we should see something coming through? Or this is the level we should expect for some time now? Anders Danielsson: We're still aiming at the range between -- to build up a portfolio between SEK 12 billion to SEK 18 billion. And we definitely have the pipeline to do that in the three largest cities in Sweden. But the market has been tougher in the last three years. And so we haven't been able to start and complete projects in the recent times. So we have a very firm rules when we can have a transaction to Investment Properties, and that is when we have at least 80% should be completed first of all. And then at least 80% leased out and also at least 60% occupied. And then we take a decision. But I wouldn't be -- I'm not concerned that we don't have the pipeline. And we have an ongoing project and the pipeline today definitely support the upper part of that range. Antonia Junelind: Very good. So we got another question up front here. Albin Sandberg: Albin Sandberg from SB1 Markets. So looking at the drop in sales in the Construction division, you're referring to weather and also conversion from the backlog, as I understand it. But so does that mean that there should be a catch-up of the sales? I mean that sales is not lost forever? Or is that how we should view it, just postponed to coming quarters? Pontus Winqvist: Yes, you're right. We are referring to that. And I would say you can also see that we have announced quite a lot of orders. We have a positive book-to-build. So I think that should give some kind of indication that it's reasonable to believe that there will at least be some catch-up. Albin Sandberg: Great. And the other question is on just general capital allocation. Now obviously, you mentioned the FX effect, but also higher investments in RD. You still have your net cash position. Is your target to be a net investor for this year in your development stream, is that what you want to use your cash flow or anything? Anders Danielsson: We don't give any forecast. We have said that we have enough capital in the project development overall. And then, of course, it can be different between different quarters. And that's -- we, of course, we plan to release some capital from we complete the project. Antonia Junelind: Very good. So then I believe that we are ready to move over to questions from our online audience. And I will ask, please, if you can, operator, if you can introduce our first caller here. Operator: The first question is from Julia Sundvall, ABG Sundal Collier. Julia Sundvall: Yes. I would like to start asking a question about the Construction and the U.S. part. We said decline year-over-year. And you say it's on FX. Is there something you've seen the trends over there? Any like softening in the U.S. public infrastructure activity or any other trend? Or is it purely FX and timing? Anders Danielsson: Yes. We don't see any slowdown in the U.S. market. It's more on the order intake supports that talked about the recent week as well. But what we have seen in the first quarter is more the combination of the current backlog is take a bit -- a little bit -- some project take a little bit longer time to get rolling and get up to speed. So it's more that if you compare to previous quarter when you look at a single one. So I'm not concerned over the market per se. Julia Sundvall: And a follow-up, why does the projects take some longer time to start up? Anders Danielsson: It could be that we are in a design phase. We need to do some preparation, mobilization work before we can get going. So that's typical example why it can take a little bit longer time than other projects. Julia Sundvall: Okay perfect. And then a question on the Europe Construction. The margin jumped quite a bit from 0.6% to 1.4% in the quarter year-over-year. Is this a jump that we should extrapolate further on in the year? Or is it some one-off effect or what this year? Anders Danielsson: I think it should look more on a rolling 12 months basis when it comes to profitability. They can be quite a lot of differences between -- if you look year-over-year in the single quarter. So that, it's not a specific reason for that. Antonia Junelind: So moving on to the next person in line. Operator: Next question from Keivan Shirvanpour, SEB. Keivan Shirvanpour: I have a couple of questions. So the first question relates to the unrealized gain for the CD portfolio, completions versus ongoing projects. So you stated here the unrealized development gain of 23% for your ongoing projects, but the completed project again is down to 3%. Could you maybe elaborate on the difference between the ongoing projects and the completed project? And what does that imply for the margins in the completed units? Pontus Winqvist: Yes, I think it's quite -- you see the reason is that within our completed portfolio has during now a couple of quarters and years adjusted the value in order to reflect the market values of that portfolio. And it has, in some cases, as you have seen in last time in Q3 resulted in write-downs. And of course, if you are writing down a project or you have first adjusted down the surplus value, which means that from a portfolio -- total portfolio, it is a very little headroom between the market value and the book value. On the other hand, in the ongoing project portfolio, this is when we are starting up new projects, and we are not starting up projects with a 3% margin. So therefore, I mean we need to have the profitability that is good enough for us. And therefore, you see above 20% on the ongoing projects. That's, of course, based on the assumptions at this time. Things can change in both directions. Keivan Shirvanpour: Yes. Okay. And what makes you so comfortable in achieving above 20% gain on this new project? What is the difference other than that you have adjusted the development gains in the completed units? Pontus Winqvist: I mean it's from a project-by-project basis. And we have a view on how much it will cost to build. We have our land that we are putting into this. We have potential cost for financing. And we add all this in together, and then we get to compare it with the current market prices and then we get to a value. And that difference then should be strong enough in order for us to support a start of project. And that's always the case. We are not starting a project if that's not supporting our targets. Keivan Shirvanpour: Okay. And then I just have a final question. And that is -- what can you say about the potential divestment activity in the U.S. for the completed projects? Do you have any type of ongoing dialogues or such or do you believe that you would be able to make some divestments from that portfolio this year? Or given that you haven't made any divestment above SEK 1 billion in over four years now? Anders Danielsson: Yes. The market is -- the activity is slowly recovering, but what we see is more opportunistic investors. We see mostly fire -- so-called fire sale. We are not interested in that. We know the value of our assets. We have a positive cash flow. So we are -- we want to get the full value out of those. And we are, we have a good relationship with our investors that we have done business with for many years. But right now, they are waiting at the sideline, but they are ready -- they have the capital, they're ready to step in when the conditions are right for them. And when that happens, we have a really good asset off the market. But it's -- I wouldn't stand there and say when that will happen. Antonia Junelind: Okay. So moving over to Jefferies, right? Operator: The next question from Graham Hunt, Jefferies. Graham Hunt: I think just two questions from me. First one, if I could just go back to U.S. Construction. You've seen some really large orders signed in Q2. I'd just like to get your sense, Anders, as to whether that's kind of a sign of things to come? What you're seeing in the in the pipeline beyond what you've announced just kind of in the awarded but not contracted stage? And I think some of your peers have talked to a really positive outlook through Q1 from the federal side. I'm just wondering if you're seeing that as well? And if that's making you confident on your margin target? And then second question, if I could just ask a little bit. I don't know if you can give us any color on what you've seen through the first month of Q2 in resi and particularly, I suppose, Sweden, where the market has been weak for some time. But just if you have any color on recent trading and if you can give us any snippets, that will be super interesting. Anders Danielsson: I can start with the U.S. Pontus can give some color on the rest and more. The construction market in U.S., the civil market is really strong. You can see the order backlog is great. We have a book-to-build way above 100%. And to your point, we have announced a massive order last week here in the beginning of Q2. So we haven't changed our outlook. I've said the quarter -- many quarters now that we strongly believe in the U.S. infrastructure market, and we are well positioned there. We see a good pipeline. We are in the right location. We are strong on the coast where most of the investment takes place. And we are -- have a fantastic organization that are ready to go and take on those orders. And the performance is great. So I'm very confident in that operation going forward. And maybe some color on the resi market? Pontus Winqvist: Yes. Obviously, we are commenting the first quarter and not the second quarter right now, but what we are seeing and from a general market perspective, we have seen some positive. You probably have seen that as well when it comes to numbers from external parting that is looking into the residential market, especially in Sweden. I think that it looks a little bit more positive in Sweden compared to Norway and Finland, where we also are. But having said that, there is still a lot of uncertainty. I mean, there is a lot of people that has the potential or possibility to invest in new homes. But on the same time, there are many sitting on the sideline and waiting what will happen in the external economy. So I don't -- that might not give you any good answer, but we are following it closely. And yes. Antonia Junelind: Okay. Next one. Operator: Next question from Arnaud Lehmann, Bank of America. Arnaud Lehmann: First question is a follow-up on U.S. Construction. Indeed, you're doing well. I guess focusing a little bit more on data centers. I think you won a few data center projects in the last quarters. But maybe you haven't won as many as some of your U.S. Construction competitors. So do you think you're doing well enough in the data center space.And do you think there's potential to gain more new contract there going forward? And the second question, maybe a bit more for Pontus. On the net cash position, very comfortable at the end of Q1. What's the outlook there considering -- excluding any potential large divestments when you think about working capital and, let's say, day-to-day investments? Do you think the net cash will remain at similar levels going forward? Anders Danielsson: Arnaud, I will take the first question about the data center in U.S. We won close to SEK 7 billion as you can read in the report last quarter. We had a good order intake in the last quarter last year as well in Q4. And we have been building data center for decades in the U.S. So we have very good relationship with the large international players, repeat clients, and we are well positioned. And we also specialize the organization so we can work nationally in the U.S. here. So we do have the competency. So I'm confident in our position here. And I'm confident also that we can win more work within that segment as well going forward. So I hand over to Pontus. Pontus Winqvist: Regarding the cash situation, yes. First, we would like to have a strong financial position. And we have -- also you might have seen that we did quite big investment in Residential Development, one in the Nordics, one in Central Europe here during the first quarter that has consumed some cash. We also, which obviously is not a part of Q1, but we distributed out SEK 5.7 billion to the shareholders that's taking down the net cash at least for a while during the second quarter and moving on. So then hopefully, we will continue to have a business that is performing also from a cash perspective and that the construction business is delivering working capital. We have right now a rate of 18.6%. That's, of course, very high. But I think that we should be able to rely on the high level of working capital, maybe not as high as we are seeing right now. But there are still good cash flow in many of our projects. Was that an answer? Or do you have any follow-up? Arnaud Lehmann: No, it's great. Appreciate it. Antonia Junelind: Very good. So ready for the next question. Operator: Next question from Jonathan Coubrough, Deutsche Bank. Jonathan William Coubrough: Firstly, on U.S. Construction. You called out in Q1 the revenues were negatively impacted by uneven order book conversion. Has the same been to the margin in terms of the project mix going through the year? Could that have an impact? And can we extrapolate the margin improvement in Q1 in the U.S. through the rest of the year? Secondly, in terms of the Commercial Property business. I mean, interesting to note there was a minimal write-down in the quarter that despite rates having gone up. I wonder whether you think the disposal yields and values have changed at all since the start of the year? Anders Danielsson: I'll start with the U.S. Construction. The margin, we have seen very good performance last few years in the U.S. and I don't see any reason why we shouldn't -- don't perform going forward. But we don't give any forecast. And I think you should look more again, not a single quarter, look more on the rolling 12 months basis when you sort of look into our performance here. I hand over to Pontus. Pontus Winqvist: Regarding write-downs, I mean, we are following the values of our assets every quarter quite in detail. And we haven't seen any reasons do any adjustments of those values during this quarter. But of course, we are following that all the time, and you can never rule out what will happen in the future. And of course, we are impacted if the war is dragging out, especially if that impacts the interest rates and they will go up and stay on high levels. So it's the best I can say. Antonia Junelind: Very good. So to me, it looks like we've sort of reached the bottom of the list of people that wanted to ask questions here. So I'm going to ask the question now if there are -- if we have any sort of returning callers. And before we let them in. I'm going to turn to the audience here in the room and just double check if we got any more questions here. So we got one. Albin Sandberg: Albin Sandberg, SB1 Markets again. So a question on the Nordic residential margins. I mean, one way is the way you recognize the profit in your segment accounting. So I guess you need to start a little bit more projects to get some margins up. But I just wonder, is there any adverse impact from the sales you're carrying out at discounted prices or anything like that in Q1 because, obviously, the household home went down? And also whether your overall cost base, is that assuming the current production rate or do you see that you can ramp it up with the same cost base? Or do you need to adjust that cost base in order for the margins to, let's say, improve? Pontus Winqvist: First, when it comes to the cost base, yes, I think we have a cost base. I mean we have been working through the Nordic Residential Development business for quite a while. And I think we have a stable cost base, and there is room for expansion within that current cost base. The other question when it comes to the relative low gross margin that we have had in our Nordic projects. It's, of course, that we have been trying to sell out from our completed project portfolio in RD. As you saw, I mean, we have also sold out more from the Nordic business. And with that comes, of course, some kind of marketing efforts that is impacting the gross margin, yes. Antonia Junelind: Very good. So turning one last time to the online audience. And operator, do we have anyone else waiting in the line now? Operator: At the moment, there are no more questions from the phone. Antonia Junelind: Very good. So that means that we have answered all the questions that the audience had for us here today. Thank you, Anders and Pontus, for all of your answers and presentation. And thank you to everyone that joined us here in the studio for the first quarter report presentation. And of course, thank you for everyone watching online. A recorded version of this will be provided and ready on our web page later today. And we will be back with more comments on the second quarter report in July. Thank you very much.
Antonia Junelind: Good morning, and a warm welcome to the presentation of Skanska's First Quarter Report for 2026. I'm Antonia Junelind, Senior Vice President for Skanska's Investor Relations. And here in the studio, I've got our President and CEO, Anders Danielsson; and Group EVP and CFO, Pontus Winqvist. They will take you through the first quarter results in just a minute, and they will also provide you with a general business update and the market outlook. And after the initial presentation, we will move over to questions. We're expecting questions from our invited guests. So both from the online audience. If you do have a question, please use the telephone conference number provided. And if we got questions in the room, we will also accept them, of course. And I would ask you to start by stating your name and organization. But we will get back with more information on that. So now we're moving over to a comment on the first quarter performance, and Anders. On the first page here, we see a beautiful bridge. And this is an order that we booked in the first quarter, Vincent Thomas Bridge. Anders Danielsson: Yes, indeed. You can see it on the picture here to the right. And it's a proof of the very solid market we see now, especially in the U.S. when it comes to the traditional infrastructure. And we are well positioned to take advantage of that market. And I'm sure you have noticed the press releases we have sent out the last week, one of them a bridge replacement in Boston, which was booked for SEK 9.3 billion. So solid market indeed. Antonia Junelind: Perfect. Okay. How about Q1 then? Anders Danielsson: Yes. Let's move into the first quarter. And we have had a solid start of the year, very encouraging. Construction started the year on a good performance, and we had come back to that. But good margin in the first quarter. Residential Development, with the strong performance in Central Europe, a bit softer still in the Nordic operation. We started two projects divested to, it was in Commercial Property Development. Investment Property Portfolio was delivered very stable margin and good performance there. And the operating margin in Construction, 3% in the isolated quarter. You can see it's above the last year comparison. And if you look at a rolling 12-month basis, we had 4.2%, really encouraging and also above our recently increased target. Return on capital employed in Project Development ended up at 2.1% on a rolling 12, return on capital employed in Investment Property, decent, 4.7%, rolling 12 same as the last time. And the return on equity, 10.4%. So we have also a robust financial position. So we are -- and that's very important for us because that gives us a competitive advantage where we can start a project when we think it's right. And we managed to reduce the carbon emission with 66% so far compared to the baseline year in 2015. So I will go into each and every stream now. I will start with Construction. Revenue here is slightly decreased compared to last year. We'll go into the details. Order bookings is good. You can see we have a book-to-build of 107% on a rolling 12-month basis, which means we're winning more order than we produce, which is important for the future. So if you look at the backlog, order backlog in Construction, it's on a record high level still. So historically, very, very good position here. And operating income, SEK 1.1 billion, which represent again 3.0% operating margin. So healthier result in a seasonally slower first quarter, and very encouraging to see that all geographies are performing. That's important as well. So the order intake was good, then backlog remains on a high level. Let's go into Residential Development. Here, we have pretty much the same revenue as last year. It's still slow in the Nordic market, but very good performance in the Central European market. We're selling a lot of apartments, and we have a really good profitability from those. So that's very, very encouraging for the future. We started one project in Central Europe and one in Finland, a smaller one. And we also have a strategic land acquisition, both in Sweden and in Poland. And that's also depending on we have a really good financial position to be able to do that. We'll walk into Commercial Property Development. They had operating income in the quarter, SEK 71 million. Also a gain on sale of SEK 174 million, which represents a return on the capital employed of 1.4%. We have 17 ongoing projects, which represent above SEK 15 billion (sic) [ SEK 15.4 billion ] upon completion in total investment. We have 18 completed projects right now, there is -- the value of those is SEK 18.4 billion in total investment, and decent leasing ratio in those completed projects of 72%, which means that we get some positive cash flow from those assets. Two divestments in the first quarter, and we also started two new projects and several project was handed over to external buyers during the quarter. And we have a good average leasing rates both in the ongoing and in the completed, as I said earlier. Investment Properties. Operating income, SEK 81 million, the economic occupancy rate is stable, 84% right now. Pretty much the same level as last quarter and also compared to last year. And the portfolio consists of seven high-quality office building properties in the three larger cities in Sweden, which represent a value of SEK 8.3 billion. So a solid performance in the first quarter. I will now move back into the Construction stream again and look at the order bookings. Here, you can see the order backlog over time on the blue bar. And as I said earlier, we are on a record high level, and you can also see it here in this slide. Here, you can see the -- also the rolling 12 months basis, the lines here on book-to-build revenue, order bookings and order bookings per quarter. And I can say, as I said, record high level. And when you look at the first quarter, we were able to book data center and semiconductor facility of SEK 6.9 billion in the first quarter. So it's a strong market and contribution here. So when I look into the different geographies, we can see the -- we are on a very high level when it comes to book-to-build, 107%, and we have a good duration. We have 19 months of production, and the tendencies here that the duration of the project is getting more extended, it takes longer time. And so we have a good position here. And basically, in all geographies has contributed to this order backlog. Which is good. With that, I hand over to Pontus. Pontus Winqvist: Thank you, Anders. Then going a little bit deeper into the numbers. And you heard from Anders regarding the order situation. And you can also see that we have a slightly decline in revenue during the first quarter. It's also the [indiscernible] Revenue. and it's also so that we -- in some cases, especially in U.S., we have an uneven profit or revenue recognition of the backlog cause some projects are moving faster through revenue, and that could be a little bit different between the different quarters. And it was quite significant, such an effect in the first quarter. If you then go down and looking into the operating income, it's basically in line with the level that we saw the same period last year, but it is an increase if we go to the local currency. Actually, the operating profit increased by 5%. So then going more into the different geographies within Construction. There, you can see that we had improvement or same margin level that we had last year, and we had an average margin of 3%, which I must say, is quite strong for the first quarter with normal winter and seasonal effect. But in this quarter, I said it was a little bit more than normal. You can also see there that the operating income is on a healthy level on all units. Going then into RD. You can see that the revenue here is on a similar level as we saw last year, and also that the margin is increasing. You heard from Anders that our European Residential Development business is performing on a high level while there are some challenges, I would say, in the Nordic businesses. We keep the selling and administrative costs on the same level as we did last year. And you can also see that, that is impacting an increase in our gross margin. Looking then into the different geographies. And here, you can see that we had a negative result in the first quarter in the Nordics, while the Central European business again is contributing with a strong margin above 20% and the result then of SEK 138 million. So this is, of course, I would say, probably stronger than what you can expect going forward from that business. But on the other hand, we should expect better development from our Nordic operations. If we then look into the number of sold and started units. You can see that we started 212 units, and the absolute majority, 176 of those was started in the Central European units. We had a smaller project then that was started in Finland. And if you look into the number of sold, we are on basically the same levels that we have been last year, which you also can see on the rolling 12-month basis that we are hovering around 1,500 units for the moment when it comes both to started and sold units. Then looking into what we have in production, you can say that we have around 3,000 units in production, also this stable level. You can also see that it's slightly improvement of the number of sold and a slight decrease on the number of unsold completed homes. Worth to mention there is that we see that we are selling more of these uncompleted homes in the Nordic, which is good because they are the low margin units that we have, and it's actually increasing somewhat of the unsold units within the Central European business, and that is good. Of course, we have a very strong market there. So there, it's more a potential to have units to sell, which haven't really been the case in the Nordics. Going then into CD with a revenue of SEK 1.2 billion. We divested two projects during the first quarter. And you can see there the gains coming out from this business or from the gains, SEK 174 million. We also have an impact there from previously divested projects that we have sold, but they are not really completed. So then we are recognizing profit gradually when we are, I should say, reducing the construction risk from a development perspective on that divestment. So that, having said that, we have said that a couple of times before, but sometimes that is a part of the business that we are releasing gradually profits from divested projects that still are under some kind of construction. There have also been a small land divestment included in that number. Looking into this slide, the unrealized gain from our Commercial Development business. You can see it's very stable, not very much has happened since the first quarter. What you can see and what I also think is important to highlight is that the absolute majority of the unrealized gain is from the ongoing projects, and it's quite little of unrealized gain that we have in our completed portfolio within our CD business. This is normally a popular slide where you can see our profile when to complete and what is completed, and the dots there that you see, they are representing the occupancy rate in those projects. So you see that we have completed -- a completed portfolio within CD of [ SEK 17.6 billion ] or something with an occupancy rate there of 71%. And then you can see that we will complete here during Q2, nothing in Q3 and so on with the different leasing ratios. And if you're following this and comparing this with previous slide, you can also see that there are slight improvements in some of those future completing projects. Leasing during the quarter was 18,000 square meters, of which, three came from -- 3,000 came from rental residential. You can see on a stable level. But of course, we would like to lease out even more, but you can also see that there is a healthy difference here between the occupancy rate and the completion rate. We continue to have a higher occupancy rate in our portfolio than the completion ratio. Going then into Investment Properties. I think it was a very stable quarter here, you can say that the revenue operating net is basically on right now, a very stable level and same level as we have seen in the last quarter. Also the occupancy rate is basically on the same level, 84% that we have seen during the last quarter. And there has been no revaluation in this portfolio and the yield for the portfolio is 4.7% as we have seen then for a couple of quarters. Going then into the total group statement. Here, you can see that the operating income from the businesses is actually increasing. It's up 18% if you go into local currencies, that will be 5% in Swedish krona. Looking into this cost, central costs here, you have a slight increase. It's also a slight lower contribution from our PPP business that's included in that. And it's also, I think, if you -- of course, here, we see something that sometimes that the estimations regarding our central items is not perfectly correct, but I think the rolling 12-month basis is what you should expect on an annual level when it comes to central. Then there will be some effects during the different quarters. And that is especially if you see a major impact from the PPP portfolio in that line. Otherwise, elimination, I mean they will also vary a little bit dependent on which project we are starting and selling because the majority there is, of course, the profit that is coming from Construction for our internal projects that is then eliminated on a group level, and that will then be reversed when we are selling those properties. Taxes, SEK 316 million, 24%, quite representative, I would say, both for the quarter and what we could expect going forward with the business mix that we have right now. Cash flow. We had an operating cash from the businesses of minus SEK 1.3 billion in the quarter. That is mainly because we have some development in the working capital, and we also have net investments in our Residential Development business that is impacting this. Looking into our free working capital within construction. And as you can see, it's also here on a very stable level. It's an underlying outflow of SEK 1.1 billion, but that is met by a positive currency effect of the same amount. So you can see it's the same as we had during the fourth quarter, which also takes us up when it comes to the relative number if we compare this with the revenue, it's up from 18.3% to 18.6%, which, of course, from a historical perspective is a very strong and high number. And then if we look into our group investments and divestments and capital employed, I said that we had some slight outflow from our investments in RD. If you also dig a little bit deeper into this, you see that we had actually a net divestment situation from CD. But you see that the capital employed is increasing somewhat, and that's because of currency effects. We had SEK 1.1 billion in, you can say, increased value in Swedish krona in the capital employed, and basically our U.S. properties because the currency, the relative strong currency or strong U.S. dollar during the first quarter. And our liquidity situation has continued strong, I would say, as you can see here, we have available funds of SEK 27.7 billion, and we can draw funds of above or around SEK 20 billion within 1 week, if that would be necessary. So then the financial position of the group is, as you can see here, on a high and stable level. You can see that our adjusted interest-bearing net receivable that we are following here is going down by around SEK 2 billion, and the reason for that is, first, we had, as I said, SEK 1.1 billion in cash outflow, but also then that we are increasing the number of restricted cash, and that's cash that we have in our joint ventures together with other partners. It's our cash, but we deduct that number from our adjusted net cash position. So it's actually that we are getting more and are reducing that in this measurement that we are following. So by that, Anders, I'll leave it to you to talk a little bit about markets. Anders Danielsson: Sure. Thank you. So I look at the market stream by stream, starting with Construction. We continue to have a strong civil market in the U.S. And we don't see any slowdown there, and it's very encouraging. And a stable market when it comes to the building sector. We are in the so-called social infrastructure, if you will, we're building schools, university, hospitals, airports and, of course, data centers. If I go to the European market, the civil market in Europe is stronger than building because we are more exposed to the residential market and the commercial market in Europe, but we do see a strong civil market and stable in most countries, driven by infrastructure investment in defense facilities and also the energy sector. So that's encouraged. And in the short term, we don't see any impact from the Middle East conflicts, but it's, of course, something we watch very carefully going forward. Residential Development, again, strong market and activity in Central Europe in the Nordics. The fundamentals are there. There is a demand and underlying need for apartments, and there have been some regulation easing up the mortgage and the amortization rules and so on. So that helps, of course. But what needs to happen, the consumer needs to get their confidence back. So we need to see some stability in the world and also that the economy is growing more than it's doing right now. Commercial Property Development. Transaction market is gradually improving, especially in Central Europe and in the Nordics. It's still slow. Investors are still hesitating in the U.S. market. And we can see that also the leasing activities are higher in Central Europe and Nordics. But we also see that our asset in the U.S. market is attractive. So we lease out there as well and have a decent health leasing ratio in the U.S. as well. Investment Properties. It's a polarized occupier market. You need to have Class A buildings in the right location, and that's exactly what we can offer in the market. So we have a stable leasing ratio, as you have seen, and we also have a stable performance. So that's about the market. So I just want -- before I leave it to -- hand over to Antonia to open up Q&A. So just to summarize, solid start of the year. Construction started in a very good way of good performance. Residential, splitted picture here, as we have been talking about. We started two projects and divested two projects in the Commercial Property Development. And again, Investment Properties, still stable result. And of course, we are maintaining our financially very strong position. With that, I hand over to Antonia. Antonia Junelind: Thank you very much. Okay. So it's time now for your questions. So first, to the online audience. If you have a question for us here, then just use the telephone conference number provided and follow the instructions by the operator, and we will be back to come back to you soon. But we will start with questions from our guests here in the studio. And I will ask you to limit your questions to maximum two at the beginning. And then if we have time for more, we will come back. And I can see that we have a question up front here. So can you please start by stating your name and organization. Stefan Erik Andersson: Stefan from Danske Bank. So the first question is on CD. You made two divestments there, and I was surprised about the realization profit there because looking at the bookers building, the biggest one. It seemed like you made a loss there of SEK 50 million, SEK 60 million or something like that given the press release when you started the project. So I'm just trying to understand, was it a dramatic profit on the elderly care center that you sold? Or is there some one-offs that I need to understand? Pontus Winqvist: You know that, Stefan, that we are not commenting project for project, but I think you are not really correct if you're assuming a big loss on that divestment. It wasn't. Stefan Erik Andersson: When you press released that you started it, you said SEK 450 million in investment and you sold at SEK 400 million. So that's why I... Pontus Winqvist: Okay. I don't know exactly what stand in the press release and the outcome. But what I know that it wasn't a big loss. So then things have happened, and that's quite common that the project changed a little bit after we have released the press release from the project start, it might be some different areas, et cetera. But you shouldn't have expected a big loss on that because it wasn't a loss at all. Stefan Erik Andersson: And the second question there is on IP. You had ambitions when you started that to grow that, and we haven't seen growth in a while. Could you maybe just elaborate a little bit on that if we should see something coming through? Or this is the level we should expect for some time now? Anders Danielsson: We're still aiming at the range between -- to build up a portfolio between SEK 12 billion to SEK 18 billion. And we definitely have the pipeline to do that in the three largest cities in Sweden. But the market has been tougher in the last three years. And so we haven't been able to start and complete projects in the recent times. So we have a very firm rules when we can have a transaction to Investment Properties, and that is when we have at least 80% should be completed first of all. And then at least 80% leased out and also at least 60% occupied. And then we take a decision. But I wouldn't be -- I'm not concerned that we don't have the pipeline. And we have an ongoing project and the pipeline today definitely support the upper part of that range. Antonia Junelind: Very good. So we got another question up front here. Albin Sandberg: Albin Sandberg from SB1 Markets. So looking at the drop in sales in the Construction division, you're referring to weather and also conversion from the backlog, as I understand it. But so does that mean that there should be a catch-up of the sales? I mean that sales is not lost forever? Or is that how we should view it, just postponed to coming quarters? Pontus Winqvist: Yes, you're right. We are referring to that. And I would say you can also see that we have announced quite a lot of orders. We have a positive book-to-build. So I think that should give some kind of indication that it's reasonable to believe that there will at least be some catch-up. Albin Sandberg: Great. And the other question is on just general capital allocation. Now obviously, you mentioned the FX effect, but also higher investments in RD. You still have your net cash position. Is your target to be a net investor for this year in your development stream, is that what you want to use your cash flow or anything? Anders Danielsson: We don't give any forecast. We have said that we have enough capital in the project development overall. And then, of course, it can be different between different quarters. And that's -- we, of course, we plan to release some capital from we complete the project. Antonia Junelind: Very good. So then I believe that we are ready to move over to questions from our online audience. And I will ask, please, if you can, operator, if you can introduce our first caller here. Operator: The first question is from Julia Sundvall, ABG Sundal Collier. Julia Sundvall: Yes. I would like to start asking a question about the Construction and the U.S. part. We said decline year-over-year. And you say it's on FX. Is there something you've seen the trends over there? Any like softening in the U.S. public infrastructure activity or any other trend? Or is it purely FX and timing? Anders Danielsson: Yes. We don't see any slowdown in the U.S. market. It's more on the order intake supports that talked about the recent week as well. But what we have seen in the first quarter is more the combination of the current backlog is take a bit -- a little bit -- some project take a little bit longer time to get rolling and get up to speed. So it's more that if you compare to previous quarter when you look at a single one. So I'm not concerned over the market per se. Julia Sundvall: And a follow-up, why does the projects take some longer time to start up? Anders Danielsson: It could be that we are in a design phase. We need to do some preparation, mobilization work before we can get going. So that's typical example why it can take a little bit longer time than other projects. Julia Sundvall: Okay perfect. And then a question on the Europe Construction. The margin jumped quite a bit from 0.6% to 1.4% in the quarter year-over-year. Is this a jump that we should extrapolate further on in the year? Or is it some one-off effect or what this year? Anders Danielsson: I think it should look more on a rolling 12 months basis when it comes to profitability. They can be quite a lot of differences between -- if you look year-over-year in the single quarter. So that, it's not a specific reason for that. Antonia Junelind: So moving on to the next person in line. Operator: Next question from Keivan Shirvanpour, SEB. Keivan Shirvanpour: I have a couple of questions. So the first question relates to the unrealized gain for the CD portfolio, completions versus ongoing projects. So you stated here the unrealized development gain of 23% for your ongoing projects, but the completed project again is down to 3%. Could you maybe elaborate on the difference between the ongoing projects and the completed project? And what does that imply for the margins in the completed units? Pontus Winqvist: Yes, I think it's quite -- you see the reason is that within our completed portfolio has during now a couple of quarters and years adjusted the value in order to reflect the market values of that portfolio. And it has, in some cases, as you have seen in last time in Q3 resulted in write-downs. And of course, if you are writing down a project or you have first adjusted down the surplus value, which means that from a portfolio -- total portfolio, it is a very little headroom between the market value and the book value. On the other hand, in the ongoing project portfolio, this is when we are starting up new projects, and we are not starting up projects with a 3% margin. So therefore, I mean we need to have the profitability that is good enough for us. And therefore, you see above 20% on the ongoing projects. That's, of course, based on the assumptions at this time. Things can change in both directions. Keivan Shirvanpour: Yes. Okay. And what makes you so comfortable in achieving above 20% gain on this new project? What is the difference other than that you have adjusted the development gains in the completed units? Pontus Winqvist: I mean it's from a project-by-project basis. And we have a view on how much it will cost to build. We have our land that we are putting into this. We have potential cost for financing. And we add all this in together, and then we get to compare it with the current market prices and then we get to a value. And that difference then should be strong enough in order for us to support a start of project. And that's always the case. We are not starting a project if that's not supporting our targets. Keivan Shirvanpour: Okay. And then I just have a final question. And that is -- what can you say about the potential divestment activity in the U.S. for the completed projects? Do you have any type of ongoing dialogues or such or do you believe that you would be able to make some divestments from that portfolio this year? Or given that you haven't made any divestment above SEK 1 billion in over four years now? Anders Danielsson: Yes. The market is -- the activity is slowly recovering, but what we see is more opportunistic investors. We see mostly fire -- so-called fire sale. We are not interested in that. We know the value of our assets. We have a positive cash flow. So we are -- we want to get the full value out of those. And we are, we have a good relationship with our investors that we have done business with for many years. But right now, they are waiting at the sideline, but they are ready -- they have the capital, they're ready to step in when the conditions are right for them. And when that happens, we have a really good asset off the market. But it's -- I wouldn't stand there and say when that will happen. Antonia Junelind: Okay. So moving over to Jefferies, right? Operator: The next question from Graham Hunt, Jefferies. Graham Hunt: I think just two questions from me. First one, if I could just go back to U.S. Construction. You've seen some really large orders signed in Q2. I'd just like to get your sense, Anders, as to whether that's kind of a sign of things to come? What you're seeing in the in the pipeline beyond what you've announced just kind of in the awarded but not contracted stage? And I think some of your peers have talked to a really positive outlook through Q1 from the federal side. I'm just wondering if you're seeing that as well? And if that's making you confident on your margin target? And then second question, if I could just ask a little bit. I don't know if you can give us any color on what you've seen through the first month of Q2 in resi and particularly, I suppose, Sweden, where the market has been weak for some time. But just if you have any color on recent trading and if you can give us any snippets, that will be super interesting. Anders Danielsson: I can start with the U.S. Pontus can give some color on the rest and more. The construction market in U.S., the civil market is really strong. You can see the order backlog is great. We have a book-to-build way above 100%. And to your point, we have announced a massive order last week here in the beginning of Q2. So we haven't changed our outlook. I've said the quarter -- many quarters now that we strongly believe in the U.S. infrastructure market, and we are well positioned there. We see a good pipeline. We are in the right location. We are strong on the coast where most of the investment takes place. And we are -- have a fantastic organization that are ready to go and take on those orders. And the performance is great. So I'm very confident in that operation going forward. And maybe some color on the resi market? Pontus Winqvist: Yes. Obviously, we are commenting the first quarter and not the second quarter right now, but what we are seeing and from a general market perspective, we have seen some positive. You probably have seen that as well when it comes to numbers from external parting that is looking into the residential market, especially in Sweden. I think that it looks a little bit more positive in Sweden compared to Norway and Finland, where we also are. But having said that, there is still a lot of uncertainty. I mean, there is a lot of people that has the potential or possibility to invest in new homes. But on the same time, there are many sitting on the sideline and waiting what will happen in the external economy. So I don't -- that might not give you any good answer, but we are following it closely. And yes. Antonia Junelind: Okay. Next one. Operator: Next question from Arnaud Lehmann, Bank of America. Arnaud Lehmann: First question is a follow-up on U.S. Construction. Indeed, you're doing well. I guess focusing a little bit more on data centers. I think you won a few data center projects in the last quarters. But maybe you haven't won as many as some of your U.S. Construction competitors. So do you think you're doing well enough in the data center space.And do you think there's potential to gain more new contract there going forward? And the second question, maybe a bit more for Pontus. On the net cash position, very comfortable at the end of Q1. What's the outlook there considering -- excluding any potential large divestments when you think about working capital and, let's say, day-to-day investments? Do you think the net cash will remain at similar levels going forward? Anders Danielsson: Arnaud, I will take the first question about the data center in U.S. We won close to SEK 7 billion as you can read in the report last quarter. We had a good order intake in the last quarter last year as well in Q4. And we have been building data center for decades in the U.S. So we have very good relationship with the large international players, repeat clients, and we are well positioned. And we also specialize the organization so we can work nationally in the U.S. here. So we do have the competency. So I'm confident in our position here. And I'm confident also that we can win more work within that segment as well going forward. So I hand over to Pontus. Pontus Winqvist: Regarding the cash situation, yes. First, we would like to have a strong financial position. And we have -- also you might have seen that we did quite big investment in Residential Development, one in the Nordics, one in Central Europe here during the first quarter that has consumed some cash. We also, which obviously is not a part of Q1, but we distributed out SEK 5.7 billion to the shareholders that's taking down the net cash at least for a while during the second quarter and moving on. So then hopefully, we will continue to have a business that is performing also from a cash perspective and that the construction business is delivering working capital. We have right now a rate of 18.6%. That's, of course, very high. But I think that we should be able to rely on the high level of working capital, maybe not as high as we are seeing right now. But there are still good cash flow in many of our projects. Was that an answer? Or do you have any follow-up? Arnaud Lehmann: No, it's great. Appreciate it. Antonia Junelind: Very good. So ready for the next question. Operator: Next question from Jonathan Coubrough, Deutsche Bank. Jonathan William Coubrough: Firstly, on U.S. Construction. You called out in Q1 the revenues were negatively impacted by uneven order book conversion. Has the same been to the margin in terms of the project mix going through the year? Could that have an impact? And can we extrapolate the margin improvement in Q1 in the U.S. through the rest of the year? Secondly, in terms of the Commercial Property business. I mean, interesting to note there was a minimal write-down in the quarter that despite rates having gone up. I wonder whether you think the disposal yields and values have changed at all since the start of the year? Anders Danielsson: I'll start with the U.S. Construction. The margin, we have seen very good performance last few years in the U.S. and I don't see any reason why we shouldn't -- don't perform going forward. But we don't give any forecast. And I think you should look more again, not a single quarter, look more on the rolling 12 months basis when you sort of look into our performance here. I hand over to Pontus. Pontus Winqvist: Regarding write-downs, I mean, we are following the values of our assets every quarter quite in detail. And we haven't seen any reasons do any adjustments of those values during this quarter. But of course, we are following that all the time, and you can never rule out what will happen in the future. And of course, we are impacted if the war is dragging out, especially if that impacts the interest rates and they will go up and stay on high levels. So it's the best I can say. Antonia Junelind: Very good. So to me, it looks like we've sort of reached the bottom of the list of people that wanted to ask questions here. So I'm going to ask the question now if there are -- if we have any sort of returning callers. And before we let them in. I'm going to turn to the audience here in the room and just double check if we got any more questions here. So we got one. Albin Sandberg: Albin Sandberg, SB1 Markets again. So a question on the Nordic residential margins. I mean, one way is the way you recognize the profit in your segment accounting. So I guess you need to start a little bit more projects to get some margins up. But I just wonder, is there any adverse impact from the sales you're carrying out at discounted prices or anything like that in Q1 because, obviously, the household home went down? And also whether your overall cost base, is that assuming the current production rate or do you see that you can ramp it up with the same cost base? Or do you need to adjust that cost base in order for the margins to, let's say, improve? Pontus Winqvist: First, when it comes to the cost base, yes, I think we have a cost base. I mean we have been working through the Nordic Residential Development business for quite a while. And I think we have a stable cost base, and there is room for expansion within that current cost base. The other question when it comes to the relative low gross margin that we have had in our Nordic projects. It's, of course, that we have been trying to sell out from our completed project portfolio in RD. As you saw, I mean, we have also sold out more from the Nordic business. And with that comes, of course, some kind of marketing efforts that is impacting the gross margin, yes. Antonia Junelind: Very good. So turning one last time to the online audience. And operator, do we have anyone else waiting in the line now? Operator: At the moment, there are no more questions from the phone. Antonia Junelind: Very good. So that means that we have answered all the questions that the audience had for us here today. Thank you, Anders and Pontus, for all of your answers and presentation. And thank you to everyone that joined us here in the studio for the first quarter report presentation. And of course, thank you for everyone watching online. A recorded version of this will be provided and ready on our web page later today. And we will be back with more comments on the second quarter report in July. Thank you very much.
Operator: Thank you for standing by, and welcome to Napatech's First Quarter 2026 Interim Management Statement. [Operator Instructions]. And finally, I would like to advise all participants that this call is being recorded. I'd now like to welcome Klaus Skorrup, CFO, to begin the conference. Klaus, over to you. Klaus Skovrup: Good morning. I'm Klaus Skovrup, CFO of Napatech. I am pleased to welcome you all to Napatech's presentation for the first quarter of 2026. Joining me today is our CEO, Kartik Srinivasan. Our first quarter 2026 report was released earlier this morning on the Oslo Stock Exchange and is also available on the Investor Relations section of the Napatech website. For your information, a recording of this webcast will be available later today. There will be a question-and-answer session following the presentation Please note that this presentation contains forward-looking statements that are subject to risks and uncertainties. Our actual results may differ from those discussed in forward-looking statements. For further information on risk factors, please see company announcement and the slides prepared for this presentation. With that, over to you, Kartik. Kartik Srinivasan: Thank you, Klaus, and hello, everyone. Let me start with a brief summary of the quarter. We saw continued strengthening in our financial performance and early signs of demand recovery in the core infrastructure market, supported by disciplined execution across the business. At the same time, we are seeing accelerating momentum in our design win pipeline across both core and AI infrastructures. Importantly, this pipeline is increasingly progressing towards production, which we expect to translate into revenue over time. Finally, our product positioning remains highly differentiated. As AI workloads scale, the network has emerged as a critical bottleneck and our deterministic programmable architecture is well aligned with these evolving requirements. Overall, the quarter reflects improving fundamentals, building momentum and a clear positioning for the next phase of growth. Turning into our financial performance for the quarter. We delivered revenue of $5.7 million, representing 69% year-over-year growth, primarily driven by our improved demand in our core infrastructure business. Gross margins remained strong at 70%, reflecting a favorable product mix and continued discipline in execution. We're also seeing improvement in revenue trends, indicating early signs of recovery in our core infrastructure markets. With all this, while our guidance for 2026 remains unchanged, we continue to focus on consistent execution and converting pipeline into revenue over the course of the year. Turning to business momentum. On the core infrastructure side, we saw solid activity in the quarter with 5 new design wins, continued pipeline expansion across verticals and new customer engagements. We also converted a key design win in the financial infrastructure. This is a production-oriented engagement with a multiyear opportunity. And importantly, we view this as a repeatable use case across similar customers. I will go into a bit more detail on this space in my next slide. On the AI and infrastructure side, we continue to make steady and tangible progress. Our technical deliverables are on track and validation and testing activities are progressing as planned. At the same time, we are seeing continued collaboration as we advance overall solution readiness towards production. In parallel, our engagement with a Tier 1 server OEM continues to progress with use cases defined, product deliverables aligned and commercial discussions underway. Overall, we are seeing strong execution in core infrastructure alongside meaningful progress in AI as both areas contribute meaningfully to our growth trajectory. I'll now take a moment to highlight one of our core infrastructure verticals, financial trading networks. These are mission-critical, latency-sensitive environments where performance is defined not just by speed, but by consistency and determinism. Typical applications in this space include real-time market data capture and normalization, feed handling, trading signal generation and order execution, where even microseconds of variation can impact outcomes. Our customers in this segment include global banks, hedge funds, proprietary trading firms and exchanges, all operating highly performance-sensitive infrastructure. In these environments, the network sits directly in the critical path and increasingly becomes the limiting factor for performance. This is where Napatech's architecture is well aligned, enabling deterministic ultra-low latency processing with high reliability. Importantly, this is a repeatable use case with deployments across leading financial institutions and clear expansion potential over time. Let me now turn to AI infrastructure and how Napatech's role in this space is becoming increasingly critical. As AI workloads scale, performance is increasingly constrained by the network rather than compute. Moving data efficiently between AI compute, memory and storage has become a critical challenge. Importantly, we view this not as a linear or evolutionary shift, but as a more fundamental change in how compute, networking and memory interact, requiring a different architecture to scale efficiently, both from a performance and energy standpoint. Traditional networking introduces variability, congestion and CPU overhead, which limits overall system efficiency and utilization. What we enable is a fundamentally different approach, deterministic programmable networking that sits directly in the data path. This allows for consistent low latency movement, improved utilization of compute resources and more efficient scaling of AI workloads. In practical terms, this applies across applications such as distributed inference pipelines, data preprocessing and storage access used by hyperscalers and enterprise AI deployments. Overall, we see this as a structural shift in the market where networking becomes a key lever for performance and efficiency and where our architecture is well aligned. Before I hand it over, just to summarize, we are seeing strengthening financial performance, solid momentum in our core infrastructure business and continued progress in AI as we position for the next phase of growth. With that, I'll turn it over to Klaus to walk through the financials in more detail and provide an update on our outlook. Klaus Skovrup: Thank you, Kartik. We entered the year with a strong revenue in Q1 of $5.7 million, up 69% compared to Q1 last year. And as Kartik mentioned, the performance reflects continued customer engagement across our core infrastructure segment solutions. Our gross margin in Q1 was 70%, in line with last year. Our staff costs and other external costs in Q1 amounted to DKK 44.5 million, down 9% compared to Q1 2025, mainly due to reduced cost of subcontractors and personnel during 2025 to balance cost to the revenue. In Q1, we capitalized DKK 810,000 compared to DKK 3.1 million in Q1 2025. You can also read that our EBITDA in Q1 2026 amounted to a negative amount of DKK 18 million, which is an improvement of DKK 11 million compared to Q1 last year. Free cash flow in Q1 was negative of DKK 5.8 million following the negative EBITDA, which was partly covered by an improvement in our working capital. We still have more than DKK 120 million in available cash. While we still have focus on reducing inventory, we are increasingly also preordering to make sure we can meet customer demand, especially now where we do see increased lead times for range of components. The positive development in receivables was driven by customers paying their invoices from December 2025 during Q1 '26. Net working capital at the end of Q1 was DKK 73 million, a reduction of DKK 8 million compared to Q4 '25. Net cash flow from financing activities for Q1 was negative DKK 23 million as we did not draw on our credit facilities by the end of Q1. We continue to manage the business with a strong focus on cost discipline and cash preservation. Our guidance for the full year 2026 is unchanged compared to our latest reporting, as Kartik mentioned. So here, we are guiding units to be sold to be expected between 8,700 and 10,700. We expect a revenue between $32 million and $38 million, which corresponds to around DKK 200 million to DKK 240 million, ending in the middle of the range would be equal to a growth of more than 50% compared to 2025. Our gross margin interval is expected to end between 60% and 70%, and we expect staff expenses and other external costs to end in the range of DKK 170 million to DKK 180 million. Staff costs transferred to capitalized development costs are expected to be DKK 5 million to DKK 8 million in 2026. As we wrap up today's presentation, we would like to invite you to visit Napatech at one of these upcoming events. Our full year event plan is shown online at the link provided. And if you happen to be in one of these great cities during the coming period, we would love to meet you in person. With that, we are now ready for the Q&A. Operator, we are now ready to take the first question. Operator: And your first question comes from the line of Christoffer Bjørnsen of DNB Carnegie. Christoffer Bjørnsen: Can you just give some more color on how you are progressing both with the Tier 1 server OEM and with the d-Matrix relationships on the server OEM, perhaps a bit more flavor on where you are in terms of the steps towards commercialization and how you think about timing there? And then in general, both, especially on d-Matrix, whether you feel that the inventory that you added in the quarter is kind of sufficient to prep you for the ramp with d-Matrix or if we should see a proper increase in Q2? Kartik Srinivasan: Thank you, Christoffer for that question. So I'll kind of break this into 2 parts. One is on the AI inference customer. We are progressing from our technical deliverable standpoint as well as commercial deliverable standpoint on track. We remain convinced and excited about that opportunity. And again, the variable here is just the timing of this. To your question about are we changing our supply or planning in terms of how we want to fulfill it. We're sticking to what our guidance is there. We had already factored in orders coming in from them. And so there's no change to that plan as far as that AI infrastructure customer is concerned. And as far as the Tier 1 server OEM, Christoffer, that's progressing well on plan. We have alignment on the statement of work. We have alignment on the features, performance, cost, schedule, et cetera. So things are looking good there. Again, the same kind of response applies. We are delivering to our requirements. When that converts into some sort of meaningful thing remains to be seen. But we have some amount of orders in 2026 baked in from the Tier 1 server OEM as well, which we are not changing right now. Operator: And you have a question from Anders Knudsen private investor. Anders Knudsen: Just on the 5 design wins, could you perhaps give us a bit more flavor on those in terms of potential and also timeline? Are they impacting '26 by any means? And also on the recent design win within the financials, when do you expect to see it convert into the revenue that you have guided for? Is that in Q2 or in Q4? Or when is that going to happen? Kartik Srinivasan: Yes. Thank you for the question. The design win momentum that we speak about, both of those are pertaining to the core infrastructure the 5 new design wins that we had, each of them will track a different kind of path towards production. And some of these may actually impact 2026, but again, no change to our plan there. But these tend to be a bit drawn in how they convert from a design win into full production. It can be anywhere between 6 and 9 months for an existing product, which is why the core infrastructure market is so lucrative for us. We do turnkey solutions in that space to an existing well-known robust customer base. On the other side of the key design win that we announced -- on the financial side, we are expecting the first $1.5 million that we spoke about, that is expected within the next couple of months. So that will definitely hit our 2026 revenue, and that's kind of part of our plan. And the rest of the opportunity will kind of extend into '27 and beyond there. So that's kind of how the timing of the financial institution revenue looks like. Anders Knudsen: What's the financial design win baked into your original guidance? Kartik Srinivasan: Yes. So the way this works is we do have a lot of proof-of-concept designs that we do on an annual basis. And at any given point, each one of these or a few of these can actually convert into a design win like this for us. So we've done data analytics based on how we are engaging with these customers or segments, and we baked that into our assessment for 2026. So this was not something that came as a complete surprise. This is already baked into what we were expecting. Operator: And your next question is from the line of Øystein Lodgaard, of ABG. Øystein Lodgaard: Congrats on the strong growth in Q1. So I guess this kind of reflects the good momentum in your traditional SmartNIC business. Can you say kind of what kind of verticals, what kind of use cases are you seeing strong growth? And how you kind of expect kind of the traditional SmartNIC business to move throughout the year? Should we anticipate kind of normal seasonality from here that it strengthens in the second half? Or is kind of some kind of a large one-off contract or something in Q1, so we shouldn't kind of fully extrapolate that? Kartik Srinivasan: Yes. Fantastic question. Thank you for asking that. So we do -- there is a reason why we kind of placed the definitions of our market segments as core infrastructure and AI infrastructure. Within the core infrastructure, which is where we are seeing early signs of kind of demand recovery, that breaks down for us into at least 4 big verticals that is fintech, telco, cybersecurity and network packet monitoring. Each one of those segments represents individual growth areas for us. Like we announced in the fintech space, we converted a design win into revenue. But we also expect alongside the cybersecurity, packet monitoring and telco businesses are showing signs of early recovery as well. So we're expecting that to play a part in our 2026 performance. Øystein Lodgaard: And can you say something about in terms of new design wins in the AI infrastructure area? Are you working on many leads there? What are you seeing in that area in terms of new potential design wins? Kartik Srinivasan: Yes, there is a lot of engagement there. That is actually the more fascinating place for how fast that space is evolving. One thing I can definitely tell you with a lot of confidence is the AI infrastructure is no longer a compute problem. It is an efficiency problem, which immediately translates to 2 components of the data center that come into question. One is networking and the other is memory. And you will see that, that's why there is a lot of requirements, a lot of specifications, a lot of consortium being formed around what to do in the space of networking. Big hyperscalers are putting out specs, consortiums are putting out specs. And this is an exciting time for a company like Napatech because we are fundamentally based on programmable networking. Our architecture, our products are built to deliver to an evolving paradigm, which is what the AI infrastructure market is going through right now. So I am very confident and excited about this space, and there's a lot of activity that we are currently in, and I'll be the first one to come here and tell you as they convert into some sort of design wins. Operator: And this does conclude our Q&A session via the phone. I would like to hand back to management for any written questions and closing remarks. Klaus Skovrup: Thank you. And we do have some written questions here. I'll just see whether I can group them a little bit. So there's one here from [indiscernible]. A few questions. What is your visibility on H2 AI orders? How will ramp look like? And maybe we'll just start with that and then we'll take the rest of the question. I think you spoke a little bit into it already, Kartik. Kartik Srinivasan: Yes. So the second half of our 2026 is going to be exciting as well because that's when we start seeing some of our AI infrastructure revenue starting to materialize. I think we had mentioned that a good chunk of the 2026 revenue for us will still be based on core infrastructure and the AI infrastructure will probably be about 20%, and that's kind of still the mix that we're expecting for 2026. Klaus Skovrup: And then regarding the Tier 1 OEM, have you lost any opportunities? Kartik Srinivasan: No. Actually, we have not. In fact, we are in a very favorable position within the Tier 1 OEM. I remember using an expression the last time I was here called the hub-and-spoke model, which basically translates to we are very much engaged with the technology team, which is the hub, and then there is a few spokes that lead to the product teams. That model is still strong for us, and we are excited about delivering what we are calling the next-generation data reduction technology, which is extremely important in the AI infrastructure world as you're loading in huge large language models, compression and deduplication becomes a very important aspect of how data gets rolled out. And that's exactly the critical application or use case that we are delivering in this proof of concept. Klaus Skovrup: And then maybe just jumping to [indiscernible], who has a question here. How is the progress in proof of concept with the Tier 1? That's what you just explained. And when can we expect to be part of their sales in their server sales? Kartik Srinivasan: Yes. So the conversion of these designs into revenue and productization, that's kind of the variable in play here. We do have some level of early orders baked into our 2026 revenue like we discussed. But when that converts into material production and revenue, that remains to be seen. Klaus Skovrup: Yes. And then a follow-up question for Lars Knutsen (sic) here. Are there other opportunities arising with other players within AI infrastructure? Kartik Srinivasan: Yes. So that is the engagement or the set of engagements that I've been talking about. We do have to the capability that we have as a company to deliver, we have been selective on how we engage because at the end of the day, we have to prioritize how we deliver and make sure that our deliverable is robust. But yes, there is a set of engagements that we have on the AI infrastructure, which follows our design win pipeline, 4-stage pipeline routine. Klaus Skovrup: Then there's a question here from Ola Millingstad (sic). You're right that first orders from AI infrastructure will come in H2. Could you be specific how many dollars of your '26 guidance of USD 30 million to USD 37 million assume AI infrastructure deliveries? And if H2 AI orders come in as, how does that change the full year picture? Kartik Srinivasan: Yes. So our 2026 revenue profile will still be significantly biased towards the core infrastructure. I think we -- last time we were here, we said about 20% of that is going to be coming in from AI. That's what the numbers look like. And of course, if the AI orders don't materialize, then that's what the impact is going to be. Klaus Skovrup: And let me just see other related to this, I think that is in earlier presentation, this [indiscernible] in earlier presentation, it has been said just 20% of the forecast from d-Matrix is taken into Napa's forecast for '26. Is this still valid? Kartik Srinivasan: Yes. yes. So I think that observation of yours is still what we are tracking for 2026. Klaus Skovrup: I think the point here is that d-Matrix may have a higher forecast and then we have only taken 20% of that in. So I think the point is that currently, our guidance that's based on our expectations of what orders are coming from d-Matrix. Kartik Srinivasan: Right. Right, correct. Klaus Skovrup: Yes. Then there's one here from [indiscernible] again. d-Matrix acquired GigaIO to build a complete rack scale system. How has that changed your role at d-Matrix? Are you still the scale-out NIC in the SquadRack reference architecture? Or is there a risk they switch to a different supplier as they build out their own stack? Kartik Srinivasan: A good question, and I'm sure a lot of people have the same thing, and I'm so a lot, I'm glad that you asked it. Our relationship with them remains as strong as ever. In fact, it's even getting stronger because of the requirements that are unfolding for us as they themselves are evolving in this landscape very rapidly. The requirements are coming in towards production, and we have completed the first stage, and we're already embarking on the next-generation kind of engagement to see what that looks like. The Giga -- and of course, a lot of these questions are for the d-Matrix to answer. But the acquisition that they made of the GigaIO data center assets that definitely enables them to build more of a rack scale architecture of which we are singularly the component delivering scale-out networking. Klaus Skovrup: And then there's a question here from Lisa [indiscernible]. You cite commercial discussions underway on the Tier 1 server OEM design win. Does that mean that proof of concept has been achieved? Where are you currently in the qualification process? Kartik Srinivasan: Right. As part of the design win engagement that we are having with the Tier 1, starting commercial discussions typically indicates that there is activity across the 3 groups that make decisions at these kind of places. So we have alignment with the executives. We have alignment with product management and engineering, and now we are working on alignment with commercial. And once all of those move forward, that converts into product and then converts into revenue. So moving into the commercial stage or activating the commercial stage is a strong indication that things are making good progress towards production. Klaus Skovrup: Yes. And also from Lisa here, can you also give some color on expected revenue ramp-up for the remainder of the year, given that Q1 was seasonally very strong. Kartik Srinivasan: Yes. So there is definitely seasonality that we will still continue tracking towards -- throughout our 2026 revenue. And because our 2026 revenue is still heavily based on core infrastructure, the seasonality will mimic prior year seasonality, not necessarily in the absolute dollars, but at least in direction. So you can expect some of that to be similar in 2026. Klaus Skovrup: Yes. And then a question here from Terry Jensen. Why is revenue for Q1 lower than revenue in Q4? And I think that was what you just explained, Kartik, also that we do see seasonality. And usually, Q1 is our weakest quarter, whereas Q4 is the strongest. And then there's the last question here from [indiscernible]. What's the time line from your order cart from you order carts to have it in stock? Any limitations? Kartik Srinivasan: Yes. So again, very good question across the overall supply chain management and planning there. So our demand planning cycle or at least process is no longer limited by demand. It's actually just what we have to -- how we manage our supply. The lead times across critical components that we put in our adapters and solutions, including the likes of FPGAs and the memory components are seeing longer lead times and, of course, volatility in availability. But the good news is that our engagement with our customers allows us to have a solid level of visibility into how we plan our quarterly delivery. And we have put some mitigation factors in place as well by some level of prepurchasing of these parts, both across FPGAs and memory. So this allows us to deliver our products to plan to the '26 revenue as well as towards what the customer requirements are in the quarterly distribution of our products. Klaus Skovrup: Good. I think that summed up the last question we had in written form as in the Q&A. Good. And I don't think there's more coming in here. Operator, is there more questions on the line? Operator: There are no further questions on the phones. Klaus Skovrup: Thank you. Then I want to thank everyone for listening in. Enjoy the day, everyone. Thank you. Kartik Srinivasan: Thank you. Operator: This concludes today's call. Thank you for joining. You may now disconnect.
Operator: Good morning, and welcome to the Claritev Corporation First Quarter 2026 Earnings Conference Call. I am Frans, and I'll be the operator assisting you today. [Operator Instructions] Thank you. I would now like to turn the call over to Todd Friedman, Vice President of Investor Relations. Please go ahead. Todd Friedman: Thank you, operator. Good morning, everyone, and welcome to Claritev's First Quarter 2026 Earnings Call. Joining me today are Travis Dalton, President and Chief Executive Officer; and Doug Garis, our Chief Financial Officer. During our call, we will refer to the supplemental slide deck that's available on the Investors portion of our website, along with the first quarter 2026 earnings press release issued earlier this morning. Our remarks and responses to questions today include forward-looking statements. These forward-looking statements represent management's beliefs and expectations only as of the date of this call. Actual results may differ materially from these forward-looking statements due to a number of risks. A summary of these risks can be found on the second page of the supplemental slide deck and a more complete description in our annual report on Form 10-K and other documents we file with the SEC. We will also be referring to several non-GAAP measures, which we believe provide investors with a more complete understanding of Claritev's underlying operating results. An explanation of these non-GAAP measures and reconciliations to the comparable GAAP measures can be found in the earnings press release and in the supplemental slide deck. With that, I would now like to turn the call over to Travis. Travis Dalton: Good morning, and thank you for joining us. It was great to see so many of you at our Investor Day in March. We appreciate the feedback you provided and look forward to keeping that dialogue going throughout the year. There were a number of themes that we highlighted in New York, but I want to reiterate a few of those that we'll cover on the call today. First and foremost, we're entering this year with confidence, confidence in our business, in our strategy and the durability of the foundation that we built. This was a strong quarter that reflects not just performance but progress. Second, at the heart of that confidence is our competitive position, one that is grounded in our long-standing client relationships, scaled data ecosystem, deep domain expertise and increasingly, our differentiated application of AI. In a market where accuracy, trust and outcomes matter, those advantages are not easily replicated. And third, we've expanded our markets and our offerings to connect all phases of the health care life cycle. That expansion has been critical to diversifying our revenue streams and in doing so, building a foundation for quality earnings driven by sustainable long-term growth. At the heart of that effort is the reinvigorated growth and strengthening of our core, which is most evident in our outstanding Q1 results. We believe strongly that Claritev's growth originates from those core offerings and gives us the foundation and time to execute against our growth and expansion initiatives. I'm going to touch on each of these themes in my remarks and explain why they are driving record bookings, organic growth and expanding market presence. First, I'll touch on the financials and results. This marks another quarter of consistent growth with both revenue and EBITDA ahead of our expectations, demonstrating that our strategy is not only sound but executable with focus. Our growth team had a strong start to the year, closing more than $40 million in annual contract value bookings in Q1 and showing diversity and momentum across our portfolio. Doug will touch on the ACV later, but we saw strength across the portfolio with wins in our core, particularly in our MSA business with providers and in the public sector. Importantly, our pipeline continues to grow, and our close rates have remained strong, giving me great confidence in our $80 million to $100 million ACV sales target for this year, which will represent a 20% to 50% increase over last year's sales results. At our Investor Day in March, we announced that we had signed an agreement with GDIT to provide a custom network for the World Trade Center Health Program. This is an exciting moment for Claritev as it represents two important evolutions in the business. One, it is leveraging one of our core solutions to serve a new market, the public sector. We see a number of opportunities in this vertical and hope to share more good news as the year progresses. And two, it demonstrates our capacity to create new partner relationships with a shared goal of making health care more affordable and accessible to those who need it the most. Another bit of news we see at Investor Day was our signing of a top 5 health system, one that operates more than 700 total facilities, including hospitals, ambulatory surgery centers and outpatient centers and sites of care. This is an exciting addition for Claritev that fortifies our position in our provider vertical. We look forward to sharing more about this exciting relationship in the future. But I'd note that this relationship came about directly as a result of our acquisition of OPCG in the fourth quarter, which is the cornerstone of our newly launched services offering -- next, let me discuss our strong position in the market, bolstered by industry trends moving in our favor. There is a clear focus on driving affordability across the health care ecosystem. We know from our experience that the best way to achieve that objective is through transparency, where we have been a leader for many years with a long-tenured client relationships and results [indiscernible] We're seeing a clear industry shift. Platform consolidation is accelerating and clients are moving toward fewer, more integrated partners with scale data and end-to-end capability. This trend plays directly to our strengths. Our unified data architecture driven by our digital transformation and network strategy position us well to lead in this environment. AI is another powerful tailwind, but it's not a rising tide that lifts all boats equally. In regulated high-stakes industries like health care, AI disproportionately benefits incumbents with trusted data, compliance expertise and established relationships. That's where we operate, and that's where we deliver value. There's also a tremendous benefit to how we run our own business. Last quarter, when we reviewed the code output of the engineering teams that are fully leveraging AI coding tools, we have found that we are nearly doubling coding capacity of those teams without any increase in headcount. We are building a foundation for scalable, profitable, sustainable growth. The operating leverage we are seeing from the widespread adoption of AI tools is an important lever in achieving our long-term objectives. If you think about our formula for success, it's straightforward. Data rights combined with a scalable workflow embedded platform anchored in trust and amplified by AI. Let me give you a few concrete examples. Within our claims intelligence solutions, we get tens of thousands of claims every month that don't have a provider ID. When that happens, the claim can't be processed through the standard workflow because it's highly manual process. Our team built a provider contact agent that achieves research level accuracy, appends the provider contact ID, reduces process time by more than half and saved more than 2,000 hours of processing time at a fraction of cost. Another area that gets a lot of attention is the IDR process, the high-volume workload heavy process with which you are familiar. Using AI, we have automated the invoice extraction and reconciliation process for accounts payable IDR in workflows. We're now handling thousands of invoices each day, automating 100% of the daily processing in less than an hour, achieving nearly 100% accuracy and uptime. For our clients, this is a level of execution that builds trust. For Claritev, it freed up resources to higher-value work while eliminating late fees and accelerating collections. These are just a few examples with many more projects currently in progress, yielding growth potential and savings. Our investments in technology, data architecture and AI are deliberate and disciplined, strengthening our market position and are beginning to generate meaningful high-value -- high-impact value. We have AI teams working across all our solutions to deliver more value and performance to our clients and integrating deeply into our own operations, including sales and finance to build scale and efficiency. Our strategy is working. We're executing with a combination of horizontal capabilities like our network, payment and revenue integrity, data platform and analytics and deep vertical expertise across key health care markets. Our recent wins with the World Trade Center and the top 5 health system demonstrate our direction and allow us to scale efficiently while remaining highly relevant to our core clients. Furthermore, we see a significant opportunity to expand our presence widely within the TPA market. This is another strategic client base where our existing solutions can deliver immediate tangible value to improve the health care experience for millions of consumers. To this end, we added a key industry leader late in 2025 to drive our TPA market forward. Dallas Scrip is a highly regarded industry veteran joining Claritev after nearly 20 years in the industry, including his most recent role where he was President and COO of the TPA that was focused on using AI throughout the TPA client life cycle. We're already seeing faster pipeline growth under his leadership and are excited by his energy and vision for this market. Looking ahead, our priorities remain clear. We're focused on driving organic growth, continuing to invest in the business and scaling our platform to capture the opportunities in front of us. At the same time, we remain committed to deleveraging over time. I'll repeat what I said at our Investor Day. We are operating against Vision 2030, not Vision 20 minutes. Strength in our core business, key wins in our expansion areas, strategic operating investments and world-class team are the foundation for driving Claritev along the path we outlined at Investor Day for our short, mid- and long-term targets. This is a business built to last, built to grow and built to deliver the long-term cash flow and deleveraging that will ultimately drive major shareholder value. With that, I'll turn it over to Doug to walk through the financials in more detail. Doug Garis: Great. Thank you, Travis, and good morning, everyone. It was great to see many of you at the Investor Day in New York. The event we held in March at the NYSE is our first full Investor Day in nearly 2 years, and it was a great opportunity for everyone to hear from our talented leadership team, some of our key partners and importantly, some of our best clients. The story is getting simpler, sharper and is starting to resonate in the public markets. At the event, we spoke about the diversification of our business that is driving our momentum. We also tethered our presentation to the health care life cycle and how our comprehensive suite of solutions play an important role in helping us deliver affordability and transparency in health care, all the way from benefit plan design to a claims payment. We strongly feel that we have one of the most unique and impactful set of assets across the health care technology ecosystem, and we're excited to share our progress because our first quarter results were yet another reason to believe that our strategy is working. In Q1, we outperformed our internal expectations for revenue, adjusted EBITDA and ACV. As Travis indicated in his opening remarks, we are running our business with a multiyear view in mind, and we're very pleased with the early pace and progress to begin 2026. Total revenue in the quarter was $244.7 million, up 5.8% year-over-year. Growth in Q1 came from both our core business and expansion areas. In particular, we saw a solid outperformance in our flagship reference-based pricing solution Data iSight within claims intelligence service line, which in total was up 8.4% in the quarter. Additionally, our network and payment revenue integrity service lines performed at or slightly above internal expectations in the quarter. Our growth in Q1 was strong. And keep in mind, we had about $2 million of onetime revenue benefit in our P&C business last year, which falls into the network service line. Adjusted EBITDA was $146.9 million for the quarter, up 3.4% year-over-year at a 60% margin. We generated $36.8 million of unlevered free cash flow, up 181% or $23.7 million and had a use of $92.5 million of free cash flow lower by $23.6 million in the quarter. Recall, since the debt refinancing transaction concluded in January of last year, we expect Q1 and Q3 to be cash consumption quarters and Q2 and Q4 to be cash-generating quarters in the near to midterm. Q1 notably also included a more fulsome and now fully annualized Q1 cash interest payment schedule from the refinancing last year. Modest working capital increases and normalization of the cash interest payment schedule on our debt largely drove the increase in -- use in cash in the quarter versus last year. Our diversification strategy continues to be supported by strong sales momentum, highlighted by another record bookings quarter. We outlined an aggressive bookings growth target of $80 million to $100 million in ACV at Investor Day, representing 20% to 50% growth. With $44.1 million of bookings in Q1, we are well on track to achieve this aspiration. Importantly, Q1 bookings reflected the underlying strategy we presented at Investor Day with a balanced mix of expansion with existing clients and new client acquisition. Cross-sell and upsell activity accounted for 73% of bookings, while 27% came from net new clients. A few additional highlights on Q1 bookings performance. Pipeline growth remained strong, increasing 70% year-over-year alongside continuous improvements in lead qualification and sales execution. We closed 19 deals over $100,000 ACV and 9 deals over $1 million ACV, representing a 350% increase in 7-figure deals this past quarter. Beyond the large deals, virtually all of our key sales metrics were favorable. Our average deal size has more than doubled, sales cycle times from lead gen to deal close are materially compressing and our win rates continue to improve. We exited Q1 with a substantial pipeline, providing strong visibility into future bookings. We also noted significant ACV bookings from our new provider and public sector markets. We believe continued transparency into bookings and ACV to revenue conversion metrics will serve as an important leading indicator towards our 2028 top line revenue target exceeding $1.1 billion and broader Vision 2030 financial glide path. In our supplemental deck, you'll find on our website, you'll see the continuing trend in our PSAV revenue where modest volume declines in Q1 were more than offset by favorable trends in rate mix and augmented by our ability to leverage AI and innovation to identify and deliver more savings in the claims we analyze. The key takeaway is that our PSAV business is an increasingly mixed and acuity-driven model where growth is not necessarily driven by more claims, rather it's driven by more complex, higher cost claims, which is where our solutions perform exceedingly well. We will continue to provide additional details on a quarterly basis as we track rate mix and volume changes to our PSAV business. Turning to guidance. We are raising the bottom end of our guide range by -- revenue guide range by $5 million with a new range of $985 million to $1 billion. Reviewing the current analyst models, we are comfortable with adding Q1 revenue outperformance to your existing models within the revised guidance range. Remember when building your models that the second, third and fourth quarters of '25 each had approximately $5.4 million of onetime revenue that was recognized at 100% adjusted EBITDA margin, which will impact the year-over-year comparisons for the balance of the year. With a quarterly revenue cadence due to the revenue outperformance in Q1 and the $5 million headwind from last year, we expect Q2 revenue to be relatively flat sequentially, largely consistent with current analyst models. Then as revenue from new ACV ramps, we expect our growth rate to increase to between 3% to 5% for the second half of the year, adding up to the full year guide. We have included a summary in the supplemental deck to help bridge the major revenue drivers this year. It provides more color on how you should model gross revenue retention, expansion, ACV conversion to get to our full year revenue guide range. We are maintaining full year adjusted EBITDA guidance of $605 million to $615 million with margins of 61% to 62%. When normalizing for the impact of the $18 million in onetime P&C revenue and EBITDA contribution last year, our guidance implies 3.5% to 5% adjusted EBITDA growth -- dollar growth on a like-for-like basis. As we previously stated, we're going to continue to invest while running our business with prudence, balancing positive cash flow and earnings with investments required for future growth. This is especially true as it relates to ramping up sales and operations to support the growth in ACV. New bookings take on average 6 to 12 months to convert to revenue, which means we are investing in '26 for those new and expansion revenue drivers that are largely -- that largely begin contributing to our top line in '27. With our recent sales momentum, I would expect us to continue to seek attractive options to bolster our go-to-market posture. For example, Travis mentioned our increased focus on the TPA market. We see significant upside in this vertical. We have also demonstrated success with investments in AI and automation as detailed earlier. Finally, the launch of our services business has already helped us gain a foothold in both the provider and public sector markets. We left our '26 guidance for total capital and free cash flow unchanged with capital at $160 million to $170 million and positive free cash flow. In '26, we expect to deliver operating and unlevered free cash flow growth with adjusted cash conversion normalizing to pre-2025 levels by the end of the year. All of this aligns with our guiding principle to diversify and accelerate, expanding our solutions, verticals and channels to drive growth while also delevering and derisking our business to enhance cash flow and operating agility. With that, I'll turn it back over to Travis for some final remarks before taking your questions. Travis Dalton: Thanks, Doug. I'll just close with a few closing thoughts and reiterate some of my earlier points. We entered '26 with confidence in our business. The foundation is laid and our strategy is working. Our priorities for the business remain clear, continued growth and investment in our core, diversification of our revenue base with new market verticals and delevering the business over time. We are executing the way up with clarity alignment focus, continuing to improve how we operate, grow and deliver for our clients, which collectively will strengthen the durability of the business over time. Finally, I want to thank our 3,000 Claritev associates who have made this journey possible for their continued dedication and commitment to our clients. With that, I'll turn the call over to the operator for questions. Operator: [Operator Instructions] And your first question comes from the line of Jason Cassorla with Guggenheim. Jason Cassorla: Maybe just on the margin side, obviously, strong top line and EBITDA outperformance in the quarter. You've got investments that are earmarked as you ramp up your ACV. But maybe can you just help with the puts and takes in terms of margins in the quarter, how those investments balance against the stronger rate and mix falling to the bottom line? Maybe if you accelerated any of those investment spend early in the year that may have burdened margins near term, but maybe perhaps allowing for a better setup in the second half of the year as the ACV contribution ramps. Any help there on the margin side would be helpful. Doug Garis: Jason, thanks for your question. This is Doug. Yes. So I think we indicated in Q4, we had really started investing. And when you look at kind of the run rate and annualized OpEx of the business, it was adjusted EBITDA expenses were approximately $385 million. So part of the investment that we started delivering to help deliver the ACV growth. We really started making those investments in Q4. I think we were pleasantly surprised by the continued improvements to the mix. And I think with respect to our internal targets, we slightly outperformed both revenue and EBITDA. So we actually have a pretty tight guide range on EBITDA this year as we thread the needle. I would expect the rate of investment to be ratable quarter-to-quarter, maybe say for $1 million to $2 million here or there. And as our ACV starts to really convert to revenue and pick up in the second half of the year, I would expect us to keep stable, if not slightly improving margins in the back half. Jason Cassorla: Got it. Okay. That's helpful. And then maybe as my follow-up, obviously, encouraging to see the strong top line growth this quarter. Can you discuss what you're seeing in terms of utilization broadly? I know there's been a weaker respiratory system, some weather events impacted volumes across providers broadly, but I'm not sure if you're seeing that, but maybe if you could just -- any color on the utilization environment and then maybe a little bit deeper on some of the rate and mix benefits that you're seeing currently would be helpful. Doug Garis: Yes, sure. So I'll take that. So if you look at Slide 10 and 11 on our supplemental deck, it gives some color on kind of the rate mix and volume dynamics of our business. I think the continuous trend, and we covered this a little bit at Investor Day in the outpatient setting for the higher acuity claims. We saw, I would say, maybe a little bit less volume than we would have expected, but strong performance on a savings, identified savings and revenue and savings per claim. It was really some of the mix that I would say, has compounded over the last 5 quarters in the outpatient setting from an inpatient facility perspective, we saw a little bit higher ER in room and board. Don't know if that's impacted by weather per se. It was a little bit better than we had internally modeled. But really, when you look at kind of the last 5 quarters on Slide 11, that continuous pacing and trend of the higher acuity areas, especially in the outpatient setting is about where 80% of our identified savings and revenue play. We've seen consistent elevated trends in those higher acuity areas, including behavioral health. Nothing in the quarter kind of indicated that there was an aberration or disruption to underlying volumes due to events like weather. Operator: And your next question comes from the line of Jessica Tassan with Piper Sandler. Jessica Tassan: So I'm curious on a few things. If you could first maybe give us a sense of the mix of services bookings within your $80 million to $100 million bookings target? And then just how do the margins look on that -- on those services, bookings maybe contract launch and then over the course of the contract lifespan? And how would you expect the margins to progress? Doug Garis: Jess, I'll take a stab at that and maybe Travis wants to give any color he can. So when we look at Q1 of our $44 million, the provider and public sector contributed about 20% of the bookings. So these were kind of flagship wins that we announced at Investor Day. We had indicated too, and I think maybe you had asked the question at Investor Day what the margin profile of services is. We expect it to be roughly kind of half the core business as we ramp and scale. When I look at the full year, the $80 million to $100 million, we expect growth from these areas and especially services to be meaningful. But the total mix of bookings is still going to be around, I'd say, probably 20-ish percent of our total number at the midpoint. These investments are critically important to us, which is why we announced the additional $20 million to $25 million of investment this year. We see significant opportunity in the provider and public sector markets. The midpoint of those bookings will be about 20% of our total, and we expect margins to be roughly half of our core business. I don't know if you have anything. Travis Dalton: Yes. I'll just add a couple of things. So one is with the health system that we signed, we view that as very strategic. I mean we'll be providing managed services for their EMR, which is a new service line of business for us. So we've got the people, we've got the talent. We have acquired OPCG in order to create those relationships. So we'll also be deeply embedded in their workflow, complex problems trying to solve. And even more so, a few things are important. One is it's a high level of recurrence in some of these opportunities we have on recurring revenue services. You get some immediate revenue benefit and an opportunity like that and you start it quickly. So we're not having to constantly just wait for the revenue flow, which is so seasonal and cyclical in some of our core business. It also gives us the opportunity to pull through, again, horizontal vertical, stop talking about it and I won't, but we can pull through our horizontal products into those organizations we're working with on a services basis to help them with efficiency. So products like [ completely ] our transparency products. So it's not a pure services play. To me, it's advisory, strategic and thoughtful as it relates to the ability to pull through more products with high-margin profiles to manage the entirety of our margin view over time. Jessica Tassan: Got it. That's helpful. And then I guess just my follow-up. So we had one of our MAOs kind of talk about these changes to concurrent reviews in the 2026 MA final rule. And so I'm just curious, I think these are mostly in-network. But I guess, do you guys have exposure to like retrospective reviews in '25 that are essentially less frequent in 2026? And just any comments on whether changes to inpatient determinations within the 2026 MA final rule has any impact on your claims volume, the 8% year-over-year PSAV claims volume decline? Travis Dalton: Thanks, Jess. Limited impact. We think MA could be an opportunity kind of mid and long term for us. But as it relates to the kind of quarterly progression, limited if close to 0 volume impact from that -- quarter-to-quarter. Operator: [Operator Instructions] Our next question comes from the line of Stan Berenshteyn with Wells Fargo. Stanislav Berenshteyn: First, on ACV, you're already halfway there on your ACV goals for the year. Just wondering, how is your visibility into your remaining go get? Do you expect any changes in the mix of upsell versus new logos? Just any color you can add there would be helpful. Doug Garis: Great. Thanks for the question, Stan. So I'll take the first half. So I think the 70-30 approximate split, we actually covered that was our mix on upsell, cross-sell versus net new logos on the $67.3 million of bookings that we landed in '25. That trend has been pretty consistent. I think the most compelling piece of that is we have a ton of white space within the payer and TPA segment. And so we are expanding our products and solutions to new markets, including provider, public sector, international. We think these are great long-term areas for growth and diversification. But make no mistake, our core business is still most of where the bookings are occurring. And I think the Q1 bookings number was anchored by a lot of large deals actually. I think we had 9 deals over $1 million ACV. Last year, we had [ 108 ] deals over $100,000 ACV. The funnel we have in the funnel efficiency is multi9 figures. So we feel very confident with the $80 million to $100 million on the full year. Quarter-to-quarter, there might be some seasonality and trending, but I would expect us to continue to deliver strong bookings growth for the foreseeable future. Travis Dalton: I'll just add one comment, Stan. This is Travis. We had 30 new logos last year and 6 new logos in the first quarter. So we're focusing on the core and what we said we see significant white space, Doug just reiterated that. But we're also really focused on creating more diverse, sustainable growth over time, and that starts with new clients. We have a lot more telemetry into our business as it relates to our forecast, our processes, our win and close rates, the data of which we operate. And we have significantly more coverage -- pipeline coverage to quota than we had 2 years ago, almost 4.8x, which is a significant number, and I think it was closer to 1.5x. And so more pipeline, more coverage, better visibility. And the last thing I'll say is we have the confidence to invest in the business because we can see the top line. And so you're confident enough to make decisions like we made in Q4 this year, and we're confident in our margin profile for the year because we have good visibility to our top line growth and revenue conversion. So that's a great leading indicator for us, and we have clear visibility and confidence in our numbers for the year. Stanislav Berenshteyn: Appreciate that helpful. As my follow-up, just wanted to ask on Medicare Advantage. Obviously, there's some rate pressure forcing payers to be a bit more mindful with admin savings and things like that. Are you seeing that translate into increased demand for payment integrity solutions? Is that driving some more intensity with the payers? Just wanted to get some color on that as well. Doug Garis: Thanks, Stan. Yes, absolutely. When you look at our PRI business, had nice growth last year. We expect a similar growth rate this year. If you look at, I would say, maybe 25% to 1/3 of the opportunities are in payment revenue integrity. We have one of the most comprehensive set of solutions from prepaid payment revenue integrity and claims editing all the way through postpay. We feel very bullish on the prospects of that business medium to long term and a good portion of our funnel is in the payment revenue integrity space. Operator: Thank you. I'm not showing any further questions in the queue. I will now turn back over to management for closing remarks. Travis Dalton: Thank you. This is Travis. Let me just close by saying thank you for your time and attention today. Thanks for the questions and the interest in the company. And as noted, we feel like we're in a good place, and we're confident in our year. Look forward to talking to you again here soon. Thank you. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: . Hello, everyone. Thank you for joining us, and welcome to the Celsius Holdings' First Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Paul Wiseman, Investor Relations. Please go ahead. Paul Wiseman: Good morning, and thank you for joining Celsius Holdings' First Quarter 2026 Earnings Webcast. With me today are John Fieldly, Chairman and CEO; Eric Hansen, President and Chief Operating Officer; Jarrod Langhans, Chief Financial Officer; and Toby David, Chief of Staff. We'll take questions following the prepared remarks. Our first quarter earnings press release was issued this morning with all materials available on our website, ir.celsiusholdingsinc.com and on the SEC's website, sec.gov. An audio replay of this webcast will also be accessible later today. Today's discussion includes forward-looking statements based on our current expectations and information. These statements involve risks and uncertainties many beyond the company's control. Celsius Holdings disclaims any duty to update forward-looking statements, except as required by law. Please review our safe harbor statement and risk factors in today's press release and in our most recent filings with the SEC, which contain additional information and a description of risks that may result in actual results differing materially from those contemplated by our forward-looking statements. We will present results on both a GAAP and non-GAAP basis. Non-GAAP measures like adjusted EBITDA, adjusted EBITDA margin, adjusted diluted earnings per share, adjusted SG&A and adjusted SG&A as a percentage of revenue and their GAAP reconciliations are detailed in our Q1 press release and non-GAAP financial measures should not be used as a substitute for our results reported in accordance with GAAP. With that, I'll turn it over to John. John Fieldly: Thank you, Paul. Good morning, everyone, and thank you for joining us today to discuss our first quarter 2026 results. We delivered a record first quarter revenue of $783 million. And across the portfolio, we continue to see the kind of progress that reinforces the strategy we laid out coming into the year. In Circana tracked channels, our combined portfolio continued to expand its share position over the course of the quarter. This trend has continued into April, with portfolio dollar share reaching 20.9% in the 4 weeks ending April 12. Our portfolio strategy is resonating with both consumers and retail partners. The quarter reflects what we said we would focus on strengthening the platform, executing with discipline and staying closely aligned with the consumer. And as we look at the progress across CELSIUS, Alani Nu and Rockstar, we are confident about the position we are in as we enter Q2 and the summer beverage season. At the core, our focus remains straightforward. We stay close to the consumer and we execute with consistency alongside PepsiCo and our retail partners, which creates the opportunity to grow in a sustainable and profitable way over time. Today, our portfolio reaches more consumers, more places, more occasions and more price points across the category than it did a year ago. And that is increasingly showing up in the marketplace. Our combined portfolio represents approximately 1/5 of the U.S. energy drink market in tracked channels. And that share is expanding. Said another way, 1 out of every 5 energy drinks purchased in the U.S. is a CELSIUS portfolio product. We have 2 billion-dollar brands. And what is becoming clear is that the portfolio is giving us more ways to grow with each brand playing a distinct role and helping us participate more fully across channels and usage occasions. CELSIUS continues to perform across a broad range of channels and occasions. Alani Nu is expanding our reach with a differentiated consumer base and a meaningful runway and channels where it remains underpenetrated. And over time, Rockstar gives us another point of participation in the category as we continue to integrate the brand into our platform. Even as the broader consumer staples environment remains challenging, energy continues to be one of the strongest performing categories in beverage, which reinforces our conviction in the long-term opportunity. As the portfolio is scaled, we have [ since ] equally focused on strengthening how we operate, improving alignment across the business and building a more repeatable and scalable operating model over time. One of the most important areas of progress in the quarter was execution across our integrations. Starting with Alani Nu. We completed the integration, and we have captured approximately $50 million in synergies we outlined at our modeling call last May. That is an important milestone. It simplifies our operating model and creates a more connected commercial structure. I want to recognize our team members across our organization and at PepsiCo for making this happen. We also made substantial progress on the Alani Nu distribution transition with the majority of the work completed across December and January. With Rockstar, the integration remains on track for completion in the first half of 2026. This is not just about completing an integration, it's about strengthening our growing portfolio. With the SKUs transition now substantially complete, and the reset activity taking hold, we are starting to see the early signs of improved velocities on the core items we are prioritizing. We view 2026 as a stabilization year for Rockstar. We expect to have more to share on the brand's trajectory as we move through the balance of the year. Innovation remains central to how we grew in the quarter, driving trial, reinforcing the core and keeping us aligned with consumer preferences. At Alani Nu, the Lime Slush limited time offer performed especially well and became the brand's top-selling flavor in tracked channels. We view that as an important proof point that the brand's innovation model is durable and that is not dependent on any one particular hero flavor. Following the success of Cherry Bomb, Lime Slush reinforces that the flavor rotation strategy is working, and we continue to see Alani Nu innovations supporting share gains and strengthening the connection between the brand and consumers. More than just product launches, Alani's limited time offers have become seasonal community moments that we believe consumers look forward to, which is a meaningful part of what makes the brand so strong. At CELSIUS, fizz-free continues to emerge as a meaningful platform. We saw encouraging expansion in distribution across multiple flavors, including Dragon Fruit Lime, Pink Lemonade and Blue Razz Lemonade. Fizz-free is now broadly distributed, but still early in terms of items per store, which represents a meaningful opportunity to expand as the platform matures. As we look at CELSIUS innovation for the year, Q1 was focused on prioritizing the assortment and strengthening the foundation of the portfolio. With that work substantially in place, we are now moving into a more active period across Q2 and the back half of the year. We just launched Electric Vibe, a limited edition flavor inspired by soccer culture, timed ahead of the global soccer tournament taking place in North America this summer. It's a great example of how we're using innovation to connect the brand to broader cultural moments and reach new consumers. That same focus and discipline is also shaping how we manage the shelf. We continue to sharpen the portfolio through disciplined SKU optimization and recent resets, putting more emphasis behind the items that perform best with consumers and that is starting to come together and show up in the data. Across our single-serve portfolio, the items gaining distribution represent a significant majority of tracked channel dollar growth in volume, which gives us confidence that the shelf is becoming more aligned with demand. We are seeing that in the flavors such as Cherry Cola, Retro Vibe, Playa Vibe, and Grape Rush, which continues to build distribution and momentum. The resets are about quality of assortment as much as space. Heading into the summer selling season, we remain confident in the space gains we outlined at CAGNY, approximately 17% for brand CELSIUS, driven by expanding cooler placements and additional points of sale across national chains and over 100% for Alani across all channels and for Rockstar, maintain net space alongside reconfigured items and assortments. International represents a meaningful long-term growth opportunity for us. And we took another step forward in the quarter with the launch of the brand CELSIUS in Spain through exclusive sales and distribution agreement with Suntory Beverage & Food Spain. This builds on our core existing collaboration with Suntory and other international markets and reflects our approach to focus on key markets, strong local partnerships, disciplined launch plans and sustained marketing and distribution support. Portugal is next on the European footprint, also with our Suntory partnership. With our global headquarters in Dublin now established, we have the operating infrastructure in place to accelerate deeper execution within existing markets and new market entries in years ahead. As we look ahead, the progress we made in Q1 positions us well for the next phase of the year. We expect to build on the recent resets as we move through Q2, and we have additional innovation planned across both CELSIUS and Alani Nu, including a summer CELSIUS limited time offer that we are excited about. Our partnerships and activations are also part of how we support the momentum as we enter the summer beverage season. We are proud to announce a multiyear global partnership with Aston Martin Aramco Formula One Team as our official global energy drink partner. We have also kicked off a global partnership with Palm Tree Music Festival as well as our continued partnership with Breakaway. Building on strong preference, we have established at the intersection of music, fitness and culture. And at Alani Nu, we opened our first ever slush pop-up in Fort Lauderdale, which reflects the kind of consumer-facing activations we are building and bringing to life beyond the traditional retail. For Rockstar, we kicked off the Formula DRIFT season opener in April. We also announced a new partnership with 23XI Racing and Tyler Reddick who has had one of the most remarkable starts to the NASCAR Cup season in recent history. These partnerships continue to connect the brand with its core motorsports and action sports audience. These programs are designed to connect awareness to trial and then the retail activation. Taken together, Q1 was a quarter where the strategy translated into results across the portfolio, across our integrations and at the register. With that, I'll turn it over to Jarrod to walk through the financials. Jarrod Langhans: Thanks, John, and good morning, everyone. From a financial perspective, I will walk through the quarter by brand, then cover the rest of the P&L, operating discipline and capital allocation before handing it back to John for closing remarks. We delivered record first quarter revenue of $783 million, reflecting continued strength across the portfolio and solid execution against the operating priorities we laid out coming into 2026. Starting with brand CELSIUS. We delivered net sales of $348 million in the quarter, representing growth of approximately 6% year-over-year. As we discussed last quarter, we have been focused on tightening the alignment between shipments and underlying consumer takeaway and we saw progress on that front in Q1. As John mentioned, we undertook a SKU optimization project during the quarter, and we are seeing the velocity improvements that have resulted from that work. We are moving into a more active innovation period for brand CELSIUS, including activations around the global soccer tournament this summer in North America and our 100 days of summer programming. Turning to Alani Nu. The brand delivered net sales of $368 million in the quarter, representing a pro forma growth of approximately 60% year-over-year. As a reminder, we acquired Alani Nu on April 1, 2025. We continue to see strong execution as the brand builds on the distribution gains from the PepsiCo system transition. With the integration now complete, we are operating with a cleaner structure and believe we are well positioned to continue expanding reach and solidifying execution through the balance of the year. For Rockstar, net sales were $67 million for the quarter. With the SKU reconfiguration and reset activity substantially complete, we are focusing on stabilizing the brand as we complete the integration in the first half of 2026. The U.S. business is substantially on the finished goods model with some remaining components still in transition. Let me spend a moment on Alani. As tracked scanner growth and reported growth are 2 different numbers this quarter, and I want to walk through how to get from one to the other. We have also included a bridge in our investor deck posted online. Tracked scanner data shows Alani at approximately 100% year-over-year. The cleanest comparison number is 85%. That adjusts for Cherry Bomb, which sold in during Q4 2025, but landed in Q1 2026 scanner data. To translate 85% scanner growth into reported revenue, the right starting point is Q1 2025 RTD U.S. Energy revenue, which was $198 million after excluding the Canadian and U.S. non-energy business. From there, the 85% growth implies organic Q1 2026 RTD revenue of about $340 million when adjusting for the higher sales mix associated with the DSD system relative to our direct business as our ACV gains have been focused in DSD channels. Adding back Canada and the remaining non-U.S. energy business, which together contributed $28 million, brings reported Alani revenue for Q1 2026 to $368 million or approximately 60% growth year-over-year. Bottom line, the underlying business is healthy and scanner growth remains strong. Turning to profitability. The integration-related cost headwinds we discussed in Q4 have largely rolled off, which gives us a cleaner foundation entering the year. And the underlying initiatives that drive margin expansion, our orbit model, which optimizes how we move inventory across our manufacturing and distribution network, freight structure improvements, raw material alignment across Alani and Rockstar and mix improvements through price-pack architecture continue to progress. In Q1, gross margin was approximately 48.3%. Underlying raw material COGS improved quarter-over-quarter as we continue to bring Alani and Rockstar into our purchasing structure with the COGS write-offs and transition costs from Q4 largely behind us. We did see a few discrete items in the quarter that partially offset that progress. The Midwest aluminum premium moved higher as did the LME. Severe winter weather in parts of the Northeast created incremental freight costs and we incurred some additional freight expense as we rebalanced Rockstar inventory across our network. On commodity and input costs more broadly, we are watching the macro environment closely, including aluminum, freight, fuel and resin pricing. While we have sourcing strategies in place, if the elevated costs remain across the year, we will see some impact on the timing and sequencing of our margin expansion back to the low 50s. None of these changed the broader trajectory and the underlying initiatives that drive margin expansion, our orbit model, freight structure optimization, raw material alignment and mix improvement through price-pack architecture continue to progress. At the same time, we remain disciplined on operating expenses. Adjusted SG&A came in at approximately 26.4% of revenue, down from 31.8% in Q4, reflecting continued cost control across the business and the benefits of operating leverage as revenue scales. We also continue to make progress on the SKU optimization work I mentioned earlier, which supports a more productive operating model over time. Taken together, those efforts remain important components of how we think about margin progression and overall quality of earnings through the balance of the year. As we move through 2026, we remain focused on investing behind our brands to support growth including additional marketing investment across the summer selling period while continuing to improve the quality and consistency of our earnings profile. The progress in Q1 gives us additional flexibility to lean into those investments while sustaining the operating discipline we have built. On profitability, we reported GAAP net income of $110 million in the quarter, more than double the $44 million we reported in the prior year quarter. Adjusted EBITDA was $195 million, an increase of approximately $125 million versus a year ago, and adjusted EBITDA margin expanded to 24.9% from 21.2% and roughly 370 basis points of margin improvement year-over-year. The result reflects continued top line momentum, the benefit of the operating model work we have been doing across the portfolio and the benefit of the synergies captured from the Alani integration. On capital deployment, our balance sheet remains a source of strength and flexibility. During the first quarter, we repurchased approximately 700,000 shares for $24.1 million at a weighted average price of $35.39. At quarter end, $236.1 million remained available under the $300 million repurchase program the Board authorized in November 2025. We have continued to utilize this program in the second quarter. Our approach to capital deployment continues to be grounded in 3 priorities: investing to support brand growth and integration execution, maintaining the strength of the balance sheet and returning capital to shareholders. We will continue to evaluate repurchase activity based on cash generation, market conditions and capital priorities while preserving flexibility for strategic opportunities. Overall, Q1 demonstrated the consistency of our financial plan and the operating leverage available as the business scales. We are executing against the priorities we laid out coming into the year, and we are well positioned for the balance of 2026. With that, I will turn the call back to the operator to open the lines for questions. Operator: [Operator Instructions] Your first question comes from the line of Bonnie Herzog with Goldman Sachs. Bonnie Herzog: I wanted to ask about the CELSIUS brand. I guess I was hoping for some more color on the growth, which has been moderating. Could you give us a sense of the drivers behind this and maybe frame or quantify the impact the brand is facing from limited innovation during Q1 versus last year, the SKU rationalization? And then I assume the cannibalization it's experiencing from Alani Nu. I guess how should we think about growth on CELSIUS for the rest of the year between any kind of shelf space gains and planned innovation? John Fieldly: Thank you, Bonnie. Great question. Regards to CELSIUS portfolio, you've touched on a variety of initiatives that really impacted that in the quarter. One thing we did focus on in the quarter is the fizz-free. We see great opportunities within fizz-free as we're optimizing the distribution to get a broader consistent ACV across the U.S. in the U.S. market. And we've seen the focus on that in the first quarter seeing velocity and takeaways increase. And we see a lot of opportunity within that really differentiated segment within the category. Within the optimization, there's a little bit of a timing sequence there as we've optimized some of the slower items. But we are trying to get and as we progress out of resets, looking to really get optimized, consistent placements across the portfolio that are driving the highest velocity in ACV. I have Eric Hansen, our President and Chief Operating Officer with us today as well. I'm going to have him make some comments around CELSIUS and the distribution gains we anticipated coming out of NACS where we made some comments. Eric Hanson: Yes, I think to John's point, as we talked about coming into the year, we said we would be focused on optimizing the SKU assortment, driving focus on fizz-free as a permanent innovation and leveraging our LTOs and partnerships to continue to drive growth for the brand. Optimization, generally, as John mentioned, plays out over a couple of quarters where we see the reduction faster than the ACV build. We are continuing to progress on that, and we'll continue to see that build over the next quarter or so. We do have 2 LTOs on the brand here over the next several months, Electric Vibe, which is launching now and then another one that will be available in summer. So we feel that will continue to drive excitement and anchor strong merchandising for the brand. And we'll continue to make sure that we're managing our space appropriately. As we build out more space, we are seeing for example, increases on dollars per total point of distribution. We'll see TDPs soften a little bit as you think about TDP is really about total SKUs available. While we gain space, we're getting more holding power and more ability to translate that into growth for the brand. So we feel good about the plans ahead. And obviously, we're monitoring it closely and we'll continue to work through. Operator: Your next question comes from the line of Peter Grom with UBS. Peter Grom: So I wanted to come back to Alani Nu, Jarrod, the bridge that you provided and walked through was helpful. But in the release, you mentioned that there was increased orders from Pepsi. So just trying to understand whether there was any sort of shipment benefit or an inventory build that occurred in the quarter and maybe the delta is just kind of the impact from the promo and allowances as you move into the Pepsi system. Jarrod Langhans: Yes. I think that comment was more to refer to that as we were going more into the Pepsi system across Q1 that we're building ACV and therefore, building expanding the locations that the availability of the brand was in terms of average SKUs per location and in terms of just locations in general, which was helped driving the scanner growth and helped driving our internal GAAP numbers. Another question you may ask in terms of some of this build, the DSD to direct mix. There's a couple of things -- a couple of nuances that are different between brand CELSIUS and between Alani. The first is, as we were moving into the DSD system for our largest distributor, when we were brand CELSIUS, our direct business was smaller than the Alani business. The Alani had built out and we had helped build out the direct business pretty well by the time we moved into the DSD system of Pepsi. You can see that in the ACV that existed between CELSIUS and Alani at the time of moving. The other piece is we were taking pricing with brand CELSIUS as we're moving in, that was back in 2022. So that helped as you moved in and had a little bit of that mix shift. And then the third thing is there is a bit of GAAP impact in terms of roughly $5 million, where a couple of things happened. If you remember back in 2022, we had the preferred shares that we issued and we also had -- going into the distribution system, we had the terminations that were paid for by Pepsi. We had to record those expenses immediately on the P&L, but then we recorded the actual payments on our balance sheet and are amortizing those over. That impacted the CELSIUS brand by about $1 million a quarter. So very minor, and you didn't really notice it. With Alani because we also had a couple of other things going on when we did this transaction, including the [indiscernible], there's about a $5 million impact in that number that's in the bridge. That's really a non-cash item. That's just the amortization from the balance sheet. Operator: Your next question comes from the line of Filippo Falorni with Citi. Filippo Falorni: I wanted to go back to the shelf space gains for both CELSIUS and Alani. Maybe on CELSIUS first, you mentioned previously 17% shelf gains, including foodservice. Can you give us a sense of how much food service distribution you have in the figure? How much you're realizing in more tracked channels? And then on Alani, obviously, a lot of the distribution, you mentioned over 100% in gas and convenience. How far along are you in that shelf space gains? How much have you realized so far? And when do you think we should see more of those flowing through in tracked channels? That would be helpful. John Fieldly: Yes. No, I appreciate the question. It's really an exciting time within the energy category. When you look at the energy category overall, it's one of the fastest growing within LRB. We're seeing new consumers enter the category than ever before and retailers are leaning in. Historically, over 60% of the sales were derived from convenience, impulse purchases, and we're seeing retailers lean in, in a much bigger way than ever before and when you look at the Celsius Holdings portfolio with CELSIUS, Alani and Rockstar, we have differentiated offerings, hitting differentiated consumer segments and really being incremental and driving incremental growth. With that, I'll turn it over to Eric to add a little bit more color around the distribution gains we anticipate and what we're seeing in the overall environment. Eric Hanson: Yes, I think to John's point, and we've had a number of conversations with retailers, obviously, over the last several weeks and months. And I think what we hear generally is that the category, they feel very strongly about the category and the growth trajectory. They anticipate adding more overall energy space, in some cases, very significantly. And so while we're also talking about shelf gains, it's also about permanency on space outside of the main gondola. Cold space has been expanding rapidly across a lot of different formats and then obviously within CNG expanding overall doors. And so we continue to see that space opportunity. Obviously, for Alani, a very strong space opportunity. And a lot of that is largely in place. You'll continue to see some resets finalized here probably through the course of May and June, but probably before summer, we'll be almost fully done. And again, we're going to plan that space according to the best SKUs that we have available and ensure that we've got the best velocity profile and efficiency of space in those. And so we feel very good about the conversations that we've had. On your question around foodservice, difficult to break that out. In some cases, foodservice becomes a zero-sum game, you're in or you're not. And so it's really about adding new outlets that help in overall space gains. And we'll continue to put a lot of focus on driving workplace, college, university and the relevant channels, restaurants, et cetera, and continue to make progress on that front as well. John Fieldly: And I think when you look at it as well when you look at the first quarter, and you see that we are -- really, this is the first quarter of the organization managing a portfolio of brands under the category of [indiscernible] within the energy category of PepsiCo. So that has really unlocked a lot of opportunities. As Eric mentioned, foodservice, a variety of nonreported tracked channels as well. So those opportunities are going to continue to progress throughout the year and years to come as we further leverage the capabilities of this partnership that we forged. Operator: Your next question comes from the line of Gerald Pascarelli with Needham & Company LLC. Gerald Pascarelli: A question for John. Just on your LTO strategy, like Cherry Bomb and Lime Slush where -- they were big contributors to the underlying strength in offtake this quarter. And so as we move forward, just given the success of some of these new rollouts that you've had, like how do you think about balancing new flavor innovation for these LTOs versus bringing some of these same flavors back every single year, just given how popular they are. I'd be curious of your thoughts there. John Fieldly: No, I think it's a great question. It really gives us a lot of optionality when you're looking at leveraging the portfolio and planning within our forecasting and strategies for the coming year. If you look at -- the LTO strategy allows us to do a lot of surprise and delight, especially with the Alani portfolio as well as leverage the seasonal trends. When you see the opportunities with the success of Cherry Bomb and Lime Slush and just with the CELSIUS portfolio, Electric Vibe, we have a lot of great opportunities ahead. We get trial. We get feedback and then we can bring that in as a permanent SKU, midyear resets or even into the new selling season as we're entering the new year. So I think it gives -- as you look at our brand managers, it gives them optionality -- trial, gets to learn, and we get the leverage and learn the capabilities of the PepsiCo distribution network and really maximize that to our capabilities. So when you look at really Cherry Bomb was really the first LTO launch within the PepsiCo system. Number two is Lime Slush. Now we have Electric Vibe coming in. We're going to have a variety of others throughout the back half of this year. We're learning our collaboration. We're learning the partnerships and flavor. But when you look at the LTO strategy in flavors, it's driving. It's driving trial, it's driving awareness, it's driving new incremental consumers into the category. We have a 21% share in the U.S. with the portfolio today. And it's an exciting time within the opportunities you have here managing the CELSIUS portfolio, our brand teams are super excited about what's to come. Operator: Your next question comes from the line of Peter Galbo with Bank of America. Peter Galbo: John, Jarrod, just wanted to come back on the margin piece, obviously, with Midwest premium and LME moving up. Maybe you can just kind of help us think about if there is a resolution of the conflict, kind of what you're starting to hear or starting to see in terms of potential downside for aluminum. I know that, that may stall or hinder the ability to get back to low 50s by the back half of this year. But maybe you can help us think about the trajectory over the next, call it, 18 months. John Fieldly: Yes. No, we're not unique to any other consumer products company out there. Those are real costs we're looking at. I'll turn it over to Jarrod for more comments around that on the operation where the environment we're operating under and some of the opportunities we see ahead of us and some of the disciplined approach we've taken and strategies in the past that we're going to be able to leverage today and into the future, especially as we further optimize and integrate this portfolio. Jarrod? Jarrod Langhans: Yes. Probably I have a little bit of a long drawn-out response. So kind of as we discussed in our prepared remarks, gross margin in Q1 was roughly 48.3%, which represented an improvement of around 90 basis points from Q4. So we are moving in the right direction. We saw a few discrete items partially offset that progress. We had severe winter weather in parts of the Northeast creating incremental freight and freeze protection costs in February. We incurred some additional long-haul freight as we continue to rebalance Rockstar inventory across our network during integration. And then to your point, we saw both the LME and the Midwest aluminum premium move higher through the quarter. As John mentioned, that's best described as an industry-wide packaging dynamic, not a company-specific issue. The first 2 of these are largely behind us as we move through the second quarter with the latter being more impactful in Q2 versus Q1 as it really started to spike in March. With that said, as we noted in our prepared remarks, we are watching the macro environment closely, aluminum, freight, fuel, resin pricing. We do have sourcing strategies in place across the major input categories. We're fully locked on aluminum conversion. We've also got price locks on a variety of other ingredients and vitamins. We've also -- we're working actively to extend coverage into 2027 and 2028 across the back half of this year. But if elevated costs do remain across the year, we may see some impact on the timing and sequencing of our ramp back to the low 50s. But the broader trajectory and the structural margin algorithm are intact. The underlying initiatives that drive our margin expansion continue to progress. We mentioned those in the prepared remarks, the orbit model, freight structure optimization, raw material alignment as we bring Alani and Rockstar fully into our structure, mix improvement through price-pack architecture. So we do have a clear plan and a clear path back to the low 50s. We also have another opportunity, as you mentioned, going out 12, 18 months that we're working through, something a little sooner. Back half of the year, we'll see our second manufacturing line in North Carolina begin producing. So we'll start to see some benefit in the back half of the year with full benefit in 2027. We've got some other vertical integration opportunities that we're in the middle of securing that will benefit us in '27 and beyond. We also have some direct sourcing opportunities that we're working through that will benefit us. And then the price-pack architecture programming that we're working on is really a -- we'll see some initial impacts in the back half of the year, but we'll see a lot more when we look at 2027 and 2028. So we do have good visibility to get to the 50s. Depending upon where commodities fall, whether they stay where they are for the whole year or whether they subside can impact a little bit of that timing. But we do see -- we do have visibility into the low 50s and beyond with the initiatives and the programs that we have in place. I think one more thing just for modeling purposes while we're at it, probably as we look at 2026 in particular, Q2 is probably more of a side-step-type activity and then Q3 and Q4, where you're going to see the stair step and then continue on to 2027 with further stair steps. Operator: Your next question comes from the line of Andrea Teixeira with JPM. Andrea Teixeira: So if we step back and analyze the CELSIUS brand as you exit the quarter and some of the puts and takes you mentioned, right, rationalization of the SKUs, can you help us understand like on a more comparable basis, like if the places where you had the [ stats ] perfectly fine in the new planogram you wanted. How has that performed relative to what we calculated being the North America performance for CELSIUS? And in terms of the intersection between Alani and CELSIUS, that has an intersection of consumer, have you seen kind of that cannibalization kind of phase off? Or you think that's going to -- that's the way we should be thinking and take the company as a portfolio and go from there. And then a clarification of the margin commentary that you just gave, should we be thinking so [ side-step ], meaning on a sequential basis, you're probably flattish against first quarter? Or is there any improvement? As you said, you don't -- you obviously have higher aluminum, higher Midwest premium but then you don't have those freight one-timers that you had in the first quarter, how we should be thinking sequentially, as you said, like and then in the second half, above 50% already in the third quarter. Just want to make sure that we understood it correctly. John Fieldly: Excellent questions. Andrea, I appreciate that. Like we've made some prepared remarks as well as some comments earlier, the CELSIUS brand. We're really bullish on the CELSIUS portfolio. It has a unique consumer segment. When you look at the rational optimization that we've done with some of the slower items, as we're getting consistency across the portfolio, we're seeing those SKUs increase velocity with the optimization of larger ACV gains and consistency across the U.S. One thing we know is that we need to have consistent flavors and consistent SKUs amongst all of the retailers. And that's something we've been working on over a variety of years. And we're really leaning in to get that really optimized. So when you come in and you see watermelon, you see Grape Rush. You see a lot of our great flavors in Peach Vibe. It is consistent. Consistency drives repeat purchase. And that's one thing we're really leaning on. Where we saw great success is in the quarter, the organization leaned in on fizz-free. We saw those SKUs optimize at higher velocity rates as it was scaling ACV, which is really promising. We think fizz-free is a great opportunity as a sub-line for CELSIUS we're going to build upon. When you look at the cost of aluminum, and Midwest premium, it is at a high level. And we're keeping -- we're watching that extremely closely. As Jarrod mentioned, on the prior question, those -- if those stay at sustained higher levels, it could provide further impact. When you're looking at Q1 to Q2, we're anticipating for modeling purposes, a sidestep in overall margin with additional opportunities for further enhancements leading into Q3 and Q4 as we progress closer to that low 50% gross profit target. And as the optimizations and investments we're making into vertical integration, that will further help that margin profile as well as the revenue management opportunities and pack size strategies that we have in place. Operator: We have reached the end of the question-and-answer session. I will now turn the call back to John Fieldly, Chairman and CEO, for closing remarks. John Fieldly: Thank you again for joining us today. We believe Q1 was a strong start to the year. We delivered record revenue of $783 million, expanded our portfolio share in tracked channels, completed a major integration milestone with Alani Nu, continued to advance the Rockstar integration, expanded our international footprint with the launch in Spain through Suntory and saw encouraging consumer responses and innovation across both CELSIUS and Alani. We're also entering Q2 with a clear set of priorities. We expect to build upon the recent resets, layer in additional innovation across CELSIUS and Alani Nu and activate the brands across the summer cultural moments, including Formula 1, the global soccer event, music, fitness and motorsports. And we are heading into the most important selling season for the category with a winning portfolio that reaches more consumers and more places and during more occasions. I want to thank everyone for this opportunity. I want to thank our employees and our partners and all of our customers for their focus and their teamwork and making this all possible. So everyone listening today, we appreciate your support and look forward to updating you next quarter. Until then, grab a CELSIUS and live fit. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the ams-OSRAM Conference Call on First Quarter 2026 Results. I'm Sergen, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Juergen Rebel, Head of Investor Relations. Please go ahead, sir. Juergen Rebel: Good morning, everyone. This is Juergen speaking. Welcome to today's call on first quarter 2026 results. Aldo, our CEO, will comment on business performance and our strategic progress. Rainer, our CFO, will then walk you through the financials. Please refer to the Q1 earnings call presentation that is available on our website. Aldo, how did we perform in the first quarter following the launch of our Digital Photonics strategic realignment? Aldo Kamper: Thank you, Juergen, and good morning, everyone. Turning to Slide 3 here. Overall, we delivered a very strong first quarter and made further tangible progress towards our ambition of becoming a focused Digital Photonics powerhouse. On a like-for-like basis, our semiconductor core portfolio grew by 9% year-on-year, clearly underlining that the strategic focus is the right one. Revenue came in well above the midpoint of our guidance range. Adjusted EBITDA reached the upper end. Design win momentum continues unabated across all end markets. From a Digital Photonics perspective, we achieved 2 important milestones in this quarter. First, we are in the process of extending our portfolio of optical components that are decided for the system performance of AI-enabled augmented reality smart glasses covering key functional building blocks. Second, in AI photonics, we signed a development agreement for highly parallel micro emitter array-based so-called slow and wide optical interconnects targeting hyperscaler AI data centers. In parallel, we advanced on execution topics. The simplified transformation program is well underway, and our balance sheet deleveraging plan progressed as planned. The sale of the Entertainment & Industrial lamps business to Ushio closed in early March and cash proceeds were received. The divestment of our non-optical sensor business to Infineon remains well on track with unchanged timing for mid-'26. Finally, we delivered positive free cash flow in Q1. As expected, divestment proceeds offset the seasonally high interest payments that typically occur in the first quarter. With that, let look at the details. Turning to Slide 4. Q1 performance came in stronger than initially expected. Group revenue came in with EUR 796 million, well within the upper half of the guidance spend. Adjusted EBITDA reached 16.5% at the upper end of the guidance, driven mainly by the OS division and a very strong automotive lamps performance. Year-on-year, revenues declined slightly, entirely due to the weaker U.S. dollar with a top line impact of roughly EUR 15 million. On a like-for-like basis, at constant currencies, the group would have grown by approximately 8%. Adjusted EBITDA recently declined modestly year-on-year solely due to the deconsolidation of the specialty lamp business despite the FX headwinds. Let's turn to segment performance on Slide 5. OS held up very well in a typically soft first quarter. Revenues were almost flat quarter-on-quarter. We experienced supply constraints in select product lines due to short-term order increases. Without those, even the sequential growth would have been possible. Margin declined sequentially due to higher gold prices, annual price downs effective January 1 and FX effects. However, it was 2 percentage points higher year-on-year, reflecting higher production volumes that are not fully visible in reported revenues due to the weaker U.S. dollar. CSA delivered a solid performance in the seasonally weakest quarter. Results were driven by continued strong demand for custom sensor products in consumer handheld and a recovery in Industrial & Medical. Revenues were slightly lower year-on-year solely due to declining contribution from exited noncore portfolio activities. Profitability follows typical revenue fall-through dynamics, however, was down year-on-year, which is due to higher R&D expenses to fund growth projects and FX headwinds on top. Lamps & Systems again delivered a very strong quarter. Aftermarket demand remained elevated, including short notice ordering following financial difficulties at a major competitor. Specialty Lamps contributed for only 2 months. Please keep that in mind. The deconsolidation explains why reported revenue did not increase year-on-year. Strong production loading in Q1 supported profitability. Overall, it was mostly a strong quarter across the portfolio. Turning to Slide 6. Adjusting for the weaker dollar and the exited noncore portfolio contribution, the clean core portfolio grew 9% year-on-year. The noncore portfolio is now largely wound down with only residual contribution in the order of magnitude of EUR 10 million. Looking at the markets, Automotive was broadly flat versus a typical seasonal slowdown. After a lackluster start early into the year, we saw a clear ordering uptick in February and March. Given the declining underlying vehicle production outlook, we interpret it as a partial restocking after a prolonged period of very limited inventories, combined with some level of precaution due to the turbulences in the Middle East. All regions performed sequentially better, except China, where end market demand remains softer and competitive intensity is elevated. Industrial & Medical showed a clear recovery. Horticulture had a seasonal low point, but professional lighting demand was solid. Order intake improved materially and order patterns at the end of the quarter point to a solid seasonal upswing into Q2. Consumer followed typical seasonal patterns sequentially. Year-on-year, the decline is explained by FX and the phaseout of noncore portfolio elements. Turning to Slide 7. Q1 is typically the weakest quarter for design win activity, yet momentum remains solid. Total design wins amounted to around EUR 850 million. Naturally design wins are geared towards automotive, but the other verticals also contributed well. In our classic semiconductor core business, automotive remains the backbone with triple-digit million euro contribution across the portfolio and strong momentum in forward lighting. Industrial showed very good traction, particularly professional lighting with customers in the U.S. and Europe, while horticulture performed materially better year-on-year. Consumer continued to see recurring sensor design wins in Android-based smartphones, particularly in display management. On the Digital Photonics side, progress was equally encouraging. EVIYOS continued to add platforms, taking the number of awarded platforms to well above 60. And interest for new designs remain strong, especially in China. Augmented reality, several of our existing components such as ambient light and spectral sensors are already designed into smart glass models available in the market. AI photonics, well, product development for micro-emitter arrays for highly parallel AI optical interconnects has started. And we are not doing this alone. We have signed a collaboration agreement with a strong AI infrastructure partner. We will now look at these Digital Photonics themes in more detail. Turning to Slide 8. Augmented reality, smart glasses are a key Digital Photonics growth theme. While the category is still at an early stage, adoption is accelerating even with today's limited functionality. AI is a game changer, making the glasses potentially in the midterm a replacement of our smartphones. Some of our sensors and LEDs are already designed into several commercially available smart glass models today. Our current and future portfolio covers key functional domains, health and well-being, sensors enabling measurement of parameters such as medicine levels via blue light, heart rate and UV exposure. Privacy and camera performance, spectral and flicker sensors as well as high-performance LEDs. Display engine, today, our LEDs eliminate LCOS displays. Going forward, micro LED arrays can enable sustainably higher brightness resolution and better power efficiency. World sensing compromise gesture and 3D Time-of-Flight sensing. HMI, today, we supply our proven proximity sensors. Tomorrow, we have super tiny optical for sensing buttons in store. And eye tracking can be done with our integrated optical sensing solutions. This illustrates our strategy of focusing on the size of system components built on our core technologies. Content estimates naturally vary depending on volumes, life cycle stage and computer -- customer implementation choices. For this, however, we see content potential between EUR 50 and EUR 100 per device, which underpins the triple-digit million annual revenue opportunities we outlined when launching our Digital Photonics strategy. On to the next highlight today, turning to Slide 9. Our progress in AI photonics is accelerating. I have 3 slides for you. First, where our products will sit in the data center; second, how do we fit in our structure; and third, which components are we targeting. We believe that the so-called slow and wide optical interconnect based on highly parallel micro-emitter arrays can play an important role in future AI data center architectures. And here, slow is relative as we're talking about 8 gigabit switching speed and hundreds of parallel channels. Initially, the focus is on short distance scale-out interconnects achieved between the racks, then scale-up connections within the rack, replacing copper over distances of up to several tens of meters. Over time, chip-to-chip connections, for example, between GPU and high-bandwidth memory could become addressable as well, a really great market potential for us. Turning to Slide 10. It's important to distinguish between integration content and the optical engine technology itself. On the integration side, today's solutions on the upper right rely on pluggable transceivers or active optical cables with energy consumption of up to 30 picojoules per bit. And these solutions, not only longer -- the long copper traces, but typically also signal shaping chips consume quite a lot of power. ToF sensor near port optics can reduce this to roughly 5 to 10 picojoules per bit. The optical engine moves much closer to the ASIC. Co-packaged optics shown on top left, promises further reductions towards 1 to 5 picojoules per bit over time. The optical engine moves as close as possible to the ASIC. Put simply, the closer the optical engine sits to the chip, the lower the electrical losses and the associated thermal load. The slide illustrates this distance comparisons. Independent of the integration approach, optical engines can be implemented either as fast and narrow or slow and wide. Fast and narrow is today's established technology based on indium phosphide lasers, often EMLs and silicon photonics integration concepts. We believe in future slow and wide architectures, highly parallel micro-emitter array-based optical engines that transmit light pulses at chip speed without need for power hungry serializers and deserializers. Key advantages include substantially higher bandwidth density, very low power consumption per bit and inherent redundancy through parallelism. If one micro-emitter fails, no problem, there are enough channels for backup, an important consideration for hyperscale customers. Turning to Slide 11. On the left, you see our prototype, which helped accelerate the signing of a development agreement with our ecosystem partner, a leading AI infrastructure supplier. The table in the center illustrates the simplified technology stack for highly parallel optical interconnects. In essence, you can think of the transmitter side, the receiver side and advanced packaging technology that glues everything together. Our current development focus is on the transmitting side, micro-lens and micro-emitter arrays. Given our CMOS and sensor capabilities, we're also evaluating opportunities on the receiver side. We'll keep you updated as development progresses. With that, let me hand over to Rainer for an update on selected financial aspects. Rainer Irle: Thank you, Aldo. Good morning, everyone. I'm on Slide 12. We generated EUR 37 million free cash flow in Q1, which includes EUR 90 million divestment proceeds. The cash inflow from the sale of the specialty lamps was received early March. Operating cash flow was a breakeven, reflecting the seasonally high interest payments on our senior notes. Higher than a year ago after the EUR 500 million tap we did last summer. CapEx remained disciplined and well below our full year guidance of 8% of revenue. With that, let us take a quick look at the Simplify program that we launched with Q4 announcement in February 10. Turning to Slide 13. Last quarter, we reported that the Re-establish the Base delivered savings 1 year early. The implementation of the remaining measures that had been identified continued. Re-establish the Base program delivered EUR 237 million savings, really a great success. Now in February, we launched a successor Simplify program, which is a broader transformation program aimed at reshaping our operating model and delivering another EUR 200 million of additional annual savings by '28. Happy to announce that all saving measures have been identified and at least 90% of those have already today a high maturity level. Cost, speed, agility are our guiding principle as we reshape our operating model. Implementation started immediately. And after just 1 quarter, the teams have already delivered EUR 5 million of savings, demonstrating disciplined execution continuity. Now, let's have a quick look at liquidity and capital structure on Page 14. In Q1, the interest payments for senior notes were due with the cash proceeds from the sale of the specialty lamps, free cash flow was positive such that our cash on hand position only reduced because we paid back EUR 200 million nominal of the convertible note. And the cash position now stands at EUR 1.3 billion at quarter end. With that, the available liquidity position closed accordingly at EUR 2 billion. It is backed by a diversified mix of instruments, cash revolver and bilateral lines. The sale and leaseback value moved up in line with currency swings and the quarterly interest accrual. And with that, let us zoom in on the coverage of the upcoming short-term maturities on the next slide, which is Page 15. Now we have EUR 1.3 billion cash on hand, and that will be enriched with EUR 570 million from the Infineon deal upon closing somewhere midyear. That gets us to a total of EUR 1.9 billion pro forma cash, and that completely recovers all the near-term maturities, and that is the remaining outstanding convertible bond, which as we paid EUR 200 million is now sitting at EUR 560 million. When we received the money from Infineon, we have 120 days to offer the amount related to the guarantor assets as part to noteholders approximately EUR 130 million. And second, there are some business needs for the transition effects in '26. Basically saying the cash flow will be negative. The EBITDA will be somewhat lower because we are selling business, and there will be some stranded costs that we will be cleaning up. And then there's quite a bit of transformation costs and talking cash flow, the cash outflows from the Simplify program. And then we will be repaying USD 100 million in customer prepayments, and we will reduce because we have so much cash, roughly [ USD 100 million ] in factoring. Now excluding the disposal proceeds, expect the cash flow to be something triple-digit million negative. However, and once we are through that in '27, the free cash flow will be substantially better. And if business remains strong as it is, we expect it to move to positive territory, excluding any additional disposal proceeds and even that we also next year, still have to repay a similar amount of customer prepayments. So excluding disposal proceeds, we expect that next year to be in positive territory. And third, what we will be paying from the existing cash on hand is the tendering of the Osram minority shares after the final verdict, there's no news, but we still have it -- assume that it will come this year. And that should then leave once everything is taken care of at least EUR 500 million cash on hand. And that is the very important point. All upcoming near-term maturities are fully covered. And that obviously then now that is covered, we now have started to focus conceptually on optimizing the cost and the maturity profile of our '29 senior notes, where, as you know, the interest rates are higher than I would love to, and we will keep you posted with what our plans are. And with that, let me hand back to Aldo for the summary and the outlook. Aldo Kamper: Thanks, Rainer. And let me summarize today's call. I'm on Slide 16. In Q1, we beat again our revenue and profitability guidance. The core semiconductor business grew 9% like-for-like. Free cash flow was positive at EUR 37 million. We completed Re-establish the Base with EUR 237 million savings a year early and started executing Simplify. In Digital Photonics, we continue to progress on the comprehensive component portfolio for AI-enabled smart glasses, giving us a content opportunity between EUR 50 and EUR 100 per smart glass. We initiated the product development of micro-emitter array-based AI optical interconnects together with the commercialization partner. We also progressed in balance sheet deleveraging the Specialty Lamp transaction closed and proceeds were received and the Infineon transaction remains on track. No changes to the indicated closing timeline of mid of this year. Now to the outlook for the second quarter. We expect revenues between EUR 725 million and EUR 825 million, with adjusted EBITDA around 15.5% plus/minus 1.5 percentage points based on euro-dollar of 1.17. The traditional auto lamps business will show the usual seasonal slowdown in view of the overall rate in the aftermarket. Remember, all non-automotive business was transferred to Ushio. We still have EUR 10 million revenue in Q1 and 0 in Q2, obviously. Semis will make a step forward in Q2 more than typical seasonality. We see strong order intake and book-to-bill higher than previous quarters. Our full year 2026 outlook remains unchanged at the moment. Group revenues modestly softer given the divestment and FX. Adjusted EBITDA of around 15.5%, plus/minus 1.5 percentage points, assuming euro-dollar of 1.17. Adjusted EBITDA will be negatively impacted by several one-offs, the divestments, stranded costs, precious metal prices and other factors. Free cash flow, we expect above EUR 300 million, including divestment proceeds. Into 2027, we see a path to positive free cash flow without any divestment proceeds even with repaying a similar amount of customer prepayments. And with that, we are through the presentation, and we're happy to take your questions. Operator: [Operator Instructions] And we have the first question coming from Harry Blaiklock from UBS. Harry Blaiklock: The first one is just on the micro LED optical networking opportunity. I think previously, you said it's kind of a 2030 plus revenue opportunity for you. But given the announcement today and then also kind of industry announcements about commercializing solutions as early as 2027. How are you thinking about the timelines on when you could see revenues? Aldo Kamper: Yes. Thanks, Harry. That's a very good question. The industry is hyper quick and really waiting for solutions here. We're working very hard on those solutions together with our partners. And I think timing-wise, we are definitely before 2030. Whether it's as early as 2027, I can't tell you yet, but we definitely see this as an opportunity in the next few years, not in the far future. Harry Blaiklock: Okay. Great. And just maybe a follow-up on that. It was good to see that you're addressing kind of multiple elements of the full solution. If you look at kind of the elements that you have in development and consideration, so the emitter, the lens and the diode array, how -- are you able to give kind of like a rough split of like what your -- like what percent -- so yes, the relative kind of content size for you of each of those? What would be the -- yes, what would be the biggest content for you? Aldo Kamper: Well, let me answer it this way. I think we have said that by 2030, we see this as a triple million dollar opportunity, and we continue to see that at least. And that was a statement based on just the micro-emitter array and the micro lens array on top. So if we actually add more to that, if we also do the photodiodes or the amplifier or the driver underneath the LED, that would be further revenue potential for the group. Harry Blaiklock: Super helpful. And then just maybe a quick one on the short term. The guide for Q2 of typical seasonal decline in the semiconductor business, given the portfolio changes over the years, it's kind of tough for us to know what exactly seasonal is. Wondering whether we could get a little bit of help on that. Aldo Kamper: I think automotive will do quite well in the second quarter. Also horticulture will start to pick up ahead of the season. So those are positives. And also with the little precaution that we also mentioned in the text before that at the moment, we are still a bit uncertain on how to interpret this good order intake at the moment. The number of cars, of course, are not going up, it's going down probably being built globally. Yes, content per vehicle is rising, but the order intake at the moment is quite strong. So we do think that it's part of restocking and not taking risk out of the supply chain given the global uncertainties. But at the moment, encouraging, and we hope it continues that way. Obviously, consumer goes down quarter-on-quarter, that is normal and then Q3, of course, being usually the strongest quarter for consumer. Professional lighting, pretty steady, I would say, and lamps, automotive lamps, in principle down. I mean the lighting season is over. Obviously, that is always Q4, Q1. So Q2 will be lower there. But here, we benefit from the financial troubles of our major competitor and also see here additional orders coming in that might limit the negativity of the normal seasonality in this. Operator: The next question comes from Sebastien Sztabowicz from Kepler Cheuvreux. Sébastien Sztabowicz: You mentioned in the press release some tough competition in the automotive business in China. At the same time, we are seeing capacity getting a bit tighter in many areas of the market and some peers raising prices. I'm just curious about how do you see prices trending at AMS for the coming months? And the second one is on the free cash flow. You mentioned for this year free cash flow to be significantly negative excluding divestments. Could you please help us quantify the kind of cash burn we can expect for this year? Do you have some building blocks to understand a little bit the magnitude of the range of negative free cash flow we can expect for 2026? Aldo Kamper: Yes. On the pricing side, I would say on the one hand, competitive pressure in China is increasing. Our customers are under a lot of pressure. Vehicle volumes are going down, so that puts them even more under pressure. And of course, they're looking to the supply chain as well to contribute. And that has somewhat limited our ability to pass on the cost increases that we also spoke about last quarter. At the moment, we see in the LED space, neither from us nor from others price increases, but we do see more limited price declines than we otherwise would have seen. So kind of an indirect effect that you see there. In the sensor business, actually, we are selectively raising prices like others as well. And also in the automotive lamp business, we are selectively raising prices for increased input costs. So that's kind of the overall pricing dynamic, I would say. Towards China, perhaps important. The remark I made before on the vials, I think that's really nice to see. Yes, of course, on the more standard parts, there is competitive pressure. However, China is also now really an innovation-driven market for us and our innovations like these high-pixelated headlamps are really designed in much more widely also in China now, and that gives us good hope that we will continue to see a strong market position for us in China. On top of that, by the way, we, of course, are also grabbing share, mainly from our international competitors. You probably know that the Samsung has exited the market. We've got quite a bit of share there. Also, other American competitors are struggling, and that helps us to expand our position. In that sense, we look with confidence in the future. But it's -- yes, at the same time, not an easy market. Rainer Irle: Yes. And Sebastien, on the cash flow. So maybe if you try to build a bridge compared to last year, first of all, I mean, the public funding will be significantly less. Last year, we got like 2 tranches. This year, we only get one. Number two, we're repaying customer prepayments, which is roughly $100 million or EUR 80 million. Number three, from the new Simplify savings program, where we want to achieve EUR 200 million of savings. I mean that also comes with a onetime cost of more than EUR 100 million. I mean trying to pay as much as possible of that this year, so to have as much as possible behind us. And finally, then the factoring, which I mean cost a lot of money also given the high cash position, we want to reduce that. Let's say the EUR 100 million, and that is obviously also then an element of the free cash flow. Then when it comes to the business, yes, the EBITDA will be down, and that also certainly then ends in a bit lower cash flow. That is from the divested businesses, right? We said that the divestment of those businesses plus the stranded cost would be on an annualized basis, something like around EUR 75 million. The stranded costs we are obviously working on. But then on the positive side, as Aldo pointed out, the business is certainly improving. I think the guidance for Q2 is quite optimistic if you compare it to the last year Q1 to Q2 bridge, right? So business is running well. We are getting NREs from customers. So there's also a lot of positives in there. But I mean, if you count it together, free cash flow will be significantly negative this year. Operator: The next question comes from Janardan Menon from Jefferies. Janardan Menon: I just have -- I have 2 questions, one on your AI-related photonics business and one on your AR glasses. On the AI side, on your press release, you -- on the front page, you had said that you have signed a development agreement with a leading AI data center infrastructure partner. And on the second page, you've said that you've signed it with a leading AI photonics industry partner. I'm just a bit confused because when I hear the word AI data center infrastructure partner, I sort of think of a hyperscaler. And when I think of an AI photonics partner, I think of someone like a Lumentum or maybe even [ CNM ] or someone like that. So can you give us some clarity on what exactly is the nature of this partner that you have got a development agreement with? And secondly, in a development agreement, is it that they pay you money and you do all the development? Or is it that you're sort of sitting in their premises as well or they're doing half the development, you're doing half the development. Just an understanding on how that works. And I have a follow-up on the AR glasses. Aldo Kamper: Yes. To start with the second part of your question. I mean all these systems are still so new that it requires development on both sides. I mean we have to optimize and design our part of the system and develop that to the right performance and reliability levels. At the same time, it needs to be well integrated into the larger solution to really be effective. So in that sense, both parties have to contribute here and be in close alignment. And that's why in these new fields, it's so important that you find lead customers that you can together design and optimize the systems with that just tremendously increases your likelihood of success and your ability to be fast. Much more detail on the kind of partner that we have, we cannot give. But obviously, it is about photonics. We are about photonics. It's clear that the data rates and the energy they require is a major topic. So anything we can do to optimize that, this is highly welcome, and we expect also then this technology to scale with other partners as well in the future. Janardan Menon: Yes. So you can't give a nudge on whether this partner is someone who builds the data center. Aldo Kamper: Sorry. Janardan Menon: Okay. And then on the AR glasses, you're saying that you already are shipping some of these components into the market right now. So I'm just wondering what needs to change when you are going to get that triple-digit million euro kind of revenue number? Is it that you need a big customer to start volume production with your components and today, you're selling to smaller customers? Or is it that you need the microLED array itself to start shipping because that might be a high-value component in contrast to LCOS trajectory or something like that? I mean what is the change that we're waiting for to get that triple-digit million euro? Aldo Kamper: Yes. Both factors will kick in. We will -- for the LCOS, we supply some high-power LEDs. That's nice, but it's not a major value driver yet. The move to microLED-based engines will be the major step-up for us. And of course, I mean, these glasses are now in being utilized more and more, and there will be a significant demand increase, we feel with next-generation smart glasses. They just are getting better and better from generation to generation, more and more attractive. So we expect the volumes to go up significantly. And at the moment, the majority of AI glasses is sold without a display. Now, our first simple displays with LCOS are being sold with the microLED, we think that the glasses will gain a lot of more momentum with picture quality being better, bigger field of use and so on, smarter designs. So we think this category will do quite well. And with the rising volumes and a higher content per phone, that will help. However, at the same time, I think also beyond that, there's interesting potential as we outlined. It is not only the light engine. Also other parts we feel we are quite well positioned in. And they, of course, will also then scale with more customers and higher volumes of the sales of the smart glasses in total. Janardan Menon: And again, any kind of time horizon for the triple digit? Is that -- is there a chance that, that could happen in '27? Or are we looking beyond that? Aldo Kamper: I can't really comment on that because as you can understand, our customers are always quite tight on timing of their launches. But it's going to be good this decade. Janardan Menon: It's definitely closer than the AI. Aldo Kamper: Yes. Operator: The next question comes from Craig Mcdowell from JPMorgan. Craig Mcdowell: My first one was just a reminder, please, on your smartphone exposure. It seems to be an end market that could be challenged in '26, maybe '27 as well. Just if you could give your revenue exposure to smartphone and then how that is trending? And then my second question, just on the Kulim-2 sale process and just any update there? It seems like the industry is scrambling for capacity, and this seems like it could be an interesting asset for a buyer. But if you're able to give any update on the process, that would be helpful. Aldo Kamper: Yes. If you -- on the smartphone side, we're probably talking EUR 600 million, EUR 700 million revenue that is tied to that space. We have to now at the moment, look very much of who is getting memory and who isn't. And you can imagine that the top cell phone makers that we often bet with are the ones that are getting the memory and the lower and midrange phones get less of it or struggle more with the prices that memory at the moment commands. So yes, I agree with you, there might be somewhat of an impact. But so far, we're not really seeing it given the positive customer mix in this aspect. On Kulim-2, yes, nothing really changed. We keep having inbounds. We keep having good discussions, but we also cannot say that the timing is around the corner. So yes, we'll inform you as soon as something gets more tangible. But yes, at the moment, no real change to versus what we've said last quarter. Craig Mcdowell: And can I just -- sorry, a brief follow-up, but just can I ask on the Q2 guidance, whether that includes any divestment from the Infineon disposal? Or is that only impacting Q3? Rainer Irle: Yes. Craig, the guidance assumes the closing of the transaction midyear. So the impact of the disposal would then be seen in Q3. The Q2 guidance, though includes the disposal of the traditional lamps business, right? So in a way, if you subtract the revenue that we are losing from the traditional business and you look at midpoint compared to Q1, you could say that it's more or less flat. Operator: The next question comes from Robert Sanders from Deutsche Bank. Robert Sanders: Maybe just a question on the AI opportunity. I mean, obviously, there's a lot of development happening on co-packaged optics at the moment. I would say most of those solutions are relatively mature, so probably a bit more insertion for you guys. Is the idea to -- in the CPO side to insert in a later version? Or is it more as we transition to optical IO that you're going to get sort of broad-based adoption? And then just secondarily, in terms of your thoughts about triple-digit million by 2030, is that based on a couple of hyperscalers that are clearly championing microLED? Or is it based on a portion of the indium phosphide market that you think you're going to penetrate? Aldo Kamper: Well, I think the overall AI opportunity is huge. And there's a lot of, I would say, sub applications or spaces where optical technology will be helpful in getting higher bandwidth at lower energy consumption. Obviously, CPO and indium phosphide lasers are the coming waves that are heavily being invested in. However, we feel that not all of the system -- not the whole system architecture can be optimally addressed with that. So there will be significant pockets that we feel this technology that we are developing will find a place besides or beyond fast and narrow. So it's -- the estimate of the revenue contribution really comes from us finding the right spots in this overall market. And the customer discussions show that clearly that they also see that indium phosphide is a good solution, but there are places where narrow and wide has a limit and where wide and fast actually can play out the advantages. And especially, I think in the longer term, the chip-to-chip communication, I think this is definitely a space where slow and wide can do a lot of good. Robert Sanders: And would you be open to a kind of strategic relationship like you had with your microLED relationship in the past on the consumer side? Or is this something you just want to sell lots of merchant LEDs to different players like Avicena and others that are creating the module? Aldo Kamper: No, we want -- we clearly want those relationships ourselves. Besides my private life, I'm very open for multiple relations. And here, we -- I think we'll see that different -- first of all, it's important that we find the right lead customer for the right type of application. In the AI space, I think we will see different parts of the application being potentially spearheaded by different people. So also in that case, even within AI, I can imagine that at the end of the day, we will have one with several partners to develop specific solutions for specific parts of the whole chain. Once we normally develop with our partners, then of course, we first want to fully support them and scale with them. But usually, we have a common interest to scale beyond that first partner because that brings overall volumes up and cost down, which is then good for everybody. So that's kind of the thought model that we have been using already in the early days in automotive, are now using it in the AR opportunities, and we'll do so also with the opportunities in AI in a similar fashion. Operator: There are no more questions at this time. I would now like to turn the conference back over to Juergen Rebel for any closing remarks. Juergen Rebel: Yes. Thank you, speaker. I'd like to thank everyone for dialing-in today. Thanks to the analysts for your questions. And as always, we are ready for follow-on questions from the Investor Relations team, just reach out to us. And with that, we wish you a great rest of the week and speaking to you soon or latest in the next quarter. Thank you, and goodbye. Operator: Ladies and gentlemen, the conference is now over. You may now disconnect your lines. Goodbye.
Operator: Thank you for standing by, and welcome to Napatech's First Quarter 2026 Interim Management Statement. [Operator Instructions]. And finally, I would like to advise all participants that this call is being recorded. I'd now like to welcome Klaus Skorrup, CFO, to begin the conference. Klaus, over to you. Klaus Skovrup: Good morning. I'm Klaus Skovrup, CFO of Napatech. I am pleased to welcome you all to Napatech's presentation for the first quarter of 2026. Joining me today is our CEO, Kartik Srinivasan. Our first quarter 2026 report was released earlier this morning on the Oslo Stock Exchange and is also available on the Investor Relations section of the Napatech website. For your information, a recording of this webcast will be available later today. There will be a question-and-answer session following the presentation Please note that this presentation contains forward-looking statements that are subject to risks and uncertainties. Our actual results may differ from those discussed in forward-looking statements. For further information on risk factors, please see company announcement and the slides prepared for this presentation. With that, over to you, Kartik. Kartik Srinivasan: Thank you, Klaus, and hello, everyone. Let me start with a brief summary of the quarter. We saw continued strengthening in our financial performance and early signs of demand recovery in the core infrastructure market, supported by disciplined execution across the business. At the same time, we are seeing accelerating momentum in our design win pipeline across both core and AI infrastructures. Importantly, this pipeline is increasingly progressing towards production, which we expect to translate into revenue over time. Finally, our product positioning remains highly differentiated. As AI workloads scale, the network has emerged as a critical bottleneck and our deterministic programmable architecture is well aligned with these evolving requirements. Overall, the quarter reflects improving fundamentals, building momentum and a clear positioning for the next phase of growth. Turning into our financial performance for the quarter. We delivered revenue of $5.7 million, representing 69% year-over-year growth, primarily driven by our improved demand in our core infrastructure business. Gross margins remained strong at 70%, reflecting a favorable product mix and continued discipline in execution. We're also seeing improvement in revenue trends, indicating early signs of recovery in our core infrastructure markets. With all this, while our guidance for 2026 remains unchanged, we continue to focus on consistent execution and converting pipeline into revenue over the course of the year. Turning to business momentum. On the core infrastructure side, we saw solid activity in the quarter with 5 new design wins, continued pipeline expansion across verticals and new customer engagements. We also converted a key design win in the financial infrastructure. This is a production-oriented engagement with a multiyear opportunity. And importantly, we view this as a repeatable use case across similar customers. I will go into a bit more detail on this space in my next slide. On the AI and infrastructure side, we continue to make steady and tangible progress. Our technical deliverables are on track and validation and testing activities are progressing as planned. At the same time, we are seeing continued collaboration as we advance overall solution readiness towards production. In parallel, our engagement with a Tier 1 server OEM continues to progress with use cases defined, product deliverables aligned and commercial discussions underway. Overall, we are seeing strong execution in core infrastructure alongside meaningful progress in AI as both areas contribute meaningfully to our growth trajectory. I'll now take a moment to highlight one of our core infrastructure verticals, financial trading networks. These are mission-critical, latency-sensitive environments where performance is defined not just by speed, but by consistency and determinism. Typical applications in this space include real-time market data capture and normalization, feed handling, trading signal generation and order execution, where even microseconds of variation can impact outcomes. Our customers in this segment include global banks, hedge funds, proprietary trading firms and exchanges, all operating highly performance-sensitive infrastructure. In these environments, the network sits directly in the critical path and increasingly becomes the limiting factor for performance. This is where Napatech's architecture is well aligned, enabling deterministic ultra-low latency processing with high reliability. Importantly, this is a repeatable use case with deployments across leading financial institutions and clear expansion potential over time. Let me now turn to AI infrastructure and how Napatech's role in this space is becoming increasingly critical. As AI workloads scale, performance is increasingly constrained by the network rather than compute. Moving data efficiently between AI compute, memory and storage has become a critical challenge. Importantly, we view this not as a linear or evolutionary shift, but as a more fundamental change in how compute, networking and memory interact, requiring a different architecture to scale efficiently, both from a performance and energy standpoint. Traditional networking introduces variability, congestion and CPU overhead, which limits overall system efficiency and utilization. What we enable is a fundamentally different approach, deterministic programmable networking that sits directly in the data path. This allows for consistent low latency movement, improved utilization of compute resources and more efficient scaling of AI workloads. In practical terms, this applies across applications such as distributed inference pipelines, data preprocessing and storage access used by hyperscalers and enterprise AI deployments. Overall, we see this as a structural shift in the market where networking becomes a key lever for performance and efficiency and where our architecture is well aligned. Before I hand it over, just to summarize, we are seeing strengthening financial performance, solid momentum in our core infrastructure business and continued progress in AI as we position for the next phase of growth. With that, I'll turn it over to Klaus to walk through the financials in more detail and provide an update on our outlook. Klaus Skovrup: Thank you, Kartik. We entered the year with a strong revenue in Q1 of $5.7 million, up 69% compared to Q1 last year. And as Kartik mentioned, the performance reflects continued customer engagement across our core infrastructure segment solutions. Our gross margin in Q1 was 70%, in line with last year. Our staff costs and other external costs in Q1 amounted to DKK 44.5 million, down 9% compared to Q1 2025, mainly due to reduced cost of subcontractors and personnel during 2025 to balance cost to the revenue. In Q1, we capitalized DKK 810,000 compared to DKK 3.1 million in Q1 2025. You can also read that our EBITDA in Q1 2026 amounted to a negative amount of DKK 18 million, which is an improvement of DKK 11 million compared to Q1 last year. Free cash flow in Q1 was negative of DKK 5.8 million following the negative EBITDA, which was partly covered by an improvement in our working capital. We still have more than DKK 120 million in available cash. While we still have focus on reducing inventory, we are increasingly also preordering to make sure we can meet customer demand, especially now where we do see increased lead times for range of components. The positive development in receivables was driven by customers paying their invoices from December 2025 during Q1 '26. Net working capital at the end of Q1 was DKK 73 million, a reduction of DKK 8 million compared to Q4 '25. Net cash flow from financing activities for Q1 was negative DKK 23 million as we did not draw on our credit facilities by the end of Q1. We continue to manage the business with a strong focus on cost discipline and cash preservation. Our guidance for the full year 2026 is unchanged compared to our latest reporting, as Kartik mentioned. So here, we are guiding units to be sold to be expected between 8,700 and 10,700. We expect a revenue between $32 million and $38 million, which corresponds to around DKK 200 million to DKK 240 million, ending in the middle of the range would be equal to a growth of more than 50% compared to 2025. Our gross margin interval is expected to end between 60% and 70%, and we expect staff expenses and other external costs to end in the range of DKK 170 million to DKK 180 million. Staff costs transferred to capitalized development costs are expected to be DKK 5 million to DKK 8 million in 2026. As we wrap up today's presentation, we would like to invite you to visit Napatech at one of these upcoming events. Our full year event plan is shown online at the link provided. And if you happen to be in one of these great cities during the coming period, we would love to meet you in person. With that, we are now ready for the Q&A. Operator, we are now ready to take the first question. Operator: And your first question comes from the line of Christoffer Bjørnsen of DNB Carnegie. Christoffer Bjørnsen: Can you just give some more color on how you are progressing both with the Tier 1 server OEM and with the d-Matrix relationships on the server OEM, perhaps a bit more flavor on where you are in terms of the steps towards commercialization and how you think about timing there? And then in general, both, especially on d-Matrix, whether you feel that the inventory that you added in the quarter is kind of sufficient to prep you for the ramp with d-Matrix or if we should see a proper increase in Q2? Kartik Srinivasan: Thank you, Christoffer for that question. So I'll kind of break this into 2 parts. One is on the AI inference customer. We are progressing from our technical deliverable standpoint as well as commercial deliverable standpoint on track. We remain convinced and excited about that opportunity. And again, the variable here is just the timing of this. To your question about are we changing our supply or planning in terms of how we want to fulfill it. We're sticking to what our guidance is there. We had already factored in orders coming in from them. And so there's no change to that plan as far as that AI infrastructure customer is concerned. And as far as the Tier 1 server OEM, Christoffer, that's progressing well on plan. We have alignment on the statement of work. We have alignment on the features, performance, cost, schedule, et cetera. So things are looking good there. Again, the same kind of response applies. We are delivering to our requirements. When that converts into some sort of meaningful thing remains to be seen. But we have some amount of orders in 2026 baked in from the Tier 1 server OEM as well, which we are not changing right now. Operator: And you have a question from Anders Knudsen private investor. Anders Knudsen: Just on the 5 design wins, could you perhaps give us a bit more flavor on those in terms of potential and also timeline? Are they impacting '26 by any means? And also on the recent design win within the financials, when do you expect to see it convert into the revenue that you have guided for? Is that in Q2 or in Q4? Or when is that going to happen? Kartik Srinivasan: Yes. Thank you for the question. The design win momentum that we speak about, both of those are pertaining to the core infrastructure the 5 new design wins that we had, each of them will track a different kind of path towards production. And some of these may actually impact 2026, but again, no change to our plan there. But these tend to be a bit drawn in how they convert from a design win into full production. It can be anywhere between 6 and 9 months for an existing product, which is why the core infrastructure market is so lucrative for us. We do turnkey solutions in that space to an existing well-known robust customer base. On the other side of the key design win that we announced -- on the financial side, we are expecting the first $1.5 million that we spoke about, that is expected within the next couple of months. So that will definitely hit our 2026 revenue, and that's kind of part of our plan. And the rest of the opportunity will kind of extend into '27 and beyond there. So that's kind of how the timing of the financial institution revenue looks like. Anders Knudsen: What's the financial design win baked into your original guidance? Kartik Srinivasan: Yes. So the way this works is we do have a lot of proof-of-concept designs that we do on an annual basis. And at any given point, each one of these or a few of these can actually convert into a design win like this for us. So we've done data analytics based on how we are engaging with these customers or segments, and we baked that into our assessment for 2026. So this was not something that came as a complete surprise. This is already baked into what we were expecting. Operator: And your next question is from the line of Øystein Lodgaard, of ABG. Øystein Lodgaard: Congrats on the strong growth in Q1. So I guess this kind of reflects the good momentum in your traditional SmartNIC business. Can you say kind of what kind of verticals, what kind of use cases are you seeing strong growth? And how you kind of expect kind of the traditional SmartNIC business to move throughout the year? Should we anticipate kind of normal seasonality from here that it strengthens in the second half? Or is kind of some kind of a large one-off contract or something in Q1, so we shouldn't kind of fully extrapolate that? Kartik Srinivasan: Yes. Fantastic question. Thank you for asking that. So we do -- there is a reason why we kind of placed the definitions of our market segments as core infrastructure and AI infrastructure. Within the core infrastructure, which is where we are seeing early signs of kind of demand recovery, that breaks down for us into at least 4 big verticals that is fintech, telco, cybersecurity and network packet monitoring. Each one of those segments represents individual growth areas for us. Like we announced in the fintech space, we converted a design win into revenue. But we also expect alongside the cybersecurity, packet monitoring and telco businesses are showing signs of early recovery as well. So we're expecting that to play a part in our 2026 performance. Øystein Lodgaard: And can you say something about in terms of new design wins in the AI infrastructure area? Are you working on many leads there? What are you seeing in that area in terms of new potential design wins? Kartik Srinivasan: Yes, there is a lot of engagement there. That is actually the more fascinating place for how fast that space is evolving. One thing I can definitely tell you with a lot of confidence is the AI infrastructure is no longer a compute problem. It is an efficiency problem, which immediately translates to 2 components of the data center that come into question. One is networking and the other is memory. And you will see that, that's why there is a lot of requirements, a lot of specifications, a lot of consortium being formed around what to do in the space of networking. Big hyperscalers are putting out specs, consortiums are putting out specs. And this is an exciting time for a company like Napatech because we are fundamentally based on programmable networking. Our architecture, our products are built to deliver to an evolving paradigm, which is what the AI infrastructure market is going through right now. So I am very confident and excited about this space, and there's a lot of activity that we are currently in, and I'll be the first one to come here and tell you as they convert into some sort of design wins. Operator: And this does conclude our Q&A session via the phone. I would like to hand back to management for any written questions and closing remarks. Klaus Skovrup: Thank you. And we do have some written questions here. I'll just see whether I can group them a little bit. So there's one here from [indiscernible]. A few questions. What is your visibility on H2 AI orders? How will ramp look like? And maybe we'll just start with that and then we'll take the rest of the question. I think you spoke a little bit into it already, Kartik. Kartik Srinivasan: Yes. So the second half of our 2026 is going to be exciting as well because that's when we start seeing some of our AI infrastructure revenue starting to materialize. I think we had mentioned that a good chunk of the 2026 revenue for us will still be based on core infrastructure and the AI infrastructure will probably be about 20%, and that's kind of still the mix that we're expecting for 2026. Klaus Skovrup: And then regarding the Tier 1 OEM, have you lost any opportunities? Kartik Srinivasan: No. Actually, we have not. In fact, we are in a very favorable position within the Tier 1 OEM. I remember using an expression the last time I was here called the hub-and-spoke model, which basically translates to we are very much engaged with the technology team, which is the hub, and then there is a few spokes that lead to the product teams. That model is still strong for us, and we are excited about delivering what we are calling the next-generation data reduction technology, which is extremely important in the AI infrastructure world as you're loading in huge large language models, compression and deduplication becomes a very important aspect of how data gets rolled out. And that's exactly the critical application or use case that we are delivering in this proof of concept. Klaus Skovrup: And then maybe just jumping to [indiscernible], who has a question here. How is the progress in proof of concept with the Tier 1? That's what you just explained. And when can we expect to be part of their sales in their server sales? Kartik Srinivasan: Yes. So the conversion of these designs into revenue and productization, that's kind of the variable in play here. We do have some level of early orders baked into our 2026 revenue like we discussed. But when that converts into material production and revenue, that remains to be seen. Klaus Skovrup: Yes. And then a follow-up question for Lars Knutsen (sic) here. Are there other opportunities arising with other players within AI infrastructure? Kartik Srinivasan: Yes. So that is the engagement or the set of engagements that I've been talking about. We do have to the capability that we have as a company to deliver, we have been selective on how we engage because at the end of the day, we have to prioritize how we deliver and make sure that our deliverable is robust. But yes, there is a set of engagements that we have on the AI infrastructure, which follows our design win pipeline, 4-stage pipeline routine. Klaus Skovrup: Then there's a question here from Ola Millingstad (sic). You're right that first orders from AI infrastructure will come in H2. Could you be specific how many dollars of your '26 guidance of USD 30 million to USD 37 million assume AI infrastructure deliveries? And if H2 AI orders come in as, how does that change the full year picture? Kartik Srinivasan: Yes. So our 2026 revenue profile will still be significantly biased towards the core infrastructure. I think we -- last time we were here, we said about 20% of that is going to be coming in from AI. That's what the numbers look like. And of course, if the AI orders don't materialize, then that's what the impact is going to be. Klaus Skovrup: And let me just see other related to this, I think that is in earlier presentation, this [indiscernible] in earlier presentation, it has been said just 20% of the forecast from d-Matrix is taken into Napa's forecast for '26. Is this still valid? Kartik Srinivasan: Yes. yes. So I think that observation of yours is still what we are tracking for 2026. Klaus Skovrup: I think the point here is that d-Matrix may have a higher forecast and then we have only taken 20% of that in. So I think the point is that currently, our guidance that's based on our expectations of what orders are coming from d-Matrix. Kartik Srinivasan: Right. Right, correct. Klaus Skovrup: Yes. Then there's one here from [indiscernible] again. d-Matrix acquired GigaIO to build a complete rack scale system. How has that changed your role at d-Matrix? Are you still the scale-out NIC in the SquadRack reference architecture? Or is there a risk they switch to a different supplier as they build out their own stack? Kartik Srinivasan: A good question, and I'm sure a lot of people have the same thing, and I'm so a lot, I'm glad that you asked it. Our relationship with them remains as strong as ever. In fact, it's even getting stronger because of the requirements that are unfolding for us as they themselves are evolving in this landscape very rapidly. The requirements are coming in towards production, and we have completed the first stage, and we're already embarking on the next-generation kind of engagement to see what that looks like. The Giga -- and of course, a lot of these questions are for the d-Matrix to answer. But the acquisition that they made of the GigaIO data center assets that definitely enables them to build more of a rack scale architecture of which we are singularly the component delivering scale-out networking. Klaus Skovrup: And then there's a question here from Lisa [indiscernible]. You cite commercial discussions underway on the Tier 1 server OEM design win. Does that mean that proof of concept has been achieved? Where are you currently in the qualification process? Kartik Srinivasan: Right. As part of the design win engagement that we are having with the Tier 1, starting commercial discussions typically indicates that there is activity across the 3 groups that make decisions at these kind of places. So we have alignment with the executives. We have alignment with product management and engineering, and now we are working on alignment with commercial. And once all of those move forward, that converts into product and then converts into revenue. So moving into the commercial stage or activating the commercial stage is a strong indication that things are making good progress towards production. Klaus Skovrup: Yes. And also from Lisa here, can you also give some color on expected revenue ramp-up for the remainder of the year, given that Q1 was seasonally very strong. Kartik Srinivasan: Yes. So there is definitely seasonality that we will still continue tracking towards -- throughout our 2026 revenue. And because our 2026 revenue is still heavily based on core infrastructure, the seasonality will mimic prior year seasonality, not necessarily in the absolute dollars, but at least in direction. So you can expect some of that to be similar in 2026. Klaus Skovrup: Yes. And then a question here from Terry Jensen. Why is revenue for Q1 lower than revenue in Q4? And I think that was what you just explained, Kartik, also that we do see seasonality. And usually, Q1 is our weakest quarter, whereas Q4 is the strongest. And then there's the last question here from [indiscernible]. What's the time line from your order cart from you order carts to have it in stock? Any limitations? Kartik Srinivasan: Yes. So again, very good question across the overall supply chain management and planning there. So our demand planning cycle or at least process is no longer limited by demand. It's actually just what we have to -- how we manage our supply. The lead times across critical components that we put in our adapters and solutions, including the likes of FPGAs and the memory components are seeing longer lead times and, of course, volatility in availability. But the good news is that our engagement with our customers allows us to have a solid level of visibility into how we plan our quarterly delivery. And we have put some mitigation factors in place as well by some level of prepurchasing of these parts, both across FPGAs and memory. So this allows us to deliver our products to plan to the '26 revenue as well as towards what the customer requirements are in the quarterly distribution of our products. Klaus Skovrup: Good. I think that summed up the last question we had in written form as in the Q&A. Good. And I don't think there's more coming in here. Operator, is there more questions on the line? Operator: There are no further questions on the phones. Klaus Skovrup: Thank you. Then I want to thank everyone for listening in. Enjoy the day, everyone. Thank you. Kartik Srinivasan: Thank you. Operator: This concludes today's call. Thank you for joining. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the SGL Carbon Conference Call Results for the First Quarter of 2026. I am Mattilda, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Claudia Kellert. Please go ahead. Claudia Kellert: Yes. Thank you. Good afternoon, and a very warm welcome to our today's conference call. We would like to give you an overview about the business development of the first three months in 2026 and a short overview on the current sentiment today. Andreas Klein, our CEO; and Thomas Dippold, our CFO, will lead the presentation and will answer your questions. So let's start. So I hand over to Thomas Dippold for the financials. Thomas Dippold: Hello, everybody. This is Thomas. It's my pleasure and my privilege to guide you through the results for the first quarter. And as a summary, we can clearly state that our top line, as we already anticipated, and I think as everybody of you joining this call already know, is influenced to a large extent by discontinued unprofitable business activities, which we closed down in the course of the year 2024. And therefore, we cannot repeat this unprofitable sales in this year. We also suffer in some sales drops in Graphite Solutions and also Process Tech and the three effects, all in all, stand for, which you can see on this slide here on Slide #3, they stand for a reduction of our group sales of EUR 50 million or 21.3%, coming from EUR 234 million in the first quarter last year to EUR 184 million this year. And as I said, EUR 28 million clearly can be attributed to the discontinuation of the carbon fiber activities in Lavradio and Moses Lake, which we closed roughly at half year 2025. In Graphite Solutions, we still see weak demand from our silicon carbide customers. The inventory levels are still very high. However, what we are trying to do there is on an individual customer basis, we try to renegotiate with them in a partnership way, some specific adjustment of the CTP contract. And one of them is already in Q1, but I come to that when we talk about Graphite Solutions in particular. And for the first time since four years, the continuous growth, at least in profitability and a stable -- roughly stable sales platform. Also Process Tech suffered a severe downturn in the market. We have anticipated that also in a way. We had always, as you remember that in the second half of last year, already a declining book-to-bill ratio. And this now kicks in, and therefore, also our sales in Q1 for Process Tech suffer. And these three factors influence our top line. However, we managed to keep the EBITDA pre on a group level in, I think, a moderate way in just a moderate decline. Our EBITDA dropped by EUR 4 million coming from EUR 33.5 million in the first quarter 2025. And in the first three months of this year, we reached EUR 29.6 million. So it's a decline by 11.6%, which is less than the decline in our top line. And how does it come from -- or where does it come from? We have lower contributions, of course, from the high-margin silicon carbide business in Graphite Solutions. We have lower contributions from Process Technology, where in the past, you remember that we also saw margins of about 25% and beyond. But we can compensate that with continuous cost savings and our ambition to keep the cost intact. Our EBITDA pre margin increased to, I think, a very healthy 16% for a company which is so capital intensive like us. And this is exactly as we predicted Q1 and which is exactly in line with our guidance. We come to that later in the next chapter. Now on Slide #5, coming to the individual business units, Graphite Solutions, as I already just pointed out, suffered an 8.8% decline in the top line, which stands for EUR 10 million, coming from EUR 116 million last year to now EUR 106. This is influenced in the top line in sales, in EBITDA and also in cash by one settlement with one of our CDP silicon carbide customers, where we anticipate future sales in the course of the year and make it already a payment right now. So we kind of anticipate future sales, but also have a kind of a breakup fee in that where we adjust the conditions of the contract. There's maybe more to come, but Andreas will talk about that later in the chapter when we talk about guidance and outlook and strategy. As I said, we are still suffering from a sluggish demand in silicon carbide customers. The other markets that we see there are also burdened by some difficult macroeconomic environment. You know that our GDP is hardly growing. You know how the overall economic situation in Europe, in particular, but also worldwide in general looks like. And therefore, there is no real spark that our sales go into an opposite direction if we leave out the small, medium reactors, but they're also part of the strategy, Andreas will touch the latest status on that in his chapter. EBITDA-wise, I think we also managed it quite well that our EBITDA dropped only from EUR 21.6 million last year in the first three months to first quarter 2026, EUR 18.4 million this year, which is minus 14.8% or minus EUR 3 million. The negative impact comes from the decline in the high-margin silicon carbide products, which hit then the bottom line overproportionally. We try to do our best in order to keep our costs in the right way. And I think if you see the decline in the margin only from 18.5% last year to 17.3%. I think this is a remarkable achievement when you see that your super high-margin business goes down in a way as it does in Graphite Solutions. Coming to Process Tech. And as I said, for the first time since many years, we have to report a major decline in sales and also EBITDA for this business unit. Where does it come from? We see a postponement and a lot of uncertainty in the meantime in the chemical industry. So even a lot of maintenance projects and also some overhauls and parts and service business is really declining significantly for us. And other investment projects where somebody builds up a new synthesis plant or a heat exchanger really came to a standstill and everybody is waiting that the bottleneck gets solved, and we have a little bit more visibility and clarity whether or not these investments are really viable. So our order intake also in the first three months stays below our sales. So this is also for the next months, we don't expect a real recovery. And when you look at our overall performance in the first three months of the year, and we are coming down from EUR 36.5 million to EUR 25.5 million, which is a EUR 30 million decline -- 30% decline, sorry, for that, and minus EUR 11 million in our top line. This is really remarkable how hard it hit us in Q1. And this, of course, also hits our bottom line as this is a project business, and we only are left with some fixed costs. our profitability declined by 62% coming from EUR 11 million to now EUR 4 million. The absolute impact is minus EUR 7 million is not that much given the impact on the group. But relatively, of course, for Process Tech, this is a big decline that we are trying to fight against in the upcoming months. The margin is now 16.1%, which is not bad at all given the historic averages that we've seen. Of course, in the past -- in the last two, three years, we had a very special economic situation for us where we had margins above 25% and beyond. But we always said that 18% is a very good margin, and I think we came close to that. And maybe we can recover a little bit in the course of the year. And now for the first time, I can introduce our business unit Fiber Composites. As you probably can remember, we merged our remaining carbon fiber activities with the Composite Solutions business unit starting from January 1. So with the start of the new year 2026, we only have Fiber Composites. In the end, you can just add those two business units together. There's hardly inter business unit consolidation effect. In the end, you just can add the two together. This is more or less the right figure. There we see also the impact from the discontinued business, which I started my presentation with. We are coming from EUR 76.6 million first three months last year now to EUR 47.7 million. This is a decline by EUR 29 million. I said EUR 28 million is a decline of the discontinued businesses of the carbon fiber and more or less, this is now the new normal that they roughly have EUR 50 million in a normalized and like-for-like activity. This is a decline by EUR 37.7 [ million ]. But as I said, the big chunk of it comes from the discontinuation of the unprofitable businesses of Carbon Fiber. The profitability, however, increased significantly. There are many factors in that. On the one hand side, we are only left with the profitable remains of the carbon fiber business. We have a steady and healthy Composite Solutions business, which also pays in for that. And also our BSCCB JV, which is consolidated at equity contributed EUR 4 million to that. So if you exclude the EUR 4 million, then our new business unit has an operative result of EUR 5 million. And this is roughly a 10% operating margin. If you include BSCCB, then it's 18.9%. I think it's a super healthy recovery that we've seen. And I think it was a very stringent and consequent restructuring that we did last year. And I think the result of that can be seen now where we are only left with profitable businesses there. Then maybe a quick look on the bottom line of the P&L, the cash flow and maybe also some balance sheet figures. Our net result turned positive. Last year in the first three months of the year, we were left with minus EUR 6 million, which was thanks to the fact that we had EUR 16.6 million restructuring and one-off costs in the first quarter. There are also some purchase price allocation depreciation there. So when you look at in our quarterly report, you see EUR 17.7 million, if I'm not mistaken. Now we see EUR 5.9 million. So it's a big turnaround by EUR 12 million from minus EUR 6 million to plus EUR 6 million. And I think this is the other strong message. We only are left with EUR 1.4 million restructuring and one-off costs in Q1. This is exactly what we told you three weeks ago when we presented our full year figures for 2025. The restructuring is over to a large, large extent. We only have some couple of smaller remains, which we digest in the course of the year. But when you see that the first quarter is only affected by EUR 1.4 million, I think this clearly underlines what we said three weeks ago. Our free cash flow is again positive and increasing from EUR 5.1 million to EUR 6.4 million like-for-like despite the fact that last year, we also had some cash-wise restructuring costs, but we expect the free cash flow to be on the level of last year also for a full year figure. So we are on a good way to achieve that. And last but not least, thanks to the good free cash flow, our net financial debt declined a little bit again. So we have a very healthy leverage ratio of 0.7. Our equity ratio is getting closer to 40%. Again, we are at 39.5% and the ROCE is roughly 10%. So I think these are very, very steady and solid figures that we can report there. For the outlook and the guidance, I hand over to Andreas, who will lead through that chapter. Andreas Klein: Thank you very much, Thomas, and also a warm welcome from my side you know the guidance just a couple of weeks ago in the next slide. You even know that slide, the EUR 720 million to EUR 770 million sales level we guided leading to an EBITDA pre of EUR 110 million to EUR 130 million. However, I would like to highlight two topics in the assumptions part of that slide because they have been particularly reconfirmed in the last couple of weeks. It's number one, the assumption of an overall weak economic development and uncertain geopolitical environment. Of course, we all know that this has been underlined by the ongoing Middle East conflict, the Strait of Hormuz developments and also recently the further tariff activities. So overall, all paying into ongoing uncertainty. And of course, for many of our industries, for many of our customers, that's a negative development because it doesn't enable our customers to take the decisions needed. The second thing I would like to highlight is that we do not foresee a recovery in the semiconductor and automotive sector for 2026 yet. This has been confirmed by the development in Q1 and further customer discussions and of course, also the uncertainty and the tariff developments paying into the automotive sector doesn't help the downstream demand for these applications. Digging a little bit deeper in the next slide, I would like to give you some more details on the current sentiment and how we see it. As already mentioned, we see ongoing high uncertainty, especially in automotive and chemicals, impacting basically all our three business units, as already commented for the Q1 performance by Thomas. We see availability and prices of raw materials and energy negatively impacting key markets. So that's adding to the uncertainty and the weak economic development we were already seeing. And of course, that's a lot driven by the developments in the Middle East. However, we are quite relaxed on the cost side in the short term because a rather nice hedging rate for the year 2026 and also constructive discussions with customers to forward these cost impacts in the chain should be able to limit the effects from the cost side as much as possible. In the area of defense, that's the third point commenting on the current sentiment. We see the budgets feeding slowly through the chains. So the -- especially in the Western government Hemisphere, all these big funds are arriving at the primes in the defense industry, they are feeding through the Tier 1 and Tier 2 steps. And this is what we need to create the certainty and the commitments for us to finally ramp up that business in the area of defense and generate contribution from that business as anticipated in our Strategy 2030 plan. What do we focus on at the moment in light of these developments? We mentioned one example already from the semiconductor side that impacted already Q1. We are in negotiations with our silicon carbide customers, with the CDP customers to, yes, bridge the situation we are currently in together with still high inventories in the chain, although we see them continuously decreasing and bridging from that situation in a sustainable long-term cooperation and the growth future we foresee for silicon carbide as an important demand driver for SGL. The second thing is we are expanding project development in the defense sector, a lot of network cooperation activity in the highlighted application fields in defense from our strategy work. And these discussions that networking, that intensification leads now to piloting steps and a step-by-step ramp-up of that business, hopefully having the potential to impact 2027. As you know, for this year, we didn't take into account any more significant contributions from defense yet. Last but not least, and this is for sure, the most present activity with a rather short-term impact. You know that from the publication from the announcement we did in January, we are working intensely on ramping up the full value chain. It's quite a long value chain in our network for the Energy projects and the orders we had received. So we are operationally well on track in that regard. And this is why we can also here reconfirm the impact of the USD 100 million over the next three years from these orders. The three focus areas to the right side of this slide, they are all paying into SGL Growth 2030. So we can clearly confirm we are intensifying the implementation activities for the long-term strategy, and we consider ourselves to be well on track to leverage the potential as soon that is possible in the respective markets. Many thanks for your interest, and we are looking forward to your questions now. Operator: [Operator Instructions] Claudia Kellert: At the moment, I don't see any questions. So, it seems that our press release and quarterly statements are very clear in our messages. So I think we give you an additional minute to write your questions. So, then I think it's everything really clear. So maybe you have an upcoming question in the next hours or days. Give me a call that we can answer your information needs. Thanks a lot for your time. I know it's a busy day today of announcement of quarterly statements of other companies. So thanks a lot for your participation, and have a nice afternoon. Goodbye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Thank you for joining the Swisscom Q1 2026 Results, hosted by Christoph Aeschlimann, Eugen Stermetz and Louis Schmid. Louis, the floor is yours. Louis Schmid: Good morning, ladies and gentlemen, and welcome to Swisscom's Q1 '26 Results Presentation. My name is Louis Schmid, Head of Investor Relations. And with me are our CEO, Christoph Aeschlimann; and Eugen Stermetz, our Chief Financial Officer. Let's now move to Page 2 with the agenda of today. As you can see, our CEO starts presentation with Chapter 1, achievements and a quick overview on the Q1 highlights, operational and financial performances of the first quarter. Then in Chapter 2, Christoph presents the business update for Switzerland and Italy. In the second part of today's results presentation, Eugen runs you through Chapter 3 with our Q1 financials, including the confirmation of our full year guidance. With that, I would like to hand over to Christoph to start his part. Christoph? Christoph Aeschlimann: Thank you, Louis, and welcome also from my side to this Q1 2026 call. I will move directly to Page #4, highlighting our key achievements of this quarter with a consistent delivery, reinforcing our position as the customers' preferred choice. I am pleased to announce that the operational results on the group level are as expected. We have sound financials with operating free cash flow ahead of consensus. However, we would like to highlight that this is mainly due to intra-quarter phasing during 2026, and we expect a result on a full year basis as guided. In Switzerland, I would like to highlight the successful price increase execution, which I will detail a bit more later on, and the improved B2B IT profitability that we have achieved during the first quarter. In Italy, the integration of Vodafone Italia is on track. Synergies are coming in as expected, and we are continuing on our turnaround of the B2C business to move from volume to value. And I will talk a bit about -- in more detail about this later on during the call. You've also seen that we have achieved significant growth in the energy business, and we expect continued growth from that business throughout the full year of 2026. Now moving on to Page #5, you see the overview -- the commercial overview of 2026 Q1. You can see that overall, both on mobile and broadband, Switzerland and Italy, the results have been softer. I will explain those effects in detail later on. There are some overlapping effects in both countries coming from B2C and B2B. So I will mostly explain this in detail when we are in the section of Italy and Switzerland. But on the other side, you can also see that the wholesale business in both countries, both in Switzerland and in Italy, is doing very well. We have continued growth, both on the broadband side and on the mobile side in Italy. Now I will move on to Page #6, which shows you the commercial overview of the Q1. We have a net revenue, which is slightly softer due to a decline in revenues, both in Italy and Switzerland, and some overlapping currency effects, posing CHF 3.6 billion on revenue, in line with guidance. Profitability or EBITDAaL is roughly flat at CHF 1.28 billion. CapEx slightly down, delivering highly increased operating free cash flow of CHF 494 million. You can see that the increase of CHF 96 million is mainly driven by Italy segment where we see the synergy realization kicking in, also a bit softer CapEx, but also Switzerland delivered on the guidance and contributed CHF 34 million adjusted free cash flow on top compared to previous year's results. And I assume Eugen will go into the details of the financial results in his section later on. I will now move on to the business update. I will go directly to Slide #8, which highlights our priority for 2026. So for both countries, we have clear priorities. I will start with Switzerland. Of course, priority #1 in Switzerland is managing the telco service revenue top line, ensuring that our decline is slowing down and ideally coming to a halt. For this year, we expect a CHF 120 million decline on the service revenue side. At the same time, we are continuously working on our cost base, boosting our efficiency. We expect, as guided, CHF 50 million of savings. And at the same time, we want to work on IT profitability and growing the revenue at the same time. We do expect softer growth this year, but increased profitability, as you've seen already in the Q1 results. On the Italian side, our main priority is, of course, working on the integration of Vodafone and Fastweb, driving the synergy realization, which is very well on the way. We are also working on the telco service revenue side, especially on the B2C business, turning around the B2C business moving from volume to value to stabilize and the service revenue and massively reduce the decline on the service revenue side. At the same time, we are also continuously scaling the energy business and the IT business. And overall, this should deliver stable free cash flows from Switzerland and growing free cash flows from Italy so that we have growing free cash flow on the group level and are able to increase the dividend to CHF 27 for the year of 2026. I will now go into the details of Switzerland. I will start on Page 9 with the B2C business in Switzerland. Of course, let's say, the main priority in Q1 and the highlight was the price adjustment that we executed for our own brand offerings in order to sustain the best network quality and service excellence. Basically, the price increase was executed as expected. We had roughly, as expected, the churn in line with our business case. We had some effects also on customers moving or spinning down to the second brand, also roughly in line with expectations. You can see the impact on churn on the right-hand side of the chart. Mobile postpaid churn is roughly stable, slightly increased compared to Q4. But if you compare it to Q1 '25, it's roughly at the same level. Whereas on the broadband side, there was indeed a more churn based on the price increase that we executed in the market. And you can see this on the left or the middle of the chart with the resulting net adds. Whereas on the broadband side, we had net add losses due to the increased churn and slightly lower order volumes due to the price increase. On the mobile side, we still managed to generate a growth on the net debt side, slightly lower than in the previous quarters, but still a positive growth in RGU despite executing the price increase, which is obviously an encouraging result. From a promotional perspective, Q1 was a bit mixed bag or, let's say, the 4 -- the previous 4 months. On the one side, we have a positive movement in the market with both Salt and Sunrise following the price increase. On the other side, we have seen excessive aggressiveness from Sunrise, especially in the previous 3 months. After our price increase, they became really aggressive on the promotional side, even moving to lifetime discounts again on the main brand under the Sunrise umbrella, which is kind of counteracting the price increase. So I would say from a promotional perspective, a bit a mixed situation right now and overall, in line with sort of our expectation and not that much different from before. This is also why we continue to bolster the Wingo positioning on the full service side, so positioning Wingo as an integrated wireline and wireless provider. We are expanding the reach on the shop or the sales side. We opened new shops. We bring Wingo in some of the Swisscom shops to make the brand more visible and sort of be more present in the market with the Wingo brand to make sure that we generate enough sales out of the Wingo side, especially on the broadband business, where we see continued losses on the main brand. Next to -- sort of the main telco service revenue. We are also working on new revenue potential. There are 2 areas where we are investing heavily at the moment. One is the security proposition. So we have launched a new security proposition in Q1 integrated directly into the router, which we believe is very important, and we will continue to drive security service revenue in the future, which will help us to offset some of the ongoing decline on the traditional connectivity side. And we are also continuously investing on the AI side. We see quite a good momentum on the myAI solution, which achieved 78,000 registered users end of Q1. So we will continue to drive user adoption throughout 2026 and looking into how to monetize the AI potential going forward. But if you look at what's going on in the AI world and the general adoption throughout the planet, we do believe that there is potential also for us to generate revenue from this in the consumer space. I'll now move on to Page #10, B2B. So on the B2B side, you see that ARPU-wise, the development is nearly stable. There is a slight decline mainly driven out of the SME space. But overall, I would say, quite a stable ARPU situation. Whereas on the RGU side, you see continued losses. We had, especially on the mobile side, some corporate contracts that ended but also some losses in the SME space on the mobile side, whereas broadband is roughly stable in terms of RGU development. Whats' important for 2026 is that we are on track with the migration from the legacy portfolios to the new modern portfolios, both on wireline with Enterprise Connect and on the wireless with the Protect & Connect product, which integrates the beam security proposition because this is an important element going forward, driving the convergence between connectivity and security, which we believe will make a real difference going forward, both in positioning, but also in generating new revenues. At the same time, we are also working on CVM using better data analytics to drive targeted campaigns, especially in the SME space to stabilize the SME price and RGU development going forward. I'm very happy about the beem evolution. So we managed to secure nearly 60,000 users by end of Q1 over 1,000 locations. So we are very pleased with this development. And we can really see a big demand and a good fit or product market fit with the beem proposition and the requirements of our customers. So both in the SME segment, but also in the corporate segment, we managed to win first corporate customers, which really tells us that the direction is the right one and security will be an important -- or is and will be an important topic going forward. Now on the IT business side, I am very pleased with the development of the profitability. So you can see that we managed to increase profitability from CHF 25 million to CHF 32 million EBITDAaL in Q1. So this is obviously a very pleasing development. On the other side, revenue evolution was flat. Market is not so easy at the moment. Demand is quite soft. So on the revenue growth side, probably there will be only slight growth this year, and we will focus mainly on improving the profitability throughout the year to make sure that the services that we do deliver are also making the required profit -- are at the required profitability level. One positive note going forward, especially also into '27, we have signed a multiyear contract with the Swiss Armed Forces, which should deliver continued growth on sovereign ICT investments going forward. Now on Page 11, some words about network and wholesale. So we continue to invest in network coverage. So both FTTH coverage is up 3% to 56%, going as expected and well. And also on the mobile side, we increased the 5G plus coverage to 89 -- sorry, I mixed up things. So we increased the 5G coverage by 3% to 89%, and we increased the FTTH coverage by 4% to 56%. Sorry for this mix up. And we have also finalized the 5G SA Dual Mode Core. It's fully cloud-native, fully automated, and we will start migrating users now on to the 5G SA Core, which is, I think, quite an important milestone for our mobile tech team and a good achievement that we are proud of, and which will drive user experience and adoption of 5G going forward on the mobile side. On the wholesale side, we are pleased with the results. I've already highlighted before. Access revenues have grown by 8% from CHF 49 million to CHF 53 million. FTTH share is up by 8%. So you can see that this drives our wholesale market share in the market quite nicely, which stands now at 18.6%, and over half of this revenue is already coming from FTTH and continues to grow quite substantially, showing that the FTTH rollout is driving adoption, is driving revenues, especially on the wholesale side. Now moving on or finishing the Swiss side on Page 12 with the cost saving view. So you've seen that Q1 has a quite extraordinary higher cost savings of CHF 25 million. Please do not extrapolate this number on the full year. We continue to expect slightly more than CHF 50 million in savings on a full year basis as we had some cost shifting between Q1 and the other quarters. For example, we had less marketing spend in Q1 than expected and shifted some of the spend into Q2 and Q3. And this explains most of the advance that we have on the cost savings side, and we will catch up or basically spend this money later in the year. So you shouldn't expect much more than the guided CHF 50 million on a full year basis. But what is important, we continue to work, obviously, on the efficiency, both on the sales side, making our shops more efficient, finding new formats. We work on the call center efficiency, heavily investing into AI-driven technologies, both on, let's say, chatbot side but also supporting and helping agents serving our customers better and faster. So this is an ongoing effort from which we continue to expect continued savings this year, but also next year. At the same time, we are also heavily investing internally. We are still working on a phase out of legacy IT systems, but also legacy network systems. And we are also building a new data platform, which will help us move into the agentic world and deliver cost savings going forward when we shut down the old platforms in 2027. So you can see a lot of things going on, both on the commercial front but also on the efficiency front, which is making sure that we can deliver on our targeted and guided revenues and profitability. Now moving to Italy. Page #13 gives you an overview of the integration. So I am happy to announce that the integration activities are all on track. We have One legal entity since January this year. We have also merged the SAP systems into One system. We are now working on harmonizing all the financing activities. We are rolling out one integrated HR system, which allows us to streamline all the HR payrolling processes. So things are going as expected. We've delivered CHF 77 million of synergies. So we are very well on track to deliver the full CHF 300 million that we expect this year. So this is a topic I am very pleased about for Italy this year. And so if things go as expected, we will have reached half of the planned synergies that we expect from this deal on -- by 2029. Also on the cost side, the integration cost side, we are slightly below our planned values. So this is also good news from the integration cost side. Now moving on to Page #14. Looking into the B2C business. So you can see that we are working on all fronts to turn around the business into a more value-oriented approach. So the first and foremost, most important topic is making sure that our existing customers are happy, have high NPS and stay with the company. So you can see the effect of this on the right-hand side. Churn is down quite impressingly from 20% to 17.6% on mobile and from 20.3% to 16% on broadband. And this is despite the fact that we are still have ongoing price increases going on. So as you know, we are executing what we call a back book to front book alignment. So we have increased front book prices past year, and we are now migrating all back book customers, which are below the front book prices onto the new front book prices. So despite these activities going on and of course, generating some incremental churn, the overall resulting net churn is actually going down, demonstrating that all the activities that we are executing in the call center side, servicing side, network side are impacting positively the customer experience and customer happiness and driving down the related churn. Another important aspect that we are working on is driving down or bringing up -- driving down the ARPU that is leaving the company. So making sure that the high-value customers are not churning and staying with the company. And if they are churning that less, ARPU is flowing out. And at the same time, we are working on the inflow ARPU. So we have increased front book pricing. We are also working on the mix of inflows. So historically, we had a very, very high percentage of inflow on the lowest value subscription. We have now managed to shift it. So now over 1/3 of the subscription inflow is on the higher-value subscription. So it lifts our inflow -- average inflow ARPU up. And the resulting effect is that the differential between outflow ARPU and inflow ARPU has substantially decreased. It is nearly half of the mobile side, precisely minus 43%. But of course, it generates on the journey, while we are executing this, it generates some more net add losses as we have softer gross adds. We are focusing on higher value sales. For example, we are less aggressive on tourists or some of the other segments, which generate very low revenue. So this generates lower gross adds and despite lower churn results in a bit softer net adds. We expect this to improve over the year as we are reaching the end also of the back book to front book alignment, and we are more in a stable territory. And going forward, we expect revenue to stabilize throughout the second half of the year. So this is, I would say, all I would like to say on this. On the other side, ARPU, you can see is roughly stable, especially important on the mobile side. It's exactly stable, broadband slightly declining. And on the energy business, we are very pleased. We have now reached over 119,000 customers. So the growth has doubled, as we have sold also into the Vodafone base, and we will continue to focus on the energy business as this revenue growth helps us to compensate still the expected service revenue decline going forward and making sure that the B2C business stabilizes overall throughout 2026. Now on Page #15, looking into B2B. On the telco side, I would say, roughly stable. So you can see the RGU development slightly positive on mobile, slightly negative on broadband. But overall, we could say the telco service revenue on the RGU perspective is slightly -- is roughly stable. From a revenue perspective, it is still slightly declining, but most of the service revenue decline is actually coming out of the B2C business in Italy. And on the B2B side, things are going quite well. The IT trajectory is also confirming the strategic directory. We have been selected as an AWS European sovereign cloud launch partner. We are continuing to push on the AI front and making sure that we can also, again, generate growth out of the IT business in Italy going forward. Now going to Slide 16, Network & Wholesale. So you can see that also in Italy, we are continuously investing in our network. 5G coverage has reached 89%, up by 4%, and FTTH coverage has reached 58%, up 6%. So this is the first time that Italy has a higher FTTH coverage in Switzerland. And this will remain like this for many years to come as the rollout in Italy is driven by Open Fiber and FiberCop and they are heavily investing in expanding the FTTH coverage in Italy. On the wholesale business, we have seen very pleasing growth, both on mobile and on broadband, so you see plus 108,000 mobile, plus 68,000 on broadband. So really shows that our wholesale strategy is successful and working. We expect continued growth in broadband going forward, whereas on wireline, as you know, PosteMobile is leaving our wholesale business. They are executing or have substantially finished executing the migration in Q2. So at the next quarterly call, you will see a substantial decline on the wireless side from mobile. So we should enjoy this picture of growth in Q1 on both mobile and wireline. And we will, of course, or are already working since many months now on compensating the PosteMobile loss with new customers on the mobile side, so we launched Sky Mobile, but we're also working on new customers on the broadband side, making sure that we can compensate the revenue loss from PosteMobile going forward over the next quarters until we're running into 2027. Now the final slide on Italy, regarding our RAN or mobile infrastructure strategy. So we have taken 3 actions in the Q1 to work on accelerating the rollout, improving coverage and at the same time, decreasing our cost base. So the first one is the RAN sharing that we have announced with TIM that will essentially help us in accelerating rollout and improving coverage. So we expect the final agreement in Q2 2026 to be signed, and then subject to regulatory approval, which will last up to 1 year. So we will see if we can accelerate this a bit, but this will take some time. At the same time, we signed a tower JV with Telecom Italia to deploy up to 6,000 new towers at sustainable market conditions. So this is also in the stage of finding the final agreements and the authority approvals. And then we have terminated the MSA with INWIT, where we believe we have the right to exit by 2028, and this will also help us moving or -- moving away the infrastructure from INWIT onto new infrastructure at sustainable market prices will help us reduce our cost base to effectively compete in this very competitive market in Italy. This was it from my side, and I will now hand over to Eugen for the financial results. Eugen Stermetz: Thank you, Christoph, and good morning, everybody, from my side. All in all, a very solid set of numbers. So I'm happy to walk you through the details. As usual, I'll start with the group perspective on Page 19 with revenue. Revenue is down CHF 153 million. There was CHF 44 million currency. So net of currency revenue is down minus CHF 109 million. Switzerland, minus CHF 25 million, essentially service revenue decline. Italy is down CHF 76 million. That looks like quite a big number. So there is service revenue decline on the one hand, but there is also a sizable decline in hardware revenue with no impact on the margin that is a bit distorting the picture in Q1. There is compensation by growth from the wholesale and from the energy business as well. On the EBITDAaL side. EBITDAaL is slightly up, both on reported numbers and adjusted numbers. Switzerland, almost stable, thanks to higher telco cost savings, a bit of phasing in there, as Christoph already mentioned. And Italy is up CHF 30 million, so the telco service revenue decline could be offset by the realization of synergies and we also have lower costs there in the first quarter compared to prior year. On Page 20, CapEx. CapEx is down CHF 86 million in the group. That's very much driven by phasing effects both in Switzerland and in Italy. Switzerland CapEx is down CHF 40 million. We have lower FTTH construction volumes, which were pretty high in the first quarter 2025. And Italy is around CHF 63 million. It's a combination of somewhat lower CapEx for business as usual as we guided and with a number of phasing effects in Q1. So by implication, the operating free cash flow is up CHF 96 million. So we're clearly on track to deliver stable free cash flows from Switzerland and growing free cash flows from Italy, as guided, given all the phasing effects and OpEx and CapEx, obviously, please don't multiply the year-over-year numbers by 4, but stick to our guidance for the full year, which we're going to confirm in this call. I move on to Page 21. Switzerland. Switzerland revenues, down CHF 25 million. If you look at the individual segments, B2C is down CHF 12 million. So that's telco service revenue decline compensated by a bit of higher hardware revenues. B2B minus CHF 13 million, lower telco service revenue and also slightly lower IT service revenue, as Christoph already pointed out. The wholesale, minus CHF 8 million, is mainly due to roaming. The underlying excess service revenue is actually growing steadily as we communicate on a regular basis. Then on to EBITDAaL. EBITDAaL is almost stable with minus CHF 5 million, also B2C, almost stable. We have the top line decline, which is compensated by telco cost savings. Here, we have, as Christoph already mentioned, some phasing in there, with advertising spend being much higher in the first quarter 2025 due to the introduction of the We are Family! offering back then. Then B2B is down CHF 9 million. The telco decline was partly compensated by the improved profitability from the IT business and wholesale minus CHF 7 million is just the revenue impact of the roaming effect I mentioned. Infrastructure and Support Functions, plus CHF 13 million. So this is the telco cost savings flowing in. Next, Page 22. CapEx is down [ CHF 40 million ]. There is a number of in-year phasing effects across all categories. Obviously, the most important point is wireline access CapEx, which is down CHF 28 million. This is related to the very high FTTH volume in the first quarter in the previous year. And that's a result of stable EBITDAaL and lower CapEx. Obviously, operating free cash flow is up by CHF 34 million. We deep dive into Switzerland on Page 23. Top right, the telco P&L. So telco service revenue came in at minus CHF 34 million. That's pretty much in line with the previous quarters. There is no effect yet from the price increase, which becomes effective in the second quarter. So this is fully in line with our full year guidance of roughly CHF 120 million of service revenue decline. In the P&L, top right, you also see the impact in the indirect costs. So indirect costs, CHF 25 million down, which is obviously quite a bit above the expected quarterly run rate. So we stick to our original guidance of CHF 50 million plus for the full year. Bottom right, the IT P&L, service revenue down minus CHF 5 million. So the market environment is rather challenging, as Christoph already mentioned, we expect only limited growth for the full year. EBITDAaL, however, is up in the first quarter, plus CHF 7 million with improved profitability. So the smaller growth outlook in IT services has neither an impact on our revenue guidance nor obviously on the EBITDAaL guidance for the full year. I move on to -- sorry, I move on to Page 24, Italy. Revenue in Q1 was down CHF 81 million, B2C minus CHF 45 million. So we have a service revenue decline of CHF 35 million and also lower hardware sales. B2B is the biggest chunk here with minus CHF 55 million. Service revenue down CHF 20 million. But as I said, I think there is a significant decline in hardware revenues, which we expect to recover at least partly and has very good margin impact anyway. Wholesale is up due to wireless and wireline business growing. Obviously, the Poste effect will kick in from Q2. So this number will turn negative once we present the second quarter results. EBITDAaL, up CHF 36 million, very nice contribution margin from B2C up CHF 21 million. So you clearly see the significant synergy realization out of MVNO costs in the B2C segment, which overcompensates the telco service revenue decline. B2B contribution margin, down CHF 10 million. So very little influence of the lower revenue line, in particular, the hardware, and there also some compensation out of synergies that we realized on the B2B side, wholesale, up CHF 9 million, in line with revenue. And in indirect costs, we have lower cost of CHF 15 million. It's also driven EBITDAaL by in year phasing. So that number will probably not last, once we go into the subsequent quarters. Page 25. CapEx, down CHF 42 million. Adjusted number is even down, CHF 67 million. Integration costs, obviously up with CHF 29 million year-over-year total adjustments, CHF 25 million of CapEx. As you know, adjusted CapEx is expected lower for the full year despite our guidance by about CHF 100 million, but CHF 60 million CapEx down in just one quarter is obviously driven by some phasing across all categories. And as a result, operating free cash flow is up by CHF 78 million as a result of higher EBITDAaL and lower CapEx. I move on to Page 26. Deep dive into Italy. So you see the service revenue on the left side. Service revenue decline was minus CHF 55 million, is slightly better than in previous quarters. Obviously, still not where we want it to be, and we clearly expect a greater improvement of that number over the coming quarters, in particular in the second half of the year as guided in February. You already see the first time of what is going on in the year-over-year numbers in B2C wireless, where we first started with our back book alignment to front book and the consequent increase in the -- consequent positive effect on to the ARPU. So the service revenue kind of B2C wireless is just minus EUR 13 million, significantly better than in the previous quarters, and this is back book alignment to front book already showing up in the ARPU effect, which is basically down to 0 with just the RGU effect remaining in the service revenue decline. And this is the first sign of what we expect to come overall. Next, Page 27, synergy and integration costs are on track. So synergy realization is running smoothly. We have reached a quarterly run rate of CHF 77 million. This quarterly run rate will not increase dramatically over the course of the year, given that the biggest high -- I mean there is the MVNO synergies, which is now already at full quarterly run rate. And as already mentioned, we expect overall, a yearly run rate increase over the previous years of CHF 200 million up to CHF 300 million, which is already half of order synergies we expected and also integration cost is on track. We expect this to pick up speed over the course of the year. Page 28. Free cash flow. Free cash flow is up CHF 115 million. So I'm backing the group -- sorry, up from Italy back in the group. Free cash flow is up CHF 115 million versus the prior year, fully driven by the increase in operating free cash flow. Not much else to report on this page. I move on to Page 29. Net income. Net income is down minus CHF 35 million. Actually, EBITDAaL, EBITDA and EBITA, all flat. So the only negative impact on net income that is driving the number is a transitory noncash effect in the financial result. Otherwise, net income fully in line with the operating numbers. And then on to Page 30. Last but not least, obviously, given the solid set of Q1 results, we confirm the guidance for the full year. And with that, I hand back to the operator. Operator: [Operator Instructions] So I will now take the first question. Polo Tang: It's Polo Tang from UBS. I have 3 questions. The first question is just on back to Swiss price rises. So you talked about how you're executing according to plan. But should we expect more Swiss subscriber declines in Q2? Also were you surprised by the recent 2% to 3% price increases by both Salt and Sunrise? And did you assume competitor price rises when you set your guidance for 2026? Second question is just about Italian IT service revenues. They saw a decline. So can you maybe elaborate in terms of what's driving this? And how should we think about the outlook for Italian IT service revenues for the rest of the year? And my final question is just on spectrum. What are your expectations for the structure of the Swiss spectrum auction in 2027? And separately, how should we think about the range of outcomes, the allocation of Italian spectrum going forward? So do you think Italian spectrum could be allocated at low cost in return for investment commitments? Christoph Aeschlimann: Thank you, Polo. So I will start with your first question. So in terms of RGU decline, I mean, it will -- we will see now going forward, how promotional aggressiveness develops, and I think this will also impact RGU development. I don't expect the same amount of negativity as we've seen in Q1 because Q1 also had the additional effect of sort of Black Friday cancellations coming in from Q4, which kind of overlapped with the price increase impact. But now during Q2, customers received their first increased invoice this month. So we still need to see a bit how customers react, if -- how churn develops. I think so far, what we've seen post -- or in Q2 is that churn has sort of reverted back to where it used to be. But we still need to, I would say, observe 1 or 2 months more. So -- but overall -- the overall effect, we expect service revenue to come in as guided at roughly minus CHF 120 million overall for B2C and B2B. Eugen Stermetz: And we made no specific assumption with regard to price increases by the competition. The on top churn that we expected out of the price increase happens basically between the announcement of the price increase and the first month that the customers get the higher invoice, which is, in our case, from January to April and May. So there will not be much of an impact of the price increases by the competition on the overall outcome of our price increase. Christoph Aeschlimann: And then in Italy, so I mean you see a bit the same effect in the Italian market as in the Swiss. The Swiss market, the demand is softer, especially on the corporate side. So we are working on sort of reversing the Italian IT revenue back to growth. So we do expect this to improve over time, and we will see how it develops going forward. But overall, I would say we should be able to get at least back to a stable situation and maybe a slight growth. Now on the spectrum question for Switzerland for 2027. So the final -- the consultation on the spectrum auction is ongoing. We expect the final rules to be published after summer. So we can probably talk about this at the Q3 call going forward, knowing exactly how the auction will be structured and when it will happen in 2027. So at the moment, I would say, is roughly in line with expectations, but it's a bit too early to tell as we don't know the final rules yet. The same situation is in Italy. So we expect -- there is also the final consultation going on in network auction 2029 in Italy, and with the final opinion of AGCOM, like the telecom regulator is expected also by summer in Italy, and then we will actually know if there will be a renewal or not, which spectrum will be renewed and at what conditions, which right now is hard to predict. Operator: I will now open the line for the next question. Andrew Lee: It's Andrew Lee from Goldman Sachs here. I had 2 questions. Just one, a follow-up on the Swiss competitive environment. And then just a second question on Italian towers. So just first on the Swiss competitive environment. Am I right in understanding that what you're basically saying is we've had this back book price rise in the first quarter, but that positive is netted off by the negative of more aggressive promotional activity? And so the competitive environment in Switzerland hasn't improved structurally or even on a kind of near-term basis versus where we were, let's say, 6 months ago? Are you seeing any signs of trajectory towards any form of sustainable improvement in the competitive environment, notwithstanding the fact that you're expecting Swiss revenues to improve through the year? And then secondly, just on Italy, just as One independent telco puts it, that looks to be a commercial dispute in terms of what's actually happening on Swiss Towers. Our understanding until at least today is that you haven't come to the table with INWIT to discuss a way of alleviating this problem. And I guess it is a problem for both of you. You're obviously not happy about price, but you also need to invest in your network at some point and this is delaying that. So could you just give us your thoughts in terms of the time line to resolving this issue? Because it's obviously undermining your network quality ambitions in that market. Christoph Aeschlimann: Okay. So regarding your first question, so I think your -- if I understood your summary, I think it's well summarized. So overall, there is some positives regarding different price moves. But of course, they are completely offset, if the promotional aggressiveness in the market continues to be very high. And if other brands move to lifetime promotion on the main brand, basically, there is no more positive effect from the price increase because it's kind of -- what people really look at is what is going on at the promotion side to attract new customers. So in order to structurally improve the competitive environment, it would really need a sustainable change on the promotional approach in the market. On the Italian tower side, so we do expect this issue to take quite some time to be resolved. So I'm not expecting any rapid resolution. I'm not sure, I think you alluded that we haven't come to the table, but actually, we did try to negotiate many times with INWIT, which they refuse to enter into -- entertain a discussion with us, finally forcing us to exiting or providing the notice to the overall MSA contract. We continue to invest into the network. So we are continuously building out new towers and identifying the network. So this dispute doesn't prevent us from continuous investment because, as you say, continuingly -- continuously investing into network quality, coverage and densification is really important, and we continue to do this in Italy. But of course, at the same time, we need to come to a sustainable cost base on the tower side. And this is why we have to take in this action. We are -- this is why we are working on the JV with Telecom Italia. We are in discussion with other tower companies to prepare our migration plan away from INWIT. But of course, if INWIT is open to discuss on moving back to sustainable cost base, we are open to discuss with INWIT, and finding an agreement on the necessary towers that we need to retain post migration. Andrew Lee: That's all very clear. Can I just have one follow-up. Has there been any kind of conversations between you and INWIT post your announcement of the JV and the subsequent advancement of the contract? Christoph Aeschlimann: No, there has been no further... Operator: We'll now take in the next question. Your line is open. Joshua Mills: It's Josh Mills here at BNP Paribas. A couple of questions from my side. I'm going to start with the INWIT question. So you've got a slide in your presentation talking about the options going forward. Telecom Italia put out a bit more detail last night as well. And what they're saying is it would take 10 years to replace the INWIT contract structure. And obviously, they're looking to terminate the contract in 2030 rather than 2028. My question is how practically are you -- if you go down this route, going to replace these towers in such a short time period. I understand this transition agreement, but it's probably not going to last 10 years, it might last for a few years. And on that, have you actually engaged in discussions with other Italian tower companies on transferring anchor tenancies from INWIT to them already? Or is this something that you're just going to talk about doing in the future? Basically I want to understand at what point we'll get a clear guidance on how you go down this route? And then secondly, on the cost savings, clearly came in ahead of expectations this quarter. What gives you the caution to not raise the full year guidance of CHF 50 million now, and which of the areas of cost savings have been overdelivering in Q1 versus what we might have expected? Christoph Aeschlimann: Okay. Thanks, Josh. So I'll take the INWIT question. So the -- so we are working on our migration strategy. And of course, this migration strategy that needs to be discussed together with INWIT. So this activity has not yet started together with INWIT because this is a joint discussion that we need to have with INWIT to make sure that we have a sustainable way of moving towers away. But I would say the overall, looking at what TIM published last evening kind of makes sense. We have the same building blocks. We probably have a similar time line in mind. Also sort of a mix of moving to existing towers, with which we've sort of -- which are provided by many different or multiple different tower companies in Italy. We are in discussion with all of those tower companies already since quite some time to look at what this would mean for them. We're also working out on how to build new towers directly with new tower cos or also with the JV. So I would say overall, it's sort of a similar approach. And of course, the migration period needs to be agreed with INWIT. The contractual provision for this is a negotiation in good faith. It lasts at least 3 years, like from the end of the contract, so giving us already 2 plus 3 years, that means 5 years of migration period. And I also expect, I mean, INWIT has an interest to sustain revenues on their towers. So we do expect that we can accommodate the full year -- the full -- sorry, not the full year, the full duration of the migration with a good faith discussion of migrating those towers in due time one by one. Eugen Stermetz: Okay. Josh, just briefly on the second one. So the target for this year is CHF 50 million cost savings. So if you do a kind of regular quarterly run rate, that would be CHF 12 million, CHF 13 million a quarter. If you look at the cost savings out of our infrastructure and support functions segment, that's CHF 13 million year-over-year. So that's very much in line with what you expect quarterly. But then on top, there are cost savings mostly in the B2C segment. If I remember correctly, it's CHF 11 million out of advertising which comes on top of that normal regular run rate. And this is just in year phasing, as I mentioned, in 2025, we launched the We are Family! offering in the first quarter. So we had higher advertising spend, and that advertising spend is going to be spent over the course of the year. So there is no more magic to our reasoning here. Joshua Mills: Got it. Maybe just to come back on this tower question. Presumably, there is a date by which you will have to communicate to the Board and to shareholders, who will take on some of these anchor tenancies because the third party providers will take a while to ramp up, I think, TI say it will take -- they can enable about 500,000 towers a year through new players. So are you actually already talking about switching the anchor tenancies? Or are the discussions with existing tower cos just about future secondary tenancies, build-to-suits, et cetera? And when will we find out -- at what point do you expect to update the market on the detailed plan for switching away from INWIT? Christoph Aeschlimann: Well, I would say the detailed plan, as said, needs to be discussed with INWIT first. I don't want to communicate things to the market that we didn't discuss with INWIT beforehand. Until now, there is no discussion. I assume INWIT is waiting for the outcome of the legal proceedings that are currently ongoing for the provisionary measures, which we expect to happen over the course of the summer. And then I expect to enter into discussions with INWIT about the migration. And once we have substantially agreed with INWIT how this is going to happen, we will also communicate and update the market. Might be by the end of this year, might also be only next year, but what I can assure you is that we are very seriously and intensively working on this topic to make sure that we have a sustainable way forward for our operations. Operator: So we are now taking the next question. Go ahead, your line open. Robert Grindle: It's Robert Grindle from Deutsche Bank here. Hopefully, it's not going to be an issue much longer, but please remind what's your hedging on energy costs in Switzerland? And is the higher energy cost a boost for your Italy business as customers are looking to change suppliers? And my second question is back to Italy towers. How did the -- no, it's not actually the towers, the relationship with Vodafone, how did the indemnity work in Q1? And what's the full year effect, please? Is it the same benefit for 4 quarters? And at the EBITDAaL level, is it just like the past customers didn't move away this year? Eugen Stermetz: Okay. So first, on the energy cost. So both in Switzerland and in Italy, we have a hedging strategy in place for the energy cost, which protects us from short-term spikes, obviously, there is no projection for long-term increase in energy prices anywhere. But that is in place. So both in Switzerland and in Italy, for 2026, about 90% or so of our energy needs are already purchased and the price is fixed. The methodology with which we do this in Switzerland and Italy differs a bit. So in Switzerland, we have a rolling hedging strategy for the forward years. In Italy, we have the part of the energy need covered by power purchase agreement. So the details differ, but the bottom line is we are protected for -- we are protected for this year. Then on the Vodafone indemnity for the PosteMobile migration, that will most probably be booked during the year in one single quarter. We have not put anything in the first quarter. So the numbers you see for the wholesale segment in Italy in the first quarter are the operational numbers. And PosteMobile is actually still fully in there because they just started their migration after the end of Q1. Operator: We'll now take the next question. Your line is open. Please introduce yourself. Paul Sidney: It's Paul Sidney from Berenberg. Just a couple of questions, please. And the first one, sorry to go back to this, but on the Swiss competition levels, you've been pursuing a value over volume strategy for some time, you're putting prices up modestly. But it just doesn't seem to be working, as I think Andrew said earlier, he summarized it with just being given away in promotions. So I was just wondering, is there anything more Swisscom can do to reduce competitive intensity? Maybe the answer is raising prices more, focusing more on churn reduction? Is there anything else you can do? Or do you just have to accept the rational competition levels that we're currently seeing? And then secondly, on B2C, Swiss B2C, you set out how you would like to monetize additional services by upselling security by AI. I was just wondering, are you currently charging for these services? And if not, what do you think the appetite is for customers to pay for these types of services going forward? And what's your strategy there? Christoph Aeschlimann: Okay. So on the Swiss competition side, I mean, we are -- our overall strategy is to be a price follower in -- like we are not trying to position Swisscom as an aggressive brand. So we are restraining our commercial aggressiveness, really trying to tone down competitiveness in the market. This has always been our strategy, and we continue to work on this. There is not much more, I would say, we can do. I mean, at the end, competition behaves the way they -- or they do what they do. And it's their own decision. I think we have executed the price increase on our second brand. We have executed a price increase on the main brand. Our promotional strategy is around 6 or 12-month promotions. We are not executing lifetime promotions on the main brand, and we will -- I think this is an important way of positioning Swisscom brand as a premium brand and not something that we give away at the low cost. I think what we are -- things we are working on right now, our churn reduction, honestly, is quite hard because the churn levels we have are already quite low. They have now temporarily increased slightly on the broadband side. We will, of course, work again on that side to bring it down even more. But I would say we continue to work on branding, on positioning the brand as a premium brand. We are continuously working on reinforcing Wingo positioning as a converged provider and we are working on increasing our sales footprint to make sure that we are enough visible in the market. But overall, I would say that the strategy will be unchanged going forward. And we will see how the competition evolves over the next quarters. On the additional products, so security, we are already charging for these products. So since many years, we have -- we've always had a security offering that we are kind of amplifying right now and expanding. And we have 300,000 paying customers for security already. So it's quite a nice penetration into the base. We are looking at expanding this penetration, adding new security options so that we can upsell and cross-sell more into the base and really drive revenue generation from this product. So I would say on that side, we are confident that we can monetize security more going forward. The myAI proposition at the moment is a free proposition. So we are mostly looking at driving adoption, making sure that customers know about the product, and we will look into monetizing this next year. But it's still quite hard to tell how many customers are willing to pay for this proposition. And hopefully, of course, we will find many. But I think it also depends a bit on the evolution of what the hyperscalers are doing, what other AI players are doing, what they are charging, et cetera. But we will, of course, look into monetizing the AI proposition also on the consumer front. Operator: So I will now open the line for the last question. This is the last question. Please introduce yourself. Christian Bader: It's Christian Bader from ZKB. And there's a couple of questions regarding Italy. So first of all, telco service revenues declined by CHF 55 million in the first quarter. And you commented that you expect an improvement in the second half, the B2C side, they could be flat. So I was wondering, I mean, would it be possible to get them, let's say, annual number of new expectations for the telco service revenue loss might be in Italy? That's my first question. Eugen Stermetz: Yes, I can take that immediately. So the guidance for the full year for telco service revenue decline in Italy is CHF 150 million, CHF 100 million of which from B2C. Christian Bader: Okay. My next question relates to the wholesale business in Italy. And can you maybe quantify the loss that you do expect from the Poste MVNO contract in terms of user numbers or revenues that we should expect from second quarter onwards? Eugen Stermetz: Yes. So it's a full year effect in 2026 of about CHF 75 million. The migration started after Q1. So you will have a 12-month effect that goes into 2027 of about CHF 100 million. Christian Bader: All right. And also, I believe -- a question related to that, I believe I have read but I can't remember where, that you do get some compensation for this loss. And so therefore, the -- let's say, effect on the results will only be visible in 2027. Am I correct or... Eugen Stermetz: That is correct. There is an indemnification provision with Vodafone, which we also guided for in February, and it will hit the P&L positively by CHF 75 million this year, and we will show it in adjustments and it will be booked in one individual quarter, as I just explained. Louis Schmid: So thank you very much. And with that, I would like to conclude today's conference call. If you have any additional questions, feel free to reach out to the IR team. We look forward to speaking with you and wish you a pleasant day. Operator: Dear participant, the conference call has come to an end. Thank you for your participation. Goodbye.
Operator: Hello, and welcome to BD's Second Fiscal Quarter 2026 Earnings Call. At the request of BD, today's call is being recorded and will be available for replay on BD's Investor Relations website, investors.bd.com or by phone at (800) 688-9445 for domestic calls and area code +1-402-220-1371 for international calls. [Operator Instructions] I will now turn the call over to Shawn Bevec, Senior Vice President, Investor Relations. Please go ahead. Shawn Bevec: Good morning, and welcome to BD's earnings call. I'm Shawn Bevec, Senior Vice President of Investor Relations. Thank you for joining us. This call is being made available via audio webcast at bd.com. Earlier this morning, BD released its results for the second quarter of fiscal 2026. The press release and presentation can be accessed on the IR website at investors.bd.com. Leading today's call are Tom Polen, BD's Chairman, Chief Executive Officer and President; and Vitor Roque, Executive Vice President and Chief Financial Officer. Before we get started, I want to remind you that we will be making forward-looking statements. You can read the disclaimer in our earnings release and the disclosures in our SEC filings on our Investor Relations website. Unless otherwise specified, all comparisons will be made on a year-on-year basis versus the relevant fiscal period. Revenue percentage changes are on an FX-neutral basis unless otherwise noted. Also, references to adjusted EPS refer to adjusted diluted EPS. The financials discussed here and included in the earnings release and 10-Q are presented on a continuing operations basis. Prior periods have been recast to reflect the spin-off of our Life Sciences business in combination with Waters, which is now accounted for as discontinued operations. Reconciliations between GAAP and non-GAAP measures are included in the appendices of the earnings release and presentation. With that, I will turn it over to Tom. Thomas Polen: Thank you, Shawn, and good morning, everyone. Before turning to Q2 results, I wanted to take a moment to highlight this morning our announcement of Vitor Roque as CFO. As you know, Vitor has been Interim CFO since last fall and has done a fantastic job serving as a partner to me and the leadership team. Since he stepped into the role, we've delivered 2 solid quarters of performance and closed our transaction with Waters ahead of schedule, enabling us to fully initiate our New BD strategy while also enhancing our capital allocation strategy. In partnership with a leading executive search firm, management and the Board ran a comprehensive process that evaluated a broad range of external candidates in addition to Vitor. Our goal is to identify the best candidate to lead BD's finance function. We were focused on identifying a CFO with a demonstrated ability to lead sophisticated finance organizations in complex operating environments, deep understanding of our markets and value creation model and a strong track record of driving strategic, operational and financial performance. As we work through the process, it became clear that our best talent was already within the organization with Vitor. With 25 years at BD across our businesses, regions and segments, he brings the experience and perspective to translate strategy into results, drive consistent execution and create long-term shareholder value. I look forward to working closely with Vitor as we continue to execute on our strategy. Turning now to our Q2 results. We delivered a solid second quarter with revenue, adjusted margins and adjusted EPS all ahead of our expectations. More importantly, performance reflected broad-based execution with more than 90% of the portfolio delivering mid-single-digit growth and tangible progress in operational innovation and commercial performance through BD Excellence. Reflecting our first half performance and improved visibility into the remainder of the year, we are raising our full year adjusted EPS guidance. This gives us confidence that the New BD strategy is delivering through a dynamic environment. Revenue was $4.7 billion, up 2.6%. As I've discussed, we've been focused on building multiple scaled growth platforms that sit at the center of secular trends that are driving the future of health care. It is in these areas where we're focusing on enhancing our commercial execution and driving product innovation. During the second quarter, we delivered double-digit growth across these key growth platforms, including biologic drug delivery, Advanced Patient Monitoring, PureWick and Advanced Tissue Regeneration. We also delivered mid- to high single-digit growth in oncology, peripheral arterial disease and Rowa pharmacy automation. As you can see, these platforms are scaling. They're outpacing the broader portfolio and are becoming a more meaningful driver of our long-term growth profile. As expected, results were partially offset by focused pressure in Alaris, vaccines and China. We've been clear about these factors, which represent less than 10% of revenue, and we're managing them with discipline. We delivered adjusted operating margin of 24.2% and adjusted EPS of $2.90, reflecting strong operational execution through BD Excellence and the high quality of our revenue performance. Taken together, the quarter demonstrates the increasing quality, breadth and resilience of New BD. We're executing against three priorities that define how we're building New BD: compete, innovate and deliver. By expanding BD Excellence into commercial and R&D, we're building a stronger operating system, one that strengthens our competitive position, accelerates innovation in attractive markets and improves the earnings and cash generating power of the company over time. Starting with compete. We're raising the bar on commercial execution with greater rigor, faster decision-making and more disciplined use of data. In Q2, those actions translated into measurable share gains and customer conversions across several key platforms. A few to highlight. Within Connected Care, APM continued to grow above market, driven by strong HemoSphere Alta adoption and a nearly 20% increase in Smart Recovery consumables demand. With incremental sales force hiring largely complete, we're well positioned in the back half of the year. In Alaris, we drove share gains of approximately 50 basis points in the quarter and roughly 150 basis points year-to-date, with momentum continuing into Q3. In BioPharma Systems, we secured several significant long-term customer wins, including two next-generation GLP-1 programs with leading global pharmaceutical companies. Biologics are now expected to represent about 55% of segment revenue, reinforcing our confidence in the long-term growth outlook for this business. In Interventional, we continue to build competitive momentum across Surgery with strength globally from our synthetic hernia and Advanced Tissue Regeneration portfolio and early contributions from recent launches, including Surgiphor Pulse and Avitene Flowable. In UCC, we drove continued adoption across the PureWick portfolio, including expanding our PureWick at-home initiative and adoption in the VA. This is a good example of how we're combining innovation and commercial execution to expand both our penetration and our addressable market. What's important here is that these are not isolated wins, they reflect improving commercial discipline and our ability to convert strategy into tangible outcomes. Our second priority is innovate. We're strengthening our pipeline and increasing the pace of launches in high-growth areas that advance BD's leadership in Connected Care and enabling the shift to lower-cost settings and in advancing the treatment of specific chronic diseases. While we're still in the early innings of applying BD Excellence to R&D, we're already seeing momentum. Year-to-date, we've applied BD Excellence to five development programs, and on average, have reduced the time to launch by over 10 months. This is increasing the cadence of high-impact launches that expand our addressable markets and support sustainable long-term growth. In Peripheral Intervention, we launched the EnCor EnCompass Biopsy System in the U.S., strengthening our position in the $450 million global breast biopsy market. The system simplifies workflow and works across all imaging modalities, enhancing both efficiency and clinical flexibility. We also advanced our peripheral vascular portfolio with the early launch of the Revello Vascular Covered Stent in Europe. This expands us into new procedural segments within PVD and addresses more complex lesions. The U.S. launch is planned for next fiscal year. In APM, we expanded the launch of the HemoSphere Stream Module in the U.S. and Europe. Stream enables continuous noninvasive blood pressure monitoring with real-time data and extends beyond traditional care settings, significantly expanding our addressable market. Collectively, these launches in the quarter show that innovation at BD is becoming more focused, more disciplined and more impactful in the categories that matter most to our long-term growth. Our third priority, deliver, reflects our focus on quality, operational excellence, margin expansion and cash flow generation. Our BD Excellence system and operational performance is a significant differentiator for BD and a key source of confidence in our ability to continue investing in growth while expanding earnings power. We're building a simpler, more efficient manufacturing network, reducing our footprint by roughly half to around 50 sites globally today, with actions underway to reduce it further. BD Excellence drove approximately 8% productivity in the quarter and service levels of over 90%. These actions are supporting growth, expanding margins, increasing cash flow and strengthening the resilience of our operating model. We also made strong progress on our $200 million cost-out program with a run rate of $150 million already completed and clear visibility to fully deliver by the end of next year. Product quality is core to BD, and I want to provide an update on the FDA warning letter we received last Thursday related to our El Paso, Texas facility that manufactures ChloraPrep and PurPrep infection prevention products. In response, we voluntarily placed these products on ship hold in the U.S. while we complete additional final release testing. This additional testing is already performed for products sold in Europe. We expect this testing to take approximately 3 weeks and pending satisfactory results, we would resume shipments at that time. We are continuing to manufacture product during this period. And importantly, there's been no patient safety signals, and we stand behind the safety of these products. Moving to capital allocation. We remain committed to a disciplined framework, which prioritizes returning capital to shareholders, investing in high-growth opportunities through disciplined tuck-in M&A and driving consistent improvement in return on invested capital. Our capital allocation actions continue to align tightly with our framework. In the quarter, we returned $2.3 billion to shareholders, including $2 billion through share repurchases. We completed the separation of our Life Sciences business at approximately a 19x EBITDA multiple, and our Advanced Patient Monitoring acquisition continues to perform well ahead of our deal model. In closing, we are pleased with our first half performance and improved visibility into the remainder of the year as we continue to execute across our New BD growth strategy. With that, I'll turn it over to Vitor to provide more detail on our financial performance and updated guidance. Vitor Roque: Thanks, Tom, and good morning, everyone. I'm honored to step into the CFO role at a pivotal moment for BD as we accelerate our New BD strategy. I appreciate Tom and the Board's confidence. I firmly believe BD's finance function must support the company's strategy to drive shareholder value creation. I see tremendous opportunity ahead as we have clear, well-defined strategy to unlock growth while continuing to be diligent on our cost structure to improve P&L leverage and drive sustainable EPS growth. This must all be paired with a clear capital allocation strategy that will continue to focus on shareholder returns while maintaining a strong balance sheet. I look forward to continue to engage with the investment community in the weeks and months to come. With that, let me turn to the quarter. We delivered solid second quarter with $4.7 billion in revenue, up 2.6%, reflecting broad-based growth across most of the portfolio, with a stronger contribution from higher-margin businesses and disciplined execution through a dynamic environment. This was partially offset by expected pressure in Alaris, vaccines and China. Medical Essentials grew 1.7%. MDS and Specimen Management delivered solid growth in the U.S., driven by share gains in Vascular Access Management and BD Vacutainer portfolio. This was partially offset by market dynamics in China. Connected Care grew 3.3%, led by Advanced Patient Monitoring which grew 12% on strength in the U.S. consumables. MMS grew modestly with the difficult prior year comparison in Alaris capital, offset by strong infusion sets performance on increased utilization versus last year fluid supply disruption and pull-through from Alaris share gains. BioPharma Systems declined 1.8%, in line with our expectations. Continued double-digit growth in Biologics led by GLP-1s was more than offset by lower demand for vaccine products. Interventional grew 5.3% with solid mid-single-digit growth across the segment. UCC was led by continued double-digit in PureWick. Surgery performance was driven by double-digit growth in Infection Prevention and Advanced Tissue Regeneration. PI grew -- growth was led by peripheral vascular disease and oncology, partially offset by China market dynamics. In summary, revenue performance was not driven by one business or one geography, we saw strength across multiple platforms where we have been investing, and that strength more than offset known and focused headwinds. Turning to the P&L. Adjusted gross margin was 54.7%, down 90 basis points versus the prior year. This includes 70 basis points of positive benefit from productivity and mix, offset by 160 basis points of tariffs. Adjusted operating margins was 24.2%, down 110 basis points versus the prior year. This includes 160 basis points of tariffs and increased commercial investments in key growth areas. Importantly, both adjusted gross and operating margins were ahead of our expectations. Adjusted EPS was $2.90, up 3.9% and ahead of our expectations, reflecting solid revenue performance, better-than-expected margins and strong operational execution. Adjusted EPS excludes approximately $450 million of noncash asset impairment charges recorded in the quarter. Following the separation of our Life Science business and combinations with Water, we exited certain activities that no longer align with the New BD strategy. These actions are part of the work to simplify BD, sharpen our focus and align resources behind the platforms that matter most to the long-term value creation. Turning to cash flow and capital allocation. Year-to-date free cash flow was $1.1 billion, up significantly versus the prior year. The increase was driven by disciplined working capital management, including improved collections and inventory management as well as continued progress reducing nonoperational cash items. This increases our flexibility to invest in growth and return more capital to shareholders. During the quarter, we returned approximately $2.3 billion to shareholders, including $2 billion in share repurchases and $0.3 billion in dividends. We also retired $2.1 billion of debt in the quarter. We ended the quarter with net leverage of approximately 2.9x and remain committed to our 2.5x long-term net leverage target. Our capital deployment remains aligned with the framework we laid out: return capital to shareholders, invest in focused growth and maintain balance sheet discipline. Moving to our updated fiscal '26 guidance. While we are reaffirming our full year revenue guidance of low single digits, we expect revenue growth in the second half to be roughly similar to the first half. Based on current spot rates, currency is estimated to be a tailwind of revenue of about 120 basis points. Moving down to the P&L. We continue to expect adjusted operating margins of approximately 25%, inclusive of the impact of tariffs. Our adjusted effective tax rate is expected to remain between 16% and 17%. Given our first half performance, the breadth of growth across the portfolio and continued productivity through BD Excellence, we are increasing our adjusted EPS guidance to $12.52 to $12.72. With that, I'll turn it back to Tom. Thomas Polen: Thanks, Vitor. Before we open the call for questions, I want to recognize Rick Byrd, President of the Interventional segment, who recently announced his intention to retire after nearly 25 years with BD. Rick has been a strong leader and partner over his career at BD, strengthening our portfolio and helping build a strong foundation across the Interventional business. We're grateful for his many contributions and wish him all the best in his retirement. With that, let's start the Q&A session. Operator, can you please assemble the queue? Operator: [Operator Instructions] And we'll take our first question from Vijay Kumar with Evercore ISI. Vijay Kumar: Maybe one on just the performance here in the quarter, both on the top and bottom line. Organic -- headline organic was 2.6%. What was underlying excluding the onetimer headwinds, right, which segments did it impact on the bottom line? Maybe for Vitor on -- it looks like TSA income was a driver. Is TSA income sustainable here in the back half? Like what's that other income that aided here in the second quarter? Thomas Polen: Thank you, Vijay, and good morning and welcome back. Good to have you back covering BD. We are, as you said, really pleased with the performance in the quarter, and we saw it play out with really those -- our key growth platforms. We had multiple platforms growing double digits in the quarter. We talked about a number of those, BioPharma -- our Biologics business, our Advanced Patient Monitoring business, a number of others there. We're continuing to see also another major portion of our portfolio growing high single digits. And the overall 90% of the company, continuing to grow solid mid-single digits, right around 5%. And the three areas that we called out in the beginning of the year, right, the China, the vaccine market dynamics as well as Alaris playing out as expected as well, and that's offsetting kind of that mid-single digits in the remaining portion of the portfolio, but we're really pleased with the execution that we're seeing across the team, the up-tempoing on our commercial rigor as well as the pace on innovation and launches. I'll turn it over to Vitor to address the other questions. Vitor Roque: Vijay, thanks for the question. So as Tom highlighted, we are very happy with our performance, both on the top line and the gross margin. We had strong performance in both of those areas. On the item that you are mentioning, it's not necessarily related to the TSA. What we had was a planned item from the very beginning of the year in a different line of the P&L on the G&A line that on the accounting when we booked, we ended up booking in the other income line. But it's just a reclassification between lines. It's not driven by the TSA. Everything played out as expected on the quarter for us. Thomas Polen: So there was no benefit on the P&L. Vitor Roque: No benefit on the P&L from that. Operator: We'll take our next question from Travis Steed with Bank of America. Travis Steed: Maybe start with maybe thinking about the cadence of the year, both on revenue and margins. I know you said revenue growth kind of roughly similar first half, second half, but the comps do get tougher. So when I think about how some of the Alaris, China, vaccines headwinds play out to kind of get the similar growth rate in the back half of the top line. And when you think about margins, kind of the same idea how to think about margins over the course of the year and what you're assuming on inflation as well. Thomas Polen: Sure. I'll turn that to Vitor. Vitor Roque: Travis, thanks for the question. So starting with the revenue, I think we feel very good about the revenue we have on the back half of the year. We delivered solid performance on the first half over delivering on our internal estimations and expectations and we see good line of sight to deliver on the back half of the year, as we mentioned on the prepared remarks. The comps are pretty much similar in the back half of the year. There is no specific topics there. So we feel confident about the delivery in the back half of the year from a revenue perspective. From a margin perspective, we also see good performance over delivering the quarter on the gross margin, which makes us increase confidence for the back half of the year. A lot of our ramp in margins in the back half of the year is driven by the execution of our BD Excellence, that has been part of our plan all year long. We are seeing results of that with achieving 8% productivity in Q2, and that's going to generate benefits for us on the later part of the year. Given our cap and roll, we have good visibility of our margin profile for the back half of the year, which also increases our confidence on delivering the margins in the back half. Thomas Polen: Yes. And I would just say the other couple of factors there is we do end up lapping a bit vaccines, right? If you recall, that started in the very back end of last year. So we do see that not as significant of those headwinds in the back end of the year versus what we saw in the front part of this year. I think maybe just another one since it's probably on folks' minds, just to address too, as we think about questions around oil and resin and the Middle East. From a business perspective, resins and molded plastic components, they represent about 5% of our COGS. I think we've talked about this many times in the past. But we've really very effectively, very proud of the work that our teams have done to effectively mitigate any impact this year. That's really done through the hedging actions that we took several years ago, which we're seeing benefit us here as well as obviously the normal cap and roll mechanisms and the very strong top quartile, top decile productivity benefits that we're seeing, right? As we think about next year as well, we obviously have a very focused team, pending where oil prices and resin prices go. Obviously, we continue to drive BD Excellence. We've got multiple resin sources. And pricing actions are also something that, as you know, that's an area that BD has a lot of focus on. And right, we will make sure from a margin perspective that we seek to protect that as we -- pending where those prices stabilize over time. So thank you for the question, Travis, and we'll look forward to seeing you next week. Operator: We'll take our next question from Robbie Marcus with JPMorgan. Robert Marcus: Congrats on a good quarter here. Tom, I wanted to ask on sort of the New BD strategy here and really the priorities for free cash flow. I believe in the past, it used to be predominantly tuck-in M&A to drive growth accretive additions to the business. And now it seems like that's slotted #2 behind share repurchase. So maybe just give a quick overview on how you're thinking about capital allocation here and the priorities, if you don't mind. Thomas Polen: Yes. Thanks for the question, Robbie. And so as we've communicated, as we look at the New BD, and particularly, right, in this window and given the valuation of the company today, it's -- we believe that the company is substantially undervalued. And we have a very strong focus on cash flow generation, you saw that come forth in the quarter. You can see it in our operational excellence, really operating at a top tier there. So as we think about how we deploy that cash flow, which we're obviously highly focused on continuing to increase today, at current stock price, right? We have a top priority on buying back shares as we view that as a top form of value creation for our shareholders. . Now with that, we obviously pay a very strong dividend, which is a very high yield rate at -- a very solid yield rate at today's stock prices, again, which we view as undervalued. And we do have an active M&A pipeline. But we -- as we look at those, you've seen us be extremely disciplined in our M&A track record over the last several years. We've been focusing exclusively on deals that accelerate revenue growth, drive margins and improve our return on invested capital, right? We haven't been doing dilutive deals. And that framework doesn't change from in terms of the types of deals that we look at. But from an allocation, so we do have an active M&A funnel. It is in a focused funnel as we are prioritizing towards share buybacks at the current valuation levels, but I would expect that we would do tuck-ins forthcoming, but again, in a focused way in that order of capital prioritization. So thank you for the question, Robbie. Operator: We'll take our next question from Larry Biegelsen with Wells Fargo. Larry Biegelsen: Tom, I thought I'd just ask on the ChloraPrep ship hold, I thought if I heard you correctly. What's assumed in the guidance, how much of U.S. Specimen Management is ChloraPrep? I assume the vast majority. And what gives you the confidence the ship hold will only last 3 weeks and that the testing will be positive? Thomas Polen: Yes. Thanks for the question, Larry. So just a little bit of background, the ChloraPrep and PurPrep products are primarily within our surgical business with a little bit in our MDS business. And those products are made in that El Paso facility. So as we have put those products on hold from shipping them, we're continuing to manufacture full out. As I said, there's been no patient safety signals, and we stand strongly behind the safety of the products. The testing that we are performing is testing that we've been doing for many years on the product that we ship to Europe. So we have a strong track record with that testing on this exact same product. We've extended that testing. We've added an additional testing loop -- that testing loop onto the finished goods that are going to be shipped in the U.S. That testing takes approximately 3 weeks. We're beginning that testing this week. And again, pending satisfactory results like we've seen for the product that we've been shipping to Europe. Pending that, we would resume shipment at that time. And in the meanwhile, we're not slowing down manufacturing. So I think that's an update there. Thank you, Larry, for the question. Operator: We'll take our next question from Rick Wise with Stifel. Frederick Wise: Look, I'm going to ask, it seems like sort of a soft question, but I'm curious to know what you're charging Vitor with, what you're tasking Vitor with as he steps into the role. Obviously, he's been there a long time. Obviously, he knows the job. Obviously, compete, innovate, deliver, he's going to be integral in making that all happen, Tom. But there's -- he's stepping into the role in a different time in BD's history. What's he prioritizing? What are his financial priorities? Is something -- anything changing or different that you're emphasizing? I'd just be curious to understand how you're both thinking about it and what we should think about it, honestly. Thomas Polen: Obviously, Vitor and I are highly aligned on the New BD strategy and our focus on execution quarter after quarter on the commitments that we've shared. And again, we're very pleased with this quarter. We're highly focused, obviously, on the continued cash flow generation and revenue growth of the company. Those are reflected in top 2 priorities, which is commercial excellence and innovation excellence, which fuel our revenue growth. And why don't I turn it to Vitor to maybe share his priorities and financial philosophy? And again, it's -- we're joined at the hip on that. Vitor Roque: Sure. Thanks, Tom, and thanks for the question. Of course, I'm very honored to be taking this position at pivotal moment at BD. New BD, we are very excited about what we can unlock going forward. And I have spent more than 2 decades at BD across different businesses, regions and segments. And I do have a clear view of what drives performance and what is the structural versus cyclical. My focus, it's driving growth in partnership with Tom in the leadership team, but also setting expectations that are confident and sustainable. Communicating transparently, delivering consistently against what we commit. Over time, I think that consistency is what builds trust and drives -- preserves -- builds trust and preserves flexibility. In terms of priority, I would say, of course, driving growth is going to be the top of our agenda. We are going to continue to drive that, but execute without disruption, making sure that we keep the team focused on delivering the commitments to this moment, maintain a clear and consistent communications so investors and shareholders understand our performance drivers, outlooks without any type of ambiguity. And I think, as Tom mentioned before, stay disciplined with our capital allocation, protect the balance sheet, maximize returning to shareholders and invest on selective growth drivers. It's about continuity. It's not about changing drastically, but it's sharpening the execution and not changing direction. Thanks for the question. Operator: We'll take our next question from David Roman with Goldman Sachs. David Roman: Vitor, congratulations on the permanent role here as CFO, I look forward to working with you. Maybe just dive in a little bit deeper on MMS here. Clearly, a ton of focus on the Alaris business. But maybe you could help just frame for us some of the different other pieces in that line item. For example, what are the opportunities on the pump disposable side, especially given the disruption in a competitor? I believe your pump set share, especially sets outside the pump is lower than your pump capital share. You talked a little bit about Rowa and Parata. But maybe help us just break down a little bit further. Any detail you're willing to provide on sizing the businesses in there and how you're thinking about the growth trajectory, especially in light of the previously disclosed comments around the well-known Alaris headwinds? Thomas Polen: Yes. Thanks for the question, David. And obviously, you know the business extremely well. As we think about -- so let me start with Alaris and then we can move over to dispensing and pharmacy automation. So within Alaris, as we said, we actually saw Alaris perform modestly better than expected in the quarter. It was another quarter of share gains. As we said, about 50 basis points year-to-date, 150 basis points, which year-to-date, halfway through the year, that's hitting stride even better than we had before historically. That's really good. And we see that momentum in Q3. In fact, we have the largest Alaris competitive funnel in the history of the company today. And so we're, again, very focused on that. We lost no infusion accounts in the quarter. As we think about the consumables growth, we actually saw and we're seeing -- in the quarter, we saw low double-digit growth in infusion sets in the quarter. And that's driven -- I think we need to recognize, one, there was an easy comp relative to the -- there's the fluid shortage last year that held that back. But it's also driven by, as you referenced, share gain pull-through that's happening there. And that's a big focus of ours, right, not only on the dedicated sets, but on the non-dedicated sets and pulling all of that through together to help support the customers and with BD solutions. As we think about Pyxis, obviously, we're right in the middle of -- right in the early stages of our next-generation Pyxis launch, Pyxis Pro, which is the first new Pyxis platform in essentially 20 years. So again, bringing really new fantastic breakthrough innovation that's for the first time in a while. And it's a very important step in our Connected Care strategy. The new Pyxis Pro is the first AI-enabled Pyxis, and it's the first future cloud-enabled Pyxis. Our early customer response has been strong. The launch is translating into competitive traction actually in the first half of the year now. 75% of our wins are competitive conversions which is reinforcing our view that this is really a meaningful share gain platform over time. What we're doing with that platform? So it enhances capacity, it enhances security and durability but it also has our new AI platform, BD Incada. And under Bilal's leadership, he's really brought in a new team of AI specialists, data specialists who are building out Incada as our solution that all of our devices, whether or not it's Alaris or Pyxis or APM or other software platforms will all feed into this AI model that will help customers improve that end-to-end medication management workflow, improve inventory visibility. And ultimately, that's our platform that we view connecting in our patient monitoring and the drug delivery side to take things to a next level of breakthrough innovation. On the pharmacy automation side, at the same time, we've recently hired in a new President of that business to give it even further focus with -- under Bilal's leadership. And that's still a subset within MMS, but we brought in another level of leadership there because we do see a significant opportunity both with Parata and Rowa. The trends around automation and labor shortages certainly are not changing anywhere, particularly Europe, right? When you go into hospitals, labor shortages are the #1 topic we hear time and time again, and pharmacy automation is a fantastic solution. The other thing you're seeing in the U.S. is as people are wanting to ship drugs directly to patients' homes from a population health, pharmacy automation and these lights out automated warehouses really become key. Same thing on the direct consumer, the large direct-to-consumer places that we could be buying our own goods that are now offering pharmaceutical services to deliver those medications for home. They don't have pharmacists counting pills and putting them in amber vials in their warehouses, right? They're using, in many cases, our automation to do that, and then they're shipping those to you, those online retailers. And so again, future growth opportunity because we do see that is a trend which is going to continue going forward, and we see very strong interest from both online retailers but also from hospitals as well as pharmacy providers directly. So overall, within that MMS business, there are a number of different levers that we're focused on executing against, and we'll continue to drive those. Thanks for the question. Operator: We'll take our next question from Matt Miksic with Barclays. Matthew Miksic: Congrats on a really strong quarter here. I wanted Tom, if we could talk just a little bit about some of the initiatives that you mentioned around BD Excellence and excellence in manufacturing. It's one of the areas that it seems like the organization continues to just drive more efficiency, more cost-outs, more back-end fixed asset rationalization and it's kind of in the middle of another big wave currently. So color, strategy, pace, any comments there? And then just a follow-up on your comments on oil to the extent the -- your positioning is around hedges and there's sort of a time window that those hedges work well and then less well. Just how much protection you have out into the future? And maybe what, if any, options you have in the past, you've pulled -- I don't say pull, but you've made some changes in price and been able to offset some of that in addition to internal mitigation? Any strategies you're putting in place or have after maybe some of the temporary benefits of hedging start to wear off if that's the situation we find ourselves in, say, in 9 or 12 months? Thomas Polen: Yes. Thanks for the question, Matt. Two great questions. On BD Excellence, so again, BD Excellence, as you know, didn't exist really 3, 3.5 years ago, and it's something that I couldn't be more proud of the teams who are driving that. It's now deeply embedded in the company. This year, we'll do over 2,000 Kaizens across the organization. That's up substantially from last year and last year essentially doubled from the year before. So as you said, it's at significant scale, and it continues to scale with momentum, right? Every one of our plants, every one of our business units has dedicated BD Excellence leadership. Our leadership team is involved in Kaizens directly themselves. I was just out at plants engaged in those recently. And what we're seeing in every case, right, is we're improving safety in our plants. We're at record safety levels. We're improving quality in our plants. We're improving delivery. We're really pleased from our customer service levels over 90%. I was out with our sales team earlier this week, meeting with a very large customer. And the feedback that we hear from our sales team, right, the best service levels they've seen for our customers. It's allowing them to focus on selling product, not back orders. And that's all a result of that momentum. And obviously, cost, right, what you're seeing. I think certainly top quartile, perhaps top decile, very likely top decile. Overall, what you're seeing an 8% productivity, which was, by the way, what we delivered last year as well. So it has momentum. And you're seeing that complemented with a very aggressive posture on our network architecture, right? We've cut that in nearly half over the last several years to now about 50 sites, and we still have more underway. That's allowing us to, again, have more scaled facilities where we can also invest in informatics, AI, BD Excellence capabilities that create a flywheel effect. And what I'm really excited by right now, and so our appointment of Mike Feld to Chief Revenue Officer. He comes with a very strong lean background, and he's applying BD Excellence and he has a team of folks who are helping apply BD Excellence to our commercial processes now, right? That same processes of how do you solve problems, how do you continuously improve every single day on our sales execution, on our funnel management, on how long it's taking us to close deals, on our value propositions, that same problem-solving mindset and continuous improvement, right? We're taking that into our selling organization today. And we're starting to see some early benefits of that. We're also taking it and we have dedicated BD Excellence people who just work in our R&D organization now. And I talked about the first five projects that this past 2 quarters this year that we applied BD Excellence to. And on average, we pulled the time lines forward 10 months, right? That's on the first five projects that we did. We've got many more planned in the back half of the year. But we see BD Excellence now, and that was -- this was the year that we were going to start expanding it beyond operations as we started getting -- as we kind of have that going. And we're excited about where that can take our commercial side and our innovation side now as well. As we think about -- and we see it -- the last thing I'll say on that is we see that as a long-term strategic advantage for BD across each of those avenues. When it comes to oil and resin, I mean, you nailed it. Hedging works for this year, it works well for us. As we think about next year, obviously, you've got kind of this 5 to 6 months flow-through of the P&L that we can see. And so the good thing is then you have visibility to mitigate it, right? And we have teams taking actions against those. And that includes teams looking at pricing, right, and those are very active. We obviously have been monitoring where oil is going to be. I think it's fair to say we are not assuming that oil will reset to a lower price. We're taking the assumption that it will remain high, including into next year and are going to be taking actions accordingly under that assumption. Obviously, if that were to get better, that's great, but that's certainly not a posture that we would take. Maybe, Vitor? Vitor Roque: No, I think everything you said, Tom, is spot on. We have the hedging programs, especially for the North America resins that we buy, which is approximately 50% of our resin in North America is hedged. And that gives us the flexibility. We also have multisource of suppliers from a resin perspective to also give us flexibility to navigate this cost environment that we have for '26. But as Tom mentioned, we are monitoring the cost, tracking that very closely, given that it's an important part of our raw material component. But given that our cap and roll timing, we have -- the teams are working to offset these through efficiencies and price is also a very important topic for us heading into FY '27. Operator: We'll take our next question from Josh Jennings with TD Cowen. Joshua Jennings: Just thinking about the potential for the portfolio to drive an acceleration in organic revenue growth back into the mid-single-digit range over the next 12, 18, 24 months. I was hoping to just touch on the expectation for the weighted average market growth rate of the portfolio. It seems like the tuck-in M&A strategy has evolved at least for the near term and you guys are making additional investments in some higher-growth segments like biologics, drug delivery, APM and regenerative technologies as well as, I guess, in the urology space adjacencies to PureWick. But I mean, how should investors think about the weighted average market growth rate of the portfolio and the evolution here over the next 24, 36 months? And is the reacceleration going to be driven by a combination of increase in WAMGR and share gains or primarily stable WAMGR and share gains in your various business units? Thomas Polen: Yes. Thanks, Josh. So to your point, our view of the long-term New BD growth profile continues to be -- we continue to be very confident in our ability to deliver durable mid-single-digit growth over time. And you can see that in our broader portfolio continuing to perform well, just around 5%. In fact, this quarter, that 90% of the portfolio that we've talked about. As you said, we've built over the last several years a number of scaled growth platforms that we're continuing to double down on. And just as a reminder, in the beginning of this fiscal year, we announced that we were investing about $35 million of incremental selling resources behind those. And again, you're seeing that pay off, right? We increased the APM U.S. selling organization by 15%. Our peripheral vascular growth focus, we increased the U.S. region PI sales force by 15%. We put more money specifically behind the supporting veterans and getting access and penetrating that category with PureWick for at-home use. In biologic drug delivery, right, we've supported additional resources there as well. And we put more feet on the street, more sales focus on Advanced Tissue Regeneration, right? We have certain claims for tissue reconstruction and cosmetic use in Europe and in Brazil. And we put more resources in those markets to pursue that. That was part of that $35 million investment, right? So to your point, we're taking a number of these high-growth categories that we've invested in, many of those being tuck-in acquisitions that we've done over the last several years. And we're focused on scaling those as rapidly as we can with commercial investments and making them a higher weighted mix of BD's portfolio, right? And so in fact, again, in the quarter, biologic drug delivery, Advanced Patient Monitoring, PureWick, Advanced Tissue Regeneration, they all grew double digits in the quarter. And then again, we saw that supplemented with a number of other categories growing high single digits. So we'll continue. We also have a lot of our R&D investments that we've been executing over the last several years, our organic R&D investments. They're fueling into those categories, right? And so we've been putting more money behind next-generation PureWicks, which are coming, next indications and applications in tissue regeneration. We have a number of new solutions coming out in biologic drug delivery as well. And obviously we are hyper-focused on the GLP-1 market and share gains in that category. And same thing in Advanced Patient Monitoring, right? The system that connects with Alaris is advancing really well in our pipeline. That will be a really exciting new opportunity. So our innovation funnel, as it continues to now drive launches later this year, into next year and beyond, it's going to continue. It's hyper-focused in higher growth, higher WAMGR spaces as well as higher margin spaces. We have a -- our innovation portfolio has a higher gross margin profile than the current gross margin profile of the company, and that's something we've been very purposeful in driving. Higher WAMGR markets, higher profitable markets is what we've comprised our innovation pipeline of. At the same time, right, we're not stopping looking at tuck-in M&A. Again, we've been very clear in what our capital allocation priorities are. And we've been very clear in the use of the term focused tuck-in M&A. And again, we are active in exploring those right opportunities that fit into our model for focused tuck-in M&A to supplement and drive revenue growth because that is a priority for us, right? But we also recognize the value of the stock today and what we see as undervalued and what gives the best return for shareholders with the use of our capital. But the good news is we have strong cash generation, and we think we can do that in a balanced focused way. So I appreciate the question, Josh, and we look forward to continue to give updates on that as we move forward. Operator: We'll take our next question from Joanne Wuensch with Citibank. Joanne Wuensch: A couple of things just looking forward. At the beginning of this, you highlighted pressures which you had already explained previously from Alaris, vaccines and China. And I'm curious how that rolls off or eases over the next couple of quarters. And I know we're way too early to be thinking about fiscal year '27, but I'm sort of curious how you think about sort of the New BD's template for revenue and EPS growth. Thomas Polen: Yes. Thanks, Joanne, and look forward to hopefully seeing you soon. For the headwinds, first off, our view hasn't changed on those, right? We're focused on executing with excellence through those dynamics, and they are playing out as expected this year. I think that's important that we really spent the time studying those and got those -- they're playing out as we expected. I think as for each of them, obviously, China is going to continue to become a smaller portion of our revenue, around 4% of New BD today and -- we'll probably drop below that just as the rest of the portfolio grows as we go into '27 perhaps into the 3s. So I think the market dynamics in China, as we've talked before, we do expect the value-based procurement will be -- have gone through the majority of our portfolio. But I think that market, right, continues to just have challenging dynamics. As we think about Alaris, that's a very clear path that we understand. Again, it's a very unique situation where we're actually moving at record share levels and continuing to grow, but it's obviously because of the compare versus that very large upgrade cycle that we went through as part of remediation. So we have 100 basis points of Alaris headwind this year. We've been very clear that, that will move to 200 basis points of headwind next year. And just as we've completed the remediation this year, and then that will stabilize. So we'll have that headwind in '27. And then in '28, Alaris will no longer be a headwind. And that's -- we're very, very confident that that's exactly how that will play out. And then when it comes to vaccines, look, there's been a significant drop in vaccine demand. You see that across essentially every pharma company that's in the vaccine space and in companies that are supplying devices for their use of which we're by far the market leader in. With that drop that occurred this year, I think the question is, are you going to see another subsequent drop next year? I think many folks would comment that, that's not what is expected. We'll know more about that as we start getting orders from our partners there going into next year. But at this point, our view would not be that there would be a repeat of that at that same scale next year, but we'll have more to come on that. But thank you for the question. Operator: We'll take our next question from Shagun Singh with RBC. Shagun Singh Chadha: Just a quick follow-up there on Alaris. When in 2027, would you expect that transition to kind of complete? I'm just trying to figure out when do you return to kind of that mid-single-digit growth? Is it sometime during '27? Or should we think about it in FY '28? And then just a quick follow-up on GLP-1. It seems like you continue to be positive on it, but just wondering if there is any negative impact we should expect given oral GLP-1s, et cetera, to your pharmaceutical business. Thomas Polen: Yes. I think it's, again, a 200 basis point headwind next year from Alaris. You're looking at -- we're basically 18 months from the end of '27 and those -- that dynamic subsiding and then that underlying performance of the company popping back through. I think that's what we've shared and what you can expect and what we have confidence in. As we think about GLP-1, any other comments on that, Vitor? Vitor Roque: No, I was just going to mention that the Alaris remediation, we are driving the finish of the remediation this year -- this fiscal year. And we're going to hit a run rate starting next year in '27, but the 200 basis points is driven by the comparison that we have in '26 that are a higher base compare. But '27 and '28 going forward is going to be like a run rate revenue from Alaris. It's just the comparison of '26 that is like higher '26 compared to the '27 number. Thomas Polen: Yes. And then we'll continue to obviously grow off that '27 base for Alaris. And then essentially, when you start hitting 2031, 2032 and the newest Alaris pumps that we've put out start hitting a 7-, 8-year replacement cycle, right, it will restart again kind of in that window. But it will not have any negative impact on our growth after '27. So that will have completed. And again, the 90% of the portfolio today in BD is growing about 5%. You would expect, again, as that headwind comes off, we'll see that come up. And we're very confident in that and continuing to drive that underlying business in the ways that we discussed with our portfolio with innovation and commercial execution. On GLP-1s, so how we kind of think about that, our view is unchanged. Oral GLP-1 is expected to be incremental and complementary. It's great to see the progress on that and how it's helping so many people around the world. Injectables expected to continue to remain a backbone of the category for the foreseeable future. And of course, a number of the next-generation treatments that include protecting against muscle wasting are coming out in that injectable format as well. GLP-1s, they remain a strong growth driver for us and a big focus. As we said, we actually announced on this call, two new significant deals with large pharmaceutical companies for new novel GLP-1 molecules, and that continues to be a focus of ours is ensuring those come into our devices. We also now have over 80 GLP-1 biosimilar deals signed to be in our devices, and those are not just in our syringes, but they also could be deals that we've signed with our auto-injectors or with our pens, which come at higher ASPs, several times higher ASP than when we just sell a syringe, which is really what we're selling today in GLP-1. So the value opportunity for BD in biosimilars is actually higher per dose than it is with the novel GLP-1s that exist in the market today. And again, we're really pleased with how our commercial team has been partnering with customers there to get that combination of both new novel GLP-1s that are coming to market, but also biosimilars so that we have the broadest exposure to those categories. I'd say the other thing is, and we shared a new update today. I think the last update we shared was that biologics, which, again, not only are GLP-1s growing strong, but biologics are growing strong, which is a larger category. Last update we shared was biologics had reached 50% of the total pharma systems business unit revenue. Today, we shared that it's now reached 55% -- about 55% of our revenue. And so again, you've got that benefit of a high-growth category become an increasing weight of one of our businesses. And that's a theme that obviously we're focused on across those major growth platforms. So again, we're pleased with the momentum there. Our teams are executing to support ensuring that continues as new molecules come to market and as eventually biosimilars come to market to make sure that BD is a company that has leading exposure to those trends. Thank you for the question. Operator: That will conclude today's question-and-answer session. At this time, I'd like to turn the floor back over to Tom Polen for any additional or closing remarks. Thomas Polen: Well, thank you, operator, and thanks, everyone, for your questions and your continued interest in BD. We look forward to connecting with everyone again next quarter. Operator: Thank you. This does conclude this audio webcast. On behalf of BD, thank you for joining today. Please disconnect your lines at this time, and have a wonderful day.
Operator: Good morning. I will be your conference operator today. At this time, I would like to welcome everyone to the TerrAscend First Quarter 2026 Financial Results Conference Call. I will now turn the call over to Valter Pinto, Managing Director of KCSA Strategic Communications for introductions. Please go ahead. Valter Pinto: Thank you, operator, and good morning. Welcome to the TerrAscend First Quarter 2026 Financial Results Conference Call. Joining us for today's call is Jason Wild, Executive Chairman; Ziad Ghanem, President and Chief Executive Officer; and Alisa Campbell, Senior Vice President of Finance. I'd also like to welcome to the call our newly appointed CFO, Eric Jackson. Our remarks today include forward-looking statements, including statements with respect to the company's outlook, including the company's expected financial results from continuing operations for the first quarter of 2026 and the estimates and assumptions relating thereto, the company's expectations regarding its growth prospects in new and existing markets such as Ohio and New Jersey, its M&A strategy, anticipated timing and benefits regarding the sale of the company's assets in Michigan and the expectations regarding regulatory reform and the potential benefits thereof. Each forward-looking statement discussed in today's call are subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Actual results and the timing of certain events may differ materially from the results or timing predicted or implied by such forward-looking statements, and reported results should not be considered as an indication of future performance. Additional information regarding these factors appears under the heading Risk Factors in the company's Form 10-K filed with the Securities and Exchange Commission and other filings that the company makes with the SEC from time to time, which are available at sec.gov, on SEDAR+ and on the company's website at terrascend.com. The forward-looking statements in this call speak as of today's date, and the company undertakes no obligation to update or revise any of these statements. Also during the call, the company may present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release and our quarterly report on Form 10-Q for the quarter ended March 31, 2026, which you can find in the company's Investor Relations website or on the SEC and SEDAR+ websites. I'd now like to introduce Mr. Jason Wild. Please go ahead, Jason. Jason Wild: Good morning, everyone, and thank you for joining us. Before we discuss our financial results for the quarter, I want to take a moment to highlight the recent rescheduling of medical cannabis. This is a monumental inflection point, which is a transformational development for the entire industry. The most immediate impact will be the elimination of the 280E tax burden on medical cannabis, which will materially improve profitability, further strengthen our balance sheet and lower our cost of capital over time. In addition, rescheduling medical cannabis paves the way for expanded clinical research, further validating its safety and efficacy and potentially opening the door for international export. We also see rescheduling as the first step to improving access to institutional capital over time and providing public multistate operators such as TerrAscend with an opportunity to uplist onto a U.S. exchange such as the NASDAQ or the NYSE, which we view as an important driver of liquidity and ultimately long-term value creation. Importantly, we see this first step as a catalyst for further federal cannabis policy reform, improved access to the banking system, uplisting, as I just mentioned, and the potential for retroactive tax relief, which could represent a meaningful upside opportunity that is not currently reflected in market valuations. While the timing and scope of additional changes remain uncertain, we continue to operate with a disciplined approach, positioning the business to benefit from regulatory progress while maintaining flexibility in our long-term strategy. As we've said many times, we operate the business independent of regulatory reform and successful reform like this is upside. With that said, we believe that moment is now here, and we are prepared to take full advantage. In addition to rescheduling, we view the upcoming Q4 psychoactive hemp regulation as a strong additional tailwind for our sector. The approximately $20 billion to $30 billion psychoactive hemp market is arguably our industry's largest competitor with none of our industry's regulatory and tax burdens. We are confident in our ability to produce best-in-class experiences across our branded and CPG portfolios and eagerly look forward to capturing the psychoactive hemp consumer as they turn back to the regulated market. Turning to our first quarter results. Revenue from continuing operations totaled $65.5 million, returning to year-over-year growth, while gross margins, adjusted EBITDA margins and other key profitability metrics grew sequentially and exceeded our targets for the quarter. Gross margin for the quarter was 52.8%, consistent with recent quarters, and adjusted EBITDA from continuing operations was $17.4 million, representing a margin of 26.5%. We generated approximately $8.7 million of net cash from continuing operations and $7.8 million of free cash flow during the quarter, marking our 15th consecutive quarter of positive operating cash flow and 11th consecutive quarter of positive free cash flow. Our strong results were supported by operational efficiencies and continued strength in our vertically integrated Northeast markets. In New Jersey, we fully integrated our Union Chill dispensary following its acquisition in early January. In Maryland, we are operating at an annualized run rate of approximately $75 million with gross margins in the quarter in the high 50s. And in Pennsylvania, we generated year-over-year revenue growth for the fourth consecutive quarter. We recently completed the first harvest from additional cultivation rooms in Pennsylvania, expanding our capacity in preparation for new product launches, increased wholesale demand and potential adult-use legalization. On the M&A front, we remain active in evaluating accretive opportunities. Our philosophy remains unchanged. We're focused on disciplined accretive acquisitions and have been selective in passing opportunities that were not attractive enough for us. The current environment continues to present strong opportunities, including distressed assets, particularly in our core markets. We look forward to hopefully sharing details on this front in the coming weeks. Before I turn the call over to Ziad, I want to take a moment to welcome our new CFO, Eric Jackson, to the call today. Eric brings more than 2 decades of finance and operational leadership experience across large-scale retail and consumer businesses. Welcome to the team, Eric. We're all excited to be working with you. With that, I'll now turn the call over to Ziad to provide an update across our key markets. Ziad? Ziad Ghanem: Thank you, Jason. Let me walk you through our performance in each of our key markets this quarter, beginning with New Jersey. In New Jersey, overall revenue improved during the quarter, led by retail, which included a full quarter of revenue from our Union Chill dispensary location, while wholesale revenue declined slightly quarter-over-quarter. Gross margins improved sequentially, primarily driven by increased verticality in the state. All 3 Apothecarium locations ranked within the top 25 and gained market share quarter-over-quarter, supported by high-quality products and new product launches, reinforcing our position as the highest grossing retailer in the state according to LIT Alerts. On the brand side, Kind Tree and Legend continued to perform well with combined growth across key categories. Flower sales were slightly higher, supported by strong performance from core strains such as White Iverson and Cherry Slushee, while Legend vape sales grew double digits and contributed to meaningful share gains according to BDSA. We also saw continued strength in our vape and edibles categories, maintaining a leading position in vape and Valhalla delivering growth in edibles. Looking ahead, we remain focused on disciplined growth in New Jersey, including continued evaluation of expansion opportunities at our cultivation facility in Boonton and additional retail licenses as we maintain our leadership position in the state. In Maryland, our operations are running at approximately $75 million in annualized revenue, while gross margins were in the high 50s. During the quarter, retail revenue was stable sequentially, while wholesale revenue was modestly lower. Our vertical structure and ongoing operational efficiencies have allowed us to consistently maintain strong margins even as the broader market has evolved. We continue to see benefits from our cultivation expansion, which is driving improved flower output and supporting retail and wholesale channels. 2 of our 4 Apothecarium retail locations in Maryland ranked among the top 10 in the state during the quarter according to LIT Alerts. On the brand side, Kind Tree and Legend are performing well with notable growth in flower and vape categories and the successful launch of Legend prerolls during the first quarter according to BDSA. In Pennsylvania, we generated year-over-year revenue growth for the fourth consecutive quarter. We also saw continued improvement in overall market share supported by strong brand performance and disciplined execution. Wholesale revenue and retail revenue both increased year-over-year, reflecting continued strong demand across our product portfolio, including flower, vapes and edibles. During the quarter, we launched Tyson 2.0 in Pennsylvania and Maryland, further strengthening our brand portfolio and supporting continued momentum across our wholesale and retail channels. The initial rollout featured a curated selection of premium flower and high potency vapes available through TerrAscend Apothecarium dispensaries and third-party wholesale partners. 5 of our 6 Apothecarium retail locations in Pennsylvania ranked among the top 15 stores in the state during the quarter according to LIT Alerts. On the brand side, Kind Tree and Legend saw double-digit growth quarter-over-quarter across key categories and continued share gains according to BDSA. We also saw another strong quarter in flower with record sales levels alongside significant growth in vapes and extracts where Kind Tree remains a leading brand in the state. We continue to generate higher revenue per store relative to peers, reflecting strong execution at the retail level and the strength of our product offerings. Importantly, we have a fully built out large-scale cultivation and manufacturing facility in Pennsylvania with no need for additional capital investment, and we have already brought incremental capacity online to support increased medical and adult-use demand. As part of that effort, we reactivated 6 additional cultivation rooms late last year with our first harvest completed in April. We expect product to be available for sale this quarter. This will allow us to meet increased demand in the state and improve our inventory ahead of potential adult-use conversion while leveraging existing infrastructure without incremental CapEx. Looking ahead, we see Pennsylvania as a key growth market and believe our infrastructure, brand portfolio and operating model position us to benefit meaningfully from future regulatory developments. In Ohio, Ratio Cannabis is now fully integrated into our existing operations. Our strategy in the state remains consistent, which is to build a scaled, high-quality retail footprint through disciplined and accretive acquisitions. Turning to Michigan. We have now completed approximately 85% of asset sales in the state and have significantly negotiated down our liabilities and debt. We are moving into the final stage of the exit process through receivership in Michigan to further mitigate liabilities. The majority of proceeds are being used to pay down existing debt. This exit has been executed efficiently and strengthens our focus in our core markets. In closing, TerrAscend continues to demonstrate strong operational progress across our core markets of New Jersey, Maryland and Pennsylvania. Our focus on efficiency, disciplined cost management and vertical integration continues to support consistent growth and adjusted EBITDA margins. We have generated approximately $24.3 million in free cash flow in the past 4 quarters, supported by improved working capital management and tighter inventory discipline across the business. We have generated $24.3 million in free cash flow in the last 4 quarters, supported by improved working capital management and tighter inventory discipline across the business. We are pleased with the foundation we have built, bolstered by our strong fundamentals, leading retail and wholesale assets in key high-quality markets, a targeted M&A strategy, no material debt maturing until late 2028, consistent positive operating and free cash flow generation quarter-over-quarter, representing an impressive 10.3% free cash flow yield in Q1, best-in-class sponsorship and a strong leadership team. Given all this, I am more confident in our future than I have ever been. Before I turn it over to Eric, I want to take a moment to thank Alisa for her leadership and professionalism over the past year as Interim CFO. She stepped into the role during an important time of our business and did an outstanding job maintaining financial discipline, supporting our teams and helping strengthen our financial foundation. We are extremely grateful for her contributions and look forward to her continued impact in her role as Senior Vice President, Finance, reporting to Eric. At this time, I would like to welcome our new CFO, Eric Jackson, for a few words. Eric Jackson: Thank you, Jason and Ziad, for the kind words. I'm honored to join at such an exciting time for the company and the broader cannabis industry. As a life long Ohio resident, I've witnessed the growth of the industry firsthand. I've had the opportunity to work in large-scale complicated retail operations with great brands. I believe TerrAscend is uniquely positioned with a focus on high-quality, high-growth markets and a proven record of strong financial performance. I'm excited to work with Jason, Ziad, Alisa and the rest of the team. I also look forward to introducing myself to the analyst community and loyal shareholders. With that, let me turn the call over to Alisa to provide more details on our financial results for the first quarter of 2026. Alisa? Alisa Campbell: Thanks, Eric, and welcome to the team. Good morning, everyone, and thank you for joining. The results I'll be reviewing today have been filed on both SEDAR+ and with the SEC, and all figures are presented in U.S. dollars. As a reminder, all financials discussed reflect results from continuing operations. Net revenue for the first quarter of 2026 totaled $65.5 million compared to $66.1 million in the fourth quarter of 2025. Retail revenue increased sequentially, while wholesale revenue declined. Gross margin for the first quarter was 52.8% compared to 52.1% in the fourth quarter of 2025. Sequential performance reflects continued strength in New Jersey, Maryland and Pennsylvania. G&A expenses for the first quarter were $21.5 million or 32.8% of revenue compared to $22.8 million or 34.4% of revenue in the fourth quarter of 2025 reflecting disciplined cost management and ongoing optimization of our operating structure. Net loss from continuing operations for the first quarter was $6.8 million compared to a net loss of $0.5 million in the fourth quarter of 2025. Adjusted EBITDA for the first quarter was $17.4 million or 26.5% of revenue compared to $16.7 million or 25.2% of revenue in the fourth quarter of 2025. The sequential improvement reflects strong gross margins and continued operating discipline across the business. Turning to the balance sheet and cash flow. Cash and cash equivalents were $39.1 million as of March 31, 2026, compared to $37.4 million as of December 31, 2025. Cash flow from operations in the first quarter was $8.7 million, representing our 15th consecutive quarter of positive operating cash flow, achieving an operating cash flow yield of 13.3%. Capital expenditures were $0.9 million in the first quarter, primarily related to ongoing cultivation and facility optimization projects. During the quarter, we continued to allocate capital in a disciplined manner while maintaining a strong liquidity position. Free cash flow for the first quarter was $7.8 million, representing our 11th consecutive quarter of positive free cash flow, achieving a free cash flow yield of 10.3%. Similar to Q1, we expect Q2 year-over-year revenue growth of 2% to 3%. We also expect consistent strong gross margin performance. In summary, our first quarter results reflect continued operational excellence, improving profitability and consistent cash flow generation, supported by disciplined cost management and a strong operating platform. We look forward to sharing continued progress in the quarters ahead. This concludes our prepared remarks. I'll now turn it back to the operator for questions. Operator: [Operator Instructions] Your first question comes from Kenric Tyghe from Canaccord Genuity. Kenric Tyghe: Congrats on the quarter. Jason, a question for you on rescheduling and the M&A calculus. Obviously, you're in a position here where you had an existing facility, but separately, you also now have increased balance sheet flexibility or pending increased balance sheet flexibility across the industry. How does that change the calculus for you? And separate to that, is the market or do you expect this to create increased certainty around potential M&A transactions and perhaps even a more rational backdrop as counterintuitive as that may sound. How are you thinking about it? Jason Wild: Kenric, thanks for the question. We've been -- I would say there hasn't been much change on the M&A front. We've been deep in several discussions on that front. We haven't noticed any change in tone by the targets. I think that actually it makes them more -- potentially more bullish on doing a deal with us because now they're looking -- all of these deals that we're looking at are structured, and there's a component of equity or a convert as part of the consideration. And now they're looking at our stock as something that has a higher likelihood of being able to go public on a U.S. exchange in the next, say, 12 to 24 months. So I would say it's only been a positive. The news has only been a positive as it relates to our discussions on the M&A front. Kenric Tyghe: That's good to know. And then just separate to that or maybe a follow-up. The Ohio market seems to have been very challenging or more challenging than expected to get anything done in. I mean, happy to see that the integration has been completed. But any additional color you could provide on Ohio market dynamics and separately on Ohio acquisition targets and perhaps what it is that needs to reset there for you be able to move forward and execute on some of these transactions? Jason Wild: Sure. I'm going to let Ziad take that one. Ziad Ghanem: Kenric, Ohio, we have one store in Ohio today. The store is still performing well and according to our expectation. Our strategy in Ohio continues to build the same business around that we've done in -- similar to what we've done in Maryland and other places we acquired -- the conversations, like Jason said, with some of the target acquisitions are still going well. We continue to be disciplined. We are seeing some of the challenges that you are describing, but it's not impacting our M&A conversation. We have said no to some of the deals that did not make sense to us, but we continue to look at some attractive opportunities. And as you said, our balance sheet is allowing us to have those conversations. So we'll share as soon as we have more news. Operator: Your next question comes from Frederico Gomes from ATB Cormark Capital Markets. Frederico Yokota Gomes: Congrats on the great quarter. First question, I think you mentioned you saw a sequential decline in wholesale for both New Jersey and Maryland. So just curious what's driving that? Is it just increased competition, price compression? Or is it maybe related to increased verticality in those 2 states? Ziad Ghanem: Both. Fred, you nailed it. It's a combination of pricing compression, strategic decision to balance our verticality in wholesale to continue to protect the gross margin that we've been showing for 5 or 6 or maybe even 8 consecutive quarters being where we are. And also a small part of it is timing between Q4 and Q1. So those are the reasons. But then when I look at wholesale and the health of our wholesale, it starts by the quality of our products. and how our SKUs are performing with the patients and the customers, both in our stores and in our wholesale accounts. The company in Q1 had a record of any quarter for finished goods sold to both in our retail and wholesale stores. We had the biggest market share in our Legend brand. The company also had record for single quarter finished unit sales of TerrAscend SKUs. The penetration and the number of accounts continue to be strong. We didn't see any scale back. But also, we have added one very healthy store to our New Jersey store, and that's where the protection of gross margin, the increase in verticality comes in. And we're going to continue to see those shifts. Our goal in New Jersey is to add more dispensaries like Union Chill, and we'll share as soon as we have news on this. But that's what gives us the confidence on that balance between revenue and gross margin. Frederico Yokota Gomes: Appreciate that. And then just a second question on, I guess, your margins and your G&A, a decline sequentially G&A dollars. So -- and obviously, you have very good margins this quarter, adjusted EBITDA. But I wonder how much more is there to optimize on the G&A front? I mean, should we expect further optimization initiatives? Or is it more about growing the top line here at this point? Ziad Ghanem: Yes. Look, first, I'll start by saying I couldn't be prouder of the team of what they've done on the G&A front and the outcomes that came out of it, both on the gross margin and on the EBITDA margin. In an industry like ours, where there are constant changes, we have to be ready to continue to innovate. Innovation comes in multiple fronts, right? Strain selection and integrated business process where you select a year in advance your portfolio that gives you the innovation, gives you the strains and allow you to protect gross margin and increase yield. There's more room on this, and we'll continue to do that. Another pricing pressure will continue to happen. We'll have to continue to work between our verticality and our -- increasing our verticality and protecting our gross margin. So I would say the room that exists is to protect against any headwinds and to protect any pricing pressure, but I have confidence in our gross margin where we are for Q1 and delivering the same thing for the rest of the year due to that dynamic. So the other point is we are launching the most number of SKUs in Q2 and Q3, which we're super excited about. I think our customers, both patients and consumers will love what we're coming in, both strain level partnership and new products. With that, we need some SG&A. So some of the savings would be savings to invest in order to protect the revenue and the gross margin. So in summary, the gross margin that you're seeing, both on the margins, both on gross margin and EBITDA margin are 2 things we're pretty comfortable with for the rest of the year. Operator: [Operator Instructions] There are no further questions at this time. I will now turn the call over to Jason. Please continue. Jason Wild: Thank you all for joining us today. We are very excited about the recent developments in the cannabis space. We hope that excitement is evident to all of you on this earnings call, and we look forward to sharing our second quarter earnings results in the coming months. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participation, and you may now disconnect. Have a good day.
Operator: Good day, and thank you for standing by. Welcome to Galapagos's Q1 2026 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sherri Spear. Please go ahead. Sherri Spear: Hello again from Belgium. Thank you for joining us today as we report Galapagos's First Quarter 2026 Financial Results and Business Update. Last evening, we issued a press release outlining these results. This release, along with today's presentation, can be found on the Galapagos investor website at www.glpg.com. Before we begin, I would like to remind everyone that we will be making forward-looking statements. These forward-looking statements include remarks concerning future developments of our company and our pipeline and possible changes in the industry and competitive environment. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on information currently available to us and on assumptions we have made. Actual results may differ materially from those indicated by these statements and are accurate only as of the date of this recording, May 7, 2026. Galapagos is not under any obligation to update statements regarding the future or to conform to these statements in relation to actual results unless required by law. You are cautioned not to place any undue reliance on these statements. Joining us on today's call from the executive team are Henry Gosebruch, Chief Executive Officer; and Aaron Cox, Chief Financial Officer. Eric Hedrick, Chief Clinical Adviser; Sooin Kwon, Chief Business Officer; and Dan Grossman, Chief Strategy Officer, will be joining us for the Q&A session. With all of that, let me now turn the call over to Henry Gosebruch, CEO. Henry? Henry Gosebruch: Thank you, Sherri, and thank you all for joining us today. It is truly an exciting time to be here. This call marks my 1-year anniversary as CEO, and I couldn't be more proud of what we've accomplished together in the first year of our journey. We have transformed our management team and Board, repositioned our portfolio, added an exciting set of new pipeline programs, and we are changing our name to Lakefront Biotherapeutics. This is not a story of small adjustments. It's a story of real transformation. A transformation like this requires the right people. At Galapagos, we've assembled a management team with world-class business development expertise and a shared mission of leveraging our unique position to develop new medicines for patients and to create significant value for our shareholders. Our executives bring world-class deal making experience and each has an enviable track record. This is a team built for this new phase of our company. We are focused on disciplined decision-making, careful capital allocation, reshaping our pipeline through business development and focused execution that can create long-term sustainable value. As Galapagos transforms, it's also important that the Board brings the right mix of capabilities and background. We are very pleased with the talented group that has joined us. The Board's expertise and background brings the skills and experience that are needed to provide effective oversight of our strategy and the company. Our previous Board Chair, Jerome Contamine, retired from the Board following the 2026 AGM/EGM. I am extraordinarily grateful for Jerome's service. He has been a great partner and provided valuable insights that have positioned us for this next phase of growth. I'm excited to work with Gino Santini as our new Board Chair going forward. Gino is a seasoned pharmaceutical professional with a 27-year career at Eli Lilly, where he served as Senior Vice President of Corporate Strategy and Business Development and led major acquisitions and partnerships. He has advised and directed numerous pharmaceutical, biotech and venture-backed organizations and has relevant experience in M&A, commercial partnerships and Board governance. Gino's extensive operational, strategic and business development expertise shaped by decades of global leadership in our sector will be invaluable as we execute on our strategy to deliver meaningful patient impact and sustainable shareholder returns. Just a few weeks ago, we announced that we had entered into a binding agreement with Gilead regarding the portfolio created by Ouro Medicines. This did not happen overnight. It was the result of a structured process, early relationship building, confidential reviews, negotiations and ultimately, successful agreement on a partnership with Gilead that has the potential to drive significant value for our shareholders. The transaction centers on Ouro's lead program, gamgertamig, a BCMA/CD3 T cell engager for autoimmune diseases with multibillion-dollar revenue potential. Currently in Phase Ib dose-ranging studies and expected to enter registrational studies as early as 2027. Gamgertamig, Ouro's lead molecule is, in our view, a potential first and best-in-class T cell engager that has demonstrated a compelling profile in clinical studies. The collaboration brings a meaningfully clinically differentiated high potential asset into our portfolio. The proof-of-concept initial indications are orphan indications where the clinical trials are manageable in size and scope with significant potential for expansion into additional indications. So far, we've seen compelling data from over 60 patients treated with gamgertamig across 5 distinct autoimmune indications. This clinical experience has highlighted the differentiated profile of gamgertamig characterized by rapid induction of durable complete responses, minimal cytokine release syndrome with the current schedule of administration and remarkable consistency in these findings across studies and disease indications. We look forward to sharing data with investors over the coming months in a series of publication and presentations at medical meetings. We believe that gamgertamig has a clear speed-to-market advantage. The initial focus on the treatment of rare autoimmune diseases has provided rapid proof of concept, enabling initiation of registrational trials as early as 2027. The program has also received Fast Track and Orphan drug designation in the U.S. for ITP and AHA, further supporting an accelerated development path. Finally, the spectrum of diseases that may be addressable by gamgertamig encompasses over 20 separate indications, giving us a pipeline and a product opportunity. In conclusion, we believe gamgertamig could represent a very important new type of treatment approach for immune reset therapy for patients across a large number of conditions. It has shown compelling clinical data so far, and it may have both a first-in-class advantage and best-in-class potential. Our partnership also includes 3 exciting preclinical programs, which we will look to progress with urgency. We look forward to sharing more about these programs in the future. Now I'll turn the call over to Aaron to talk about financials. Aaron? Aaron Cox: Thanks, Henry, and hello, everyone. As you heard from Henry, we are really excited about the Ouro transaction. Another major benefit is that it includes a partial waiver and modification of terms of our legacy Option License and Collaboration Agreement or OLCA, with Gilead, marking a meaningful step forward in our strategic and financial flexibility. This slide details the benefits of this transaction relative to our legacy relationship. In short, the participation of Gilead was far above the $150 million expected with the Legacy Agreement. I'm really proud of our team for negotiating far better terms and proving that we are able to work together with Gilead to achieve our common goals. As noted in our transaction announcement, under the revised terms and subject to the closing of the transaction, $500 million is now unlocked for broader use beyond the Ouro investment, enabling Galapagos to pursue new opportunities and transactions independently of Gilead and expanding the universe of potential strategic targets. Additionally, up to $150 million of this $500 million may be used for return of capital to shareholders, subject to certain limitations, providing us with additional optionality to drive shareholder value. This partial waiver and modification to terms of the OLCA further strengthen our ability to deploy capital strategically and to pursue additional value-accretive opportunities. Along these lines, last week, we also received approval from our shareholders to complete a share repurchase. We will provide an update regarding a potential share repurchase following the close of the Ouro transaction. Turning now to our Q1 2026 financial results and as outlined in the press release issued last night. Our total net revenues were EUR 6.5 million compared to EUR 75 million in Q1 2025. This decrease is mainly driven by the prior year comparison, which included EUR 57.6 million related to the OLCA revenue recognition. As noted with our full year 2025 results, the remaining deferred income balance related to the OLCA was fully released at year-end 2025. In Q1 2026, revenues were primarily driven by EUR 4.9 million in supply revenues from Jyseleca inventory sales to Alfasigma and EUR 1.6 million in collaboration revenues, reflecting royalties from Gilead. On the cost side, we continue to see significant reduction in our operating expenses. R&D expenses decreased to EUR 31 million, contributing to an overall improvement in our cost base. This reduction is driven by lower severance expenses as well as the absence of restructuring-related charges that impacted Q1 2025. As a result, operating loss improved to EUR 63.7 million compared to EUR 158.7 million last year, which included EUR 111 million in restructuring costs. Moving below operating income, we reported net financial income of EUR 77.7 million, mainly driven by positive fair value adjustments and favorable unrealized currency exchange gains on our U.S. dollar-denominated cash and investments of EUR 64.3 million. This led to a net profit of EUR 14.5 million for the quarter compared to a net loss of EUR 153.4 million for the first 3 months of 2025. Financial investments and cash and cash equivalents totaled EUR 2,982.2 million on March 31, 2026, as compared to EUR 3,297 million on March 31, 2025. The quarter end cash balance meaningfully benefited from a decrease in the U.S. dollar to euro exchange rate, which moved from $1.175 at year-end 2025 to approximately $1.15 at the end of the quarter. Turning now to our guidance for 2026. With the closing of the Ouro transaction expected in the second quarter, we expect to spend EUR 60 million to EUR 75 million on Ouro-related cash expenditures, including operating costs and transaction expenses in 2026. Along with the upfront payment of approximately EUR 713 million, this results in total Ouro related cash expenditures of EUR 775 million to EUR 790 million for 2026. We continue to expect onetime cash costs of EUR 125 million to EUR 175 million related to the wind down of cell therapy activities. Inclusive of the Ouro-related expenditures and continued wind-down of cell therapy, we now expect to end the year with EUR 1.975 billion to EUR 2.05 billion of cash and cash equivalents. Importantly, the company remains robustly funded. Following this transaction and including estimated R&D spend associated with gamgertamig until first approval, the company will continue to have a majority of its current cash remaining for additional strategic transactions and other capital allocation priorities. Now let me turn it back to Henry to wrap up. Henry Gosebruch: Thank you, Aaron. In closing, I'm just thrilled to introduce you to the new Lakefront Biotherapeutics. To us, Lakefront symbolizes the attractive opportunity in front of us and the new beginning we are creating. My most reflective moments often occur when I'm out exercising on Chicago's Lakefront. Our new name captures what we aspire to achieve for patients, enhanced quality of life, meaningful positive impact and more time for what matters most. It represents helping patients move toward a better future with greater hope and possibility. As of tomorrow, May 8, we expect to be listed as LKFT on Euronext and NASDAQ, symbolizing another pivotal step in our transformation. So with that, thank you all for your attention, and we will now open it up for your questions. Operator? Operator: [Operator Instructions] We will now take the first question from the line of Brian Abrahams from RBC Capital Markets. Brian Abrahams: Congrats on all the transformation over there. I was wondering if you could give us maybe your latest thoughts on what the dose-ranging gamgertamig data will need to show specifically just in terms of B-cell depletion, depth and durability, CRS rate reductions to move forward in registrational, how you're going to be picking which registrational trials to begin first? And just any more thoughts on the potential size and complexity of these trials that could start next year? Henry Gosebruch: Brian, it's Henry. Thanks for the question. I'll start, and then I'll have Eric supplement. So first of all, look, we -- as we said on the prior discussion, we had a chance to really thoroughly diligence not only gamgertamig, but other programs out there with other T cell engagers. And we've seen really compelling data from over 60 patients that showed very rapid onset, very deep depletion and very good durability. And so again, as we've talked about, that will come out here in the next couple of quarters in terms of individual releases at medical meetings and other publications. So just for context. But I'll let Eric go through the specifics on the 3 points you raised. Eric? Eric Hedrick: Yes. Thanks, Henry. Brian, thanks for the question. Sort of expanding on what Henry just said, I think the team at Ouro has done really good work on exploring dose ranging here. I would say that the profile that would be an optimal profile for going into late-stage development would be one where you get profound B cell depletion, but a dose duration schedule that minimizes CRS risk. And I think at the current dose and schedule, we referred to this previously, it really does seem like alterations in the dose and the duration of therapy can really minimize the CRS risk. I think the other aspect here that's important will be having a dose that results in a period of B-cell depletion that is deep, but relatively short, right, so that you can minimize the infectious risk, the need for supplemental intravenous immunoglobulin. And again, I think the team at Ouro is well on your way to identifying that dose. And we fully expect that by 2027, we'll be comfortable with the doses that we take forward into Phase III programs. Operator: We will now take the next question from the line of Judah Frommer from Morgan Stanley. Judah Frommer: I think we saw another transaction recently for BCMA/CD3. There are several assets in the space. Just curious how you think the space might evolve and how you're thinking about development plans. Do you see room for multiple assets targeting the same mechanism within the same large indications? Or do you think this is going to be an area where various assets are going to kind of carve up sub indications, maybe stick to smaller indications as opposed to necessarily all going after the same large ones? Henry Gosebruch: Yes. Thanks, Judah. It's Henry. So again, just for context, we were able to diligence multiple opportunities in some depth, and we're quite pleased that our top choice, i.e., gamgertamig was the one that we were ultimately able to transact with. So we continue to believe that gamgertamig is the best alternative out there and has the potential to be first-in-class. That being said, look, we're very encouraged by the fact that we're not the only ones excited about the space that there's a lot of investment going into it. I think that is good to see and ultimately good for patients. The Ouro team has been really, really savvy in terms of picking very interesting indications that we believe are quite sizable, multibillion-dollar potential easily, but where they have a clear timing advantage. And so I think in those places, we're in a really favorable position. That being said, we don't view gamgertamig behind in any other indication as well, and those are being very actively explored. To your question whether ultimately the best drug takes all of it or the market gets split up in some way, I think we'll defer that when we go a little bit further. But again, we're -- based on our diligence of multiple programs, we think we got the first and best-in-class alternative here with us. Operator: We will now take the next question from the line of Phil Nadeau from TD Cowen. Philip Nadeau: Congrats on the progress. Two from us. So first on gamgertamig, you've mentioned that it's perhaps best-in-class. Can you go into a little bit more detail about how it is differentiated structurally or otherwise from the other BCMA/CD3s? That's first. And then a follow-on to Brian's question. In terms of moving into pivotal development, can you talk about the framework with which you're evaluating the different indications and opportunities and how you prioritize the first one or several to move forward into pivotal development? Henry Gosebruch: Eric, why don't you take the first one and then perhaps Dan can take the second one. Eric Hedrick: Yes, sure. Phil, thanks for your question. Yes, I think in terms of differentiation amongst these BCMA-directed T-cell engagers, yes, one of the things that was attractive about the Ouro molecule, I guess there was 2 aspects. One is the detuning of the CD3 binding arm, which we think goes a long way in addition to dosing and significantly reducing the CRS risk. So that was important. The BCMA binding arm is very potent, right? And so we're comfortable that, that from the data we've seen so far is sort of resulting in very deep B-cell depletion and the sort of response in disease that you would associate with profound B-cell depletion. So I think those were the main aspects of the molecule that were attractive to us. And again, the Ouro team has really advanced us very well in the clinic. And I think you're seeing the clinical representations for those molecular features. And maybe, Dan, if you want to comment as well. Dan Grossman: Yes. Sure. I'm happy to talk about indication selection. And first, I'll echo what Henry said in terms of appreciation for the Ouro team's strategic judgment in choosing initial indications in which you could get a very rapid and very clear signal of the actual clinical potency of the molecule and particularly in the benign hematologic indications. Beyond that, I mean, we kind of see gamgertamig as a vanguard of T cell engager therapy for autoimmune disease broadly, it's going to really be revolutionary over the next 10 years. We anticipate that there's a high likelihood that in 10 years, it will be hard to imagine there was a time when this was not -- this kind of technology was not part of standard of care across these B-cell mediated autoimmune disease. And so we are really looking for quite a bit of breadth and to get the product out into the clinic and then into the hands of physicians to see what it can do across not just different diseases, but different therapeutic areas. So of course, the first filter is always going to be a mechanistic hypothesis that deep B-cell depletion will result in meaningful clinical benefit to patients. That's sort of effectively a proxy for PTRF. And then within that, we see a range of disease states in which the -- in which the standard of care today and anticipated over the next couple of years is woefully inadequate. So there's the room to the most good for patients where there are material sized patient populations and where the feasibility of running clinical trials and bringing the product to the commercial market is most feasible. So we're going to be balancing those factors, but really looking to show the broad potential of this kind of technology. Henry Gosebruch: Yes. And Phil, it's Henry. Just to add to Dan's answer. One thing that, again, really attracted us in our diligence is that given how profound the impact is on patients that we've been able to see, you really need just pretty small numbers of patients in these diseases to really figure out whether you get the right dosing scheme to take it forward into larger studies. So we quite like the fact that this is very capital efficient. Again, in due time, we'll provide a little bit more on sort of our R&D spend, et cetera. Aaron gave it for this year, of course. But that's another very important feature that there's really relatively modestly sized studies needed and then you can go into pivotal, which are also quite modest given, again, this profound impact on patients we've seen. Dan Grossman: We can do a lot with a little at this effect size. Operator: We will now take the next question from the line of Sean McCutcheon from Raymond James. Unknown Analyst: This is [Yang], on for Sean. I have 2 questions. Maybe the first one is, could you speak to the optionality on continued BD activities and the prioritization, for instance, targets or indications driven that may have a clear strategy to have a synergism with gamgertamig in autoimmune disease? And I have a follow-up. Henry Gosebruch: Yes. Thanks for the question. It's Henry. So a couple of things. Again, we've said that the majority of our capital is available for other strategic initiatives and future BD. Aaron walked through the $500 million bucket we now have that we can do deals independent from Gilead and we can take a portion of that for return of capital as well. So we're very excited about that flexibility and the substantial capital we have left to look for other BD. That being said, we're very excited about Ouro and the potential that we just in the prior question outlined and the 3 preclinical assets we have that could also be meaningful opportunities. So I would say the hurdle for the next BD deal is very, very high. The hurdle for the first one was also high, but the next one is very, very high because we've got a really, really nice portfolio. We do have increased capability now, and we, of course, have a set of diseases that it could make sense to build on, as you say, to introduce some development or even commercial synergy down the road. But I think the message right now is, look, we're excited about what we have. We're going to be very, very busy executing these programs, and we're in no rush to do a second BD deal here given how much have. Unknown Analyst: Great. Could you also please comment on the infection risk, hematology events associated with gamgertamig and all the BCMA-TCE class in general and the company's view on the differences it may be associated with CD19 TCE for autoimmune disease. Henry Gosebruch: Eric, why don't you take that one? Eric Hedrick: Yes. Yes. Thanks for the question. I would say that sort of in relation to the comment I made previously, the infectious risk here really has to do with the duration of B-cell depletion and plasma cell depletion, right? When we're giving -- when team at Ouro was giving this drug in the current dosing schedule, we're comfortable that we're getting to the point where the period of B-cell depletion will be such that the infectious risk should be manageable. So that will be a key point in sort of determining the dose to go forward. But again, I think the key point is that you can dose this drug in such a way that you can have an impact on the period of B-cell depletion and then the infectious risks should really go along with the durability of B-cell depletion. And again, the team at Ouro has done a really nice job at dose ranging and trying to like optimize that period. Operator: We will now take the next question from the line of [indiscernible] from KBCS. Unknown Analyst: [indiscernible] coming in for Jacob. I had a question on the Galapagos 3667 program. What are the strategic options you're currently considering? And could one of the potential outcomes be that you choose to develop the program in collaboration with Gilead? Or how do you look at that program at the moment? Henry Gosebruch: Yes. Thanks for the question. It's Henry. As we said previously, we're analyzing various alternatives relating to '3667. That process continues, although it's quite well advanced at this point. So we're coming close to the end of that process and making a decision which way to go, and we're assessing kind of a broad range of options. So more to come on that in the not-too-distant future, but it's inappropriate at this point to comment further on it. Operator: I would now like to turn the conference back to Henry Gosebruch for closing remarks. Henry Gosebruch: Very good. Well, thank you for your time today. We look forward to closing the Ouro transaction here in the second quarter and welcoming the team from Ouro to join us here. But more broadly, reflecting on the last year, it's really been a fantastic year, and I'm super proud of what we've accomplished together. But I'm also super excited about the year ahead for Lakefront Bio. So thank you, and we hope you have a great day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.