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Vincent Clerc: Welcome, everyone, and thank you for joining us on this earnings call today as we present our first quarter results for 2026. My name is Vincent ClercKirk. I'm the CEO of A.P. Møller - Maersk. And I would like to introduce our new CFO, Robert Erni, who is joining me here in the room for the first time. Many of you will no doubt have the opportunity to meet Robert on the upcoming roadshows and conferences. Let me start with the overall highlights for the quarter. At the macro level, we continue to see strong demand growth across all of our segments and most regions. The big exceptions was North America which has remained weak since the start of the trade tensions about a year ago. This resilient level of demand is easily observable in our own number, but it wasn't enough to stabilize the ocean freight rates. The supply overhang there has worsened as the many new vessels delivered throughout 2025 and into 2026 have outpaced this strong demand. The Middle East conflict has required also operational adjustments, but it did not have a material financial impact in this quarter. This is mainly due to the delayed recognition of revenues and costs in Ocean. I will elaborate on this shortly on the following slides. Overall, we delivered an EBITDA of $1.8 billion and an EBIT of $340 million, impacted overwhelmingly by the lowest rates in Ocean year-on-year. Lower earnings led to free cash flow of negative $874 million for the quarter. Looking ahead for the full year, notwithstanding the disruptions that the Middle East conflicts have brought, we are maintaining our guidance given what we can see right now. On the basis of container volume markets of 2% to 4%, we guide for underlying EBIT of between negative $1.5 billion and positive $1 billion and a free cash flow of negative $3 billion or better. The Middle East conflict is not expected to have a material impact at this stage through the use of both operational and commercial levers. Our maintaining the guidance and the range reflects the fluid environment that we are in, but it also speaks to the agility and resilience of our business such that we can withstand such large disruptions without materially changing our financial outlook. And that is a good segue into the next slide, where I'll add a few more words on the Middle East conflict. It is important to highlight that the outbreak of this conflict is primarily impacting Ocean. Logistics & Services and Terminal have not been and we don't expect will materially be impacted. Thanks to our strategy put in place over the last decade, we have a much more diversified and resilient revenue and cash flow streams today that will cushion the impact on our results that the ocean market is faced with. Let me start by saying that we have of over 6,000 colleagues in the affected countries, and we currently have 6 vessels stuck in the Persian Gulf comprising owned and time charter vessels with crew on board. We also have our gateway terminal at APMT Bahrain, our hub in Salalah. We have warehouses and offices and all the colleagues are safe and accounted for. Safety of our people, vessels and assets is our #1 priority. This means right now that operations also in and out of the strait of Hormuz have been suspended based on our continuous security assessment. The Gulf region before the outbreak of the conflict represented about 2% to 3% of global containerized trade, so direct volume impact is limited on the global scale. The situation in the Strait of Hormuz has also impacted the situation in the Bab al-Mandab Strait, and we have reversed and halted the gradual return to the Red Sea transit for safety reasons since the beginning of the hostilities. We have seen rate spikes since the outbreak of the conflict, which averages on spot rates up to about 40% since the end of February. It is important to note that this rate increase has been roughly in line with the cost increase we have faced. Operationally, the modularity of our Gemini network has helped us pivot with volumes back to pre-war levels and limit the disruptions to our volume delivery and service quality. We have been able to isolate part of the network impacted by the conflict and carry on with our operation while maintaining the highest reliability and in delivery. While the oil prices have surged and bunker availability has become under pressure, we have been able to maintain bunker supply through available reserves on board vessels and in storage facilities on land. We have a coverage at this time of minimum for a quarter ahead, which is in line with normal coverage. We have responded to fuel shortages in certain parts of our network, most notably in Asia by redistributing available fuel from North America and Europe to ensure that our vessels can bunker before departing again for their head ho. The cost impact of this energy shock is unprecedented, both in terms of size, the speed at which it has unfolded and the dislocations it has created in the market. For us so far, it represents approximately $0.5 billion in extra cost per month that we must find a way to pass through. If these elevated bunker prices persist, which seems likely, we would expect to deploy more slow steaming to reduce the cost impact. We remain confident that the impact of the shock can effectively be contained between a combination of commercial and operational measures. In terms of the numbers, there is limited financial impact from the conflict in the first quarter given the accounting effects of delayed recognitions of both revenue and costs. The increased costs that will flow through the P&L in quarter 2 and beyond are being recovered through higher spot rates and a successful implementation of commercial levers with our contracted customers most notably surcharges and bunker formulas. As mentioned, this is about $500 million of extra cost per month, which we are recovering in full today even in an oversupplied market. Overall, despite heavy disruptions to energy markets, Maersk is well diversified and stand well positioned to weather these challenges and take advantage of the opportunities that will undoubtedly arise. You may recall the strategic priorities we set for Ocean as well as the other segments back in February. Looking at Ocean first. On Protect, our high asset turn, we have delivered a 6 percentage point overperformance on volume growth versus fleet growth, driven by Asian exports, which is comfortably above market. This has allowed us to increase our asset turn and bring down our unit cost. This follows similar outperformance we saw in the third and fourth quarter of 2025. It is the new baseline now that we have created through Gemini and the one that we must continue to improve on going forward. We also demonstrated strong operational performance by filling our vessels to reach a utilization of 96%, reflecting discipline in fleet deployment. On grow, with an above-market growth of 9%, we delivered a strong quarter and ensure that we leverage the agility created by Gemini to maximum impact. The strong volume performance was delivered against the backdrop of continued downward pressure on rates with rates down 14% year-on-year. This came from contracts rerating at the start of 2026, driven by this industry oversupply. Finally, on the focus on profitability, we have demonstrated a sustained decrease in unit costs, notwithstanding the Middle East conflict, owing to our strong operational performance. This, I'll return shortly to on the next slide. As mentioned, commercial levers are helping us to recover the cost increase from the Middle East conflict. The benefits of Gemini are on track and will incrementally benefit the P&L until the end of quarter 2. From quarter 3, it will become part of the baseline. As mentioned, our strong operational performance is also reflected in the sustained decrease in unit costs driven by our modular network, which I'm particularly pleased with and is due to the hard work of our teams. Since Gemini's inception, we have delivered 7% year-on-year decrease in unit cost at fixed energy. What makes this particularly impressive is that we have sustained this trend in this quarter, even in the wake of the Middle East conflict and the operational disruptions it has brought. Cost leadership remains central across all of our businesses, but especially in ocean with tougher times and more disruption. We will continue to roll out initiatives such as potentially slow steaming or restarting operation through the Red Sea in this regard to ensure that we protect our profit and margins going forward. In Logistics & Services, our priorities in 2026 are twofold: accelerate the margin improvement and improve on our growth performance. So I am very focused on margin expansion and productivity as this will drive better performance this year. On the first priority, we have demonstrated clear improvements in our challenged product, especially airfreight and MinMile with higher year-on-year margins in both. These improvements have come from productivity gains as well as more effective revenue management. Looking at margins more broadly, this quarter marks the eighth consecutive quarter with year-on-year EBIT margin improvement, reflecting the operational progress we have made across the portfolio. This quarter, we improved our EBIT margin by 0.5 percentage points to 4.6%. There is, of course, more to do, and our focus for the rest of the year remains on revenue management and productivity improvements to drive performance. On the second priority of improving growth, we have delivered a revenue growth of 9% overall across the portfolio. While further proof points need to be delivered in the coming quarters to confirm this good performance, we are satisfied with the current momentum. Our job is to grow, but to do so profitably, continuing to make investments where it makes good sense, like we did in Singapore, if we turn to the next slide. Back at mid-March, I had the pleasure of attending the opening of our new modern warehouse in Singapore. World Gateway 2 is a fully automated multi-client distribution centers spanning about 100,000 square meters and strategically located close to major transport infrastructure. The facility marks a major expansion of our contract logistics and e-commerce capabilities in Asia Pacific and represents a doubling of our footprint in Singapore. It is equipped with state-of-the-art robotics and automation technologies. For customers, this will mean faster order fulfillment to end to end customers and shorter lead times as well as improved accuracy generally. The modern technology and scalability will unlock opportunities in new verticals, including luxury to complement the others where we already cover such as lifestyle, FMCG, retail, wellness and technology. We are excited about World Gateway 2 and look forward to delivering value to our contract logistics customers. In terminals, looking at our strategic priorities for the year, in relation to the first one, growth through existing and new location, we demonstrated solid growth of 4% year-on-year. What is equally exciting is that we are the growth plan that we have either announced or executed during this quarter. These investments will allow the business to diversify and increase its portfolio of gateway terminals across the globe while ensuring continued strong value generation. First, we announced the strategic expansion plan to upgrade North Sea terminal in Bremerhaven together with our partners at Eurogate. I'll elaborate on this one shortly on the next slide. We also announced the acquisition of a 13.7% minority stake in Southern Container Terminal in Jeddah, Islamic Port alongside DP World. And further, we executed the incoming transfer of our 49% minority share in the Hateco Haiphong International Container Terminal which is located in an area of crucial importance for Vietnam's growth and for the Asia and transpacific trade. Finally, we completed Phase 2 of the expansion of Lázaro Cárdenas in Mexico with high level of automation, electrification and the use of clean energy sources. We are now proceeding with Phase 3 of the expansion of that terminal. On our other priority, maintain long-term profitability, the quarter generated a very strong return on invested capital of 16%. We do expect the effect of growth investment in greenfield projects to affect the ROIC figure in the coming quarters as invested capital increases ahead of activities during the buildup phase. These are great investments, though, that will secure future growth and deliver strong returns over many decades for our shareholders. The expansion plan of the upgrade to upgrade Bremerhaven is an example of what we do best and comes straight out of our playbook of operational excellence. The EUR 1 billion planned investment together with our partners, Eurogate will significantly upgrade North Sea terminal in Bremerhaven and promise a significant return. As we have recently done in Pier 400 in Los Angeles, we will implement automation to bring down our breakeven level. The learning from Los Angeles means that we expect the implementation and outcome to be even better this time at NTB. In parallel, we will expand NTB's capacity by around 1/3 to 4 million TEUs per annum, which in turn will strengthen the location as a key terminal in the Maersk Ocean network. And I will now hand over to Robert, who will walk you through the detailed financial and segment level performance. Thank you. Robert Erni: Thank you, Vincent. I'd like to take a brief moment to introduce myself as this is my first earnings call with Maersk. My name is Robert Erni, and I started as the Group CFO of Maersk in February of this year. I have 30 years of experience in finance across the global logistics sector, of which about plus 10 years as Group CFO in previous companies. Maersk is a company I've long admired and come to know well from the customer side. I'm very pleased to be part of the team. I look forward to meeting many of you in the days and the weeks ahead. Now let me turn to the results for the quarter. The first quarter was characterized by solid operational execution across the business with strong volume growth. However, this was against a more volatile environment and materially lower earnings in Ocean, driven by deteriorating rates as a result of industry oversupply. We delivered revenue of $13 billion, which was a 2.6% decrease year-on-year. Lower rates were only partly offset by the strong volume growth. The impact from lower freight rates can be seen in our profitability, which declined despite earnings growth in Terminals and Logistics & Services. We delivered EBITDA of $1.8 billion and EBIT of $340 million. This led to a decline in return on invested capital to 3.8%. Free cash flow was negative $874 million in the quarter, reflecting the lower earnings base. Our balance sheet remains strong, and we retain significant financial flexibility. Following the distribution of dividends for the financial year '25 and continuation of the share buyback program, we ended the quarter with $18.4 billion of cash and deposits and a net cash position of $1.3 billion. Let us look at our cash flow generation in Q1. Let me comment on a few of the key developments in the bridge, starting from the left. Our net working capital increased by $913 million in the first quarter as the higher price of bunker drove an increase in the value bunker inventory, while customer receivables also increased. As a result, operating cash flow was $1 billion. Relative to EBITDA, this implies a cash conversion of 59%, down from 102% in the first quarter of last year. This is mainly due to the increase in net working capital, as already explained. Our capital lease installments increased by roughly $400 million over last year to $1.2 billion. The increase is mainly related to installments towards the renewal of the Port Elizabeth Terminal in U.S.A. extension, which was signed in Q2 '25 as well as the exercise of purchase option on some formerly chartered vessels. Gross CapEx remained sequentially stable at $1 billion, but decreased around $400 million year-on-year, reflecting a lower investment level in Ocean. As usual, the majority of gross CapEx related to Ocean investments. After these items and the $231 million proceeds from sale of aircraft, which is included in the other bucket, free cash flow was negative $874 million for the quarter. In addition, we returned $1.3 billion to shareholders through the distribution of dividends for the financial year '25 and the ongoing share buyback. Taking this together with net borrowings and other items, net cash flow for the quarter was negative $874 million. So let us have a closer look at the financial performance of our segments, starting with Ocean. I will start by reiterating the point made by Vincent earlier. The financial impact of the Middle East conflict was immaterial in the first quarter, even as supply chain disruptions led to an increase in both rates and costs towards quarter end. The impact will be more visible in our P&L in the second quarter as we consume our bunker inventory and recognize revenue from containers shipped at higher freight rates from March onwards. Ocean reported revenue of $8.2 billion, down 8.2% from last year. This is driven by the impact from much lower freight rates, partly offset by the substantial volume growth driven by strong Asian exports. The commercial mix was more or less in line with our target with 44% of volumes on longer-term rate products. Operating costs remained broadly stable despite various disruption in the external environment. With the increase in volumes, this means that unit cost at fixed energy was down by 7.1% compared to last year. Profits were slightly lower sequentially with EBITDA of $903 million and net EBIT of negative $192 million. Ocean continues to reap the benefits of the Gemini network. We maintained industry-leading reliability for our customers, and we're seeing sustainable financial benefits from better asset turns and bunker savings. These are helping to cushion the full impact of declining rates. Finally, gross CapEx was $716 million, which is in line with our CapEx guidance. In the EBITDA bridge, you can see how all of these different factors have contributed to the year-on-year development in quarter profitability. The significant rate decline was a dominant factor, driven by lower rates from the supply overhang with a large negative impact of around $1.2 billion. This was only partially offset by stronger volumes. There was a positive impact from the lower price of bunker, which decreased 16% year-on-year to $486 per fuel oil equivalent tonne. Note that this does not reflect the increase in oil price that happened throughout March. Bunker consumption was also down by 5.3%, driven by network efficiencies. Net of the volume effect, we managed to keep both container handling and network costs, excluding bunker price, largely flat year-on-year. There's also a significant revenue recognition element as rates declined sharply between Q4 '24 and Q1 '25, but were stable between Q4 '25 and this past quarter, a pure timing effect. Continuing to our Logistics and Service business. The segment continued to track positively in the first quarter. We are growing and we are growing profitably. Revenue increased by 8.7% year-on-year to $3.8 billion. Growth came from all 3 service models. Revenue was down sequentially following peak season in the later half of '25. This quarter also marks the eighth consecutive quarter of year-on-year EBIT margin improvement with the business delivering EBIT of $173 billion, implying a margin of 4.6%. This represented a 0.5 percentage point increase in EBIT margin compared to the previous year. Let me remind you that from the next quarter, we will be reporting Logistics & Services under a new structure as already advised. And therefore, only briefly on the current service models, which you will be seeing for the last time. You can see the volume growth helped to drive increased revenue from all service models. Profitability-wise, most of the increase came from fulfilled by Maersk through Middle Mile and transported by Maersk through Air. Specifically, Air saw volume increase by 20% compared to last year. We continue to prioritize investments in profitable growth. And whilst CapEx was 30% lower year-on-year, this was only as a result of the phasing of investments. Stepping back, the picture shows that broad-based top line growth is translating into better profitability, particularly in the parts of the portfolio where we have been focusing on operational improvements. Revenue was up around 9%, while EBIT was up 22%, demonstrating good operating leverage and continued improvement. As Vincent says, we are focused on margin expansion and productivity to drive performance. That is our job for the coming quarters. So I round off my financial review of the segments with our terminal business. Through a quarter of geopolitical conflict and supply chain disruptions, our terminal business again demonstrated its resilience and delivered a solid performance. Revenue increased 6.7% year-on-year to $1.3 billion, driven by higher revenue per move and volumes across most regions. The volume growth of 4.3% was largely coming from North America, which experienced growth of 11%. This was due to Gemini, which consolidated its volumes at 2 North American terminals, representing a net gain relative to the former 2M alliance. Revenue per move increased around 3%, driven by improved rates, favorable mix and ForEx, but partly offset by lower storage revenue. Cost per move similarly increased about 4%, mainly reflecting higher depreciation from recent investments, adverse ForEx and investments to extend the life of our cranes and other equipment. This was partly offset by lower SG&A and the benefit from higher volumes. EBITDA reached $488 million with a margin of 37.1%, while EBIT increased by 11% to $436 million, corresponding to a margin of 33.2%. Gross CapEx increased to $171 million, driven by growth investments, including Zwappe in Brazil and Pipavav in India. It should be noted that while return on invested capital on a 12-month basis for the segment increased to 15.7%, capital employed will increase following the recent investments while incremental earnings ramp up. Moving on to the financial guidance. Following the first quarter performance and given what we can see now, our 2026 financial guidance remains unchanged. Assuming global demand remains robust, we continue to expect global container volume growth of 2% to 4% in '26 with Maersk to grow in line with the market. On this basis, we continue to guide for an underlying EBITDA of $4.5 billion to $7 billion, underlying EBIT of negative $1.5 billion to positive $1 billion and free cash flow of negative $3 billion or better. Whilst we maintain our cash flow guidance, we are experienced in higher working capital because of higher bunker costs, which is absorbing additional cash. Our cumulative CapEx guidance also remains unchanged at $10 billion to $11 billion for '25 to '26 and likewise for '26 to '27. The guidance range continues to reflect industry overcapacity from new vessel deliveries as well as different scenarios on the timing of the reopening of the Red Sea and Strait of Hormuz and their consequent impacts. With that, we remain focused on operational execution, cost discipline, capital allocation as we navigate what is still expected to be a volatile year. On that note, we finished the first quarter financial review, and we'll now proceed to the Q&A. Operator, please go $ahead's. Operator: The first question from the phone comes from Cristian Nedelcu with UBS. Cristian Nedelcu: Two, if you allow me. The first one is on the Ocean strategy. There have been some statements from the ZIM Board members a few weeks back noting that Maersk made an offer for the acquisition of ZIM. Having this in mind, could you tell us what is your strategy in Ocean going forward? Are you looking to grow capacity? Would you consider acquiring other Ocean assets going forward? And the second one is on the Ocean EBITDA. Historically, seasonality-wise, volumes are up in Ocean in Q2 versus Q1. You earlier alluded to the fact that you're fully passing through the higher fuel costs. Is there any reason why the Q2 Ocean EBITDA should be lower than what you generated in Q1? Any other moving parts that we should keep in mind? Any color would help. Vincent Clerc: Yes. Thank you for the questions. Our strategy in Ocean is quite simple. We want to deliver the best service to our customers in terms of reliability. We want to have the lowest possible cost, and we intend to grow our volumes in line with the market. Those are the 3 tenets that we have. If we make a deviation to this, such as what we did with ZIM is if we feel that there is something which opportunistically would serve to lower our cost or we can buy assets, which opportunistically would be at a much better price than average because of the current market circumstances, then we look into it. And if suddenly the prices would have to increase to a place where that doesn't make sense and doesn't support our cost leadership, then we get out of the process. So I don't expect us to be active on the M&A front in Ocean. This is not a core tenet of our strategy. But at the same time, we stay alert to what happens. And if there are some -- a few things that opportunistically would advance some of our fleet goals and lower our breakeven cost, then we will look at it because it's aligned with our strategy. On the EBITDA for Q2, I think the only thing that would change -- the 2 small things that to look at is from a volume perspective, you mentioned -- I mean, you're right, in general, volumes are stronger. This time, Chinese New Year was kind of late in March. So the rebound may be a bit less than when Chinese New Year is strong. And then you had some of the disruptions from the Gulf where it started by -- with a few weeks of booking acceptance being actually shut down and then gradually reopened as the situation there, we found ways to bring the cargo. So from a total volume perspective, volumes today are back to their pre-war levels, but there's been a few weeks at the beginning of the conflict where they were a bit lower. From a profitability perspective, I think the real question is exactly at what week the cost start to filter through and the revenue start to filter through. What we know is that we've been able to recover these cost increases. And you can see it, 40% increase on the shipping indexes out of China. It means that we're basically on all the shipments are recovering the full cost increase, and we have similar increases that we have secured in the contracts. Now in the very weeks where this phases in, where the one phases in a bit faster. So if revenue phases in a bit faster than cost, that's very good. If it phases in a bit slower than cost, it's not as good. What is good is that this will quickly be -- it's just a little timing issue at the beginning. So I don't expect major fluctuations in Q2, but I think we -- as Robert mentioned, we have a big range in the guidance, and that is because the situation is extremely volatile and the mood swings around whether we get to a conflict resolution fast or not, they are quite significant from tweet to tweet. Operator: The next question from the phone comes from Muneeba Kayani with Bank of America. Muneeba Kayani: So just following on from the earlier question on 2Q. You've done $1.75 billion in the first quarter of EBITDA. If the second quarter is somewhat similar, we're looking at EUR 3.5 billion, maybe EUR 4 billion of EBITDA in the first half. So can you explain how you've thought about that low end of the guide and kind of what scenario would be needed to reach EUR 4.5 billion for the full year? And then secondly, Vincent, if you could talk a little bit more about what you're seeing in the demand environment. I think you've mentioned that demand has been strong and you've continued to see that. What are your customers saying? And how are you thinking about that volume range turning out for the rest of the year? Vincent Clerc: Yes. Let me start with the second, Muneeba. Basically, I would say, as we stand here today, we see no impact on demand level from the conflict in the Middle East. As I mentioned, our volumes are back to pre-war levels. So we feel pretty good that the first quarter market will be at the upper end of what we have guided with respect to market, maybe even a hair above. And that -- these strong demand levels we see continuing into April and May. So that's the first thing. So for us, I think if you think about this, the range of 2% to 4% in order to get out of that range for the market for the year based on 5 months with that strength, you would need to see a pretty sharp deceleration coming out pretty soon for it to go out of range. So from that perspective, I think there is quite a lot of resilience in the market. Now -- the cost increase is significant and how this will -- how long this will take to get down into inflation or margin absorption for the different parties involved across the energy markets. I think that is very much an open question. So we have not yet seen impact on demand from the higher energy prices. We do foresee though a softer growth in the second half year in anticipation of that. But how much -- we still think it's going to be enough that we stay in the range, but we need also to see how the conflict evolves if the war starts again or if we really move towards peace, there is a lot of different dynamics there. So that's, I think, the best color I can give on the demand level. With respect to the EBITDA level. So I think we don't guide specifically on the quarter. So I don't want to be too -- get into the math of it. But what we see is continued strong demand, which means whether we are in terminal or in logistics, we should be able to continue the normal seasonality that we have there and in ocean as well. As I mentioned, the one thing that could impact a little bit is the phasing in of the revenue upsides and the phasing in of the cost downsides as a result of the hostilities and how they exactly net out in the quarter, which is too early to comment on. But I feel very proud of the speed at which we have been able to pass these cost increases to the customers. And therefore, I don't think it's going to be a huge impact, but I have yet to see the numbers exactly on how that goes and how this is taken through revenue recognition and cost recognition and so on because as Robert mentioned, our working capital has increased as the inventory -- the cost of holding the inventory of fuel has increased significantly. So we'll see how quickly that phases through on the P&L. Muneeba Kayani: So how do you get to the low end of your guide given you've been happy with the speed so far? I think what you need to remember is there is -- we have 44% of our business that is in contract where we have secured coverage for this cost increase. And we have 56% of our business, which is on spot or monthly rate for which we have secured it through the spot market, as you can see in the freight exchanges, but where this is a weekly battle to keep it there. So I think our concern would be a softening of the demand environment, insufficient capacity management across the industry, which leads to an erosion of the recovery of these costs on the short-term market, which could -- depending on how much you think it will erode, could quickly get you into a not so pleasant place from an EBITDA level in the second half year. Operator: The next question from the phone comes from James Hollins with BNP Paribas. James Hollins: So start off with the Logistics division. Clearly, you've shown 50 bps of margin growth year-on-year. Perhaps you run us through what more you're looking to do there on margin expansion, where you think maybe you can get to what projects you're working on? I think you noted margin growth was there in Middle Mile, where else we can see progress coming from there? And the second one was that the old favorite of the Red Sea. Clearly, we've all seen headlines around the data showing some of your competitors going back through the Red Sea. I was just wondering if you could update us on your thought process there? Is it potentially sooner rather than later? Do we absolutely need to see an end of the conflict on the uranium side? What do you need to see to start thinking about going back to clearly you had started? Vincent Clerc: Yes. The Red Sea, we have a review ongoing right now where we're assessing given the situation between the U.S. and Iran, whether we feel that we should also restart the return of some of our services through the Red Sea. There's no doubt that we have a bit of a different threshold than especially some of the competitors that are going through the Bab-el-Mandeb today because that's the same that have had issues in the Strait of Hormuz and have had either people being detained or people getting injured because they took some different chances than we did. So I think we make sure we have a very independent and very cautious approach because we clearly take the safety of our colleagues as our first priority. That being said, there has been no attack in the Red Sea for the entire year so far. And for us, the one limiting factor is the limitation of availability of either escorts or monitoring assets from different European U.S. or other navies to make sure that the crossing is safe. That's what we're working through right now. But it is clearly a topic for us as well to see, and that could free tonnage that we could reinvest into slow steaming opportunities for the services that cannot return immediately because at these bunker prices, that would be a good way for us to bring our cost picture down. On Logistics & Services, I think we're going to continue on the margin expansion. Our goal is still to generate a margin that is above 6% on the portfolio. And I think we'll be able to provide the next quarter as we get through the new breakout on products, a bit more color on what we expect the different areas to deliver. But I think for now, 8 quarters in a row of expansion, we don't expect the theory to end now. We certainly want to continue it. Airfreight, ground freight, contract logistics continue to be the main areas where we're working on. It's reduction of white space in contract logistics. It is continuing the margin expansion and productivity drives in air freight, and it is more revenue management and growth and productivity in ground freight. Those are the levers that we're working on. Operator: The next question comes from Alexia Dogani with JPMorgan. Alexia Dogani: Right. I have 3. If we start with the second quarter, I think kind of can you explain to us a little bit the bunker fuel adjustment lag for the 44% you said is on contract? Because if I understanding correctly, the bunker adjustment factor will really reprice in Q3 rather than Q2. And in relation to that, Vincent, you mentioned about EUR 1.5 billion extra costs per quarter. What do you include in there? Because it appears quite high if you take into account kind of even the peak of the bunker price. That's my first question. Then secondly, can you discuss a little bit about the order book to fleet ratio? I mean this keeps building and it's approaching almost 40%. And deliveries are accelerating in '27 and '28. So clearly, even without capacity management, we're looking at very steep increases even without the Red Sea return. How do you actually see the outlook when you say today, even in the second half, we could see a not so pleasant place for EBITDA? And then finally, do you have any thoughts on Amazon Supply Chain services? Clearly, the contract logistics part of Maersk has not been performing. I don't know if it's still losing money. But if there is an additional capacity entering the consumer space in the U.S. does make your turnaround even more challenging in that sector? Vincent Clerc: Okay. Thank you, Alexia. So the bunker fuel adjustment factor, you're right. market -- normal market practice is that it is adjusted quarterly. In this case, here, we have implemented surcharges and in some cases, changes in the bunker formula so that we can actually start recover immediately simply because of the size of the price hike, it was impossible for us to just shoulder it for a quarter. And that's what we'll be talking about more in 3 months when we meet for the second quarter, but we have been able to basically move forward the recovery of costs so that we match cost increase and revenue increase to the best of the abilities that we have. So that's also similar to some of the questions we had before. So that's the first one. The -- what is important to realize on the cost is we have actually 3 buckets of cost that we're faced with to get up to the EUR 1.5 billion. The first one is the fact that actually bunker cost has increased more than oil price. If you look at it, not all products, not all oil-derived products have increased by the same and actually, bunker has increased more than the average oil price. The second thing is that you have dislocations in the market where the premiums that we pay today over the WTI or the Rotterdam index are higher in many ports than what they are. So what you would normally accept to be your average given where you bunker in the world, that average has been further increased by these locations. And then the other thing is that we have had to take on more cost, we have had to move -- physically move bunker from North America and Europe into Africa, Middle East and Far East in order to secure supply where we need the supply. This comes at a cost. And as well, and it's very high cost because the tanker market has exploded. And we have also a time charter market that has increased significantly as a result of this. So we see significant cost increase out of all of these factors, the biggest one being obviously just the nominal cost increase on the price per ton. Now of course, it depends very much on the price of oil that day. So it has been swinging a lot between $90 and $110. If it's $90, it's going to be a bit less than the 1.5 -- it's going to be a bit less than the $1.5 billion, but still well in excess of $1 billion. If this was to go to $120 or something, then that price could even -- that price tag could even increase. I'll take the order book last, if that's okay, and I'll just go to Amazon SCS. I think the expansion of the Amazon offering is a logical continuation of efforts they have made to build delivery networks in the U.S. domestic market across both ground freight, airfreight and last mile. So Amazon is a great partner of ours. We do a lot of business together. For the most part, I think we're going -- we don't see that at all as being threatening to what we're doing for different reasons. We are active much more on the international scene where they are active much more on the U.S. domestic scene. We are not so active in the express and last-mile delivery compared to what they are. And we -- a lot of the customers that we have are actually customers that price data sovereignty and are extremely cautious in committing data to Amazon systems who would be able to both train their systems further and also learn a lot about how these customers' supply chain and demand and so on works out, which a lot of them have serious quants about. So we see certainly that this is going to be something that becomes a factor in the -- especially the U.S. domestic logistics market in the years to come, for sure. But that we feel that we have sufficient differentiation with Amazon that we don't really see this as being a threat for us at this stage. Finally, on the order book, the order book is in -- as far as I can see, I mean, I would wish that it was smaller, Alex. That's pretty clear. I think that we see that there is a capacity overhang today in May of about 1 million, 1.5 million TEUs. And there was about 2 million TEUs that are basically used to serve the longer routes around the coast of Africa for the service affected that cannot sell to the Red Sea. So it's about 3.5 million TEUs overall that is the capacity overhang, the total capacity overhang to a normalized trade routes today. And the deliveries are okay this year, but they are picking up significantly next year, and that's going to put further pressure on the overhang that we see. My theory is still that it is of a size where if people are disciplined, it's manageable. But we need to see that discipline come into effect. And so far, we're getting disruptions upon disruptions, and that delays actually the need for people to take this on. The higher energy costs are going to trigger a whole new wave of so steaming, I believe. I mean, I can -- we're looking at it ourselves and the cost benefit is quite compelling. So I think that will certainly demand -- high energy costs will demand more ships to cope with -- effectively with the demand. But if we don't pick up scrapping and actually retiring some of the ships that have not been retired over the last 7 years, this is going to be extremely bumpy. But I think that what you can see with this crisis in how quickly and rapidly costs are being recouped there is -- I still have -- there are reasons for optimism that the conduct in the industry is different despite the fact that the CapEx conduct is not very encouraging, conduct on the ground on the P&L is much better than what we have seen in the previous years, and we'll have to see this play out even more in '27 and '28 for sure. Alexia Dogani: And sorry, if I just ask a very quick follow-up. Obviously, we've now had the second quarter of EBIT losses in Ocean. And in the past, you have talked about this on-the-ground discipline that the industry won't allow too many quarters of losses. So we're now in the second quarter. What did you mean then by saying not so pleasant place on EBITDA for the second half? Because I think that's something that the market doesn't want to understand? Like why would the EBITDA not be less in the second half? Vincent Clerc: I think the risk that you have on EBITDA is actually temporary pressure on it from -- the worst that happened to us is if demand softens slowly because before people act on capacity, they first start to use the pricing lever for a while to see if it's -- if that's going to solve the problem for them. If demand was to soften rapidly, just like we can see here, when the cost increase rapidly to get them recovered is good, and we can do it. When cost increases slowly, then it's much more difficult because the you don't have the same urgency. So I think if we saw a gradual softening of demand, you would see a period where people -- or you could see a period where people use pricing levers for a while to try to shore up their utilization. And until you go to an EBITDA-neutral freight rates, that might be tempting until then they start to switch to more capacity-driven tools. That's the concern that -- I don't think it's necessarily likely. But we're trying to have a range that encompasses both the most concerning and the most optimistic scenarios with what we know today. Again, there's a lot of things that have happened since we talked 3 months ago that may also change that. But with what we know today, we feel that the range that we have covers some of the worst scenario we can think of and some of the better scenarios we can think of. Operator: The next question from the phone comes from Lars Heindorff with Nordea. Lars Heindorff: The first one is a follow-up on the slow steaming, Vincent, you mentioned that. I mean I don't know if you can quantify -- I think the average speed around is maybe slightly below 15 knots. I mean how much further down can it go? And what kind of impact will that have on supply? What -- how much can you actually tie up in terms of slowing down? And then the second part is on the savings from the slow steaming. And then a question regarding the costs. There is an other cost item of almost USD 250 million in the first quarter in Ocean. You said that you've been moving -- typically been moving bunker around. Is that related to that? And is that something that you expect to continue to do into the second quarter? Vincent Clerc: Yes. Thank you, Lars. On slow steaming, I think the global networks today, at least on the long haul, they are sailing probably in 16, 17 knots area. And it would be quite -- it would be economical to bring the vessel speed down to about 14, 14.5, 15 knots depending on the service and the route and how you can secure berth windows and so on in the ports. at the current price for bunker is actually it's quite a positive thing. The other thing that would be extremely positive from a fuel cost perspective is actually to reopen the Red Sea, as I think one of the questions previously I was alluding to because when you're sailing from India to the Mediterranean, it's a lot -- you're going to burn a lot less fuel by going through the Red Sea than you will -- if you have to go the long route as we do today. So those are the 2 things that we certainly are looking at. And it depends on the industry. It's pretty hard to assume exactly what people are going to do. I don't know. I only know what we're looking at. But if people were to do something similar to what we were to do, you could absorb between 1 million and 1.5 million TEUs in slow steaming effectively by reducing your cost in an economically positive way. So that's about the order of magnitude that there would be for me. And then on the other costs, let me -- let Robert give you an answer. Robert Erni: Yes. You might know that we obviously, like many others, we are trying to hedge some of the bunker costs. So this is, let's say, an unrealized loss on derivatives that we had to take according to the accounting standards. Again, it's unrealized. We'll need to see how this evolves, but that is the additional cost that we have seen. Lars Heindorff: And just, Robert, just on that one, which means that the physical movement of bunkers from North America to Asia, where the cost of that? It sounds terribly expensive. And as Vincent mentioned, DKK 1.5 billion on a quarterly basis. I mean, is that in network cost? Where is that showing up? Operator: We will move to the next question. The next question from the phone comes from Arthur Trans Citi. Arthur Truslove: The first question I had was just around the Red Sea reopening. So if you imagine a scenario in which the hostility is ended tomorrow, what would be the earliest point that you could realistically imagine a full industry reentry to the Red Sea? Second question, just following up on the previous one. Are you able to just articulate how much of the [indiscernible] that you use is hedged? And then final one, if I may. Obviously, consensus EBITDA for the full year is towards the upper end of the range. It sounds like you are talking to a few uncertainties in H2 and potentially around timing even in Q2. Are you comfortable with consensus near the top of the range? Or would you rather it was somewhere else within that range? Vincent Clerc: Yes. So I think first on the guidance, I mean, I don't guide on the guidance. We provide a guidance, and I think that's I'm not going to be able to voice an opinion about where in the guidance is we should be. On the bunker, we don't have -- we don't hedge bunker. So the only thing that we have is how much we have on hand. And -- but we do not do speculative hedging of bunker. And then finally, on the Red Sea, it's really hard for me to talk to when -- how fast this could happen. I mean, as I mentioned, we are looking at it ourselves. It would have to be gradual because at least today, we would not -- we would have to go with either escort or monitoring, and there is limited capacity for that. So there is only so many services that we could send through. And I would think that others would have the same. And for it to be a full return, you would need to feel comfortable with the safety and security assessment that you can sell without any monitoring. And I have no idea given the volatility of the situation between U.S. and Iran for when that is going to be. It could be very soon or it could take a while. Operator: Ladies and gentlemen, thank you. That was the last question. I would now like to turn the conference back over to Vincent Clerc for any closing remarks. Vincent Clerc: Thank you again for joining us today. To summarize, we have started 2026 with a quarter marked by strong volumes across all segments and equally important with is the strong cost containment that we have demonstrated, especially in Ocean, where we have seen a downward trend in unit cost since the inception of Gemini. Oversupply continues to affect container shipping, extend exerting downward pressure on rates that are visible in this quarter. While demand remains strong, this continued oversupply makes the ocean market environment very volatile. Nevertheless, as far as the Middle East conflict is concerned, its financial impact in the first quarter was limited, and we expect it to be managed without material financial impact in the coming quarters. Ultimately, notwithstanding the ongoing disruptions brought about by the conflict, the strength and the resilience of our business means that we are in a position to maintain full year guidance for 2026. Thank you for your attention, and we look forward to seeing many of you on the upcoming roadshows and at conferences. Thank you very much, and see you soon.
Operator: Good afternoon, ladies and gentlemen, and welcome to Tidewater Midstream and Infrastructure and Tidewater Renewables First Quarter 2026 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference call over to Ian Quartly, CFO. Please go ahead. Ian Quartly: Thank you, Jenny, and welcome, everyone, to the joint conference call for the first quarter 2026 results of both Tidewater Midstream and Infrastructure Limited and Tidewater Renewables Limited. Joining me today is our CEO, Jeremy Baines, who will provide an update on our operational performance, regulatory tailwinds and favorable market conditions we have seen to start the year. I will follow with the financial results and details on the increased 2026 adjusted EBITDA guidance, and then we'll open the line for your questions. This morning, both Tidewater Midstream and Tidewater Renewables reported results for the first quarter ended March 31, 2026. A copy of the news release, financial statements and MD&As may be accessed on SEDAR+ or on their respective company websites. Before we get started, I'd like to note that today's call is being recorded for the benefit of individual shareholders, the media and other interested parties who may want to review the call at a later time. The recorded call will be available through Cision. Some of the comments made today may be forward-looking in nature and are based on Tidewater's current expectations, judgments and projections. Forward-looking statements we express today are subject to risks and uncertainties, which may cause actual results to differ from expectations. Further, some of the information provided refers to non-GAAP measures. To know more about these forward-looking statements, non-GAAP measures and risk factors, please see the company's various financial reports, which are available on the company's website and on SEDAR+. I'll now turn the call over to Jeremy. Jeremy Baines: Thanks, Ian, and thanks to everyone for joining us today. I will start with Tidewater Renewables, covering regulatory, commercial and operational updates. On the regulatory front, during the first quarter of 2026, Tidewater Renewables received additional approval from Natural Resources Canada for the biofuel production incentive program. This approval confirmed that funding under the incentive program would be available in line with the full annual production capacity of the HDRD complex. We expect the contribution agreement will be executed during the second quarter of 2026. And once executed, Tidewater Renewables will receive the cash incentive payments quarterly in arrears providing a consistent boost to our cash flow and liquidity. South of the border, on March 27, the U.S. Environmental Protection Agency finalized record high renewable volume obligations for 2026 and 2027. Crucially, the EPA finalized record levels of biofuels, which are required to be blended into the conventional fuel supply and a 70% reallocation of 2023 to 2025 exempted volumes from smaller refineries to large obligated parties. In addition, the EPA confirmed that the RIN multiplier for renewable diesel would remain at 1.7x for 2026. This multiyear mandate is a major catalyst for Tidewater Renewables' realized margins. For context, these regulatory changes in association with broader market and geopolitical changes have increased the market prices of D4 RINs from less than USD 1.20 per RIN in early 2026 to over USD 2 per RIN in May. The higher D4 RIN pricing increases the price at which Tidewater Renewables sells renewable diesel, inclusive of all environmental attributes under the U.S. import parity offtake contracts we've entered into. Moving to commercial activities. Our focus has been on securing longer-term offtake contracts for renewable diesel, inclusive of all environmental attributes to provide multiyear cash flow certainty for the business. For 2026, we currently have over 90% of forecasted renewable diesel production committed under offtake agreements and over 40% of forecasted production for each of 2027 and 2028 is also under contract. The vast majority of these contracted offtakes are structured with U.S. import pricing benchmarks, aligning pricing with prevailing U.S. market values when the renewable diesel was produced and sold. This contracting structure also benefits the corporation by accelerating cash flows compared to selling British Columbia LCFS credits and Canadian CFR credits stripped from the renewable diesel. Moving to operations. The HDRD complex achieved an average daily throughput of 2,837 barrels per day, representing a 95% utilization rate in the quarter. This is a testament to our team's ability to operate the facility at near nameplate capacity throughout the winter months producing high quality, low cloud point renewable diesel that meets the rigorous Canadian cold weather specifications. Now we'll move over to Tidewater Midstream, starting first with the Prince George Refinery. Throughput at the Prince George Refinery averaged 10,784 barrels per day in the first quarter, a 9% increase over the same period in 2025. Market conditions for refined products strengthened significantly following the start of the Middle East conflict in late February. The blockage of the Strait of Hormuz and the reduction of global refining capacity due to feedstock constraints and damage to infrastructure has created a global supply shock. As a result, the Prince George crack spread averaged $102 per barrel in the first quarter of 2026, an increase of $8 per barrel from the fourth quarter of 2025. During April and the first part of May, the Prince George crack spread has continued to strengthen, which supports the increased 2026 consolidated adjusted EBITDA guidance we provided this morning. Looking ahead to the second quarter, I want to highlight that we successfully executed a scheduled maintenance outage at the Prince George refinery during April 2026. This was a proactive planned event designed to maintain high throughput at the refinery through to the next scheduled full refinery turnaround, which is currently planned for the spring of 2028. To prepare for this downtime, we strategically built up our conventional diesel inventories during the latter half of the first quarter. This ensured that we could continue to serve our core customers without interruption while the refinery was temporarily offline. The refinery has since returned to normal operations and daily throughput has steadily increased back to the design capacity of 12,000 barrels per day. As a result, we are well positioned to capture the current strength in refined product margins. At the BRC gas processing plant, throughput averaged 114 million cubic feet a day during the first quarter of 2026, a 12% increase over the previous quarter. This growth was largely supported by the long-term agreements we executed in January of this year, which secured an existing 65 million cubic feet a day of natural gas to the facility for a further 5-year term and also contracted an additional 10 million cubic feet per day of additional volume from dedicated producer locations. The BRC fractionation facility also saw high utilization at 90% during the first quarter due to the increased producer inlet volumes. The Ram River gas plant remains temporarily curtailed while sulfur handling operations continue to operate. Current market prices are at levels that we believe are highly economic for sour gas producers and our intent is to restart the gas plant when production in the area resumes. Looking ahead, we remain focused on driving operational excellence, enhancing margins and executing strategic initiatives, including maximizing utilization at the PGR and HDRD complex, strengthening commercial platforms and offtakes, advancing our SAF project while managing capital prudently, progressing noncore asset sales to unlock liquidity and continue to advocate for a fair regulatory environment. We believe these building blocks position us for both revenue growth and margin expansion during 2026. With that, I'll now turn it to Ian for the financial review. Ian Quartly: Thanks, Jeremy. Tidewater Renewables delivered a strong start to the year, generating adjusted EBITDA of $24.1 million. This performance was underpinned by the HDRD complex running at near nameplate capacity, which allowed us to capture improving market pricing by leveraging our offtake contracts that are indexed to U.S. import pricing benchmarks. In addition, Tidewater Renewables recognized $6.1 million of expected funding from the biofuel production incentive, further strengthening the gross margin. Tidewater Midstream generated consolidated adjusted EBITDA of $49.7 million, representing a significant increase from 2025. This performance was primarily driven by stronger crack spreads at the Prince George Refinery and the higher adjusted EBITDA from the HDRD complex, which I just described. Moving to the balance sheet. As previously disclosed with the 2025 year-end results, we completed a significant step towards strengthening Tidewater's financial position by successfully amending the Tidewater Midstream senior credit facility on March 23, 2026. These amendments extended the maturity of the $175 million operating and syndicated credit facilities from September 26 to August 2027. These amendments also allow Tidewater Midstream to calculate deconsolidated financial covenants on an annualized basis for Q1 to Q3 2026, which reflects the step change in financial results forecasted for '26. In that regard, I'm pleased to report that both Tidewater Midstream and Tidewater Renewables were in full compliance with all financial covenants at the end of the first quarter, and both companies are forecasting to be within financial covenants throughout 2026. With the release of the first quarter financial results this morning, we also announced an increase to full year 2026 adjusted EBITDA financial guidance. Consolidated adjusted EBITDA is now forecasted to be between $190 million and $210 million. Tidewater Renewables adjusted EBITDA guidance was increased to $100 million to $110 million. This adjusted EBITDA guidance includes the expected proceeds to be received from the biofuel production incentive with full year 2026 renewable diesel production of between 150 million and 170 million liters and an incentive rate of $0.16 per liter. The primary driver for the increased adjusted EBITDA guidance is the improving pricing environment, resulting from the ongoing geopolitical conflict in the Middle East and the U.S. biofuels regulatory changes that Jeremy discussed earlier. Forecasted 2026 capital expenditures remain unchanged at $2 million to $3 million for Tidewater Renewables and $20 million to $25 million for Tidewater consolidated. This capital guidance includes both growth and maintenance capital and is net of the BC LCFS credits expected to be received under executed initiative agreements for capital projects. By maintaining a disciplined capital program, the resulting free cash flow will primarily be directed towards debt reduction. That concludes our prepared remarks. Jenny, can you please open the line for questions? Operator: [Operator Instructions] Your first question is from Rob Hope from Scotiabank. Robert Hope: Congrats on the higher guidance. But just a question on the guidance. Can you maybe add a little bit of color at least on the conventional side, what levels you hedged at in terms of pricing as well as what range of pricing the 2026 guidance is based off of? Ian Quartly: Yes, Rob, thanks for the question. So we hedged approximately 50% of the Prince George crack spread throughout the balance of 2026. As we've mentioned previously, we laid into those hedges kind of throughout March as the prevailing kind of market conditions at that time. And so there's strong crack spreads throughout the balance of the year, which is contributing to that margin. We've seen pricing increase over the past few months. And yes, we're expecting some strong results at the refinery throughout 2026. Robert Hope: All right. That's -- I appreciate that. Okay. And maybe just moving over to Ram River. So sulfur pricing is up, liquid pricing is up. AECO is still soft. Can you maybe outline the discussions you're having with producers at this point? As we exit into spring, is it more likely than not that this could be more of a winter '27 return to service? Or could you see that come back in the summer months? Jeremy Baines: Yes. Thanks for the question, Rob. Given -- take your point on the low AECO price, but extremely high sulfur price makes it very economic for sour gas producers in the area to produce. There are a number of conversations and negotiations ongoing. I think we're -- we believe that the probabilities are likely that the plant will be on in the second half of the year. So continuing to make good progress, not quite there with something to announce, but we're getting very close. Operator: [Operator Instructions] And your next question is from Maurice Choy from RBC Capital Markets. Maurice Choy: Just wanted to come back to the discussion about guidance for both companies. Obviously, you first introduced the initial guidance towards end of March, which is about 6 weeks ago. At that point in time, the Middle East conflict was in full swing and crack spreads were elevated already. And even back then, the BPI in Canada was known. So when I think about the new news, it feels like the U.S. EPA decision is probably a true new news. So I wonder if you could help us quantify the items that has led to this higher EBITDA guidance for both companies. Jeremy Baines: Yes. So obviously, thanks for the question, Maurice. Good to talk to you. I think the reality is when we gave that guidance, the conflict has been going for -- I don't even know if it was 2 weeks at the time. And the market and expectations for timing of it to end was probably much sooner than what we've seen. Over that time, we've continued to see a lot of things progress in the market, so to speak, with, I think, significantly more damage to global refining capacity than anyone expected. Obviously, the length and complexity of the end to this. I think people realized how long it was. I don't think there had been a Strait of Hormuz shut down quite yet. It may have started then, but I don't think people were expecting it to progress the way it has, and we've just seen an overall tightening in global refining capacity in general with the damage that was done since that time and overall view in the market of the impacts that this is going to have on the long-term supply-demand balance, which has led to much more tighter crack spreads further out, and that has led us to adjust our guidance. Maurice Choy: So just to be clear, so -- and that seems to be on the conventional side. So you're suggesting that when initial guidance was put out, the crack spread assumption that you had was relatively conservative and maybe now it's a little bit more realistic? Is that fair? Jeremy Baines: I think -- I mean, there was a lot of information uncertainty when we put out our first piece of guidance, and we had been fairly, I guess, conservative trending back to a lower level of crack spread sooner. And now we're seeing that forecast go out much further. We've seen significant damage since that time to global refining capacity, which has tightened up supply/demand. And this just reflects the new information that's come into the market over the last, whatever, 4 to 6 weeks. Maurice Choy: Maybe just a final follow-up on this one. I suppose the event is obviously changing very rapidly and WTI is down 10% over the last 2 days. So are we to expect another change in guidance the next earnings release? Or do you view that this is a fairly robust guidance for the year? Jeremy Baines: Well, given the amount of hedging we've layered in and what we're seeing, we think this is fairly robust. Obviously, things can change very quickly. It's like things seem to change within days, single days as we go here. But we're very confident that we'll be able to deliver on this level of guidance, and there's some good things potentially coming that will help us ensure we at least get to this guidance and maybe a little more. Maurice Choy: Understood. And if I could just finish off with a question on balance sheet. And I believe there was a comment that the strong free cash flow is going to be put towards debt reduction and the CapEx is maintained with no change. I recall that on the last conference call, you are progressing a few asset sales. And I'm just curious as to what update you have on that. Is that still progressing? Would you want to do more given how you now have a better footing in your financials this year? Jeremy Baines: Yes. Like if things are continuing to progress, we still continue to trend towards the guidance we gave around asset dispositions for the year. We haven't got anything completely that we can announce, but hope to be announcing something before the middle of the year. And we're continuing to work along that path. I think we've been looking at a number of assets. I don't think the number of assets we're looking at has expanded. We're just continuing to work the ones we have. Maurice Choy: Any thoughts on timelines as to when you might hear something? Or is it out of your... Jeremy Baines: Hopefully, I think we're fairly close. And hopefully, we'll have something announced on one potential disposition before the end of the second quarter. Operator: [Operator Instructions] There are no further questions at this time. Please proceed with the closing remarks. Ian Quartly: Thanks, everyone, for joining the call. The team is available to address any outstanding items with our contact information at the bottom of each company's press release. Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may now disconnect your lines.
Operator: Greetings, and welcome to Cognex Corporation First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Greer Aviv, Head of Investor Relations. Thank you. Please go ahead. Greer Aviv: Thank you, operator. Good morning, everyone, and thank you for joining us. Our earnings release was published yesterday after market close, and our 10-Q was filed this morning. The earnings materials are available on our Investor Relations website. I am joined here today by Matt Moschner, our CEO; and Dennis Fehr, our CFO. Today, we plan to share several key messages with you, including progress on our strategy, end market trends, our strong performance in the first quarter and our expectations for the second quarter. After prepared remarks, we'll open the lines for Q&A. Both our published materials and the call today will reference non-GAAP measures. You can find a reconciliation of certain items from GAAP to non-GAAP in our press release and earnings presentation. Today's earnings materials will contain forward-looking statements, including statements regarding our expectations. Our actual results may differ from our projections due to the risks and uncertainties that are described in our SEC filings, including our most recent Form 10-K. With that, I'll turn the call over to Matt. Matt Moschner: Thanks, Greer. Good morning, everyone, and thank you for joining us today. It's hard to believe that nearly a year has passed since my appointment as CEO was announced. Since then, my leadership team and I have moved with urgency to focus our strategy, strengthen execution and position Cognex for sustainable, profitable growth. I'm proud of the progress the team has made and excited about the huge potential still ahead of us. That progress is clearly reflected in our Q1 results as we delivered an exceptional start to the year. In Q1, revenue, adjusted EBITDA and adjusted EPS each achieved double-digit year-on-year growth, meaningfully exceeding our expectations and consensus. Turning to Page 3 of our earnings presentation. I'll start with a strategy update. First, innovation. We're advancing our technology leadership with the launch of 2 breakthrough AI vision systems, reinforcing our goal to be the #1 provider of AI-powered machine vision . I will cover these new product introductions in more detail shortly. Second, on portfolio optimization, we successfully completed the divestiture of our Japan-focused trading business on April 1, ahead of schedule and in line with our expected proceeds. Third, on cost and productivity, we remain on track to achieve the $35 million to $40 million in net cost reductions we announced last quarter. These actions help streamline our organization and will support durable margin expansion. Dennis will provide more details on this later in the call. Turning to Page 4. I am pleased to announce 2 new embedded vision systems, the In-Sight 6900 and In-Sight 3900. Both breakthrough technologies share the same foundation, more AI computing power at the edge, seamless integration with OneVision and all built on the same In-Sight Vision Suite Software platform. With OneVision now broadly commercially available, these launches enhance our edge-to-cloud AI vision ecosystem and reinforce our leadership in delivering high-performance, scalable and easy-to-deploy AI solutions. Both strengthen our position in approximately $3.5 billion of our $7 billion served market. Starting with the In-Sight 6900. This product is designed for customers who need our most powerful AI vision tools, but don't want the cost, footprint and integration burden of a PC-based architecture. Powered by NVIDIA, the 6900 combines our broadest set of image formation hardware with proven advanced AI vision tools, allowing customers to configure their system for demanding compute-intensive inspection applications. Its flexible architecture supports interchangeable cameras, lenses and lighting, which help customers dial in the exact configuration they need with less friction. Second, the In-Sight 3900 is the industry's fastest embedded AI vision system built for customers who want maximum inspection capability with the simplicity of a fully integrated smart camera. Powered by Qualcomm, the 3900 delivers industry-leading speed, accuracy and resolution at the edge. Both products are major steps forward in embedded AI vision, bringing more capability to the factory floor with less complexity. Turning to end market performance on Page 5. Momentum from late last year carried into Q1 with broad-based demand across our end markets, led by electronics, semiconductor and packaging and continued growth with large logistics customers. The Purchasing Managers' Index, or PMI, remains in expansion territory, while at the same time, macro uncertainty and other risks have increased. Geopolitical conflicts, rising energy costs, memory chip availability and pricing and changes to interest rate expectations are all relevant areas we continue to monitor as we look forward to the second half of the year. We are, therefore, only slightly adjusting our full year end market outlook at this time and expect to provide more clarity during the next earnings call. Starting with Logistics. 2026 is off to a strong start with Q1 marking our ninth consecutive quarter of double-digit growth, once again led by large e-commerce customers. We continue to see encouraging traction with our SLX device portfolio, validating our strategy of layering additional vision capabilities on top of barcode reading. As the year progresses, we expect growth to normalize to mid- to high single digits as comps strengthen. Turning to Packaging. This end market delivered double-digit revenue growth in Q1, driven by broad-based strength. Considering the strong start in 2026, we now expect high single-digit growth, supported by continued momentum from our sales force transformation and the strength of our AI-enabled ecosystem. As a reminder, this outlook reflects a reduced revenue base following the divestiture of the Japan-focused trading business. Next is Electronics, which delivered double-digit growth in Q1, driven by broad-based strength across customers and geographies. For 2026, we continue to expect high single to double-digit growth, supported by ongoing supply chain shifts, a consumer refresh cycle and new device form factors. Turning to Automotive. Q1 revenue increased mid-single digits on a constant currency basis. Performance continues to be different by geography with meaningful growth in the Americas, offset by ongoing softness in Europe and some growth in Asia. For the full year, we continue to expect flat to low single-digit growth. Finally, in Semiconductor, Q1 revenue grew double digits, exceeding our expectations and driven by very strong growth across Asia. Based on the strong start, we are narrowing our full year growth outlook to a high single to double-digit range. Our deep relationships with leading semiconductor equipment manufacturers continue to position us well for sustained growth in this market. In summary, we are very pleased with the strong start to the year as focused execution drove broad-based outperformance across revenue, margin and bottom line earnings. Q1 results reflect meaningful progress against our strategic objectives and position us well to navigate a dynamic macro environment. With that, I'll turn it over to Dennis to walk through the Q1 financials and our second quarter outlook. Dennis? Dennis Fehr: Thanks, Matt, and good morning, everyone. Our strong Q1 performance reflects disciplined execution and continued progress against our profitable growth strategy. You can see this on Page 6, which highlights our [indiscernible] results across 3 key financial metrics. First, adjusted EBITDA margin was 26.9%, expanding 1,010 basis points year-over-year, marking the seventh consecutive quarter of margin expansion. Second, adjusted EPS increased 113% year-over-year, representing the seventh straight quarter of strong EPS growth. And third, trailing 12-month free cash flow conversion rate was 119%, meeting our greater than 100% target for the sixth consecutive quarter. Turning to the income statement on Page 7. Revenue increased 24% year-over-year and 21% on a constant currency basis. This marked our seventh consecutive quarter of year-over-year growth. However, it is worth noting that Q1 2025 represents a softer comparison due to pull forward into Q4 2024. Looking at geographic revenue trends on a year-over-year constant currency basis. The Americas grew 22%, driven by strength in packaging, electronics and logistics. Europe increased 23%, led by packaging and logistics. Greater China grew 36% with broad-based strength across all end markets, except automotive. Other Asia grew 6%, driven primarily by electronics and semiconductor. Staying on Page 7. Adjusted gross margin expanded 420 basis points to 71.8%, driven primarily by favorable mix and volume, slightly offset by tariffs. Adjusted operating expenses increased 9% year-over-year or 4% on a constant currency basis, including approximately $5 million of higher incentive compensation and commissions tied to strong outperformance and higher stock-based compensation. As a reminder, Q1 2025 benefited from $6 million favorability related to these items. Excluding these effects Q1 2026 adjusted operating expenses declined year-over-year, demonstrating our continued focus on cost management alongside strong revenue growth. We continue to drive productivity and efficiency as we execute our operating model transformation and made further progress on our cost reduction actions, incurring $4.8 million of reorganization charges, which are excluded from adjusted operating expenses. We remain confident in achieving $35 million to $40 million of annualized net cost reductions by the end of 2026, excluding FX and in delivering continued margin expansion. Adjusted EBITDA was $72 million, up 100% year-over-year. Adjusted EBITDA margin reached 26.9%, expanding 1,010 basis points year-over-year and exceeding the midpoint of guidance by more than 600 basis points, driven by strong revenue growth and favorable mix. Adjusted diluted EPS more than doubled year-over-year, up 113% to $0.34, driven by operating leverage and the lower diluted share count compared to last year. We generated $241 million of free cash flow over the trailing 12 months, up nearly 50% year-over-year. Trailing 12-month free cash flow conversion was 119%, the sixth consecutive quarter meeting our greater than 100% target. Following very strong working capital performance in 2025, we continue to drive efficiencies in Q1 with the cash conversion cycle improving 57 days year-over-year and 128 days from the peak 2 years ago. We believe we have now reached an optimal cash conversion cycle. Turning to capital allocation. We returned $113 million to shareholders this quarter, including $99 million through opportunistic share repurchases that reflect attractive buying opportunities, mostly at the beginning of the quarter. These actions contributed to a reduction in our average share count of approximately 2 million shares. Over the long term, we remain committed to returning capital as a core element of the disciplined capital allocation strategy outlined at Investor Day. Moving on to Page 8. I'll now review our financial guidance for the second quarter. In Q2, we expect revenue to be between $280 million and $300 million, representing growth of approximately 16.5% at the midpoint. Adjusted EBITDA margin is expected to be between 28% and 31%, with the midpoint representing an increase of 880 basis points year-over-year. Adjusted earnings per share is expected to be between $0.40 and $0.44 with the midpoint of this range representing approximately 68% year-over-year growth. I now want to briefly baseline Q2 to Q4 revenue to help with comparability. As shown on Page 9, there are a few known items that impact year-over-year comparisons, but don't reflect a change in underlying demand. First, on portfolio optimization. The divestiture of our Japan-focused trading business, along with other noncore product exits reduces revenue by approximately $5 million in Q2 and each of the following 3 quarters. These actions are intentional and support improved mix, margin and long-term profitability. Second, Q2 is expected to benefit from about $7 million of electronics order timing that shifts in from Q3. That's purely customer order timing related and doesn't change our full year expectation for this end market. Third, Q3 includes a $13 million headwind from the onetime commercial partnership benefit that occurred in Q3 of last year and should be taken out of the revenue base for comparability. So in summary, Q2 reflects timing benefits largely offset by the planned portfolio exits, while Q3 headwinds include order timing, normalization and portfolio actions, not a change in demand. We encourage you to reflect these factors in your models, along with the strong Q4 2025 comparison. As we look ahead to the full year, we are encouraged by the strong start we delivered in the first quarter and the momentum we are seeing from our execution. That said, as a short-cycle business with limited visibility, particularly to the second half of the year, we recognize that the broader macro environment remains uncertain. As visibility improves, we will reassess and update our profitability targets for the full year as appropriate. In the meantime, we are focused on what we can control, including delivering $35 million to $40 million of annualized net cost reductions by the end of 2026, streamlining our portfolio and the ongoing transformation of our operating model. Taken together, we believe our disciplined execution, cost actions and innovation road map position us well to deliver on our commitments and create shareholder value. Now Matt and I are ready for your questions. Operator, please go ahead. Operator: [Operator Instructions] Today's first question is coming from Joe Ritchie of Goldman Sachs. Joseph Ritchie: So can we just start with the stronger-than-expected start on organic growth for the year. So putting up 21%, pretty great start. I guess if you were to just kind of peel back the onion a little bit, Matt, and give us a little bit more detail on how much you think that came from end market inflection versus some of the internal initiatives and product launches. Just curious to get a little bit more detail on what surprised to the upside this past quarter. Matt Moschner: Yes. Thanks, Joe. Yes, obviously, very encouraged by our Q1 results and Q2 guide. It's obviously very hard for us to exactly parse out the contributing factors, but I think there's a number of things all rowing in the same direction at the moment. You mentioned a few of them. I think we're seeing broad-based demand from our customers, right? And that's indicated by several months now of the PMI and expansion territory. That's always encouraging. I haven't seen that for a couple of years now. How durable is that? We'll have to see. There's a lot of uncertainty in the market and in the world. And so we're trying to be realistic and cautious even to extrapolate that full year. But right now, the demand environment looks strong. I think you mentioned NPI. We had a great year of NPI last year. We launched really 4 really foundational sets of technologies. And as we announced today and a few days ago, we've continued that trend of releasing very powerful AI-centric vision systems. So I certainly think NPI is contributing. And then where we spent a lot of time in the last quarter and really in the last year has been transforming our go-to-market and really our sales force itself. And I think we're about 9 to 12 months into that, and I think we're definitely seeing the dividends from a go-to-market motion that is really hitting its stride. So I think you put those things together, great execution on NPI, our sales force transformation kicking in and a strong demand environment are all contributing to what we saw in Q4, Q1 and our forecast for Q2. Joseph Ritchie: Yes, that's all great to hear, Matt. And I guess maybe my second question is for Dennis. Clearly, the EBITDA margin also better than expected this quarter. Gross margins stayed above 71%. The operating leverage or the SG&A leverage you got this quarter was material. Just how are we thinking about those 2 pieces as we move forward? Clearly, the demand environment feels better in the first half. But how are you thinking about both gross margins and SG&A growth going forward? Dennis Fehr: Yes. No, similar here, very pleased with what we have seen in the first quarter and also the guide which you put out for the second quarter, a strong year-over-year performance, also good sequential performance here. Now certainly, volume and mix plays a big role. On the mix side, clearly, stronger factory automation end market helps us on the gross margin side. And we expect to see that to continue now in the second quarter, probably still too early to talk about the second half of the year, right? I want to remind everyone the limited visibility which we have. So we'll talk a bit more about that in the next earnings call. Other items contributing on gross margins, clearly also the portfolio optimization, which we would start to see from the next quarter on. But then there's certainly also some headwinds to the gross margins, right? So we saw the impact from the tariffs, which we had already last year. So that's not fully reflected in all the numbers. But while memory cost is not a major headwind for us and a major component, so to say, in the bill of material, there are clearly some timing effects here. So that means we'll be able to offset some of that or most of that through pricing, but we still expect like a 50 basis points headwind from memory costs in the third quarter. And we're certainly also cautious about general inflationary pressures, right? So we see the increase of the energy prices globally. We don't know yet exactly what this will mean in terms of like second and third degree type of impact through the supply chain. But there's clearly a view that we may see more inflation in the second half of the year, and that's something which we definitely keep on mind. On the OpEx side, I would say we are focused on executing our cost reduction actions. And certainly, you saw some of that in terms of the sequential step down from Q4 into Q1. But then certainly, Q1, especially on the year-over-year comparison, still had quite some headwinds, especially from FX, $6 million strong headwind there and then some of the normalization on incentive comp and commissions. In that regard, expect more some further sequential step downs, probably a bit less into the second quarter, but especially into the third quarter. In that regard, in general, we feel like we're making good progress on the cost actions, and we are seeing certainly the favorability in the gross margin side, and that helps with the margin improvement. And in general, that sets us up definitely for the strong results in the first half. Operator: Our next question is coming from Joe Giordano of Cowen. Joseph Giordano: Just as you get to the end of the year and you wrap this $35 million to $40 million cost out, what becomes like the priorities as you get into '27? I know early in this year, and we're asking questions about next year. But just how does the mindset shift? Is it still kind of a focus on cost? Is it like let's figure out profitable growth, push there? Like how do you adjust as you wrap this program? Matt Moschner: Yes. No, thanks, Joe. I mean at Cognex, we like to think we can walk and chew gum, right? So you can imagine that we are very focused on both the top and the bottom line even today, and I would say, even over the last year. So we have a very robust set of growth initiatives that we're executing. Even at the same time, we're focusing on those initiatives and making tough choices on areas that we want to stop or reduce capacity around. So I would think of it that way. I wouldn't think of it as an either/or. It's a both and. And -- but I think you're right. There's definitely a mindset shift that we're taking as a leadership team and across the company, last year and still, probably persisting this year, there's a focus on efficiency, productivity, really focus, right, make sure that we're focusing our resources in the right areas. As we conclude the cost reduction program, I hope to maintain that focus even if there isn't a formal kind of target out there. But yes, net-net, I'm sure our focus becomes much more obsessive around growth. But I would say our culture is always to be obsessive about growth. So very robust set of growth initiatives alive and well today. We'll continue those through the year and into next year even as we conclude the cost program that we've announced. Dennis Fehr: And maybe to add on that, right, if you think back 2025 was the year where we really embarked on that cost reduction initiative and progress, right? So you saw, we reported $33 million gross cost reduction for 2025. So not all of that found its way through as we had headwinds on FX, normalization of incentive comp and so on. But that was really the beginning into kind of a broader-based cost initiative program, which touched really from everything from sales to engineering to the back office. And then when we came out at the beginning of the year and talked about the $35 million to $40 million net cost reduction annualized by end of this year, we put the focus a little bit more narrow, more focused around sales force transformation, the back office, harvesting some of the portfolio optimization, which we have now concluded. So in that regard, I think we are basically, I would say, wrapping up the cost reduction in this year. However, I think if you think about 2027, the word which comes to our mind and which we are talking a lot to our organization is productivity. So that means -- as we scale the top line, this does not mean that OpEx has to scale in line with the top line. It's really the focus. We want to really see that across all parts of the organization. We are seeing that we're getting more out of what we have. So in that regard, I would say we clearly see more opportunity to drive leverage when we think about 2027. And I think as we have said at our Investor Day last year already, the expectation is clearly that OpEx line grows at a much slower pace than our top line. Joseph Giordano: And if I shift over to the balance sheet, it's a tough time now just given where valuations are. So I'm curious as to how you want to think about optimizing your balance sheet there. And I guess, in the context of the simplification and cost out that you're doing, how reticent are you about adding more complexity through M&A to kind of -- I guess it has the potential to derail some of the momentum you have internally as that kind of plays out. Dennis Fehr: Yes. So first, I think quite pleased that we were able to buy back shares in this quarter, $99 million at what I would call it a really add value, right? So we were in the market, especially at the beginning of the quarter, have been able to buy back in the low 40s. I think we really found value there. I was not sure, frankly speaking, after the last earnings call, if we would be able to find such a value position. But I think we made use of this opportunity. And we will certainly keep looking out if we can find value again in the months and quarters to come. I think that's very much in line with what we have been saying at Investor Day last year that we will be opportunistically buying back shares. And then, yes, at the same time, certainly, we -- M&A is one of the other capital allocation priorities, which we laid out. But I would say we -- our focus remains unchanged here. We will remain kind of a disciplined financial framework when we evaluate potential M&As. There needs to be a strong strategic fit so that we can generate the right synergies. And yes, as you said, like there's good momentum here. So I think we don't feel like the strong need that we have to do M&A. So we'll only do it if we really can find something where we really have strong conviction. And at the same time, I would say like while many things go our way at the moment, it's very clearly that we have still a lot of opportunity ahead of us in terms of organic growth, in terms of further optimizing some of the ratios of OpEx to revenue and so on. So in that regard, I think we definitely want to keep on going. Operator: The next question is coming from Tommy Moll of Stephens Inc. Thomas Moll: We appreciate the baselining data you provided there on Slide 9 today. And I wanted to ask a follow-up on the consumer electronics time shift that you're calling out from Q2 or rather Q3 to Q2. Are we to take away from that, that Q2 is most likely the peak revenue quarter for that end market this year or potentially is that not necessarily the case? I'm just trying to understand what you're communicating here on the time shift. Dennis Fehr: Yes. No, I think, Tommy, you got really straight to it. I think that's what we are currently seeing, right, with that timing shift from Q3 into Q2, right? So that means seasonality this year is geared a bit stronger towards Q2. However, I want to really remind everyone on the call that the electronics kind of revenue typically is really very focused towards the end of the second quarter or the beginning of the third quarter. So such timing shift is really like a few weeks. So think about something like 2 to 3 weeks of timing shift. It's not like months of timing shift. In that regard, I really don't read too much into that. But Tommy, you're spot on in the terms that Q2 is really the peak this year in terms of what we expect from consumer electronics. Matt Moschner: Yes. I would only add, Tommy, what we're seeing in consumer electronics right now is broad-based strength, right? So I think it would be a mistake to point to any one customer contributing. We've really taken the excellence we have in that market more broad to new customers in new geographies. And so it's a market that we see firing on a number of different cylinders right now and many of which we've talked about in previous calls around shifts in the supply chain, continued strength in consumer demand for these devices, new form factors. You put all of that together. Cognex has launched great technology for these manufacturers as well. And we're also starting to see some contribution from the demand driven through the electronic component supply chain from data center build-outs as well. So you put all that together, and I think we remain very optimistic about consumer electronics as an end market throughout the year. Thomas Moll: That's helpful. And as a follow-up, I wanted to ask to ask about AI. This is a topic that you covered extensively at last year's Investor Day, both in terms of the opportunities and the risks there. Today, you highlighted some of the Insight portfolio expansion. And so I'm curious if you could just give us a refresh maybe from Investor Day, what opportunities -- what additional opportunities are you finding here? What additional risks are you uncovering here? Matt Moschner: Yes. Thanks, Tommy. Great question. I would say the perspective we shared in June is still the perspective I'd say we have today, which is that AI presents a huge opportunity for Cognex and for our customers. Obviously, there are some risks that we've discussed in the past around to the extent it enables new competitors or somehow weakens the competitive moat. I think we haven't quite seen that as much, right? We've seen it accelerate our business. We've certainly used these tools, as Dennis was alluding to, to drive productivity and efficiency internal to how we operate, not just in engineering, but across a number of other functions. But hopefully, by now, you see what we're trying to do in transforming our product strategy and product experience, right? AI on one hand, is transformative in that it lets us solve new problems, problems that have historically been too complex for a variety of reasons, but it's allowing us to do that without asking customers to tolerate a whole bunch of upfront engineering costs and downstream maintenance complexity. And so what we presented in June was -- and then on top of that, how are we using the momentum that is happening at the frontier, some of these larger models, how are we taking advantage of that ourselves to accelerate the development of our own vision tools, which are inherently much more specific and relevant to industrial applications and why that's a durable advantage. So I really do think the story -- the narrative we presented in our strategy in June is still the one we're pursuing and still strongly believe in. You're seeing that accelerate through the products. We launched that last year and this year. Our strategy is very much to lead in Edge AI, right? Edge AI, meaning training and deploying at the line on device, complemented by OneVision when you need it as an edge-to-cloud kind of seamless workflow. So I think you put all those things together, and I still think AI for Cognex is a huge accelerator even while we keep a close eye on what the potential hazards and risks could be. Dennis Fehr: Maybe to add on that, bit adjacent here, the usage of AI to drive the productivity I've been talking about before, right? So we already talked last year about using AI-assisted coding like in software engineering to drive efficiencies there. And I think for us, very exciting. We just recently launched some very, very great AI agents in the service side. So that means helping customers find information faster, getting answers immediately. And yes, it's really just great to see what opportunities AI provides to us here also in streamlining our entire operations and helping us to transform our operating models in that regard, clearly, there's a lot of opportunity there. Operator: Our next question is coming from Jacob Levinson of Melius Research. Jacob Levinson: I have to say congratulations on the progress over the last year. It's been amazing to see how fast it's come together. So certainly deserves all the credit that you can see in your stock price. But Matt, I mean, you touched a little bit on this with the NPIs and some of the AI focus, but it sure seems like there's maybe a sharper focus in those new products that are coming out. So maybe you can help us understand if you think about practically what's happened behind the scenes in the R&D organization, what's really changed? Because I just -- I've always thought of Cognex as being a company that's had a pretty regular flow of products, but the growth rates would certainly suggest that there's maybe a greater adoption of the stuff that you're putting out there these days. Matt Moschner: Yes. Thanks, Jake. Yes. No, it's not necessarily about quantity. It's also quality, right, what we call our hit rates and often measured by things like a vitality index, right, what percentage of our revenues is from those new products. And I think on that measure, both of those measures, both the quality and the vitality is we're definitely seeing nice improvements, right? We made some organizational changes last year in our engineering teams, which I think we're starting to see the benefits of. And even over the last many years, I was very involved with our engineering teams. And we are many years into what you might call a re-architecting of the tech stack itself to be much more ready for the AI era. And I think we're also seeing that pay off, right? There's a huge paradigm shift from non-AI to AI-based visual inspection from one that was very centered around programmatic interfaces and pressing a whole bunch of buttons to configure it full to what is now much more human-like trained by example. It's much more about image data, image visualization. And so I think we've -- and we saw that coming 10 years ago. And so I think our products that we're launching now don't feel like we're taking an old product for a new application. They feel very fit for purpose and very much built around the workflow that is demanded from an user of advanced AI. So yes, I think all those things are coming together. And then we've made some other smart choices, I think, right? We've really rallied around a common software ecosystem, which we described in June at an Investor Day. I think customers are very much responding to that around insight. OneVision and making sure that all our new products are compatible with OneVision, I think it was also a very smart move. That's proving to be a very powerful tool for customers to adopt advanced AI much more quickly than in the past. Yes. And then we've been working with great technology partners, right? We disclosed NVIDIA and Qualcomm. These are really world-class edge computing chipset providers. And so you can imagine that we would have a very close engineering relationship with them and really working at the bleeding edge of what they have to offer and bringing that into our products. So again, it's not just one thing, but I think it's a basket of things that we've been doing well for the last year or even more that are starting to really pay off. Jacob Levinson: That's all super interesting. Just on a different topic on the logistics side. I think historically, that business has been a lot of barcode reading, but it's hard for us to know from the outside exactly how much that market is growing these days. But it sure seems like you're gaining some traction on some of the other products that you have in the portfolio. So maybe you can just speak to that a little bit. Matt Moschner: Yes, definitely. I'd invite you and others to any trade show that we're at. I think you can really experience the products, those that came to MODEX and LogiMAT, which are the 2 large European and American trade shows, you can really see it in action. But yes, Jake, I think you're right. We've been wanting to bring our vision technology to logistics for as long as I've been here, we think now is the time with AI, and we're launching great vision tools since last fall, and we're seeing great uptake on that. And even better, not only are we solving problems that our customers have always wanted to solve, but the ROI on those solves are really strong. And so we're able to flow that through to some nice pricing differentials between a vision system and what traditionally we sell as a barcode reader-only system. And so that's very encouraging. At the same time, I would say the barcode reading problem isn't fully solved, and we continue to invest there. And I think we're still leading in image-based barcode reading, which today is still, as you rightly point out, the vast majority of applications and the vast majority of our business. So yes, I think we're playing a really great game right now in logistics. You're seeing that in the numbers in the consecutive quarters of double-digit growth. It's our largest market now. It's also probably the market where we see the highest penetration potential. And so we'll continue to fund that as appropriate to keep driving growth and share gain. Operator: Our next question is coming from Guy Hardwick of Barclays. Guy Drummond Hardwick: Congratulations on tremendous results. I wanted to ask about semiconductor. So I think you said earlier that your deep relationships with leading semiconductor equipment manufacturers positions us for sustained growth. So I was wondering whether visibility is improving in that business and that you can maybe with more confidence, forecast double-digit growth into next year or even the year after. And for Q1, I mean, you said double-digit growth, but just can you maybe give a little bit more information as to how -- was it close to 20%? Or was it close to 10% or maybe it was stronger than that? Matt Moschner: Yes, Guy, thanks. Yes. No, it's definitely a hot market right now for us and for many others. I'd like to think that our semi business is a natural hedge against maybe some other cost increases or cost headwinds we're facing on the supply chain side. But yes, we've had great relationships with leading semi OEMs for decades now, and they consume our technology really across the board from vision tools to optics and lights to completed systems. And like any OEM, you work really hard to specify in your technology and they kind of lock in those designs and you sell them through for years. So it tends to be a very stable delivery stream. Is our visibility improving? Maybe a little, but nothing I'd really call out in particular. We have very regular interactions with our OEM customers. What they're seeing is a pretty rapid uptake in demand for their machines, maybe a little earlier in the year than we had anticipated a quarter ago. And we're also obviously trying to drive a deeper penetration of our technology with them. But -- so that's how I'd put it. Sustained growth, yes, I would say that's fair to say. I don't think we expect this to be a boom and a bust anytime soon. I think it does feel much more durable than maybe semi cycles in the past have, and we're leaning into that from a product development and a sales resourcing standpoint. And I think our technology is proving to be very valuable. I'd maybe defer to Dennis in terms of the specifics on how he would frame the growth. Dennis Fehr: Right. So really the 3 end markets, which kind of lifted the revenue growth rate here were electronics, semi and packaging. So you can really expect that semi was well above the 20s in terms of the growth rate in the quarter year-over-year. And then maybe to add to it that we see semi clearly also as a natural hedge against what we see in the memory cost side, right? So the one side, again, it's not a massive impact to us, but still there is some impact, but a lot of our customers are on the memory side. And clearly, as we see this accelerating, we see the revenue growth there as a hedge overcompensating actually what we see on the cost side as well. Guy Drummond Hardwick: And just a follow-up on the consumer electronics side. I'm just wondering what potential kind of sustained growth you could see from form factor changes and also sort of contract manufacturer capacity changes from out of China to ex-China. Matt Moschner: Yes. I mean I would say, again, it's hard to parse out exactly what the contributing factors are, but there are a number of things, a number of tailwinds that we're watching right now, new consumer form factors being one of them. But just as a reminder, change in form factor has to be followed by heightened consumer demand. And so particularly some of these newer types take longer to adopt. And so that might result in lower machine counts initially. And so when we think about our growth strategy in electronics, we try not to tie it to any one product announcement or any one customer. And thankfully, as we've said before, our growth is really broadening in this area, new accounts, new devices, new lines, new geographies, new stations. And that's really where we're trying to go is broaden the growth story, which in the past maybe has felt more singular around specific device types. Operator: Our next question is coming from Piyush Avasthy of Citi. Piyush Avasthy: Maybe like starting with the updated 2026 view, like it seems like you're projecting your end markets to roughly grow like mid-single-digit to high single-digit range, like 1Q '26 growth was really strong and 2Q guidance is around like mid-teens growth. I understand that comps get harder in the second half, but seems you're baking in some decent deceleration. Like I just want to understand if this is just conservatism on your part given limited visibility? Or are there any concerns that demand could slow? Matt Moschner: No, Piyush, I'd say it's really a question of visibility, right? I'd just remind the group, we're still relatively early in the year. This is our Q1 call. We're a short-cycle business, as we've said in the past, and we want to just be a little cautious with quite a bit of uncertainty still ahead of us. And so we want to just be cautious in terms of how and when we signal our view of the market. I wouldn't say it's much more than that. It's really about visibility and the typical visibility we have at this point in the year and a recognition that there's geopolitics, energy prices, component supply chain price increases, potentially interest rate uncertainty. There's a lot that needs to play out. And I think we'll be better prepared on the next earnings call to provide a clearer view on how that will trend for the rest of the year. Dennis Fehr: The same really applies also on the profitability side, right? So certainly also the Q1 actuals and the guide for the second quarter puts us on the path here to potentially come back with higher numbers. But again, we would like to have visibility into the second quarter then certainly also a clear reminder that Q4 is a very strong comp in that regard. But yes, we'll be in a better position to talk to you about it on the next earnings call, and we'll share with you at that time what we see for the full year. Piyush Avasthy: Got it. Helpful. And it's like a similar question on margins. Like last quarter, you suggested a run rate of 25% EBITDA margin by the year-end. I think 1Q '26 and 2Q guidance already suggests margin above 25% threshold. So you have your cost reduction actions in play, underlying demand environment seems to be helping, and you mentioned focusing on productivity. So do you think like 25% EBITDA is the floor at this point and that 31% ceiling has more upside as you continue to progress on your productivity actions and your new products hit the shelf? Dennis Fehr: Yes. See, Piyush, I think when we put out the initial financial framework last year at Investor Day, we always took the philosophy, let's put out numbers, which we can reach within 12 to 18 months. And we're certainly pleased that in the last earnings call, we could already up that number, had achieved the greater than 20% number a full year ahead. And certainly, we'll keep on looking to see what possibilities we have to first achieve the numbers and then to think where we go from there. But I would say, again, it's just that we would like to have that visibility into the second half of the year before we put out any new numbers. So in that regard, just give us these 3 more months to establish that visibility and then we'll be in a better position to talk to you about how we think for the full year and beyond. Operator: Our next question is coming from Andrew Buscaglia of BNP Paribas. Andrew Buscaglia: I just wanted to check on regionally, I think it's -- again Americas is certainly strong for you and others. I wonder if you could talk about some of the other regions, Europe and specifically Asia and China. Just I thought it was surprising with Europe, you're really not seeing much hesitancy despite the Iran conflict, but I wonder if you could comment on that. And then just the latest on the China trends. Matt Moschner: Yes. Let's start with Europe. Yes, very pleased with the growth trends we're seeing in Europe. And you're right, we're seeing customers perhaps surprisingly carry on with their investment plans with seemingly very little disruption, but even in light of a lot that's happening in the region. And what we've done is we've built a lot of flexibility into our go-to-market model, right? And so as we see risk or maybe softness in certain market verticals, we're able to very quickly kind of shift our focus and resourcing of our sales team into other areas. And I think that has really helped us, right, in particular, in Europe, as we've said for many quarters now, the European automotive market, which historically has been a big component of our business in that area has really struggled to find growth and find its footing generally and still continues to be a weak spot for us. But as we saw that, we've been shifting resources to other market verticals, right, in particular, our packaging vertical, which has really delivered quite a bit of growth in Europe and even new markets, right, particularly the investments that are going into aerospace and defense. We mentioned data centers and trying to find some new sources of growth. So I think you put all those things together, and we're able to mitigate maybe the softness in some areas with strength in others. But for sure, it's encouraging to see that our customers are continuing to spend and invest in automation even in light of a lot of uncertainty. So shifting maybe to Asia, maybe it's hard to talk about Asia as a whole. There's so many different nuances based on the country. We'll talk about maybe China, right? We're seeing great strength in China right now. And a lot of that has, I'd like to think, been driven by the investments we've made in the country over the last 12 to 18 months. we have tried to localize ourselves and be a much more nimble player and provider of machine vision in China. We have local distribution and manufacturing now. We have engineering teams in country now. We've really focused on forming some technology partnerships to move faster in the region and make more region country-specific products available quickly. We've obviously had an excellent channel and sales force in China. So I think you put all those things together, and it's resulting in some nice growth and allowing us to compete more effectively now than maybe we were a couple of years ago in China, and that's great to see. Across the rest of Asia, we've made good investments in the ASEAN region. We're seeing a lot of that benefit from the regional shifts in supply chain activity, perhaps out of China or in addition to China and we're participating in that growth in the various [indiscernible] countries. Korea, Japan, historically strong markets for us, maybe Japan, relatively less so. And then, of course, India, right? So all areas that we're focused on and driving investments into that I think net-net have started to pay off. Andrew Buscaglia: Yes. All very interesting. And my second question, I wanted to ask a rare one on automotive just because you and other automation peers have cited some growth returning. I am hesitant to call it a trend, but what are you seeing in that market? Is it just easy comps you're seeing? Or is there something more to this mid-single-digit growth? Matt Moschner: I think there is something more to it. Yes. On one hand, comps always help because it's been a couple of years now of no to negative growth in the automotive market as a lot of those OEMs have retooled their strategy, if you will. But there are great underlying growth drivers. I was visiting with a few of our OEM customers in Europe. And they still have a high need to automate and particularly installed vision to drive higher levels of quality, right? They're not where they want to be and machine vision is a great way to drive higher levels of quality assurance. Their costs are going up for a variety of reasons. Raw material prices are going up, Tariff concerns are on the horizon, labor costs are rising, and they view automation and machine vision as a way to mitigate those cost increases and drive efficiency in their production. And then labor scarcity, right? They struggle to hire skilled trades people in the quantities they need. And so again, automation is a great lever in machine vision , in particular, to mitigate the effects of potential labor shortages. So on one hand, I think the industry, particularly in Europe, feels like it still has not yet found its footing in terms of what the next iteration of product strategy and global trade will bring, but they're not waiting for clarity. They're moving on investments that they know they have to make to drive quality and efficiency. And time and time again, when I speak to senior leaders in automotive accounts, that's really the mandate that they have is we have to carry on even in light of a lot of uncertainty, and they view automation and machine vision as a key lever to do those things. Operator: Our next question is coming from Quinn Fredrickson of Baird. Quinn Fredrickson: Just within logistics, can you maybe expand a bit on trends across your large e-commerce customers versus the base logistics customers, both what you saw in the quarter and then your mid- to high single-digit outlook for the year? It sounds like large customers are performing well, but any details on the base side? Matt Moschner: Yes. Maybe I'll just quickly touch on both large and large accounts base accounts. Yes, I mean, I think it's interesting. What we saw over the last couple of years was a real focus on process improvement within existing facilities. And I would say that focus remains. How can we get more out of the existing capacity that we have. The larger players perhaps have more capacity, financial strength, ambition to continue to grow capacity. And so we are seeing that at our larger accounts. They're both -- they're doing both, driving productivity on existing as well as still pursuing greenfield build-outs. I'd say maybe we're seeing relatively less of that in base accounts where they're still mostly focused on process improvements in the existing network. But on both, I would say their interest and willingness to take advantage of vision as a way to drive process improvement is very high. And we're having great discussions with both large and small operators in terms of how machine vision can help drive productivity in their operations. So I wouldn't discriminate on that front. And you put that together. And while recently, it feels like quite a bit of our growth has been driven by large accounts, I'd say our focus is not exclusively there. We're really trying to drive broad-based growth using vision as the lever to do that, and I feel like we're on the right track there. Quinn Fredrickson: Okay. And then just second one would be on supply chain. One of your vision peers was calling out lengthening lead times for memory and image sensors. Is that something you're seeing as well? And how are you positioned to navigate that, if so? Matt Moschner: Yes, we are. We are very well set up to manage this and have been managing it, I think, well for the last several months since we started catching wind of some of this around memory, but potentially beyond that. At Cognex, we historically and still today maintain very strong relationship with our suppliers. We speak with them almost daily. And so we can move really, really quickly to either shift the parts that we're consuming, drive a different product strategy, work with them on delivery allocations as necessary, work the broker market and then obviously think about ways to mitigate through pricing actions. So it is an area that we're putting a lot of energy into. And I would say we are seeing lengthening lead times in some areas, not broadly in some areas. But I feel like we're mitigating it very well at the moment. Dennis Fehr: And then always keep in mind, similar to what I said before on the semi side and in general, if you see something like that happening, capacity constraints, it basically sets the suppliers up for capacity expansions either through greenfield investments or through driving more productivity, which then basically stirs demand for machine vision . So there's always a bit like this natural hedge to it. So in that regard, I would say bottom line is that it's not necessarily a negative to us. Operator: Our next question is coming from Jamie Cook of Truist Securities. Jamie Cook: Congratulations on a nice quarter. I guess, Dennis, question, understanding there's a lot of uncertainty in the back half with memory costs, with tariffs, et cetera. But can you just speak to broadly what you're seeing from a pricing perspective, both from your side and what your competitors are doing? So given the strong demand out there, like why wouldn't we be able to pass through any of these incremental cost headwinds? And why wouldn't the margins -- gross margins in the back half be better than the first half like you implied last quarter? And then my second question is just, obviously, demand is trending better than expectations. Is there anything that you saw in April or in the beginning of May to suggest you know what I mean, that demand is waning or tempering? Dennis Fehr: Yes. No, thanks, Jamie. So maybe on pricing, maybe let me take a step back first, right? So if you think back 2024 second half, we really talked about pricing pressures, especially in China, and we saw some negative impacts there to gross margin. We then saw pricing stabilizing in 2025. And that's also when we really started to gear up here internally with our internal pricing initiatives setting out and defining our pricing playbook. And I think in general, we feel like we have made good progress here. You see that in some of the tariffs, right? So we clearly said on the one side, there is a tariff headwind, but we have been able to offset that down to the -- on the bottom line level. And so in that regard, I'm not suggesting and the comment I made before was it's really a timing topic, right? So that means that the one side, you see inflationary pressures like from memory and potentially other areas, and they find their way maybe a little bit earlier into the P&L than maybe some of the pricing offsets, which -- where we have the opportunity. In that regard, we don't think like there is a long-term structural reduction to the gross margin. But in general, we have been saying we want to use and turn pricing from a headwind into a tailwind. I think in general, we feel positive of the trajectory which we have. But at the same time, it's also clearly that we think about pricing in the sense like this should be like a compounding effect over a multiyear period, supporting further margin optimization in the same time period. So that's a bit how we think about pricing. So think about back to the inflationary pressure, there are more like timing puts and takes and less like structural pressures on the gross margin. Now to the question for underlying demand changes. So I would say what we see in the first weeks of the quarter in terms of demand is pretty much in line with the guide which we just put out for the second quarter. Now again, we, of course, will look for demand signals for the second half, right? We talked about some of the uncertainties out there, especially related to the energy price increases, which maybe have a stronger effect on some of the Asian countries, perhaps Europe, probably much less so in America. So we'll keep on monitoring. But to be clear, as of this moment, we are not seeing any negative demand signals there. In general, we see -- as we stated at the beginning of the call, we see strong demand there. PMI is still in expansion territory. So in general, things look good, but certainly, we'll keep on watching here. Operator: Thank you. At this time, I'd like to turn the floor back over to Mr. Moschner for closing comments. Matt Moschner: Great. Well, thanks, everyone, for joining us this morning and for your continued support. We look forward to updating you on our progress in the second quarter. Bye-bye. Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.
Operator: Hello, everyone. Thank you for joining us, and welcome to Somnigroup First Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Lauren Avritt, Director of Investor Relations. Lauren, please go ahead. Lauren Avritt: Thank you, operator. Good morning, and thank you for participating in today's call. Joining me today are Scott Thompson, Chairman, President and CEO; and Bhaskar Rao, Executive Vice President and Chief Financial Officer. This call includes forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve uncertainties and actual results may differ materially due to a variety of factors that could adversely affect the company's business. These factors are discussed in the company's SEC filings, including its annual reports on Form 10-K and quarterly reports on Form 10-Q. Any forward-looking statements speak only as of the date on which it is made. The company undertakes no obligation to update any forward-looking statements. This morning's commentary will also include non-GAAP financial information. Reconciliations of the GAAP financial information can be found in the accompanying press release which has been posted on the company's website at www.somnigroup.com, and filed with the SEC. Our comments will supplement the detailed information provided in the release. And with that, it's my pleasure to turn the call over to Scott. Scott Thompson: Good morning. Thank you for joining us on our first quarter 2026 Earnings Call. I'll begin with some highlights in the quarter and then turn the call over to Bhaskar to review our financial performance in more detail, and discuss our reaffirmed 2026 [indiscernible] guidance. After that, we'll open up the call for Q&A. In the first quarter of 2026, net sales increased a healthy 12% to $1.8 billion. Adjusted EBITDA increased 20% [indiscernible] $297 million, and adjusted EPS increased a robust 20%, [indiscernible] per share. We are pleased with these results, particularly against the backdrop of heightened geopolitical tensions and winter weather disruptions in the U.S., all of which weighed on the industry demand. We believe global bedding demand declined mid-single digits in the first quarter, which was below our expectations that demand would be flat to slightly positive during the quarter. We believe our performance reflected the strength of our business model and its ability to perform across varying market conditions. This has allowed us to continue to extend our leadership position in the industry. Turning to our first highlight. We expanded EBITDA margin by over [ 100 basis ] points and grew adjusted EPS by 20%. We accomplished this on 12% sales growth demonstrating the operating leverage embedded in our business model. We also delivered record first quarter operating cash flow, which we deployed towards debt reduction. We ended the first quarter at 3.1x leverage, and [ are on ] track to return to our targeted range of 2 to 3x adjusted EBITDA in the next few months. Our second highlight. Our North American Tempur Sealy business outperformed the broader market. Tempur Sealy North America delivered mid-single-digit wholesale sales growth year-over-year on a like-for-like basis, driven by investments in high-quality advertising, continued momentum in [indiscernible] line and increased balance of share at [indiscernible]. Looking to the back half of the year, we expect the launch of our new [indiscernible] lineup two, optimize price architecture within the broader portfolio, support higher average selling price for our retail partners, strengthen our position at higher pricing. We expanded our offering with additional SKUs at the top of the price range, targeting the customer who has demonstrated continued resilience, through this cycle. It represents a significant growth opportunity. We'll support the launch with new national and [indiscernible] advertising focused on differentiated luxury product and on broader health and wellness benefits of the [ group sleep ]. Our third highlight, our international business continued to capitalize on long-term growth opportunities, delivered double-digit growth on a reported basis and mid-single-digit growth on a constant currency basis. [ International ] performed the broader industry in the quarter, extending a multiyear track record of solid growth across our key markets. This performance reflects continued disciplined investment in distribution and marketing, a resilient supply chain, strong local execution and the strength of our Tempur brand. We're pleased with our results in a challenging environment, and our international business remains well positioned for continued growth over the long term. Our U.K.-based bedding retailer Dreams once again outperformed the market this quarter, reinforcing its position as a category leader. Strong brand awareness and share of voice, combined with effective execution, growth solid customer engagement and healthy order volume. Our ongoing operational discipline and a continued focus on product quality, the customer experience supports further growth in this very competitive U.K. market. Our fourth highlight, Mattress Firm outperformed the broader U.S. market, supported by its scale, depth of category expertise and a well-curated merchandising assortment. Merchandising actions taken over the past year have better position Mattress Firm business to meet customer needs across price points while maintaining a strong focus on quality and innovation. During the quarter, we further deepened relationships with suppliers aligned with our quality standards and marketing commitment. Our proprietary Sleep expert model continues to differentiate the in-store experience, supported by one of the industry's largest and most highly trained sales force, which has been augmented by ongoing technology investments. We remain on track with our previously announced $150 million store refresh program targeting completion in 2027. To date, we have spent approximately $40 million on store refresh program, all funded operating cash flow. Additionally, the rollout [indiscernible] is progressing well with national depletion expected by year-end. With that, I'll turn the call over to Bhaskar. Bhaskar Rao: Thank you, Scott. In the first quarter of 2026, consolidated sales were solid $1.8 billion, and adjusted earnings per share was $0.59, up 20% over the prior year. There are approximately $26 million of pro forma adjustments in the quarter, all of which are consistent with the terms of our senior credit facility. As a reminder, year-over-year comparisons are impacted by the acquisition of Mattress Firm in early February 2025, and the related divestiture of Sleep Outfitters, and certain Mattress Firm retail locations in the second quarter of 2025. I will be highlighting like-for-like comparisons fined as reported numbers adjusted for the acquisition and divestiture impacts normalized for these items in our commentary. Now turning to Mattress Firm results. Net sales through Mattress Firm were approximately $886 million in the first quarter. Same-store sales were flat, outperforming a market we believe was down mid-single digits in the quarter. Mattress Firm adjusted gross margins decreased 360 basis points to 31.5%, including a 40 basis point headwind from the stub period. The remaining decline was primarily driven by promotional expense and product mix combined with some fixed cost deleverage. The impact of product mix on gross margin was primarily driven by increased balance of share of Tempur Sealy products as Tempur Sealy's supply contract is structured and to provide a portion of Mattress Firm's economics in the form of cooperative advertising credit, which reduces Mattress Firm's operating expenses. When looked at on a conforming basis, there is no material impact on EBITDA margin from the product mix change. Mattress Firm adjusted operating margins declined approximately 230 basis points to 4.9%, including a 150 basis point headwind from the stub period. The remaining decline was primarily driven by the decline in gross margin, partially offset by the favorable cooperative advertising dollars I mentioned a moment ago. Turning to Tempur Sealy North America. North America sales grew 5% on a like-for-like basis. With like-for-like net sales through the wholesale channel increasing approximately 8% in the first quarter, our sales with third-party retailers declined 4% after normalizing for [ 4 ] models. Like-for-like sales through the direct channel declined 12% in the first quarter, driven by reduced customer traffic at retail stores an e-commerce site, as we reduced our e-commerce advertising in the quarter. However, we have seen a marked improvement in recent trends. North America adjusted gross margins increased a robust 1,300 basis points to 58.3%, including a 600 basis point benefit from the stub period. The remaining increase was primarily driven by realized synergies and operational efficiencies with lower product launch costs as well. North America adjusted operating margin improved 710 basis points to 24.3% in the quarter, including a 230 basis point benefit from the stub period. The remaining increase was primarily driven by the improved gross margin, partially offset by investments in cooperative advertising as noted a moment ago. Now turning to Tempur Sealy International results. International net sales grew a robust 16% on a reported basis and 7% on a constant currency basis. Our international gross margins increased 140 basis points to 50.4%, primarily driven by favorable mix and operational efficiencies. Our international operating margin increased 160 basis points to 18.4%, driven by the improvement in gross margin and fixed cost leverage. I'd like to spend a moment discussing commodity inflation and our related pricing actions. Its historical industry practice to adjust pricing as input costs rise. Like others in the industry, we have recently announced modest pricing actions designed to offset inflationary pressures tied to oil-derived inputs, including key chemicals as well as gasoline, diesel. Importantly, the structure of our supplier contracts provide us with early visibility into inflationary cost pressures before they flow through our P&L. This visibility allows us to thoughtfully implement pricing actions to offset inflation while minimizing any material interim exposure. This is a structural competitive advantage. We expect commodity inflation will not impact Tempur Sealy's full year '26 earnings, but will modestly quantify our normal seasonality as the timing of cost increases hit slightly before our pricing actions are fully implemented. This is by design to give our retailers time to adjust their merchandising and advertising plans. As a result, the second quarter will have an approximate $10 million headwind to Tempur Sealy profits. We expect that this will fully offset in the third and fourth quarter with our announced pricing action taking effect following the July 4 promotional period. On a full year basis, we expect the pricing action to be dollar neutral to Tempur Sealy earnings, effectively offsetting the inflationary impact. We anticipate this will result in a $50 million pricing lift to the back half of 2026 global Tempur Sealy sales on a like-for-like basis with an expected annualized lift of approximately $100 million. Now turning to sales and cost synergy targets. In the first quarter, we achieved $15 million net benefit in adjusted EBITDA from sales synergies, and another $50 million benefit from cost synergies. In order to support the summer selling season and leveling out of manufacturing for seasonal fluctuation, batches firm built their inventory of Tempur Sealy products in the quarter. The planned inventory build is reflected in intercompany sales for the first quarter. However, we never realized any sales benefit to [indiscernible] EBITDA and [indiscernible] Tempur Sealy products sold to Mattress Firm is sold through to the end consumer. Now moving on to Somnigroup's balance sheet and cash flow items. At the end of the first quarter, consolidated debt less cash was $4.5 billion, and our leverage ratio under our credit facility was 3.1x, demonstrating our strong cash generation and disciplined capital allocation approach. Turning to cash flow performance. In a muted market, we delivered record first quarter operating cash flow of $247 million and record first quarter free cash flow of $186 million. We have reduced our net debt by nearly $500 million over the trailing 12 months of fully supporting growth initiatives and returning over $250 million to shareholders in dividends and buybacks. We expect to return to our target leverage ratio of 2 to 3x over the next [indiscernible]. Now turning to 2026 guidance. As a reminder, our guidance considers the elimination of intercompany sales between Mattress Firm and Tempur Sealy, which we expect to present approximately 23% of global Tempur Sealy 2026 sales. [ Intercompany ] eliminations in accordance with GAAP, will reduce Tempur Sealy sales but be margin accretive and neutral to dollars of operating profit. Please note that we acquired Mattress Firm in February 2025. As a result, our first quarter and full year '26 reported results will reflect the impact a little over 1 additional month of Mattress Firm financial results. We expect adjusted earnings per share to be between $3 and $3.40 for the full year. This guidance range contemplates a sales midpoint of approximately $7.8 billion after intercompany eliminations. Our annual guidance also reflects our expectation that the global bedding industry will be flat to slightly down year-over-year. The announced pricing actions across our global markets, Tempur Sealy North America, like-for-like sales growing mid-single digits, international business growing mid-single digits and like-for-like mattress firm sales growing low single digits. We also expect reported gross margin slightly above 45%, and nearly 100 basis points of net margin expansion from operational efficiencies, including synergies and operating leverage partially offset by the impact of Tempur Sealy pricing actions, which are intended to neutralize commodity inflation dollars, which will be margin dilutive. Our 2026 outlook also contemplates our assumption for Tempur Sealy brands and private label to be in the low 60% of Mattress Firm total sales. This represents about an incremental $40 million of EBITDA benefit for 2026 compared to '25. And approximately $700 million of advertising investments. All of which we expect to result in adjusted EBITDA of approximately $1.45 million at the midpoint. Regarding capital expenditures. We expect 2026 CapEx of approximately $225 million, which includes $75 million of investments in Mattress Firm store refreshes and brand wall installation. We expect our CapEx to normalize $200 million in the future years. And for at least 50% of our free cash flow in '26 to go toward quarterly dividends and share repurchases. Now I would like to flag a few modeling items. For the whole year 2026, we expect D&A of approximately [indiscernible] million, interest expense of approximately $230 million, a tax rate of 25% with a diluted share count of 213 million shares. Note that our guidance does not include any impact for the closing of the proposed combination with [ Leggett & Platt ] as the timing is dependent upon regulatory review and approval by [ Leggett & Platt ] shareholders. We expect the transaction would be accretive to adjusted earnings per share within the first year of operations before any synergies. Finally, a bit of color on guidance. The midpoint of our guidance assumes that consumer confidence, which has been pressured by geopolitical conflict will normalize as we progress through the year. If these pressures were to continue through the year-end, we would be tracking closer to the low end of our guidance. With that, I'll turn the call back over to Scott. Scott Thompson: Thank you, Bhaskar. Well done. Before opening the call up for Q&A, I want to quickly address our recent announced agreement to combine [ Leggett & Platt ]. As we announced last month, we signed a definitive agreement to combine with Leggett, an all-stock transaction valued at approximately $2.5 billion, including the assumption of that. We expect this transaction to close by year-end subject to satisfactory customary closing conditions. Following the close of the transaction, Leggett is expected to operate as a separate business unit within Somnigroup, similar to Tempur Sealy, Mattress Firm and Dreams. And to maintain its offices, including its primary location in [ Carthage ], Missouri. We're proud to have Leggett & Platt join us and believe the combination is beneficial to all stakeholders of both companies. We expect the combination to leverage the individual strengths of Somnigroup and Leggett & Platt to realize 5 strategic benefits. First, the combination continues our vertical integration strategy and enables us to closer collaborate between component engineering, manufacturing, design and customer trends, supporting accelerated innovation cycle and more cost-effective consumer-centric product construction. Second, this combination provides access to incremental addressable markets beyond [indiscernible], expanding Somnigroup's long-term growth opportunities and cash flow generation. Third, the combination is expected to lower Somnigroup's net financial leverage and increase its flexibility. Fourth, the combination is expected to be accretive to adjusted earnings per share before synergies and in the first year post closing, and significantly increased peak earnings in a normalized bedding market. And fifth, the combination presents cost synergy opportunities. In total, we expect synergies to result in at least [indiscernible] million of EBITDA on a fully implemented annual run rate basis. With that, operator, we're done with our prepared remarks, please open the call up for questions. Operator: [Operator Instructions] Your first question comes from the line of Susan Maklari with Goldman Sachs. Susan Maklari: I want to focus on demand, Scott, especially with the comments around pricing and consumer confidence. Can you talk about price elasticity across the business and how you're thinking of your ability to continue to drive industry relative outperformance despite all the headwinds that we are seeing on the consumer? Scott Thompson: Sure. And thank you for your question, Susan. I think when you look at elasticity, I guess the best thing to look at is really the closing rate. And if we look at closing rate, either whether it be in our own Tempur stores or you look at Mattress Firm, it continues to improve. So what that tells me is, when customers show up at the store, they're looking for products. They then get full discovery of price and where the closing rate is going up. So it doesn't appear the elasticity is very high. I think that's probably the best evidence in looking at that particular issue. As far as outperforming the industry, as we've talked about numerous times, over the years, we continue to improve our competitiveness in the marketplace. And where I look, whether it be in our recent price increase, which I think will be among the lowest by any of the manufacturers, and that has to do with the way we handle the inflation is certainly a competitive advantage. When I look at our advertising share of voice in the marketplace, this would be [ around ] the world. It continues to be top of class what information I get informally on other manufacturers, they would appear to be not dealing with the current market conditions as well and maybe being a little challenged from a capital standpoint. So certainly, our cash flows and balance sheet are a competitive advantage. So I think we'll continue to outperform the industry, and I think the industry will normalize once you get through some of the geopolitical issues that we all know about. Operator: Your next question comes from the line of Bobby Griffin with Raymond James. Robert Griffin: Thanks for the time Scott, I wanted to first -- I want to ask on the [ Stearns & Foster ] launch in 2H. We've been around the business a lot. We've seen a few different launches from Stearns, some starts and go kind of in the product. But the structure of SGI is much different today with all the advantages you've highlighted. So can you maybe unpack how that launch is set up to play out and how this launch might be a little different in where that opportunity is for that product? Scott Thompson: Sure. Great question, Bobby. First of all, we talked about [indiscernible] you have to realize that we have cannibalized some of [indiscernible] As we move Sealy [ Posturepedic ] up from a price standpoint. So we self did that. And so this is the last piece of getting our pricing architecture right between all 3 brands. Tempur Sealy [indiscernible]. And so that opens up some more addressable market, and we also moved the price bracket up. [indiscernible] Foster. Primarily you might find interesting [indiscernible] pushed by our retailers who wanted a higher price Stearns & Foster. So that is new. We also leaned into hybrids in that area, and hybrids have been good in the bedding market in the U.S., as I know you know. And quite frankly, the last Stearns & Foster hybrid, we didn't hit the mark perfectly. So that's a major upgrade. I think the other thing I would point to is with Mattress Firm as part of the family, we have very strong support from Mattress Firm, from an advertising slot commitment, training and probably a higher degree of support than we would have had without having them in family. I think those factors probably combined with the national advertising gives us more momentum on this launch than we've probably had in any launch in Stearns & Foster's history. Operator: Your next question comes from the line of Rafe Jadrosich with Bank of America. Rafe Jadrosich: I wanted to just follow up on some of the comments on pricing and the input cost inflation. Just first, can you just talk about the input cost inflation you've seen sort of year-to-date from Iran, the exposure on the chemical side, and then what you're expecting in the back half of the year? And then [indiscernible] that pricing that you're talking about, the $100 million annualized. Is that the way to sort of think about the magnitude of the cost inflation you're facing and covering that on a dollar-for-dollar basis? Scott Thompson: Sure. I'll let Bhaskar give you some of the details. But as you probably know, the industry has a history of passing on inflation costs through the system. Others actually [indiscernible] passed their costs through earlier than we did, and we were the last to pass through. And my perspective is that that's passed through very effectively as it has historically. Bhaskar, you want to give, kind of, the details? Bhaskar Rao: So just from a pricing standpoint or an inflation standpoint, what we've discussed in the past is the nature of our relationships and strategic partnerships that we have is that we do have some time to react, and assess and evaluate before we put price in. So from a commodity inflation standpoint, on an annualized basis, Think about it as about $100 million. And on -- as you think about the rest of the year, think about that as about $50 million. So $50 million of inflation. So what we're doing to offset that is in the second quarter, we will have some transitory impact, call it, [indiscernible] that will be made up in the back half of the year. From a pricing standpoint is that we've neutralized that impact, as you pointed out, is that the annualized impact of our price increase is $100 million, which for dollar for dollar, will offset the inflation that we are anticipating. However, all that said is that we do have a bit of transitory items in the second quarter. Where that is coming from, as you can imagine, given what's happening from a geopolitical standpoint, the vast majority is coming from oil-derived items. So whether it be the chemicals, diesel, purchased foam, et cetera, that's the vast majority of [indiscernible] where we're seeing the inflation. Scott Thompson: So I think the other thing I'd point out when you talk about the inflation is when you look at the price increase that we took, it's probably overall about a 4% increase, and a 4% increase in this business is not disruptive to customers. Because quite frankly, customers don't shop for the product but once every 8 years. So it's not nearly as [indiscernible] something on gas prices. Bhaskar Rao: That's right. I guess where I would close with that, as I mentioned, in the second quarter, we have a bit of exposure. So what we're really pleased about is our EPS growth that we saw in the first quarter, call that about 20%. And in a market that was a little bit different than what we had anticipated. We call the industry expectations down a little bit. The quarter has started off well. There are some transitory items related to the commodities that I spoke to. So as you think about the second quarter from an EPS growth standpoint, is in a very challenged market is that we would still expect EPS growth of somewhere between 5% and 10%. Scott Thompson: And you're going to pick up the headwind you've got on commodities in the second quarter, you're going to pick that up in the third and fourth quarter of this year. So the annual number doesn't change due to commodities, right. Bhaskar Rao: That's right. Operator: Your next question comes from the line of Peter Keith with Piper Sandler. Peter Keith: A nice job navigating a very fluid environment. Maybe just on the full year revenue outlook. I was just wondering if you could just kind of give us the puts and takes and how you adjusted the number slightly from a couple of months ago. It seems like you did come down maybe by $100 million lower history backdrop. But I'm guessing you're seeing better share gains and maybe you had factored in and then the price increase if that flows through in the revenue for the back half as well? Bhaskar Rao: Great question, Peter. You've got it. It's relatively straightforward. Industry expectations call it, where we were before is kind of flat up where we're at the midpoint is, call it, flat to slightly down. So that's a drag [indiscernible] headwind versus where we were. You also had correct is that the price increases that we put in place for the back half of the year, that is an uplift. That's inclusive of the share gains. So net-net, we're a bit off the midpoint, call it, 7.9% previously at the midpoint, 7.8%. So just a few moving pieces. Operator: Your next question comes from the line of Daniel Silverstein with UBS. Daniel Silverstein: Could we please double-click on Mattress Firm's performance year-to-date? How is store traffic and ticket evolved over the last few months? And then on margins, what are some of the promotional investments you are making? And how are you balancing the flow-through of margins against driving additional share gains? Scott Thompson: Sure. [indiscernible] Mattress Firm. Same-store sales for the quarter were flat, yes, from that standpoint. Post closing of the quarter, same-store sales have been slightly up in April? Bhaskar Rao: Correct. Scott Thompson: [ He asked ] about promotional, I think, with the relative performance, I think that's outperforming our perception of the industry for sure. Promotional [indiscernible] obviously advertising, although advertising is slightly down and then finance for customers you asked about what's driving sales. Clearly, ASP has been a big winner. And I don't think that's just for Mattress Firm. I think that I would say, from what we see in our mix of product sales, ASP has been very strong for the industry as higher-end customers [indiscernible] clearly shown up. Traffic, traffic is down. Traffic's down, I'm going to say, single digits. And I think that's consistent with our perception of the industry. Anything else at in that question. I think I got it. Bhaskar Rao: I mean what I would say, if I were to pan back a little bit, is we feel thrilled about our performance and all the geos that we operate in, we continue to take market share, gain versus a competitive set through execution, advertising, great product. Just focusing on the U.S. or North America a bit is that -- all in, our [indiscernible] business captured a fair amount of share. The others performed well in a challenging environment as well. So we feel good about our relative performance and let's call it, an interesting environment. Scott Thompson: Yes, I think the other thing we should call out can that clearly is that Canada and Mexico had a tough quarter. And I don't think that was company specific. I think that was market in they were specifically weaker than the U.S. On a consolidated basis, certainly, a strong performance. Operator: Your next question comes from the line of Jonathan Matuszewski with Jefferies. Jonathan Matuszewski: A recent theme that's emerged following the Analyst Day was kind of the evolution of upper funnel versus bottom funnel marketing for the industry. Curious what you're seeing -- what you saw materialize in 1Q, maybe relative to the back of '25? And are you seeing retailers outside of Mattress Firm continuing to prioritize bottom funnel in terms of conversion? Or do you see progress in [indiscernible] in terms of overall replacement and the like? Scott Thompson: Sure. If you look at Mattress Firm, we continue to move up the funnel, some carefully monitoring that activity, but clearly leaning a little bit higher up in the funnel. Some of the other large advertisers, I think, are similarly rebalancing. And then I'd just tell you, look, it was a tough quarter for the retailers. And so in that period, quite a bit of advertising got pulled down in the industry, making our share of voice even stronger in our message even stronger. So I'd say we made some slight progress, but at the same time, a pretty tough market for the advertisers to advertising it. Operator: Your next question comes from the line of Brad Thomas with KeyBanc Capital Markets. Bradley Thomas: Wanted to ask Scott about the performance at the non-Mattress Firm third-party channels that you sell into in North America. I believe you said that, that was down 4% in the quarter. So it looks like maybe in line to slightly better than how the market performed. But can you just give us a sense of what you're hearing from those partners? And any specific strategies, or goals as you think about partner growth, or growth, flat growth, et cetera? Scott Thompson: Sure. We call those the other, other. And to be clear, that would be U.S. retailers non-Mattress firm doesn't include Canada in Mexico. That number was up 4%, yes? Up -- down 4%. And so I think you said it right, with a market that was probably down 5% plus a little is probably a slight outperformance in the other category. I think those retailers are focused -- what they've always been focused on and success of their business which is giving them a popular product, help drive customers into their showroom deliver on time, and all those things. I think they're excited to see Stearns & Foster come. I think they know there's some upside there [indiscernible] line continues to do very well. Constant frustration with the other retailers just on traffic, and I think that's universal. And they certainly appreciate the strength -- the strength of our advertising. As far as additional slots, we will get some incremental slots in the new Stearns launch, but they aren't going to be material to the total revenues of North America. But those would be -- we'll get some incremental slots there. Haven't seen any deterioration in our positions at any of the other retailers. And I think on the go forward, it's really about velocity. And that goes to having a great sales force with quality and quantity of our advertising. And quite frankly, what our competitors do and how they perform. Operator: Your next question comes from the line of Keith Hughes with Truist. Keith Hughes: Just want to turn back to the margins, particularly gross margins on Mattress Firm. I know there was some adjustments to be made on the comparison differences. But if you could talk a little bit more about what caused the compression in gross margin year-over-year? Bhaskar Rao: Absolutely. So when you look at gross margin is that one has to think about the entire P&L. So let me bifurcate out what that means. So call it a few hundred basis points of a decline year-over-year. The vast majority of that is a result of the Mattress Firm entity increasing its share of the Tempur Sealy family. The way that relationship works is that there are some volume rebates, which impact gross margin. However, there are credits associated with cooperative advertising that you don't see in gross margin, is you see it in the operating expense line as a reduction. When you put both of those items together, what you'll see is a [indiscernible] of a decline year-over-year, and that's principally related to just leverage going through that entity. Scott Thompson: Yes. And I'd kind of give you a watch out on some of that. We run -- we think about the business in total. If Mattress Firm, we're an independent company, okay, they would have come to the Tempur Sealy side of the house. and probably negotiated some volume, some volume incentives and their P&L may look different. We don't spend a lot of time in the group, slotting as to where synergies go or renegotiating incentive bonuses, or anything in Mattress Firm. So there's no question some of quite a bit of a benefit of [indiscernible] showing up in the Tempur Sealy, silo as you look through as opposed to matter. So I wouldn't disaggregate the business and think about it separately because we don't run it that way. We run it as part of the [indiscernible] family. Because I'm sure the [indiscernible] from people as independent would have come over and put it is hard on their supply contract. And we're not changing supply contracts, or benefiting Mattress Firm for some of that performance. Operator: Your next question comes from the line of Jeff Lick with Stephens. Jeffrey Lick: Scott, at the Analyst Day, you and the team were very deliberate about talking about prior to [indiscernible] ownership of [indiscernible], how Mattress Firm sometimes got a little aggressive with discounted pricing and playing vendors off one another. And in your -- in the prepared remarks, you guys -- you talked about pricing architecture. Now that you guys are up to the 62% share, you're going to be running through that in the back half. I'm curious if you could just talk about how that dynamic will kind of work and manifest itself into results now that there seems to be you guys are playing the role of the, kind of, price governor in not being deteriorating price, or just [indiscernible] Scott Thompson: Yes, clearly, and you're mainly talking about UPP and the pricing framework in the marketplace and making sure that all retailers honor the UPP structure. And certainly, Mattress Firm is honoring the UPP structure. And quite frankly, when they do, it's beneficial to them. As they found out, not just since we bought them but over time. And we continue to work with other retailers if they don't follow that process. So look, I think that's healthy for [indiscernible] I think it's healthy for the industry. And I think it's been a net positive and they've done a great job on pricing discipline. Operator: Your next question comes from the line of Peter Keith with Piper Sandler. Peter Keith: I wanted to circle back on the chemical shortage. We've been getting a lot of questions on it. So it's only a $10 million impact for Q2, which I think is a positive. But could you address two things. Number one, how much inventory of chemicals in terms of months of supply, are you keeping on hand now? And then secondarily, with this polyol shortage, could that play out into the back half of the year, perhaps with some shipment delays or product outages. I know in the past, you've leaned more towards high-end product like back in 2021. So if you could just address the kind of the puts and takes around this [indiscernible] shortage. I appreciate it. Scott Thompson: Yes. I'm going to [indiscernible] a crack at it. I think when it first showed it [indiscernible], there was a worst-case scenario that was worked through and mitigated in the word shortage. Was probably an appropriate possibility. I think with what we know today, I don't think the industry is going to have shortages as far as outages from a supply standpoint. There is pricing impact, okay? And that's been rolled through the industry. But I'm not nearly as concerned about shortages, and I'm not hearing comments about [indiscernible]. And that's an industry comment. When you then go to Tempur Sealy specifically, Obviously, we have an advantaged situation because of our volumes, okay. And obviously, we have a large amount of safety stock safety stock is in place for one -- these kind of events, which you've referenced, but also possible hurricane issues and stuff, what do you want to say 3, 4 months? [indiscernible]. It varies a little bit, but for talking terms, I think, 3 or 4 months. Also you can bind in your volumes to products that don't use as much [indiscernible] at times. But I think from where it was, what would that happen about 1.5 months ago, a couple of months ago. That situation continues to get better and better. in my outlook on that right now is that it's a pricing event, and the pricing event has generally run through the industry. Operator: There are no further questions at this time. I will now turn the call back to Scott Thomson, CEO, for closing remarks. Scott Thompson: Thank you, operator. To over 20,000 associates around the world, thank you for what you do every day to make the company successful. To our retail partners, thank you for your outstanding representation of our brands. To our shareholders and lenders, thank you for your confidence in the company's leadership and its Board of Directors. This ends our call today, operator. Thank you. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, and welcome to CION Investment Corporation's First Quarter 2026 Earnings Conference Call. An earnings press release was distributed earlier this morning before market open. A copy of the release, along with a supplemental earnings presentation is available on the company's website at www.cionbdc.com in the Investor Resources section and should be reviewed in conjunction with the company's Form 10-Q filed with the SEC. As a reminder, this conference call is being recorded for replay purposes. Please note that today's conference call may contain forward-looking statements, which are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described in the company's filings with the SEC. Joining me on today's call will be Mark Gatto, CION Investment Corporation's Co-Chief Executive Officer; Gregg Bresner, President and Chief Investment Officer; and Keith Franz, Chief Financial Officer. With that, I would now like to turn the call over to Mark Gatto. Please go ahead, Mark. Mark Gatto: Thank you, and good morning, everyone. I want to start this morning the way we have on prior calls by putting our quarterly results in the proper context before walking through the details. While this was not our strongest quarter from a headline numbers perspective, I want to make clear that the story underneath those numbers is more nuanced than the headline suggests, and we believe there is quite a bit to feel good about as we look at the underlying health of our portfolio. I think it is important that investors and analysts understand what actually drove our results this quarter and evaluate us not quarter-to-quarter, but on a more long-term basis. Let me start with investment income. We reported $0.25 per share for the first quarter, which is below our monthly base distributions totaling $0.30 per share for the first quarter. This shortfall was driven primarily by lower transaction fees recorded during the quarter due to lower repayment and investment activity and lower dividend income earned on our investments. This shortfall was also driven by higher interest expense during the first quarter due to the refinancing of our lower-yielding fixed rate notes and senior secured debt into higher-yielding fixed rate unsecured notes, and the timing of paying down our debt with the net offering proceeds received from the recent issuances of our new unsecured notes due to potential prepayment penalties as all of our debt is currently at their contractual minimums. As a result, we carried more excess cash on our balance sheet than we would have under normal operating conditions, essentially sitting on proceeds we could not deploy. This was attributable to a specific capital structure decision we made that we believe was in the long-term interest of our shareholders, which we do not view as a reflection of the underlying earnings power of our portfolio. Gregg and Keith will provide further context, but I want to be clear that we believe that the underlying earnings capacity of our portfolio remains intact, and we remain optimistic about the trajectory from here. Turning to NAV. Our net asset value declined 4.7% quarter-over-quarter to $13.11 per share from $13.76 at year-end. As we have discussed on prior calls, mark-to-market movements in our portfolio can introduce quarterly volatility, and this quarter was no exception. Importantly, over 80% of the downward movement in our marks this quarter were unrealized in nature and driven by market level influences, movements in comparable public company valuations and broader credit spread widening, and not by a fundamental credit deterioration at our portfolio companies. This is an important distinction and one that gives us confidence in the underlying resilience of the book. I also want to address something directly that I know has been a topic of conversation in the BDC space broadly, the scrutiny around private credit marks and valuation rigor. We welcome that conversation because we believe that we have an extremely disciplined and transparent valuation process. We utilize 4 independent third-party valuation providers, and the vast majority of our portfolio is subject to full independent review and scrutiny every quarter. We believe that process is comprehensive and rigorous, and we are committed to maintaining that standard. At the same time, the incorporation of third-party macro assumptions and market level inputs can at times introduce marks on certain assets that may not fully reflect the underlying credit fundamentals of those positions, particularly given the secured and senior nature of our first lien holdings, which represents approximately 81% of the portfolio at the end of Q1. We believe that the heightened focus on software credit quality across the private credit industry may have contributed to a broader tightening of third-party valuation assumptions that given the sector-wide nature of that scrutiny could have affected our portfolio in a manner disproportionate to our actual exposure. With software representing just 1.8% of our portfolio, well below the 20% to 25% average reported across many private credit portfolios, we do not believe the degree of mark-to-market pressure we experienced this quarter is fully consistent with our underlying fundamentals. On credit quality more broadly, I am pleased to report that our portfolio continues to hold up very well. Our first lien book remains the core of our strategy and continues to perform well. Weighted average interest coverage across the debt portfolio was a healthy 2.08x for the quarter, a level we view as consistent with the defensive construction of our portfolio. Weighted average net leverage on our debt portfolio was 4.62x, essentially flat with 4.7x in the prior quarter. From an internal risk rating perspective, our weighted average risk rating was essentially unchanged at 2.08% versus 2.09% in the prior quarter, and our risk rated 4 names improved quarter-over-quarter to 1.55% of the portfolio at fair value, down from 1.9% in Q4. Our risk rated 5 names remained a very small portion of the portfolio at 0.54%. We had 7 upgrades and 8 downgrades in the quarter, a largely balanced picture that we believe reflects no meaningful deterioration in the overall composition of the book. On nonaccruals, I am pleased to share some positive news. Our nonaccrual percentage on a fair value basis improved to 1.53% as of March 31, down from 1.78% in the fourth quarter. The principal new addition to nonaccrual status this quarter was Lux Credit Consultants, which was in the midst of a sale process through quarter end. And I'm glad to report that subsequent to quarter close, that sale was successfully completed. As a result, we expect that Lux will be removed from nonaccrual status in Q2. Generally, our nonaccruals for the quarter were stable and consistent with our historical levels. More broadly, despite the volume of commentary out there about stress in private credit, we are simply not seeing broad-based deterioration across our middle market borrowers. And that is an important message. We believe that the domestic economy, while not without risks, continues to demonstrate underlying resilience. Our portfolio companies, the majority of which serve B2B end markets continue to operate in line with or close to our expectations. We remain mindful of the ongoing geopolitical developments and the uncertain macro backdrop, but our ground level view across 89 portfolio companies in 23 industries reflects a book that we believe is performing well and does not support the broad distressed narrative that circulates private credit portfolios in the press. Finally, we repurchased approximately 1.1 million shares during the quarter at an average price of $8.71 and we believe current prices represent a compelling opportunity to acquire our shares at a meaningful discount to fair value. We intend to continue such repurchases while seeking to simultaneously reduce our overall leverage through debt repayments, a combination we believe will position CION well for the remainder of 2026. Keith will provide additional details on our capital structure and distribution activity. With that, I will now turn the call over to Gregg to discuss our portfolio and investment activity during the quarter. Gregg Bresner: Thank you, Mark, and good morning, everyone. Prior to covering our investment and portfolio activity for Q1, I would like to expand on Mark's comments regarding our nominal level of software exposure within the portfolio. We have 3 software portfolio companies totaling approximately 1.8% of portfolio fair value or 2% on an amortized cost basis. We have no ARR loans in the portfolio. As a firm, we've historically not invested in software as we were unwilling to lend against an ARR growth methodology with negative EBITDA profile at closing. In terms of our Q1 investment activity, we remained highly selective with new portfolio investments and focused on transactions within our portfolio companies and the repurchase of our shares. We also work to balance the timing of investments versus repayment amounts while working to reduce leverage towards our targeted net leverage range. Overall, we had fewer exiting repayments for the quarter versus our Q4 level as certain repayments slipped into Q2. During the quarter, we continued to pass on new investment opportunities based on credit and pricing considerations. While secondary credit market conditions remain choppy based on macro concerns and potential cracks in private credit, there remained a significant bifurcation from the new issue market. New issue cohort pricing continued to be driven by the hangover of record 2024 and 2025 private debt fundraising, which translated into lower coupon spreads, higher leverage levels and looser credit documents in the new issue market. We focused our Q1 investment activities on incremental opportunities with our portfolio companies. We believe our continued investment selectivity and proportional deployment levels help us to invest in first lien loans at higher spreads when compared to the overall private and public loan markets. The weighted average yield for our new direct first lien investments for the quarter based on our investment cost was the equivalent of SOFR plus 6.1%. As we discussed in previous quarters, the majority of our annual PIK income is strategically derived from either highly structured first lien investments or where PIK income is incremental to our cash coupon. Together, these categories represented approximately 82% of our total PIK investments in Q1, up from 75% in Q4 of 2025. Over 99% of our PIK investments are in first lien assets. As a result, we believe this PIK income does not compare to restructured PIK income resulting from a deterioration in credit. Turning now to our Q1 investment and portfolio activity. Our Q1 investment activity consisted of investments in 2 new portfolio companies, Anchor QEA and Dependable Acquisition, both specialty business service providers, and incremental add-on investments and secondary purchases in existing portfolio companies, including American Clinical, Carestream Health, Coinmac, David's Bridal, HealthWay, Juice Plus, STATinMED, Stengel Hill and WorkGenius. During Q1, we made a total of approximately $69 million in investment commitments across 2 new and 9 existing portfolio companies, of which $54 million was funded. We also funded a total of $12 million of previously unfunded commitments. We had sales and repayments totaling $38 million for the quarter, which consisted of the full repayment of our first lien holdings in INW and The Men's Warehouse. As a result of all of these activities, our net funded investments increased by approximately $28 million during the quarter. As Mark referenced, our NAV decrease during the quarter was driven primarily by declines in the unrealized mark-to-market value of our portfolio. This was in large part driven by reductions in market multiples and resulting valuations due to macro headwinds ranging from the Iranian war and widespread market concerns regarding potential crack in private credit, most specifically the software concentrations within the private capital sector and potential AI impact to those investments. For the quarter, the ratio of mark-to-market declines versus mark-to-market increases for our investments was approximately 2:1. Our largest unrealized declines for the quarter were from our investments in Lux Credit, FuseFX, LAV Gear which is also known as 4Wall Entertainment, SIMR STATinMED and the common equity of David's Bridal. Lux Credit represented our largest decline as the sale process for the company resulted in final bids well below the initial indications of interest based on the company's significant asset base and EBITDA profile. Rather than the lenders restructuring and recapitalizing the company with additional investment, the majority of lenders decided to pursue a cash sale transaction and move on rather than restructure and invest. The sale closed early in the second quarter. The mark value of our investments in FuseFX and LAV Gear were negatively impacted by reduced trailing EBITDA performance and lower multiples as the sector rebuilds event and production pipelines from the writers' strike that delayed the release queue of new scripts and production content throughout the industry. Through January and February of 2026, LAV Gear's performance demonstrated stronger-than-projected recovery that we expect to continue into Q2. The unrealized decline in the mark of our SIMR STATinMED term loan was driven by both the relative increase in value to priority senior tranches where CION has a larger pro rata interest and lower revenue multiples derived from quasi comparable large-cap biopharma service companies impacted by AI and software concerns. As we have mentioned on previous quarterly calls, we expect to see significant quarter-to-quarter volatility in the marks of David's Bridal equity due to the larger overall relative size of our investment as well as the highly seasonal nature of the company's operations and working capital profile. In the face of difficult macro market sentiment, we also had a number of portfolio companies where the marks increased for the quarter due to stronger financial performance and projected outlook, including Longview Power, Hollander, TriMark, Avison Young and Services Compression (sic) [ Service Compression ]. From a portfolio credit perspective, our nonaccruals decreased from 1.78% of fair value in Q4 to 1.53% at the end of Q1. On an amortized cost basis, the number increased from 4.32% of cost to 5.35%. We added one new name to nonaccrual, our term loan investment in Lux Credit Consultants. Given the sale of the company in early Q2, Lux Credit will be removed from nonaccrual next quarter. On an absolute basis, nonaccruals continue to be in line with historical experience, and we are pleased with the continued credit performance of our portfolio, particularly in the current macro environment. Overall, our portfolio remains defensive in nature with approximately 81% in first lien investments. Approximately 98% of our portfolio remains risk rated 3 or better. Our risk rated 3 investments, which are investments where we expect full repayment but are either spending more engagement time and/or have seen increased risk, the initial asset purchase increased from approximately 11.5% in Q4 to 12.9% in Q1. I'll now turn the call over to Keith. Keith Franz: Okay. Thank you, Gregg, and good morning, everyone. During the first quarter, net investment income was $12.9 million or $0.25 per share compared to $18.3 million or $0.35 per share reported in the fourth quarter. Total investment income was $49.5 million during the first quarter compared to $53.8 million reported during the fourth quarter. The decrease in total investment income was driven primarily by lower transaction fees recorded during the first quarter due to lower prepayment and investment activity and lower dividend income earned on our investments when compared to the prior quarter. On the expense side, total operating expenses were $36.7 million compared to $35.5 million reported in the fourth quarter. The increase in operating expenses was primarily driven by higher interest expense due to an increase in the average debt balance outstanding and a higher weighted average cost of our debt capital during the quarter. These increases were driven as a direct result of refinancing our lower-yielding fixed rate notes and the repayment of a portion of our lower-yielding senior secured debt using the proceeds from our newly issued higher-yielding fixed rate baby bonds. The increase in our operating expenses was partially offset by lower advisory fees earned due to lower investment income recorded during the quarter. At March 31, we had total assets of approximately $1.8 billion and total equity or net assets of $660 million with total debt outstanding of $1.2 billion and 50.3 million shares outstanding. Our portfolio at fair value ended the quarter at $1.7 billion, and the weighted average yield on our debt and other income-producing investments at amortized cost was 10.4%, which is slightly down from 10.7% in the fourth quarter. At March 31, our NAV was $13.11 per share as compared to $13.76 per share at the end of December. The decrease of $0.65 per share or 4.7% was primarily due to unrealized mark-to-market price decreases in our portfolio and underearning our distributions during the first quarter. The decrease in NAV was partially offset by the accretive nature of our share repurchase program during the quarter. We ended the first quarter with a strong and flexible balance sheet with about $1.3 billion in unencumbered assets, a strong debt servicing capacity with an interest coverage ratio of about 2x and solid liquidity. We had over $100 million in cash and short-term investments and another $100 million available under our credit facilities. In terms of our debt capital, at March 31, we continue to have a healthy debt mix with about 75% in unsecured and 25% in senior secured bank debt. About 60% of our debt capital is in floating rate, which aligns well and creates a natural hedge with our mostly floating rate investment portfolio. Our well-diversified debt structure is focused on unsecured debt in order to maximize our balance sheet flexibility and at the same time, creates a strong buffer for our financial covenants. At the end of the quarter, our net debt-to-equity ratio increased to 1.62x from 1.44x at the end of December. And the weighted average cost of our debt capital was about 7.52%, which is slightly up from the fourth quarter. The increase in our weighted average cost of debt capital was directly due to refinancing our lower-yielding unsecured fixed rate debt and increasing our higher-yielding unsecured debt mix during the quarter. The increase in our net leverage ratio was primarily impacted by the quarterly decrease in our NAV and an increase in the average debt outstanding during the quarter. During the quarter, total debt increased by $35 million due to the timing of paying down a portion of our senior secured debt with a portion of the net proceeds raised from the new unsecured baby bond offering completed in February. During the quarter, on February 9, we completed a public baby bond offering, issuing $135 million of new senior unsecured notes with a fixed interest rate of 7.5% due 2031, which listed and commenced trading on the New York Stock Exchange under the ticker symbol CICC on February 12. A portion of the net proceeds from this offering was used to repay $100 million under our JPMorgan credit facility at the end of March. We expect to use the remaining proceeds from this offering, along with proceeds from recent and expected repayment and sales activities to further reduce our leverage level over the next few quarters. In addition, we will also consider rightsizing our leverage levels when we refinance our near-term maturity wall. In terms of our 2026 debt maturities, we continue to work with our banking partners and debt investors on refinancing our 2026 maturities over the next few months. Now turning to distributions. As previously announced, we changed the timing of paying base distributions to our shareholders from quarterly to monthly beginning in January 2026 to better align with our shareholder expectations. During the first quarter, we paid monthly base distributions to our shareholders totaling $0.30 per share. We also declared our second quarter monthly base distributions totaling $0.30 per share, which were paid or will be paid at $0.10 per share per month for each of April, May and June. As a result, the trailing 12-month distribution yield through the first quarter based on the average NAV was about 9.8% and the trailing 12-month distribution yield based on the quarter end market price was 20.2%. As announced this morning, we declared our third quarter base distributions totaling $0.30 per share, which is the same as the second quarter. The third quarter base distributions will be paid monthly in July, August and September at $0.10 per share per month. Okay, with that, I will now turn the call back to the operator, who will open the line for 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 on your commentary about kind of gradually reducing leverage. Wondering if you could potentially provide just maybe a little kind of quantitative thoughts there in terms of where is your target to get there? And potentially, what is the time frame to achieve that target? Keith Franz: Yes, Erik, it's Keith. Yes, we're focused on getting those and driving those leverage levels down over the course of the remaining few quarters. We've got a few tranches that are in the queue to be repaid or matures this year. So we're going to take the advantage -- take advantage of either a combination of both rightsizing leverage through refinancing and/or using sales and repayments to reduce and drive down the leverage levels. Erik Zwick: Okay. But no specific kind of... Keith Franz: Time line? Erik Zwick: Quantitative target at this point? Or just in terms of where you'd like the debt-to-equity ratio to kind of where you feel comfortable having that today? Keith Franz: Yes, for sure. With the majority of our debt capital and unsecured, I think our leverage range is around 1.30, 1.35. Obviously, we're way above that. So it's going to take some time and some wood to chop to get us back there. But just looking at how our portfolio churns each and every year, at least 25% that generates an enormous amount of capital. So we intend to use that and other levers to drive the leverage levels down over the next couple of quarters. Erik Zwick: That's helpful, Keith. And then just curious with regard to Lux Credit Consultants and the sale there. Was the final sales price consistent with the 3/31 fair value mark? Keith Franz: Yes. Erik Zwick: Okay. Okay. So no, nothing shouldn't be any additional kind of, I think, put in there. Okay. Great. And then one kind of -- just curious about the -- you had a strong quarter of originations in 1Q. How is the pipeline looking at this point? And what are you seeing in terms of spreads and how that compares to the existing portfolio yield? Gregg Bresner: So Erik, we ended the quarter -- the quarter was [ S6 10 ] profile of our new investments. I would say we're being very careful. There is definitely a disconnect between the new issue market and the secondary and public markets for direct. I think there's still a cohort of a lot of fundraising that happened over the last 18 months where they're specifically targeted to the new issue cohort. So I would say we're still trying to maintain our S6 target. So we're being incredibly choosy because we see better opportunities candidly in the secondary markets in the portfolio and to buy back our stock compared to seeing spreads still relatively tight in new issue specifically. Erik Zwick: Gregg, and how does the pipeline look in terms of opportunities? Is the kind of global and macroeconomic uncertainty impacting things at all? Or are you still seeing quite a few attractive opportunities to invest in? Gregg Bresner: No, we're still seeing attractive opportunities. But proportionately for us, I think it's -- we don't have to do a massive amount of deals to proportionately deploy money. But I will say that the environment has definitely affected M&A. We are seeing reduced M&A activity because of macro as well as where interest rates are. So -- but with our proportional deployments, we're still seeing a pretty rich opportunity set. It's just a question of picking the best ones. Erik Zwick: Got it. And last one for me. I appreciate the commentary about David's Bridal and the seasonality there. One, I guess, could you just remind me, I think, kind of typically the second and third quarters are the strongest for them given the traditional wedding season. But also curious if you could provide an update on the -- I believe it's the Pearl? Is that the online initiative that had been introduced over the past year or so and how that's progressing? Gregg Bresner: Sure. So you're exactly right. Q2 and Q3 are the seasonally strongest quarters for David's Bridal. And the Pearl Marketplace segment is ramping -- is accelerating. So we've been very pleased with the ramp in that particular part of the business. And strategically, that is the focus for Bridal today as we move more and more of our business to digital. And so that's been a good growth part of the business. Operator: And this concludes our Q&A session. I will now turn the call back to management for final comments. Michael Reisner: I wanted to thank everybody for joining us today. We appreciate your support and interest in our CION Investment Corp., and we look forward to speaking to you next quarter. Operator: Thank you. And this concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to the Pharming Group N.V. First Quarter 2026 Results Webcast and 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, Fabrice Chouraqui, CEO. Please go ahead. Fabrice Chouraqui: Thank you, operator, and good morning and good afternoon, everyone, and welcome to our Q1 2026 earnings call. I'll be joined on this call today by Leverne Marsh, our Chief Commercial Officer; Anurag Relan, our Chief Medical Officer; and Kenneth Lynard, our Chief Financial Officer. Next slide. In this call, we will be making forward-looking statements that are based upon our current insight and plans. As you know, this may differ from future results. Next slide. As you saw in our press release, we made important progress across the business in this first quarter despite a drop in quarterly revenue driven by RUCONEST. The RUCONEST revenue decline was largely expected due to inventory drawdown at specialty pharmacy, which we discussed on our Q4 2025 call in March. The commercial exit from non-U.S. markets also contributed to the year-on-year decline. We announced that decision last year as part of our renewed financial discipline since the commercialization of RUCONEST in this market was not financially sustainable. Now if we look at the underlying fundamentals, we see limited interest from patients on RUCONEST to try alternative therapies. Nine months after the launch of a new oral therapy, we have retained the overwhelming majority of RUCONEST patients, and we continue to see new patients starting RUCONEST. Leverne will elaborate on this market dynamics in a few moments. Turning now to Joenja. This product is an important growth driver still early in its life cycle. Joenja revenues grew by 34%, reflecting strong momentum, both in the U.S. where the number of patients increased by 25% year-on-year, but also in international markets. We've also made meaningful regulatory progress this quarter, positioning us well to launch Joenja in Japan and in Europe later this year and to extend Joenja's label to the pediatric population in the U.S. After the disappointing CRL, we had a constructive dialogue with the FDA, and we've already resubmitted the sNDA for the 2 highest dose, covering a meaningful proportion of children from 4 to 11. We are also planning to submit an sNDA this summer for the lowest doses. Finally, our disciplined cost management helped us to maintain positive cash flow from operations in this quarter despite the variability in revenues. We are maintaining our revenue guidance of $405 million to $425 million for 2026, representing growth between 8% and 13% year-on-year. Next slide. As you can see, the durability of the RUCONEST franchise and the strong momentum and growth potential of Joenja underpin the transformation of Pharming into a profitable high-growth biotech with 2 late-stage pipeline programs offering $1 billion sales potential. RUCONEST is the foundation of our portfolio and a reliable cash engine for the future, even in an ever more crowded HAE market, given its differentiated value proposition for the difficult-to-treat patient subpopulation and it's highly manufacturing -- its highly specific manufacturing process. Joenja is just at the beginning of its life cycle with multiple growth catalysts in APDS through pediatric and geographic expansion and the potential expansion into higher prevalent PIDs with 2 Phase II readouts later this year. Anurag will discuss an exciting presentation at the CIS conference taking place today that summarizes clinician experience treating patients with CVID with immune dysregulation enrolled in our access program. And last but not the least, napazimone, previously known as KL1333 for primary mitochondrial disease is another $1 billion-plus opportunity with the registrational study expected to complete enrollment this year and read out next year. These commercial assets and high-value pipeline, combined with durable source of cash flow, provide a solid foundation for Pharming to become a leading global rare and ultra-rare disease company with substantial near- and long-term value creation potential. Let me now turn it over to Leverne, who will provide deeper insights into the performance of our commercial products. Leverne Marsh: Good morning, good afternoon, everybody. Let me start with RUCONEST performance in the first quarter. Revenue was down 15% year-on-year. Importantly, as Fabrice mentioned, this was anticipated and largely driven by 3 distinct factors. First, inventory dynamics, which reduced quarterly revenue by 8%. This reflects what we previously stated on our March Q4 call and accounts for the majority of the impact. Second, our planned exit from ex-U.S. markets contributed approximately 3%, and this is consistent with our strategy to focus our resources where we can generate the highest return. Third, with new treatment options entering the U.S. HAE market, we see measured impact from competition, specifically limited patient interest in trialing or switching to other therapies with many returning, and this has been in line with our expectations. Additionally, what's important is what's happening underneath these headline numbers. We added approximately 50 new patient enrollments in the first quarter this year, and we brought on 23 new prescribers on to RUCONEST. This is a meaningful signal that clinicians continue to see the value of RUCONEST and specifically in the high attack, high severity segment and are initiating new patients even as the treatment landscape expands. Next slide, please. On this slide, this really gets to the heart of why RUCONEST continues to play a critical role in HAE management. We know HAE is not a uniform disease. For patients on the more severe end of the spectrum, meaning those with frequent attacks, rapid onset symptoms or high anxiety around unpredictability or the attack location, the need is very clear. They require a treatment that works quickly, consistently and durably, and that's exactly where RUCONEST fits, and it's reflected in what we're seeing in the market today. After 9 months into the launch of a new oral competitor in HAE in the U.S., the overwhelming majority of RUCONEST patients have remained on therapy. Among those who have explored alternatives, many high-burden patients are returning to RUCONEST, in particular, when response to new treatments have not been adequate. This reinforces the importance of having a dependable on-demand therapy like RUCONEST and underpins our confidence in the long-term role of RUCONEST in this evolving HAE market. Next slide, please. So turning to Joenja. We delivered another strong quarter, building on the momentum from last year. Revenue grew 34% compared to the first quarter of 2025, reaching $14.1 million globally. In the United States, patient growth is the central driver of performance. By the end of the quarter, we had 127 patients on paid therapy in the U.S. alone, which represents a 25% increase over the first quarter of 2025, and we accelerated the rate of new patient starts to 7 during the quarter, an improvement over the additions seen in the previous 2 quarters. The U.S. fill rate remained high at 85%, reflecting our highly effective reimbursement support and patient services process. Equally important, we continue to broaden the pool of APDS patients. We've identified 187 APDS patients older than 12 years old in the U.S. and an additional 57 eligible patients in the 4 to 11 years old group, and this represents the next frontier for growth in the U.S. In international markets, we continue to see strong patient uptake in the U.K. and significant growth in the number of patients on government-supported access programs in other countries. This momentum sets us well to drive growth in APDS and other indications to come. Next slide, please. Now stepping beyond the quarter, I want to put Joenja into its broader strategic context. We are building more than a single rare disease product. We are building indeed a scalable immunology franchise with multiple clearly-defined growth levers. The first growth lever is continued expansion within APDS itself. We are still early in identifying APDS patients, and there is a significant proportion of patients yet to be identified. The second growth lever is further U.S. APDS expansion, which includes the pediatric launch in the United States and an upside the U.S. reclassification opportunity across all ages. Thirdly is international expansion. We are in the early stages outside the United States and upcoming launches in Europe and Japan will open meaningful new markets for us. And finally, the fourth growth lever is life cycle and label expansion beyond APDS, specifically exponentially larger patient pools in genetic PIDs and CVID with immune dysregulation. Taken together, these 4 levers create sequential growth engines over the coming years. APDS drives the initial growing foundation, pediatric expansion deepens penetration, geographic expansion broadens reach and new patients continue to give us access to significantly larger patient segments, which extends our platform. Now to share more about our pediatric submission and life cycle efforts on Joenja, I will now hand it over to Dr. Anurag Relan, our Chief Medical Officer. Anurag Relan: Thank you, Leverne. In addition to the important regulatory milestones in Japan and Europe, we made significant progress in the U.S. in our efforts to expand the Joenja labeled pediatrics for children ages 4 to 11 with APDS following the receipt of a CRL from FDA in January. As we previously explained, we believe the clinical pharmacology and analytical batch testing methodology issues outlined in the FDA letter were addressable. We held a Type A meeting with FDA at the end of March, which included 2 APDS expert physicians, and we were pleased with the constructive dialogue and understanding of the issues raised by FDA in the CRL. The FDA also appreciated the unmet need, including the serious and progressive nature of APDS as well as challenges with clinical trial recruitment in young children with an ultra-rare disease. We worked collaboratively with FDA to define the most expedient path forward, and we have that now with the first step being the resubmission of the sNDA for the highest doses, specifically 40 milligrams and 50 milligrams. This took place in April, in fact, on the same day that we received the FDA's meeting minutes. And as is typical, we plan to issue a press release upon FDA acceptance of the resubmission. These doses, as Fabrice mentioned, cover a meaningful proportion of 4- to 11-year-old children. An FDA decision on this is expected in 6 months or sooner. The second step will be a new sNDA for the doses covering the lowest weight patients, which is planned for this summer. For this sNDA, we also expect a 6-month review. Next slide. At the Clinical Immunology Society Annual Meeting this week, Pharming and our collaborators are presenting 7 abstracts, 5 expanding the evidence base in APDS and 2 that begin to provide data on a much larger opportunity in other PIDs with immune dysregulation. These include the clinical expanded access experience with leniolisib to treat immune dysregulation in patients with common variable immune deficiency or CVID and CVID-like disorders, which I will cover in more detail in a few slides. As you see, APDS is just the beginning for leniolisib. Next slide. In addition to APDS, we continue to make progress in other PIDs with immune dysregulation, which is based on the observation of the key role of PI3K delta as an important regulator of immune cells and the imbalance in the pathway, which underlines the immune dysfunction across several primary immune deficiencies. This mechanistic understanding forms the scientific rationale for our Joenja development program. Joenja, as you know, is currently approved for APDS where gain-of-function mutations drive a hyperactive pathway leading to immune deficiency alongside broad immune dysregulation. APDS, in fact, serves as proof of concept for the ongoing 2 Phase II studies evaluating leniolisib in other PIDs. These have significantly greater prevalence in APDS but share unmet medical needs, underlying mechanisms and disease pathology. The programs target 2 similar populations. The first is genetically identified PIDs with immune dysregulation, which represent a prevalence that's 5x greater than APDS or more than 2,500 patients in the U.S. alone. And the second is common variable immune deficiency with immune dysregulation, which is identified independently of genetics. And this is even a larger group of patients, which is approximately 26x size of APDS or more than 13,000 patients in the U.S. alone. I'll now talk to you about the studies in the next slide. Both proof-of-concept studies share a common design architecture, single-arm open-label dose range finding, allowing cross-study comparability. The CVID study is a multicenter study enrolling 20 patients and the genetic PID study is a single center study conducted at the NIH with 12 patients. Both studies are now fully enrolled with trial readouts expected later this year. Both also employ a 3-dose escalation design to characterize dose response and confirm the optimal dosing strategy. The studies address 2 core objectives. First, of course, to address -- assess safety, tolerability and pharmacokinetics and pharmacodynamics to confirm dosing. Second and most clinically meaningful, to estimate the efficacy against immune dysregulation, specifically looking at the lymphoproliferation and autoimmune aspects. These efficacy endpoints are aligned with the key disease manifestations, which are focused on these aspects. In addition, we'll also be collecting patient-reported outcome measures, which were developed through a custom process involving expert input and formal interview studies with CVID patients. Next slide, please. Ahead of these study readouts, we can see some important early clinical evidence supporting leniolisib potential in CVID with immune dysregulation being presented today at the CIS meeting. Six CVID or CVID-like patients with immune dysregulation amongst the sickest patients refractory to other therapies received leniolisib through an expanded access program for a median of 1.4 years with individual exposure ranging from 0.5 year to 2.5 years, providing meaningful duration of observation for a small cohort. The clinical signal is encouraging and consistent across disease manifestations. Clinicians reported improvement with no patients showing progression spanning cytopenias, splenomegaly, lymphadenopathy, liver disease and lung disease. Immune profile showed reduced transitional and CD21 low B cells, confirming the meaningful PI3K delta pathway modulation consistent with the APDS experience. This biomarker data is also being collected in the Phase II studies. Regarding safety, adverse events were generally manageable and consistent with the disease severity. While this is clinician reported data and not a prospective clinical study, the breadth and consistency of improvement across these various endpoints is a compelling early signal ahead of the formal study readouts in the second half of this year. So quite a bit to look forward later this year. And with that, I'll turn it over to Kenneth to walk through our financials. Kenneth Lynard: Thank you, Anurag. I will now briefly cover our Q1 2026 results and our full year outlook. Q1 revenues were $72.4 million, down 8% year-on-year. RUCONEST revenue declined 15%, reflecting the expected U.S. inventory normalization contributing 8% decline, consistent with our expectation for 7% to 9% headwind that we communicated on the March Q4 call, as well as also our planned strategic exit from U.S. markets, which contributed 3% to the decline. Q1 is also typically the lowest seasonal quarter for RUCONEST due to ordering patterns and inventory dynamics. Joenja revenues were strong and increased 34% year-on-year, driven by strong U.S. momentum, continued patient growth and expanding international demand. Revenue was modestly affected by inventory timing. And excluding this, growth would have been USD 1 million to USD 2 million higher. Total operating expenses were down by 9% year-on-year. Adjusted for nonrecurring Abliva-related acquisition costs in Q1 of 2025, overall expenses were flat. This demonstrates our ability to increase pipeline investments without increasing costs overall. Adjusted operating profit declined slightly year-over-year, noting that USD 7.8 million of the nonrecurring Abliva acquisition-related costs are excluded from the adjusted Q1 '25 figure shown on the slide. And in 2026, we have incremental R&D investments for napazimone of $2.7 million included. We generated positive operating cash flow in Q1 of $2 million, reflecting continued strong cost management and financial discipline. Total cash and marketable securities decreased by $9.3 million to $171.8 million, primarily due to a $12.3 million payment related to early termination of the DSP facility lease. For the full year 2026, we are pleased to reaffirm our expectation for total revenues of USD 405 million to USD 425 million, representing full year growth of approximately 8% to 13% versus 2025. This growth is expected to be driven by continued expansion of RUCONEST in the U.S. partially offset by the excess -- by the exit from ex U.S. markets and significant and accelerating growth for Joenja. We delivered a strong exit to Q1 and the low percentage of HAE patients switching to competing oral therapies gives us confidence in our guidance range. Overall, we assume low single-digit annual RUCONEST growth at the midpoint of our guidance range with some pressure expected on RUCONEST revenue in Q2 and growth in the second half of the year. For Joenja, we are well positioned for launches in Japan and Europe this year. We also now include expected U.S. pediatric label revenues later this year, previously excluded from our guidance in our outlook. We expect Joenja growth to accelerate with annual growth over 10 percentage points higher than in 2025. The pediatric APDS indication remains an important long-term driver. And for planning purposes, we conservatively assume a 6-month FDA review period following resubmission with a launch right thereafter. We continue to expect operating expenses between USD 330 million to USD 335 million, including $60 million in incremental R&D investment to advance our pipeline. This includes up to $30 million additional for the development of napazimone. This also reflects the $9 million benefit from the 20% G&A structural headcount reduction announced in October 2025, alongside stable marketing and sales spending. We remain very committed to strong cost management and financial discipline, prioritizing investments that support both near- and long-term value creation. There are no changes made to any other guidance assumptions, including milestone payments or gross margins. As a reminder, for Joenja, we do not assume the $10 million commercial milestone or additional milestone payments this year. Gross margin is expected to be approximately 90%. Finally, as previously stated, our available cash and future operating cash flows are expected to fully support all pipeline investments, including all prelaunch activities. And with that, I'll now hand over to Fabrice for his closing remarks. Fabrice Chouraqui: Thank you, Kenneth. So in summary, this first quarter demonstrated important progress across the business while reflecting variability in RUCONEST revenues. We are encouraged by the opportunity we see for Joenja in the short and long term and the potential for RUCONEST to remain a significant cash engine as an important on-demand treatment for the difficult-to-treat patient subpopulation. We have significant pipeline catalysts later this year. First, the readout of the 2 Phase II trials for leniolisib in higher prevalent PID. And second, the completion of the enrollment of the napazimone registrational study in primary mitochondrial disease. As you've seen, the decisive steps that we've taken to improve financial discipline, including optimizing G&A headcounts are starting to deliver tangible results. With our strong commercial and development capabilities, a growth-oriented leadership team and a scalable organization, we are committed to driving sustainable revenue growth and value creation to achieve our vision of being a leading global rare disease company. Let me now open the line for questions. Operator: [Operator Instructions] And your first question today comes from the line of Benjamin Jackson from Jefferies. Benjamin Jackson: I've got 2, if I may. The first just on RUCONEST. Could you talk a little bit more about why you think you'll see further pressure in the second quarter on that sales line? And then why you think that you -- or what gives you the confidence of returning to growth into the second half of the year beyond what you've already described? And then within that, also, are you expecting any reversal of this inventory drawdown at all that may help as a bit of a tailwind in context of that? And then secondly, on Joenja, perhaps if you could just help paint the picture about how meaningful you think Europe will be this year and how quickly we should anticipate this ramping? Perhaps, you could touch on which countries will likely come online in Europe when and how quickly you think you can secure reimbursement there. So anything to build out that picture a little bit more for me would be super useful. Fabrice Chouraqui: Thank you, Ben. Leverne? Leverne Marsh: Indeed. So Ben, thank you so much for the question. I think to your first one on further pressure in Q2 that we may be anticipating. So we're in the early stages of competitive entry, right, 9 months into the sebetralstat launch followed quickly by prophylactic treatments. What we're seeing is it takes a few reorder cycles. So 3 to 4 reorder cycles for us to see the full impact of trialing behavior and switching behavior. And so as we get into essentially the fourth quarter of a launch post sebetralstat, we'll start to see further impact normalize in the second quarter. The second piece that you asked around growth in the second half of the year. Today, we continue to add both new prescribers and new patient enrollments to RUCONEST. What that tells us is there is a clearly defined subpopulation of HAE patients who are high-burden patients, so high frequency of attack patients, high attack location patients where RUCONEST continues to have a place. So despite competitive entries, we continue to see new patient generation and new prescriber dynamics in that segment. I'll let Kenneth speak to the inventory drawdown, and I'll talk about Joenja, the question that you had on European launches. So as you know, we had a positive CHMP opinion earlier this year. We're waiting for final approval. And our first launch in Europe will be in Germany this year. So we're really excited about that launch coming in at the end of -- towards the second quarter of this year. And that will be meaningful for us because we are anticipating commercial patients, so paid funded commercial patients into the second quarter. And then additionally, our Japan approval that we received also earlier this year, we're anticipating that launch in August of this year. So some key growth drivers for us in the second year for Joenja in addition to the pediatric approval that we are anticipating for the high doses in the U.S. Kenneth, do you want to respond to the inventory question? Kenneth Lynard: Yes, absolutely. And thanks for the question, Ben. So in 2026, we have seen the inventory drawdown, which follows the normal cycle of the year. And compared to last year, where in 2025, the inventory drawdown was lower as the previous year's build was lower as well. So we do anticipate that we are in a year that, again, is more reflective of the normal cycle where there will be inventory build during the second half of the year to basically reflect the demand. So that's how we are looking into the rest of the year. Operator: Your next question today comes from the line of Jeff Jones from Oppenheimer. Jeffrey Jones: Maybe one follow-up on RUCONEST and then on leniolisib. Can you help us maybe link the 4% drop in revenue not associated with the inventory drawdowns in the planned U.S. or the ex U.S. exit with the offset of the 50 new patients on therapy that you mentioned during 1Q? And then for leniolisib, you talked a little bit about the readouts from the Phase I/IIs that you're running currently for PIDs and CVID. Can you help us link those efficacy-related readouts to expectations around endpoints in Phase III and how we can think about expectations and the endpoints moving ahead into more pivotal aligned studies? Fabrice Chouraqui: Thank you, Jeff. I'll take the first part of your questions on the enrollment, and then I'll let Anurag cover the leniolisib part. When it comes to the enrollment that Leverne mentioned, these are 50 new patients which have been enrolled, who will receive a script. These are not yet 50 new patients on the drug. And so there is always actually a delay between enrollment and patient on therapy. And obviously, we'll be working actively on that. I think you should look at enrollment as patients in the pipes that ultimately will, for a large proportion, be treated by RUCONEST. And so again, seeing a significant number of new enrollment, new scripts for RUCONEST and a significant number of new prescribers I think, reinforce the recognition of RUCONEST as a distinctive treatment in the HAE on-demand category. I hope I was able to bring color. These new patients are expected to offset the small number of patients that may adopt Ekterly. As Leverne said today, we've seen only a very limited interest from RUCONEST patients to try Ekterly, and we've seen a very small number of these patients adopting the drug. And this is obviously linked to the nature of these patients, which are -- for vast majority of them have a high burden disease and often have already failed a number of treatments. Anurag, would you like to elaborate on the leniolisib data that are being presented today? Anurag Relan: Sure. So Jeff, I think you have to zoom out here a bit and look at what the unmet need really here is in this group of patients. And the unmet need is all centered around immune dysregulation. And the immune dysregulation we're talking about is these aspects such as lymphoproliferation and autoimmune disease that isn't being managed adequately by immunoglobulin replacement therapy that these patients currently receive. So that's the -- those are the disease manifestations that we're looking at. Those are, in fact, what we see in the expanded access program, these 6 patients that are being presented today at the CIS meeting, you can see the disease -- the same disease manifestations, whether it's improvements in their cytopenias, improvements in lymphoproliferation or improvements in some of the other aspects of the autoimmune disease. Those are the things that we're also going to be measuring in the -- in both of the Phase II studies. So we're looking at lymph node size, spleen size. We're looking at the blood counts. We're looking at some of these other markers of end-organ disease activity. And those will then form the basis for the Phase III study. But it's exactly -- the endpoints are, I think, very well aligned with the disease manifestation. And again, what we see early from these 6 patients is improvement or stabilization in all of these aspects. Operator: Your next question comes from the line of Sushila Hernandez from Lanschot Kempen. Sushila Hernandez: On your revenue guidance, what could be key drivers that could make the difference between hitting the top end and the bottom end of your range? What are your assumptions here? And could you share more color on the compassionate use experience in CVID? How much do these patients resemble the patients in your Phase II study? Kenneth Lynard: Yes. Thank you. This is Kenneth here. Thanks, Sushila. So I think the way to think about it is that we are anticipating 6 months for approval and launch right thereafter for the U.S. pediatric population following the submission. And obviously, an accelerated timing of the approval and launch will provide an upside compared to what we are kind of looking into now and therefore, would put us higher up in the guidance range. That will be the primary driver. Sushila Hernandez: Okay. That's clear. And could you share more color on the data that was presented at CIS on the compassionate use experience in CVID? How much do these 6 patients resemble the patients in your Phase II study? Anurag Relan: Sushila, so it's actually a great question. It's something I didn't cover, but these CVID patients and CVID-like patients in the compassionate use experience very much resemble the types of patients that are being enrolled in the CVID study, so the 20-patient multicenter study. And the reason for that is that these patients, all of them have those aspects of immune dysregulation. Now I would say the only difference here is that this is a much sicker group than the general CVID immune dysregulation population, which is already quite ill to begin with, but this is a group that is even more -- has been even more refractory to other types of therapies. So the fact that we can see improvements here is, I think, quite meaningful and quite encouraging for us as we look ahead to the results later this year. Operator: Your next question comes from the line of Joe Pantginis from H.C. Wainwright. Joshua Korsen: This is Josh on for Joe. So for the first one, could you guys provide more color around the proportion of the identified 4- to 11-year-old APDS patients in the U.S. So specifically, how many could be covered by the initial 40-milligram and 50-milligram resubmission? And then for the Type A meeting, did the FDA feedback change how you're thinking about pediatric dosing more broadly? Or has your overall strategy remained largely unchanged? Fabrice Chouraqui: On the first part of the question, Leverne? Leverne Marsh: Sure. Thanks, Josh. On the first one, on the 4 to 11 age group, you can assume approximately half. So roughly 50% of that population would be eligible for the high dose leniolisib and half would be on the lower end. Fabrice Chouraqui: Anurag? Anurag Relan: And so Josh, on the Type A meeting and the feedback that we got and actually all of the discussions that we've had, I think it really has not changed our dosing strategy. And in fact, what -- I think based on this constructive dialogue that we had with FDA, they were -- we shared with them the efficacy that we had observed across the doses and that has allowed us to maintain the same doses in our resubmission strategy. So the lower weight patients would be maintained on -- or proposing to maintain them on the same doses that were used in the clinical trial. And that really is tied to the efficacy that was observed in the lower weight patients, which was very similar to the efficacy that was observed in the higher weight patients. So I think that -- on that basis, we have not changed the dosing strategy. And I think we've come to an agreement with FDA on what the contents of these 2 resubmissions would be. Operator: Your next question comes from the line of Whitney Ijem from Canaccord. Whitney Ijem: Just a follow-up to clarify for the Phase II leniolisib readouts in the second half. I just wanted to confirm, will those be read out at the same time? So it's one readout for both? Or is it 2 -- could they come at different times? Fabrice Chouraqui: Anurag? Anurag Relan: So the study has completed enrollment around the same time. One of the studies is 1 month shorter in duration. So it is possible that, that one, we have all of the data available slightly earlier than the other study. And once we have the data cleaned and available to evaluate, we'll have more specifics on the exact timing of that readout. Whitney Ijem: Okay. Got it. And then heading into those, can you help set investor expectations, I guess, in terms of what would be good data or what you're looking for in both of those studies, either quantitatively or more qualitatively? Anurag Relan: Sure, Whitney. So a lot of the things that we're looking for, they are -- first of all, they're aligned with what we observed already in APDS. So we saw lymph nodes shrink. We saw spleens get smaller. We saw improvements in immune profiles. We saw improvements in blood counts, so the cytopenias, autoimmune cytopenias that occur in these patients. So we've seen that already in APDS. And that's why, again, I really think it is a very nice proof of concept for what we've already done. And then what we know is these are -- this is also the unmet need in these other primary immune deficiencies. So we're really looking for the same things. So we're looking to see if lymph nodes get smaller. We're looking to see if the spleens get smaller. We're looking to see platelet counts or other blood cell counts increase. We're looking for other manifest -- other end-organ disease manifestations to see how they also improve. And I think this is also, again, lines up very nicely with the data that will be presented today and I shared in the slide, is that we see already in this early experience with these 6 patients we see those same types of improvements. And I think that is, again, a very encouraging early sign. It's not a clinical trial, but it's an early sign that both based on the APDS experience as well as the 6-patient expanded access experience, the kinds of things that we can expect to see in the readouts of these 2 Phase II studies. Operator: [Operator Instructions] And the next question today comes from the line of Natalia Webster from RBC. Natalia Webster: I have a couple of follow-ups, please. Firstly, on RUCONEST. Just on the around 50 new enrollments that you've seen and 23 new prescribers in Q1. Do you see this as a sustainable run rate going forward? And then secondly, I appreciate that it can take sort of 3 to 4 reorder cycles to see the full impact. But are you able to provide any quantification on what sort of percentage of your patient base has tried Ekterly and what sort of return rate you're seeing to date? And then finally, on Joenja, you added 7 net U.S. patients on paid therapy in Q1, and I believe you previously guided to accelerating enrollment this year. Is this acceleration dependent on pediatric approval? Or are you also expecting an acceleration in adult additions in the coming quarters? Fabrice Chouraqui: So I'm going to take. Thank you, Natalia, for your question. I'll take the first part on RUCONEST and let Leverne elaborate on the second part on Joenja. Clearly, we've seen over the past quarters really our ability to see really a sustainable stream of new enrollment. So despite the launch of new therapies, whether these are prophy therapy -- prophylactic therapies or on-demand therapy, we've seen that because of the differentiated profile of RUCONEST, we've been able to gain quarter after quarter, I think, a number of new patients. And we don't see that changing. Specifically as the launch of Ekterly is making the on-demand market more dynamic. We see a significant increase of switches and doctors are more prone to engage with their patients on whether they are well controlled. And we see an opportunity for RUCONEST to capture even a higher number of patients that could not be controlled correctly on their current treatment. And to complement what Kenneth said earlier, this is also a significant element to reach the upper end of our guidance. Clearly, reaching the upper end of our guidance is about the timing for the U.S. approval of the pediatric extension, but also our ability to grow RUCONEST and leverage this market dynamic with more switches. I would let now Leverne comment on the Joenja -- on your questions related to Joenja. Leverne Marsh: Okay. Thanks, Fabrice, and thank you, Natalia. So on the Joenja acceleration, we still have significant room for growth in the 12 and above patient population, right? So as we mentioned, we added 7 new patients on therapy in Q1, and we're seeing some good sustainable momentum into Q2 already. So as you think about the adult 12 and above opportunity, we continue to identify new patients. We continue to convert those new patients, and that is a sustainable source of growth for us in the future because there's a lot of room for us to grow. And then I think the point that you mentioned on the pediatric indication in the second half of the year will be an additional growth lever for us in the U.S., right? And then ex U.S., as we mentioned, will be the launch in Germany and the launch in Japan later this year. So I would think about the year in these sort of phased steps of acceleration in the current population, the pediatric population and the international expansion in the second half of the year. Operator: We will now take our final question for today. And the final question comes from the line of Simon Scholes from First Berlin. Simon Scholes: I've got a question on leniolisib and the Type A meeting. My impression in March was that you would be able to deliver the additional information that the FDA required and that probably you'd be able to make resubmissions, immediate resubmissions in both the high dose and the low dose. Could you just outline what extra work you're going to need to do on the low-dose patients until you resubmit in the summer? Anurag Relan: Sure. I can answer that, Simon. So I think what we really -- when we met with FDA, and I think what we tried to define was the fastest way to bring Joenja to this youngest group of patients and to try to do it in a way that allowed us to leverage the data we already had. And that's why we went with this 2 submission approach that allows this 40-milligram and 50-milligram submission to already occur. In fact, we submitted it, as I said, on the same day that we received the FDA meeting minutes. So I think that was a very important outcome. For the second group, really, this was just making sure that we had all of the efficacy data. And as I said earlier, the efficacy data that lined up very nicely with the in both the high dose and the low dose groups, or sort of the high weight and lower weight patients. So it's really just putting that data package together. I think the key piece or the key point to note is that we have an agreement with FDA on what the contents of that submission will be. And importantly, it doesn't require an additional clinical trial, this submission. So I think that's where we are, and that's why we went with this 2 submission approach. And then, we expect to make the second submission in this summer. Operator: Thank you. I will now hand the call back to Fabrice Chouraqui for closing remarks. Please go ahead. Fabrice Chouraqui: Thank you so much, operator. I hope we are -- we were able to provide clarity on the -- on our performance in the first quarter. As we said, we've seen meaningful improvements across the business, despite some revenue variability. I personally believe as the rest of the leadership team that we are -- those progress are really positioning Pharming extremely well for long-term value creation. And so we look forward to updating you on our plan for the short and midterm and long term as well. Thank you so much. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Hello, and welcome to the EPR Properties First Quarter 2026 Earnings Call. [Operator Instructions] Also, as a reminder, this conference call is being recorded today. If you have any objections, please disconnect at this time. I will now hand the call over to Brian Moriarty, Senior Vice President of Corporate Communications. Brian Moriarty: Thank you, operator. Thanks for joining us today for our first quarter 2026 earnings call and webcast. Participants on today's call are Greg Silvers, Chairman and CEO and Ben Fox, Executive Vice President and CIO; and Mark Peterson, Executive Vice President and CFO. I'll start the call by informing you that this call may include forward-looking statements as defined by the Private Securities Ligation Act of 1995, identified by such words as will be, intend, continue, believe, may, expect, hope, anticipate or other such comparable terms. The company's actual financial condition and the results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of those factors that would cause results to differ materially from these forward-looking statements are contained in the company's SEC filings, including the company's reports on Form 10-K and 10-Q. Additionally, this will contain references to certain non-GAAP measures, which we believe are useful in evaluating the company's performance. A reconciliation of these measures to the most directly comparable GAAP measures are included in today's earnings release and supplemental information furnished to the SEC under Form 8-K. If you wish to follow along, today's earnings release, supplemental and earnings call presentation are all available on the Investor center page of the company's website, www.eprkc.com. Now I'll turn the call over to Greg Silvers. Gregory Silvers: Thank you, Brian. Good morning, everyone, and welcome to our first quarter of 2026 Earnings Call and Webcast. In previous quarters, we've discussed our focus on accelerating growth. For the quarter, we delivered a 5.9% increase in FFO as adjusted per share versus the prior year and have established strong momentum as we accelerate on our investment spending for the year. The centerpiece of our investments was our announced acquisition of a Seven Park regional portfolio from Six Flags. This $315 million portfolio is our largest acquisition in the post-COVID era and we're pleased to own parks that have demonstrated success in the past and offer significant opportunities for the future. These properties comprise more than 1,600 acres across 6 states and Canada, include 418 attractions and have established guest bases that draw approximately 4.5 million visitors annually. We are delighted to be partnering with proven operators Enchanted Parks who operate the U.S. parks and La Ronde operations to operate La Ronde in Montreal. These parks have become staples in their communities and have established multigenerational patronage by delivering fun, excitement and lasting memories. Supporting both the stability of our portfolio and our confidence in our investment outlook is the sustained growth in consumer spending in the experience economy. As we highlight in our investor presentation, personal consumption expenditures in most of the categories we invest in have been growing for many years and most recently increased 7% from 2024 to 2025. In an environment with a variety of macroeconomic cost currents, our overall portfolio coverage remains stable and resilient with most tenants reporting steady or improving results. We're pleased to see box office running ahead of last year, supported by a variety of genres and titles. Additionally, Fitness & Wellness continued to demonstrate resilience as many consumers view this category as an essential part of their lifestyle. This reordering of priorities where consumers increasingly treat Fitness & Wellness as protected nondiscretionary spending reinforces the durability of the segment and supports the long-term thesis behind our investments in this category. Lastly, I'm pleased to report that we're increasing both our investment spending and earnings guidance. Last year, we delivered 5.1% growth in FFO as adjusted per share, with today's update, the midpoint of our 2026 guidance for FFO as adjusted per share represents 6.5% growth. This significant growth reflects the strength of our investments to date, our future pipeline, the quality of our portfolio and the momentum we've established. As our portfolio continues to expand and diversify, we anticipate additional opportunities to capitalize on the experiential movement and strengthen our competitive advantage. Now I'm going to turn over the call to Ben Fox, who is joining us for his first call as CIO. We look forward to his leadership and contributions in the coming years. Ben, please take it from here. Benjamin Fox: Thank you, Greg. I appreciate that. I am very pleased with the positive momentum we have demonstrated to date with our investment activity. In the first quarter, we completed $51.3 million of investments, including the previously announced acquisition of a VITAL Climbing Gym located on the Lower East Side of Manhattan as well as already committed development capital. Subsequent to quarter end, we completed the acquisition of 6 properties from Six Flags Entertainment representing the substantial majority of this $315 million 7 property transaction. We expect the remaining property, La Ronde located in Canada to close in Q2. This is a notable investment, which further diversifies the portfolio alongside best-in-class operators, and it underscores the value proposition we are uniquely positioned to deliver. Our deep roster of client relationships enabled us to provide Six Flags with a one-stop solution as it sought to reduce its operating footprint. By bringing trusted, proven operating partners to the table, we helped Six Flags achieve its objectives while acquiring irreplaceable real estate. In addition to these highlighted investments, as of March 31, we expect approximately $71 million in additional investment for existing experiential development and redevelopment projects, substantially all of which should fund over the balance of this year. Given the acceleration in our investment velocity, we're pleased to increase our investment guidance to $500 million to $600 million, which represents our highest investment expectation since COVID. This increase is reflective of the depth and breadth of opportunities we're seeing across all our verticals. We expect investment activity for 2026 to be weighted more towards acquisitions than development. We also expect to continue employing convertible or other similar mortgage structures selectively where it makes sense for both us and our clients. Significantly, this increase in investment cadence demonstrates the depth and quality of relationships our investments team has created allowing us to generate attractive proprietary deal flow across the experience economy. Before turning to the portfolio update, I want to spend a minute discussing the competitive landscape and pricing. Although the net lease sector is generally a competitive market, we're seeing cap rates holding steady for the investments we target. Again, this is reflective of the unique relationships we have in the insights that our underwriting and asset management teams provide. If anything, the continued volatility in the capital markets is providing an uplift in both the number of opportunities we're seeing and the corresponding conversion ratio for turning these opportunities into closed investments. Turning now to an update on the portfolio. At the end of the quarter, our portfolio represented $7.1 billion of gross investment value, consisting of 335 properties, which were 99% leased or operated. 94% of this value reflects investments across experiential assets. These 280 properties are operated by 54 clients and continue to be 99% leased or operated. The remaining 6% of the portfolio represents our Education segment comprised of 55 properties leased by 5 operators. At the end of the quarter, these properties were 100% leased. Importantly, the portfolio remains very healthy with 2x unit level rent coverage. This coverage demonstrates the resiliency that our portfolio diversification creates. Moreover, it's also reflective of resilient consumer spending patterns and the continued prioritization of experiences. Notably, within our Theater segment, the first quarter saw a 25% increase in North American box office grows, benefiting from an increase in both attendance and the number of films released. The current film slate sets the rest of the year up favorably compared to last year. Several recent announcements have continued to remove uncertainty while demonstrating the enduring power of theatrical exhibition. First, both the Writers & Screen Actors' Guilds have reached new 4-year agreements, removing any concern of strikes for the foreseeable future. Second, Amazon MGM has announced a commitment to 15 theatrical releases in 2027, with a standard theatrical window of 45 days. Following this move, Universal reversed course on its previous 17-day window, now committing to the standard window of at least 45 days. And most recently, Netflix announced on Friday that the upcoming release of Narnia, which initially was slated for a 2-week release exclusively in IMAX will be getting a wide release in both IMAX and standard formats for a 49-day theatrical window before moving to streaming. These moves reflect Studio's recognition that theatrical releases serve a dual purpose, generating box office economics upfront while meaningfully enhancing the value of films, streaming window downstream. Within the Eat & Play segment, our operators performed in line with the prior year, seeing a small amount of attendance volatility, offset by higher average spending per visit. Geographic diversification produced incremental gains in our Ski portfolio with significant outperformance in the Mid-Atlantic and East Coast properties more than offsetting the historically poor snowfall across the Western United States. Our Fitness & Wellness segment continues to deliver solid performance and we're continuing to see incremental gains at some of our recently opened properties. Lastly, our Education portfolio continues to perform well and coverage in this segment remains strong. Touching upon dispositions, the asset management team has done an outstanding job over the past several years on risk management and on resolving vacancies. Although dispositions targeting proactive risk management, will remain a core element of our asset management strategy. The emphasis over the near term will be on generating accretive proceeds through sales of noncore assets. Accordingly, we are increasing our disposition guidance by $25 million on the lower and upper bounds to a new range of $50 million to $100 million. In summary, our portfolio continues to be resilient and we remain enthusiastic about the investment landscape. We are encouraged by the depth of our investment pipeline at this point in the year and have confidence in our revised investment guidance. With that, I'll turn it over to Mark for a review of our financial performance. Mark Peterson: Thank you, Ben. Today, I will discuss our strong financial performance for the first quarter, provide an update on our balance sheet and close by discussing the increases to our earnings and investment spending guidance for the year. FFO as adjusted for the quarter was $1.26 per share versus $1.19 in the prior year an increase of 5.9%. And AFFO for the quarter was $1.29 per share compared to $1.21 in the prior year, an increase of 6.6%. Before I walk through the key variances, I want to explain 2 items excluded from FFO as adjusted and AFFO. First, during the quarter, we exercised our purchase option to convert a $70 million mortgage note receivable secured by an experiential lodging property into a wholly owned rental property subject to a long-term triple net lease. At the time of the conversion, we recognized a $1 million gain on real estate transactions and the $1.3 million benefit for credit losses. Second, benefit for credit losses was $5.6 million for the quarter, and related to the conversion I just discussed as well as changes to our expected -- our current expected credit losses in our third-party model based on improvements to both property level performance and certain relevant economic conditions. Now moving to the key variances. Total revenue for the quarter was $181.3 million versus $175 million in the prior year, an increase of $6.3 million. This increase was mostly due to the impact of investment spending as well as rent and interest bumps. This was partially offset by dispositions and a decrease in percentage rents and participating interest, which was $2.5 million for the quarter versus $5.1 million in the prior year. This decrease was mostly due to out-of-period percentage rent and participating interest totaling $2.9 million recognized in the first quarter of 2025. Both other income and other expense relate primarily to our consolidated operating properties, including the Kartrite Hotel and Indoor Water Park and our 4 operating theaters. The decrease in other income and other expense versus prior year is due primarily to the sale of 2 operating theater properties in the first quarter of 2025. On the expense side, interest expense net increased by $1.7 million due to an increase in average borrowings and a decrease in capitalized interest versus the prior year. Turning to the next slide. I'll review some of the company's key credit ratios. As you can see, our coverage ratios continue to be very strong with fixed charge coverage at 3.3x in both interest and debt service coverage ratios at 3.9x. Our pro forma net debt to annualized adjusted EBITDAre was 4.8x at quarter end, which is below the low end of our targeted range of 5 to 5.6x. Pro forma net debt is calculated by subtracting from net debt. The estimated net proceeds from the forward sales agreement we executed during the quarter that I will discuss shortly. Additionally, our pro forma net debt to gross assets was 39% on a book basis at quarter end, and our common dividend continues to be very well covered with an AFFO payout ratio of 70% for the first quarter. Now let's move to our capital market activities and balance sheet, which is in great shape to support our continued growth. At quarter end, we had consolidated debt of $2.9 billion, of which all is either fixed rate debt or debt that has been fixed through interest rate swaps with an overall blended coupon of approximately 4.4%. Our liquidity position remains strong with $68.5 million of cash on hand at quarter end and no balance drawn on our $1 billion revolver. Additionally, in March, we were pleased to enter into a forward sales agreement under our ATM program to sell an aggregate 797,422 common shares for initial gross proceeds of $47.5 million or an average sale price of $59.52 per share. We can settle the outstanding shares anytime before March 1, 2027 for the gross proceeds subject to various adjustments. As of today, we have not settled any of these shares. We are increasing our 2026 FFO as adjusted per share guidance to a range of $5.37 to $5.53 from a range of $5.28 to $5.48, representing an increase versus the prior year of 6.5% at the midpoint. We expect a similar percentage increase in AFFO per share. We are also increasing our 2026 guidance for investment spending to a range of $500 million to $600 million from a range of $400 million to $500 million and increasing disposition proceeds to a range of $50 million to $100 million from a range of $25 million to $75 million. We are confirming our percentage rent and participating interest income guidance of $18.5 million to $22.5 million which continues to be very heavily weighted to the back half of the year. We are also confirming our G&A expense guidance of $56 million to $59 million and the guidance for our consolidated operating properties, which is provided by giving a range for other income and other expense. Guidance details can be found on Page 23 of our supplemental. Finally, we were pleased to have increased our monthly common dividend by 5.1% to $3.72 per share annualized which began with the dividend payable April 15 to shareholders of record as of March 31. We expect our 2026 dividend to be well covered with an AFFO payout ratio below 70% based on the midpoint of guidance. Now with that, I'll turn it back over to Greg for his closing remarks. Gregory Silvers: Thank you, Mark. As discussed today, both our investments and earnings are accelerating and reflect the resiliency and opportunity of our experiential focus. We've also demonstrated our ability to utilize multiple sources of capital to fuel this growth with the initial execution of our ATM program, along with opportunistically recycling capital with planned asset sales. All of these positives reinforce our conviction that EPR's unique platform and asset classes position us to deliver outsized shareholder returns. With that, operator, why don't we open it up for questions? Operator: [Operator Instructions] Our first question will come from Jana Galan with BofA. Jana Galan: Congrats on a really nice first quarter. Mark, for the increase in AFFO guidance, can you help parse out how much came from a slightly better first quarter? And then how much you're seeing from the acceleration in investment activity? Or is it maybe also better yields on that investment activity? Mark Peterson: Yes, we did -- we were a little better for the quarter, about $0.01 or $0.02. But then as you look forward, really, the increase is due to a couple of things. One, obviously, we raised our investment spending and paid for that via the capital raise, but there was probably $0.01 out of that increased guidance. And then I think more broadly, we got a benefit from being fairly conservative with respect to the Six Flags transaction at the end of the year because we weren't sure -- for sure it would close and when exactly it would close. So I think the ultimate outcome of that was better than anticipated. And I think the remaining investments, not just the increase for the year, but the remaining investments are coming in a little bit sooner than planned and at a better cap rate. The last thing I'll mention that impacted our FFOAA guidance was the Margaritaville conversion to a -- from a note to a lease. We got incremental straight-line rent from that, and that was probably a little under $0.02 in terms of straight-line benefit converting from a mortgage to now a 20-year lease with escalators that had some straight-line impact. Jana Galan: And then maybe just one for Ben, on the strategy to kind of employ more convertible or other mortgage structures as a way to invest in assets. Just curious, is kind of the first quarter purchase option that you guys exercised kind of a key example of what this would look like? Benjamin Fox: Yes. Jana, that's exactly right. Really, the mortgages that we use, as I mentioned, are pathways to real estate ownership. And so that conversion of the Margaritaville is exactly representative of the types of structures we enter into. And so as opportunities present themselves, we will convert those and use those selectively. Operator: Our next question will come from Bennett Rose with Citi. Bennett Rose: I just wanted to follow up on that on these convertible mortgage opportunities. Could you maybe just talk a little bit about sort of how many you have and kind of what that could look like over the next couple of years as we choose to go down that path? Benjamin Fox: Yes. It's a good question. And really, if you look at our mortgage book, the majority of those, probably more than 80% are convertible, right? So what we're highlighting here is with this transaction in Margaritaville, that is just an example of the opportunities that sit within the existing portfolio as well as the types of structures that you could see us enter into in the upcoming quarters and years. Bennett Rose: Okay. And then I just wanted to ask you on your -- the acquisition of theme parks from Six Flags, do you guys see them, I guess, as a potential partner going forward? Is it your sense that Six Flags may want to shed more what they would consider noncore assets? And is that something you would be willing to lean into more at this juncture? Gregory Silvers: Smedes, it's Greg. I think -- again, I think, clearly, we've demonstrated a partnership with them. So we'll definitely take a look at that. I think they're exploring. And I think real estate solutions are being explored across the board in the attraction space. And I think our team has demonstrated our ability to be a market leader in that space, whether that's with Six Flags or with other participants. So I think us carving out our leadership position will ultimately probably create more opportunities, which I think we think we find very attractive. Operator: Our next question comes from Upal Rana with KeyBanc Capital Markets. Upal Rana: Just on the Six Flags transaction, could you walk through the strategy behind... Gregory Silvers: We kind of cut you off, but I think you're saying what was the strategy? So I think our put was, again, long term, we look at these as incredibly stable assets. If you look over time, that these are -- they're market-dominant that you just cannot create has been reported. These assets were -- have had multibillion dollars spent on them that we can buy very attractively, which we think create long-term stability. They're very much part of the communities and where they exist. So we feel like this is a really strong anchors to an experiential portfolio. I think, again, as we said, there's really been no new parks built in decades. So we feel the durability and the resilience of these are quite good. And we will continue, as I said, to explore opportunities. Upal Rana: Okay. Great. That was helpful. And then maybe in your prepared remarks, you mentioned you're encouraged by your pipeline that you're seeing. Maybe you could talk a little bit about that and what types of deals you're seeing and any kind of sizes? Gregory Silvers: I'll let Ben add a little bit to this, but I think what we're encouraged is kind of what I talked about in the beginning. Experiential spending continues to accelerate. And we continue to see multiple reports about how people are valuing experiences over things and continuing to prioritize those. So again, whether it's Attractions, Fitness, Eat & Play, across the board, we're seeing strength. And so therefore, I think we would say that almost all of our categories, as we said, we're not growing theaters, but all of our categories, our pipeline of opportunities is expanding, but I'll let Ben if you want to add anything. Benjamin Fox: I think that's exactly right. It really is across the board. And just the ability to get a lot of our relationships to the table is increasing, and there's a general increased willingness to transact and derisk capital markets exposure. Operator: [Operator Instructions] Our next question comes from Justin Haasbeek with UBS. Justin Haasbeek: This is Justin on for Michael Goldsmith. Are you seeing any cap rate compression or increased competition in your top 3 acquisition segments of Fitness & Wellness, Attractions and Eat & Play? And are those still your top 3 in terms of acquisition focus? Gregory Silvers: I would say, yes. I mean, again, especially on our flow business, I mean, clearly, with what we did with Attractions this year, that was a big anchor transaction, but our flow business, I think those are still the top. And as Ben commented in his opening comments, I think our cap rates remain stable. I think, again, our position as kind of a leading market participant here makes us get the first call usually on these type of assets. So I think there's always going to be competition. But again, everyone in this space knows who we are, and we're going to get that call. So I think that bodes well for us continuing to grow that pipeline more and more. Justin Haasbeek: Okay. Great. And does the strong box office performance in the first quarter here, does that change how you think about your exposure? And has there been any private market interest in theaters? Has that changed at all? Gregory Silvers: There's -- again, I -- first of all, I should answer the first one. I don't think it's changed our interest in the sense that we still believe that increasing our diversity is a strategic objective of ours. I think there's no doubt that there continues to be getting an improving interest in the theater space as this continues, especially with some of the things that Ben mentioned in his comments, you've got the studios now kind of embracing much more on a theatrical forward kind of direction whether it's embracing the windows, whether that's Netflix now starting to use theatrical. So I think there's a lot more positive feeling about it. So we're seeing more interest in there. We'll see if that plays out to a ability for us to transact. But there's no doubt that we're getting more inbound calls on our portfolio. Operator: Our next question will come from Michael Carroll with RBC Capital Markets. Michael Carroll: Greg, can you talk a little bit about the current macro uncertainty and how that has impacted the experiential space? I guess, mainly, have you received any calls from potential sellers looking to further derisk, I guess, their company and maybe doing a deal with you just given the potential volatility that could be caused in the capital markets? Gregory Silvers: I think, as Ben said, we're getting inbound calls of people who are -- again, I think the idea of it used to be at the beginning or the end of last year, wait until rates improve. And now I think that volatility in that market has helped in that sense. I think though, the underlying the thing that's got us is the underlying support and resiliency of the activities. I mean as we said, our coverage remains very strong against this backdrop. So I think it gives us confidence to move forward that the consumer is still there. And I think there is, as Ben noted, some people who on the capital side are looking at saying, Okay, it doesn't look like rates are going materially down, and there is a risk with where we're at of them going up. So let's see if we can lock in transactions. But Ben, I don't know if that's consistent. Benjamin Fox: That's very consistent with what we're seeing. Michael Carroll: Okay. And then on the disposition side, I know that you modestly increased your target. I mean should we think about those sales still mainly be coming from the early education segment? Is that the focus? Or is there other sales outside of that, you can look at? Gregory Silvers: I think it's going to -- you're going to see that probably will be a bulk of that. I think you will also see us, as I mentioned earlier, hopefully capitalize on some really interesting opportunities on our theater side to sell some assets, so that we can show some real kind of interest in that. So -- but we'll have to go from there. Michael Carroll: Okay. And then on the theater side, if you sell assets, I mean, can you -- I'm assuming you can't do much out of AMC given that's now in a master lease, right, unless you do a bigger JV. So should we think about those potential sales being with smaller operators. Gregory Silvers: One-offs or things offs and other opportunities there, but you're exactly correct. It will not -- probably not be out of the master lease. Operator: There are no more questions. So I will now turn the call back over to Greg Silvers, Chairman and CEO, for any closing remarks. Gregory Silvers: Thank you, guys. I appreciate the time and attention today. We look forward to talking to you as we go through the rest of the year and appreciate your interest. Thank you all. Thank you. Operator: Thank you for joining EPR Properties First Quarter 2026 Earnings Call. This concludes today's call. You may now disconnect.
Operator: Hello, and welcome to OTC Markets Group First Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] I would now like to hand the conference over to Dan Zinn, General Counsel. You may begin. Daniel Zinn: Thank you, operator. Good morning, and welcome to the OTC Markets Group First Quarter 2026 Earnings Conference Call. With me today are Cromwell Coulson, our President and Chief Executive Officer; and Antonia Georgieva, our Chief Financial Officer. Today's call will be accompanied by a slide presentation. Our earnings press release and the presentation are each available on our website. Certain statements during this call and in our presentation may relate to future events or expectations and as such, may constitute forward-looking statements. Information concerning risks and uncertainties that may impact our actual results is contained in the Risk Factors section of our 2025 annual report, which is also available on our website. For more information, please refer to the safe harbor statement on Slide 3 of the earnings presentation. Before I turn the call over to Cromwell, I want to take a moment to remember our friend and colleague, Elik Topolosky, whom we tragically lost in March. Elik was an exceptional person. He was smart, reliable and deeply trusted. But what made Elik truly special was the way in which he connected to and cared for the people around him. He made our team better simply by being part of it. Those who worked alongside him will always remember his kindness, positivity and a smile that could light up a room. We continue to extend our deepest condolences to Elik's family and to all of those like us who loved him. With that, I'd like to turn the call over to Cromwell Coulson. Robert Coulson: Thank you, Dan. We all share your sadness in Elik's passing. We deeply respected him as a colleague and appreciate all that he contributed to each of our lives. Elik was a true culture carrier of the core OTC Markets values. Thank you all for joining us. I will begin by reviewing our first quarter 2026 results at a high level and will then turn to a discussion of our priorities for the year. For the first quarter, gross revenues grew 14% and net revenues grew by 15%. This was a record quarter for OTC Markets Group with each business line contributing to our strong results. OTC Link showed the sharpest growth, up 31% over the first quarter of 2025. Market Data increased 2% and Corporate Services was up 19%. OTC Link's performance primarily resulted from robust trading volume across our markets, $230 billion in dollar volume of shares traded, a nearly 30% increase from the same quarter last year. Trading volume on our Overnight, MOON and ATS also grew significantly as we gained market share. Our Link team also increased the number of unique broker-dealer subscribers across our multiple ATSs. Market Data's more modest growth resulted from a combination of growth in the number of enterprise and professional users of our data sets and targeted price increases for certain products. While pricing power is critical, especially in inflationary environments, growing users and usage is more important. Our enduring success comes from consistently adding product functionality and valuable new features, improving services, continuously expanding our distribution network. These are the incremental improvements that compound like interest. The Corporate Services business carried its momentum from the end of 2025 into the first quarter. The growth was largely due to the continued impact of the OTCID Basic Market, which launched on July 1 of last year. Notably, we saw subscriber growth on both the OTCQX Best and OTCQB Venture Markets as well as growth in the overall number of corporate clients using our services. The engagement of our issuers is a key metric. The more successful we are at educating and connecting companies to be transparent and compliant, the stronger our markets will become. Over the long term, we remain strategically focused on client success and retention by helping connected companies close the investor and broker information experience, trading and compliance gap with exchange-listed securities. While I am always pleased to report revenue growth, we also continue to focus on operating efficiency and thoughtfully aligning our costs. Our operating expenses rose 10% during the first quarter, driven largely by our investment in our people who build our platform. As our business grows, I remain thankful for the dedication, skill and focus our colleagues bring every day. On a personal note, last week, we announced the departure of Jason Paltrowitz, who had been our Head of Corporate Services for the past 12 years. Jason played an important role in building the business we have today, and we're grateful for the foundation he helped create. I want to thank him for all of his contributions, express our deep appreciation for what was built together and wish him every success in the future. We have a strong senior sales and client service team in place, and we are confident in their ability to propel the business going forward. We are conducting a search for his replacement, and we'll report on our progress in future earnings calls. Our results reflect strong trading [ markets ], the execution of our strategic plans during 2025 with respect to overnight trading and the OTCID market launch as well as a focus on our mission, vision and strategy as we begin 2026. Specifically, we saw the continued growth of MOON ATS, our Overnight ATS for NMS securities. The team has built a dedicated group of subscribers, increased market share and experienced significant growth in the number of transactions. The industry is preparing for exchanges to enter the Overnight NMS trading markets, which should both grow the pie and shift the competitive landscape. We also, of course, remain focused on onboarding subscribers to our OTC Overnight market. Providing seamless access to top-traded OTC securities that global investors want to trade during hours more convenient for non-U.S. time zones remains a key part of our vision for overnight trading. Our first quarter results also benefited from the tailwinds of our successful OTCID Basic Market launch. It enhances our offerings for corporate clients, filling a gap below our premium OTCQX Best and OTCQB Venture Markets. We had over 1,000 companies traded on OTCID at the end of the first quarter, and the momentum from this market led to increased interest in our higher standard markets as well. OTCID is well aligned with our strategy of connecting more companies to their U.S. trading market to improve market quality and compliance with U.S. securities regulations. As I have said, our primary focus is to increase the percentage of connected companies and related dollar volume on our markets. The connected companies trading on OTCQX, OTCQB and OTCID contributed roughly 29% of the dollar volume traded on our markets during the first quarter compared to 20% during the first quarter of 2025. As we strive to move these metrics higher and better inform investors, we will improve overall market quality, trading efficiency and further separate companies on our premium markets from the imperfections and inefficiencies of orphan securities traded by brokers on our Pink Limited market. In addition to driving execution and improving utility in our products, we launched last year, we have also been preparing our trading systems for the introduction of tokenized and digital asset securities into our markets. The SEC and Congress have begun to provide more regulatory clarity in these areas, and we are devoting resources to prepare to support our FINRA member broker-dealers, Market Data customers and other market participants as they innovate around these new technologies. As Washington grapples with these complicated issues, we continue to push for modernizing digital asset regulation without undermining market integrity. We believe a technology-neutral approach rooted in existing regulatory principles will foster responsible growth, prevent regulatory arbitrage and continue to reinforce confidence in U.S. market structure. As a component of our regulatory priorities, we remain intent on achieving state Blue Sky law compliance for our own security and across our OTCQX Best market. Throughout this year, we plan to introduce initiatives that highlight the value of Blue Sky compliance to companies, investors, brokers and advisers. As of today, we have achieved Blue Sky compliance for our own OTCM shares in all 50 states, the District of Columbia and 2 out of the 3 U.S. territories, nearly completing our goal. We will leverage our experience to efficiently map the path to national compliance for our corporate clients. We expect to see 100% Blue Sky compliance as a metric that our blue-chip OTCQX companies can achieve and display proudly. International trading growth has been a hallmark of our markets in recent years, and the trend continues into 2026. As part of our objective to capitalize on global interest in our markets, I am pleased to announce that earlier this week, we officially opened our Hong Kong office. This international outpost will help further our mission to educate non-U.S. companies in APAC about how best to use our market structure, data and disclosure tools to connect with more investors, be compliant with U.S. securities laws and build their brands in the U.S. I look forward to continuing to update you on our progress throughout the year. As I discussed in our last earnings call, we have made a strategic determination to increase our quarterly dividends to better balance the ratio between quarterly and special dividends. We have also begun opportunistically buying back shares in the market. I'm pleased to announce that on May 5, our Board of Directors declared a quarterly dividend of $0.30 per share payable in June. This dividend reflects our ongoing commitment to providing superior shareholder returns. With that, I will turn the call over to Antonia. Antonia Georgieva: Thank you, Cromwell, and thank you all for joining us today. I would like to begin by thanking our entire OTC Markets team for delivering a strong first quarter and executing effectively on key initiatives that position the company well as we enter 2026. I will now review our results for the first quarter ended March 31, 2026. Unless otherwise noted, all comparisons are to the first quarter of 2025. Turning to Page 7. For the first quarter, we generated gross revenues of $34.8 million, an increase of 14%. Revenue, less transaction-based expenses, increased 12% to $30.4 million. OTC Link experienced the strongest revenue growth across our business lines in the quarter with a 31% increase, driven by significantly higher trading activity on OTC Link ECN and OTC Link NQB as well as a meaningful ramp-up of trading on MOON ATS. As a result, transaction-based revenue generated by these platforms increased 52%, while transaction-based expenses paid to liquidity providers increased 45%. During the quarter, average daily trade on OTC Link ECN and OTC Link NQB reached approximately 96,000, a 70% increase year-over-year, while MOON ATS saw approximately 71,000 average trades and 7.2 million average shares traded per session. Growth was also supported by an 11% increase in usage-based revenues from OTC Link ATS, primarily related to a higher volume of messages. Trading volumes remain highly unpredictable and could decline in the future. OTC Link also saw growth in broker-dealer subscribers with 147 unique subscribers across our ATSs at quarter end, up from 141 a year ago. This reflects the value of our open platform that offers a range of ATSs with different market microstructure models designed to support the diverse business, operational and compliance requirements of our broker-dealer subscribers. Revenues from Market Data Licensing increased 2%, reflecting a modest 1% increase in redistributor-based revenues and a 3% increase each in revenues from direct sold licenses and data and compliance solutions. Within redistributor-based revenues, professional user revenues increased 3% due to a commensurate increase in professional user count, partially offset by a 32% decline in nonprofessional user revenues as a result of a 14% reduction in reported nonprofessional users. Historically, and in the normal course of business, the number of nonprofessional users has fluctuated with market activity and may continue to fluctuate in the future. Revenues from direct sold licenses increased 3%, driven by price increases for certain licenses and growth in subscribers, partially offset by the elimination of certain onetime revenue recognized during the prior year quarter. Increased revenues from data services and the Blue Sky data products contributed to overall growth in data and compliance solutions revenue, partially offset by lower revenue from EDGAR Online. Corporate Services revenues increased 19% in the first quarter, reflecting improved sales and higher average company counts across our markets. OTCQX revenues increased 7% and OTCQB revenues increased 16%, supported by growth drivers and pricing adjustments effective January 1, 2026. In the first quarter, we added 37 OTCQX companies compared to 22 in the prior year quarter and finished the period with 575 OTCQX companies, up 5%. On OTCQB, we added 89 new companies in the first quarter compared to 60 in the prior year period and had 1,131 OTCQB companies at quarter end, up 8%. Revenues from our OTCID market and from Pink Limited subscribers to the disclosure and news service increased 51%, reflecting the continued impact of the OTCID Basic Market launch in July 2025. We ended the quarter with 1,074 OTCID companies compared to 1,035 companies at launch. Overall, we had a combined 1,456 OTCID companies and Pink Limited subscribers to DNS and other products at the end of the first quarter, representing a 12% increase from 1,303 companies at the end of the prior year period. Month-to-month variability in our Corporate Services subscribers is driven by new sales, offset by nonrenewal corporate events and compliance downgrades. Turning now to expenses on Page 8. Operating expenses increased 10% year-over-year with a 9% increase in compensation and benefits, 16% increase in IT infrastructure and information services costs and 29% increase in professional and consulting fees, driving the overall expense growth. Compensation and benefits comprised 64% of our total operating expenses in the first quarter compared to 65% in the prior year period. Turning to Page 9. Operating income increased 19% to $8.6 million and operating margin expanded to 25.5% compared to 24.7% in the prior year period. Net income was $7.1 million, up 17% and diluted GAAP earnings were $0.59 per share, up 18% year-over-year. In addition to certain GAAP and other measures, management utilizes adjusted EBITDA, a non-GAAP measure, which excludes noncash stock-based compensation expenses. Our adjusted EBITDA was $11.2 million in the first quarter, up 14%, and our adjusted diluted earnings were $0.93 per share, up 15%. Cash used in operating activities amounted to $231,000 and free cash flows were a negative $746,000 compared to cash used in operating activities of $818,000 and free cash flows of negative $934,000 in the prior year, respectively. Turning to Page 10. During the first quarter, we returned a total of $6.8 million to shareholders, including $3.6 million in dividends and $3.1 million in share repurchases, representing a 33% increase from the prior year. Overall, the first quarter reflected a strong start to 2026 with revenue growth in each business line, expanding margins and continued progress on initiatives across OTC Link, Corporate Services and Market Data Licensing. We remain focused on disciplined execution, investing selectively to support growth and returning capital to shareholders while maintaining financial flexibility. With that, I'll turn the call back to the operator to open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Steve Silver with Argus Research Corp. Steven Silver: Congratulations on the quarter and my condolences on the team's loss. So earlier this week, the SEC proposed a rule that would allow public companies to switch from quarterly to semiannual reporting. I'm just curious as to your initial thoughts on what the potential impact of such a rule might be on investor transparency and market integrity and maybe even corporate disclosure trends. Daniel Zinn: Steve, thanks for the question. It's something we were expecting to see for a while. So the release of the proposed rule is not a surprise. I think we'll learn a lot from seeing how the comments come in. Already in the past 48 hours, we've seen fairly strong commentary on both sides of the debate. From our perspective, we're excited to see the SEC focus on disclosure and how investors have access to information. We obviously track it very closely as we think about our OTCQX and OTCQB rules and the way in which investors interact with the companies that trade on our markets. We think there is a lot of potential in the rule and the ability to give companies more control over the way in which they communicate to investors. We are a disclosure-based market and feel strongly about that topic. But we're going to wait and participate in the comment process and watch the comment process unfold as we consider how to make changes and inform the companies on our market. Robert Coulson: As Dan said, the comment process is going to be really important because we're all for reducing the burdens on public company and also expanding the benefits of being a public company. There will be lots of points to consider because there's so much more compliance scaffolding around the quarterly release cycle: what happens to blackout periods, what happens to continuous offerings in shelf and ATMs, how can the quarterly earnings press release fill in part of the information gaps. And we're excited that the SEC is looking at how we can make Americas markets more competitive. And there are many markets around the world, which have the semiannual reporting. A concern would be that we move from a quarterly report of 3 quarterly reports a year and a big annual report to that the semiannual reports look like an annual report. And we have to balance all of these things. So we're very positive that the SEC is opening up the conversation, and we think it will really drive efficiency of what information is material for investors, for the market to do its pricing process. Steven Silver: Great. And one more, if I may. So in data licensing, even though the year-over-year declines in nonprofessional users was pretty significant, since the middle of last year, the sequential trend has been positive, I think, about 20% growth in nonprofessional users. And I know that nonprofessional tends to be a proxy for retail participation in the market. I'm just curious, your thoughts, as to the trends that you're seeing in the growth of nonprofessional as the number of daily transactions has been extremely strong over the last couple of quarters. Antonia Georgieva: If I'll take you back to our disclosure in Q1 of 2025 and actually in Q2 of 2025, when we mentioned that we had a loss of a customer -- of a broker-dealer customer who accounted for the majority of the decline in nonprofessional users, so that is why the quarter-on-quarter comparison shows a 14% decline in those numbers, but the sequential is a lot different. Daniel Zinn: And Steve, you have to understand because we offer extremely competitive enterprise licenses to broker-dealers, the nonprofessional licenses are a way to bring broker-dealers into our markets. However, when they have enough demand, they will move to enterprise licenses often. Operator: Our next question comes from the line of Aashi Alpesh Shah with Sidoti & Company. Aashi Shah: I'm here on behalf of Brendan McCarthy at Sidoti. And I would just like to ask a couple of questions. It looks like the transaction-based expenses rose 45% year-over-year to $3.4 million, well ahead of the recent quarterly readings. I understand higher volume drove this up, but are there any one-off items included in this? Antonia Georgieva: Aashi, that expense is directly correlated to the volume of trading activity as is the transaction-based revenue. Again, to reference back the numbers, the transaction-based revenue was up 52%. Transaction-based expenses were up 45%. The difference here is the way MOON ATS generates revenues, but does not pay the liquidity rebate. And as we've seen a ramp-up in the MOON trading activity and the MOON-related revenue, we have not seen the commensurate increase in transaction-based expenses, which again are related to OTC Link ECN and NQB, but not MOON. Aashi Shah: Right. That brings me to my next question. How much of the year-over-year volume increase was driven by the MOON ATS? Also, how much of the transactional revenue increase on OTC Link was driven by MOON? Antonia Georgieva: As we mentioned, the increase in average daily trades on OTC Link ECN and NQB was approximately 70% to 96,000, up from 56,000 approximately in the last year first quarter. MOON ATS really began to ramp up towards the end of 2025. So there isn't volume to speak of last first quarter, while this first quarter, we have been reporting the MOON statistics publicly every week. And as I mentioned, average trades per trading session were approximately 71,000 in the first quarter or alternatively, you can think of it as approximately 7.2 million shares traded per session. Aashi Shah: Right. And the subscribers to the OTCID market grew very nicely. How much of that was new adoption versus migration from the existing tiers? Daniel Zinn: So for OTCID, it's similar to what Antonia described earlier, where this is a market that started in July of last year. So the year-over-year comparison doesn't work quite as well. What we saw in OTCID was a lot of -- well, some degree of migration from companies that had just purchased our disclosure news service product moving into this market and then some new companies joining as well. There hasn't been migration from OTCQX or OTCQB to speak of, right? It exists and it's possible for companies to move into that market. But for the most part, the movement has been the other direction, moving from OTCID up the chain. Antonia Georgieva: Aashi, we have explained in the past as well that we do see movements between tiers as our companies choose to upgrade to a higher tier or when companies fail to meet the continuous requirements for QX and QB, they could move to a lower tier. And we see that movement on a regular basis. So you should expect for that trend to continue in the future. Robert Coulson: And at baseline, you've got OTCID, you have disclosure and management certification of compliance with U.S. securities law. To move up, there are financial standards, [ law] and governance requirements. So it is a system that encourages companies along their journey as a public company to maximize the level of market that they can achieve. Operator: [Operator Instructions] Our next question comes from the line of Walter Hopkins with 18th Square LLC. Walter Hopkins: Congrats on the great quarter. I'd love to hear more about the Asia strategy and what opportunities you're seeing over there across both Corporate Services and Overnight trading. Do you have any sense on whether it will be a big office? Or are you sort of more in a wait-and-see mode with that? And will the folks over there be working on Overnight trading initiatives alongside the Corporate Services? Robert Coulson: Thank you, Walter, for the question. I'm hoping that the people we're hiring are not wait-and-see people. You're giving me a nightmare of the old Maytag repairman ads. What we want is to be active in the Asian markets and targeting both sides, using Market Data to talk to the local trading and broker-dealer communities, both selling our Market Data wider to expand our network and building understanding of the opportunities to trade, both overnight and during the regular U.S. session and educating companies, engaging companies. We can all look at the numbers of companies going public on their local markets in Asia and the volumes and the improvement in disclosure and corporate governance. And the real advantage, the exchanges in Asia are closer to the corporate clients and better understanding of local regulations. So the trend should be that compliance can improve and there will be more public companies. And so we want to be understood and part of that and actively building a business there. Walter Hopkins: I noticed the mention of IT infrastructure and info services associated with product testing. Can you share any additional details regarding the product testing? Antonia Georgieva: We continuously innovate across our business lines, and we have for many years now, moving data sets and other capabilities to the cloud. So that is what this is mostly related to. Walter Hopkins: Understood. Could you talk a little bit about the IT expenses and the professional services expenses and to what degree they're onetime versus ongoing? I know you have the disclosure in the back of the filing that identifies the -- some of the regulatory and clearing costs or something like that. But just anything beyond that disclosure? Antonia Georgieva: So there is a significant variable component in professional and consulting expenses, which is due to regulatory and clearing costs, which in turn are correlated with the volume of trading activity. And that was the primary driver of the increase in professional and consulting expenses this quarter. Similarly, in IT infrastructure and information services costs, there are some variable components related to trading activity. And in addition, we also mentioned that some of the information services expenses increase was related to the Overnight initiatives as we acquired additional data sets to drive the Overnight business in particular. And I'll turn it over to Dan for additional -- and Cromwell for additional discussion on regulatory and clearing. Robert Coulson: Walter there are many more successful CEOs and investors who've spoken about the fallacy and fibs around onetime expenses. We have expenses. We run a business, and we have expenses, which show up and they can be chunky. And there's a part for every management team when expense shows up and it isn't a regular bill they've been paying like rent and they go, "Oh, this is terrible," and they start to manage numbers. That's -- having come from an investor focus, that never creates a good culture. So there's going to be chunky expenses around. I don't really like the idea of onetime expenses in general because it's an expense that you had to pay to run your company. But I will leave people more eloquent from Warren Buffett to Charlie Munger, all the way to Seth Klarman to talk about onetime expenses, which are -- I think, will share our perspective strongly. Walter Hopkins: This is more of a high-level question. The market appears to be valuing OTC Markets as a high quality but low to no growth company. Historically, however, you've successfully run OTC Markets as a growth company with the growth investment coming through the income statement rather than CapEx. So I can kind of see how uninitiated investors might assume from the financials, namely the lack of CapEx and full distribution of free cash flow via dividends and now potentially opportunistic repurchases. I can see how those uninitiated investors might see a company that's not aiming for growth. But over the long run, OTC Markets has served its customers well and been rewarded with very solid, albeit lumpy organic growth. How would you explain -- and I don't love this term, but how would you explain the so-called growth algorithm to investors who are looking at the financials of OTC Markets? Robert Coulson: Opportunities, just like costs, are chunky. And some opportunities, when it looks really good -- we didn't invent trading after COVID. It looked really good. But then we get ourselves back up to a plateau. And often, when it's looking really good, you're having to backfill expenses and -- because you're really focused on supporting the client demand and then you're strengthening the platform and the scaffolding. And the changes we've been making into our markets, which is how do we connect broker-dealers, how do we put better information onto screens and into machines and how do we improve compliance. All of those things, because we've had this great opportunity as markets have moved from analog to digital, make our markets better, which allows them to become bigger. And we get to participate along with our clients. So we've had a consistent strategy. I would say, our biggest counter positioning to understand is the large exchange groups. Their goal is to take 2/3 of every dollar their customers pay them and put it in their operating profits. There are lots of other businesses where the margins we've traditionally operated at are considered fantastic businesses. And yes, people build our platform, improve our products, expand our networks. And it's a collaborative approach. We cannot be successful without the broker-dealer community, and that's both the market makers, the online brokers, the larger banks. We cannot be successful without a collaborative relationship to work with regulators. Often, the regulatory relationship has been 99% discussing investor protection and market efficiency and capital formation are afterthoughts. That has changed with this administration, so we're excited, and working with issuers. You cannot have an efficient market process without engaged, transparent and compliant companies focusing on supporting their investors and good governance. Those are all works that take time. And you look at what we're achieving in Blue Sky. When we launched the OTCQX market, it wasn't recognized anywhere. There was no path to 100% Blue Sky compliance across 50 states, the District of Columbia and the 3 territories. We are like Lewis and Clark. And our legal team, our compliance team, our Blue Sky team has been speaking to the securities -- state securities departments in every state, and they will continue because even when we get there, we will find ways to be more efficient, and work with regulators. But once we can do that, we're using our markets to close the functionality gap with the NMS exchanges. And that takes time. Walter Hopkins: Are you willing to share -- sorry, just moving back to a prior question. Are you willing to share the revenue contribution of MOON during Q1? I think it kind of -- the question or response kind of morphed into a quarter-over-quarter response, but I was just curious. And if you're not willing to share, it's totally fine. Antonia Georgieva: It has become, as we were hoping, a nice contributor to transaction-based revenue in the first quarter, but we're not breaking it out at this moment. And remember, we are all expecting the entry into this market at year-end by the exchanges, which will change the competitive landscape quite significantly. So we'll continue to run it and invest in it. Robert Coulson: And learn from it. Antonia Georgieva: And learn from it. Robert Coulson: I mean this is a great learning experience. It's -- there's lots of little events that are taking place, which are opportunities for us to sharpen our skills internally and the services we offer broker-dealer subscribers to serve their clients and succeed on a commercial basis and expand their product offering. As I said, exchanges are entering the space. The pie will grow. The competitive stance will shift. During the daytime, half of trading takes place off exchange. So there is an opportunity. That said, the competitive positioning and offering with exchanges is going to be different. And for us, we are going to learn a lot, and we're going to have productive conversations with clients on how we can support their success with our platform and our product offering and our pricing strategy that delivers everyday value to broker-dealers. Walter Hopkins: Makes a lot of sense. This is my last one. Finally, under what circumstance would you consider a tender offer? Maybe that can make sense, given the liquidity of the stock and could benefit long-term shareholders. Robert Coulson: My concern of a tender offer is it turns you into a [ liquidity-rich model ]. And so we're back in the market buying, however, not trying to put our thumb on the scale on the pricing. And the market will trade our shares where they are. I'll go back to Warren Buffett. We don't run our company for people who are selling their shares. We run our company for shareholders who want to hold our shares as we grow the value over the long term through different economic cycles. And that is our hope. Operator: Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Cromwell for closing remarks. Robert Coulson: Thank you, operator. And thank you to our investors, and thank you to the investors and the analysts who asked questions. I want to thank each of you for joining us today. I would encourage you to read our full quarterly report and the earnings press release for more information. Links to both are available on the Investor Relations page of our website. On behalf of the entire team, we look forward to updating you on our key initiatives that will continue to shape the integrity and competitiveness of the public markets. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. I'm Costantino, your Chorus Call operator. Welcome, and thank you for joining the Türk Telekom conference call and live webcast to present and discuss the first quarter 2026 financial and operational results. [Operator Instructions]. The conference is being recorded. [Operator Instructions]. We are here with the management team, and today's speaker is Omer Karademir, CFO. Before starting, I kindly remind you to review the disclaimer on the earnings presentation. Now I would like to turn the conference over to Mr. Omer Karademir, CFO. Sir, you may now proceed. Omer Karademir: Hello, everyone. Welcome to our 2026 First Quarter Results Conference Call. Thank you for joining us today. Let's go to Slide #3. I will start with a quick update on markets and our leading position. Global markets in Q1 '26 were shipped by rising geopolitical tensions and the feds cautious staff. The Fed kept its guidance that further easing will be approached carefully, pending a sustained improvement in inflation. Regional tension in the Gulf and geopolitical developments triggered a spike in energy prices and volatility in global risk appetite. In Turkey, the Central Bank cut its post rate by 100 basis points in January, but kept it on hold in March and April in response to heightened global uncertainties and risk to the inflation outlook. Year-end inflation expectation in the April 2026 market participant survey stood at 27.56%. Aim at this environment as Türk Telekom Group, we remain focused on sustaining our strong operation and financial performance through our disciplined and proactive approach. We started the year with our strategic long-term investments and strong operational and financial results in the first quarter. I would like to emphasize our key investments in our major business fixed line and mobile, which together represents a significant majority of our group revenues and profits. On the fixed line side, we continue to capitalize on our fiber network exceeding 550,000 kilometers as the fixed line concession has been with us for 24 years. Fixed Internet delivered robust KPIs beyond our expectations and along with corporate data, contributed to solid revenue growth and healthy margin improvement. Fixed subscribers opt for higher speeds. On the mobile side, as of April, 5G was launched successfully across all provinces in Turkey. We offer high speed, low latency and superior mobile network performance, supported by our fiber position. Rational competition environment prevailed in the mobile markets, operators took pricing actions in January and April, subscriber acquisition momentum remained strong. Overall, Türk Telekom Group, we are in a unique leading position in Turkey to provide integrated digital services to our millions of customers across the country, we are excited about our company's future vision and growth opportunities and remain focused on delivering strong financial results. Let's move next slide, Slide #4, for financial and operational overview. Consolidated revenues increased by 9% to TRY 65 billion, supported by fixed and mobile segments. Including the IFRIC 12 accounting impact, revenue growth was 6%, in line with our full year guidance. 70% year-on-year EBITDA growth was well ahead of the revenue growth, pushing our EBITDA to TRY 27.4 billion, along with a solid 300 basis points margin expansion year-on-year to 42.3%. Our net profit increased by a solid 56% to TRY 10.5 billion, supported by strong operational performance. CapEx excluding solar investments and license stood at TRY 17 million. It was higher in year-on-year terms due to our long-term 5G investments. Excluding concession and 5G license related payments, unlevered free cash flow stood at positive TRY 1.7 billion. This figure indicated a decline from TRY 10 billion in first quarter of last year as a result of higher CapEx and one-off base impact in last year from change in net working capital. Net leverage stood at 0.99x compared to 0.6x at 2025 year-end. Excluding payment of USD 1.1 billion in first quarter related to concession renewable and 5G license, net leverage would have remained constant. Moving to Slide #5. I will provide update on our net subscriber additions. Our total subscriber base exceeded 57 million with 613,000 net additions Q-on-Q. Excluding the 163,000 loss in the fixed voice segment, quarterly net additions were 776,000. Fixed broadband subscribers slight declined by 19,000 Q-on-Q2, EUR 15.4 million. Despite the retail price action we took in January, the activation volume was similar to what we have seen in the first quarter of last year. Q1 churn increased modestly in year-on-year terms, while declined Q-on-Q under the impact of accelerating contract expirations. Both retail activation and churn performance are positively impacted by the acceleration in our greenfield fiber investments. Retail net additions exceeded our expectations, thanks to lower churn whose subscriber base didn't change materially. Mobile segment added 712,000 subscribers on a net basis, pushing up the total base to 32.2 million. Both actuation and churn volume remained higher in year-on-year basis, driven by the postpaid segment. Mobile net additions were supported by 571,000 of MTM additions by the corporate segment. Subscriber growth remained on a strong track with 87,000 net postpaid additions excluding MTM postpaid and prepaid segments added 50 -- sorry, 668,000 and 54,000 subscribers. If you can go to Slide #6, let's look at our fixed broadband performance. We had a very strong performance in fixed broadband. We introduced a retail price division for new acquisitions in January as most places in the market followed our price adjustments. Price parities have rebalanced in favor of our retail activations by the end of the quarter. Subsequently, we adjusted the steel segment price for existing customers in March. The contracting volume scored significantly higher year-on-year. ARPU growth remained strong at 18% year-on-year in Q1 despite the last year's high base of 19%. The combination of solid upsell and sustains the contracting performance along with successful price implementation enabled us to maintain high growth. We expect the robust ARPU trajectory to continue in 2026. Average of both our total and retail subscriber base increased by near to 111 and 120 megabits. 6% of our subscribers now use 50 megabits and above package compared to 51% a year ago. Moving on to mobile performance. Let's go to Slide #7. Our strong customer growth continued in mobile segment, the ratio of competitive environment visible by the end of 2025 prevailed in the first quarter of 2026, price revisions were made in January and April. M&P market size, which was higher in the first quarter of 2026 in year-on-year terms declined slightly from its historical height at the end of 2025. Postpaid segment recorded 658,000 net additions in the first quarter. With that, total net additions surpassed 712,000 in total. The ratio of our postpaid subscribers in total portfolio rose to 80% from 76% a year ago. Excluding MTM, postpaid base added 87,000 subscribers. Mobile ARPU excluding MTM came down by 4% year-on-year over last year's strong 21% base. In the first quarter 2026, we are seeing a normalization in annual mobile ARPU growth as already seen in the third and fourth quarters of 2025. Let's go to Slide #9 to update you on our summary financial performance. Consolidated revenues increased by 9% to TRY 65 billion from TRY 60 billion in the same period of the period year. Fixed broadband, corporate data and ICT projects led growth, revenues rose strongly in the quarter, driven by the acceleration in fiber investments. Excluding the FX accounting impact, Q1 '26 revenues reached TRY 61 million, up 6% year-on-year, including increase of 17 points ,8% in fixed broadband, 15% in TV and 28.1% in corporate data, while mobile international and other revenues declined by 1% and 27.5% and 0.7%, respectively. Fixed voice remained flat year-on-year. Fixed internet and mobile revenues together accounted for 77% of operating revenue. Fixed internet made the largest contribution to growth TRY 3.2 billion higher revenues in total year-on-year. Corporate Data and ICT solutions added a further TRY 2.3 billion white call center intentional revenues and equipment sales declined by a combined TRY 2.1 billion. Mobile revenues were lower by TRY 253 million. ICT Solutions recorded significant growth supported by new projects won by our subsidiary, Innova, the decline in cost center revenues in line with our expectation was attributable to projects that completed in the second half of the last year. While our international business was impacted by the decline in international voice revenues, which is kind of a seasonal business with lower margins. Moving on to EBITDA. Direct costs fell 3.5% year-on-year. The decline in interconnection cost was driven by contracting international voice revenues. The equipment costs were lower year-on-year as well. Commercial costs rose 27.7% while the cost declined 2.5% year-on-year. The increase in commercial cost was driven by higher spending across sales and marketing and advertising line items. Between other costs, network expense increased 1.3% year-on-year. The 4.1% year-on-year decline in personnel costs can be explained by the reduction in head count at our call center subsidiary due to project completions in the second half of 2025. Excluding the accounting impact, OpEx to sales ratio improved from 61% in Q1 '25 to 58% pointing to continued enhancement in operational leverage. Consolidated EBITDA increased by 17.1% year-on-year to TRY 27 billion, while the EBITDA margin improved by 300 basis points year-on-year to 43.3%. Excluding the accounting impact, the EBITDA margin expanded by 395 basis points year-on-year to 44.1%. Coming to our net profit. Net financial expenses increased by 27% year-on-year and 66% Q-on-Q. The interest income declined from TRY 2.3 billion to TRY 659 million Q-on-Q as we made a payment of USD 1.1 billion in the first quarter regarding 5G and concessions renewable. Moreover, FX hedging expenses rose 108% year-on-year and 28% Q-on-Q on the back of higher FX liabilities. The average hedge costs remained flat on a Q-on-Q basis. On the balance sheet side, monetary gains surged by 80% year-on-year to TRY 14 million as nonmonetary assets of 5G license and fixed concession extensions were included in our balance sheet in the first quarter of 2026. These long-term assets revalued each quarter with inflation index. In Q4, a total excess of TRY 7.1 billion as deposits, largely consisting of deferred tax expense. The effective tax rate was 40%, mostly due to inflation accounting. We assessed that the deferred tax expense recorded will have a very limited impact on near-term cash flows with the total FX spread over an extended time horizon. Overall, Türk Telekom Group recorded a net income of TRY 10.5 billion for the period, up by 56% year-on-year. driven by strong operational performance. Let's go to next Slide #10 to review our CapEx numbers. CapEx spending rose to TRY 17 million in the first quarter compared with TRY 10 million last year on the back of higher 5G rollout expenditures. As usual, fixed line CapEx, most importantly, the fiber access and core network investments took higher shares in total bit 51% rate, 23% of spending went to mobile, while another 50% went to IT and project investments and rest other investments. Moving on to Slide #11, you can see our debt profile. Türk Telekom have total 30.4 billion cash and cash equivalents of which 56% is FX based. The FX exposure includes U.S. dollar to 2 months of 3.3 billion of FX denominated debt, 2.7 billion concession and mobile stance liabilities, 3.1 million of total hedge position and 382 million of hard currency cash. Net debt over EBITDA increased to 1x from 0.6 as of 2025 and on the back of 5G and concession renewal payments. Net debt over EBITDA would have remained flat Q-on-Q, excluding those payments. In January, we paid the first installment of 5G license, namely USD 365 million and plus 215 million and the VAT amount of concession extension word of USD 500 million. By the end of the year, we will have also paid the second installment of 5G license and the first installment of concession extension. We prepared detailed schedule of payments and income statement and balance sheet impact for your easy reference. You can find it in the appendix of this presentation. I want to emphasize that the increase in FX liabilities is due to our longer-term investment in 5G spectrum and concession. Our future payments are extended over a long-term period until 2035 and the payments will be in Turkish lira. We also actively manage our FX exposure risk through hedge. Moreover, while concession and 5G liability has been additional FX exposure. On the asset side, they are revalued under inflation accounting and hence, creating monetary gains, which, as a result, balance P&L impact overall. Let's go to Slide #12, where we provide update on our cash flow and FX exposures. We recorded USD 2.5 billion short FX position compared to USD 102 million as of year-end due to booking of USD 2.7 billion 5G and concession general liabilities. Excluding those payments, our net FX loan position is positive USD 162 million. Finally, we generated positive TRY 1.7 billion of unlevered free cash flow in Q1, excluding 5G and concession renewable payments compared to THB 3 billion in Q4 and TRY 10 million in the same quarter last year, annual decline is mostly due to higher CapEx. Moving on Slide #13. We provide update on 2026 full year guidance. Our business performance as a whole was in line with our expectations in Q1. We expect operational revenue growth to accelerate in the remaining quarters of 2026. Yet, first quarter inflation came in slightly higher due to regional geographical developments, putting pressure on real growth. We will update our revenue growth guidance, if necessary, based on the performance of our business line in first half and the cost of inflation. We currently do not see major downside risk to our 41% to 42% EBITDA margin guidance. Türk Telekom Group we remain cautious, especially regarding inflation expectations and prudently monitoring regional geopolitical developments and taking necessary actions. This concludes my presentation. Thank you for your listening. And now we can open up the Q&A session. Operator: [Operator Instructions]. The first question comes from the line of Cemal Demirtas with Ata Invest. Cemal Demirtas: Congratulations for good results. My first question is about your short FX position. It's TRY 2.5 billion. Could you further elaborate this in terms of risks going forward? Most possibly, it's going to be critical for the next 2, 3 years? And what are the plans on your sites? And I would like to understand the hedging costs. Did you see any increase in the hedging cost in April compared to March? And do you see any risk on your guidance for CapEx considering the risks on the FX side? This could be very helpful from the CapEx and FX position side. And the other question is about the business side. We see some decline in the mobile side, could you also further elaborate that? And connected with this, how do you see the outlook so far for the second quarter in terms of the business lines. Omer Karademir: Thank you. For your first question of the FX position. Actually, we have -- we don't have a short position. We have long position if we exclude our future 5G and concession payments. So that means for our net sales financial debt, financial payments, we are securing our FX position. And for the -- when these payments happens, so the next schedule is the December of this year, I am reporting our which payments -- the installments of the 5G and the concession payments that will be made in December. After we have made these payments, we will also hedge this open position. We are planning to hedge this open position. So right now, our main strategy is to hedge our financial debt. Based on the hedging cost, actually, we are using the cost costs declining instruments for our hedging policy, and we have access to onshore, offshore and also Central Bank NDF channel we are using the lowest cost for these hedging transactions. So the average cost of hedge didn't change compared to last quarters of 2025. And it is -- it was -- I mean, it was similar for the first quarter. But in April, we have seen some in at, I mean, from the payment side from the cost side. In April, we have witnessed slightly an increase for hedging costs. But the main factor of our expenditure for this hedging transactions comes from the hedge volume. The payments for 5G and concession in the first quarter with the VAT. As a total, it is USD 1.1 billion. That's increased our total hedge amount. The main difference comes from this hedge volume. But with the help of this inflation program of Central Bank and the government as we have witnessed in the second half of the last year, the hedging costs, we are expecting to decline in the hedging costs but hedging volume will be similar until the end of this year. I hope this answers your first question. For your second question, CapEx guidance. You know, we have -- our guidance was -- our guidance is -- for this year is 23% to 24%. It was realized -- sorry, 33% to 34% for this year. The last year's realization was somewhere 29%. The main difference was coming from our mobile investments for the 5G rollout. The first quarter's realization is 26.3% as we have announced based on the FX increase, unexpected FX increase, we -- our budget numbers, budget numbers are in nominal terms. So we try to limit -- we try to be in the boundary of this budgetary volume. In case of an unexpected FX shock. So right now, we are still stick to our guidance for the CapEx. But we cannot predict easily what's going happen since there is a regional conflict and it will, of course, affect the supply chain we haven't seen it is effects in our CapEx spending at the moment but there will be some effects. We are admitting that. But on the other -- hence, our contracts are not 1 year term. They are 2 to 4 years of term that fixed the price of CapEx spending that will also have us. And for your third question, the business side of mobile, our revenue growth is -- the total revenue growth is almost 6%. And the inflation was for the first quarter, almost 10% that was beyond our expectations. That affects the revenue growth, the increase in the inflation higher than the expectation. But we are still in line with our budget target for the first quarter since the fixed broadband compensated our mobile site. But basically, for the mobile maybe you are referring to our ARPU growth. Cemal Demirtas: Yes. Omer Karademir: The mobile parts, there are 2 main effects we can state. One is base effect. The other is inflation for the base FX, we have realized many higher ARPU growth in the late 2024 and 2025. That is one reason. But another reason is the competitive environment in 2025. That happened, let's say, in the middle of the year. But we saw a rationalization and normalization at the end of the last year. And for this year, we are also witnessing -- we are also witnessing continuation of this normalization since we and other operators to be able to make their price division for January, we have 30% of increase in mobile. And for April, we have 15% with the half of this price adjustments -- and with the half of this normalization in the market, we can expect to -- we can expect a recovering revenue growth that ARPU growth. But it will be in the second half of the year, I can say. Operator: The next question comes from the line of Maddy with HSBC. Madhvendra Singh: Yes. I have a few quick questions. The first is on -- maybe I missed it in the comments, but what has been the price actions this year if you could share that. I think the last price hike was in Jan, but if you could talk about any further price actions you have seen so far? And then the second question is on your energy cost. I understand that most of your network is on grid power. So have you seen any price hikes from the -- on the electricity side -- so if you could share that, any anticipation of higher electricity prices, that will also be great. And then the final one is on the -- under the new fixed construction and licensing, which we have issued for 5G and all. Is there any in the asset ownership clauses or is the asset still owned by the government and you just have the right to operate it? So if you could share any color around that. Omer Karademir: So for your last question, is it for fixed or mobile side? Madhvendra Singh: For the ownership of both. Omer Karademir: Thank you. For your first question about our projections of this year, for the mobile, we have 30% adjustments in January and 13% in April for the mobile. We have 2 price actions for the mobile side. For the fixed side, in January, for 21% for new activations and 17% in March for the existing customers. These are our projections of this year. For energy costs, yes. We are both operating in fixed and mobile interest structure. So we have electricity consumption in our business. as we meet the major of our electricity needs from the 3 markets and national tariffs. Although we observed increased volatility in the market prices from mid-February onwards and the first quarter results were in line with our expectations. The energy markets regulatory authority increased retail electricity price by 6% for the lower tier and 18% for the higher tier of the public and private services sector subscriber groups, and it's effective in fourth of April. And I mean it is lower than our expectations, the increase in electricity by the government. And our energy expenses while decreased by 14% year-on-year constitute almost 5% of our OpEx base in the first quarter of 2026. This rate was 6% for the whole year of 2025. And also, we have a solar power plant. It is now operational and installed capacity of 96 megawatts. It is operational in the beginning of this year. and it will meet 15% of our whole consumption, and we will have 2 more power plants. And as a total, we are expecting to meet 65% of our whole consumption from this solar power plant. And additionally, for the climate environment, climate environment of truck for this year because of the rains, the hydroelectricity plants are fully operational. There is -- the cost of producing electricity is lower than the -- than their peers. So this is also an advantage for us. And in briefly, we haven't witnessed an energy cost up to now. And the last -- and for your last question, the ownership. For the fixed -- the ownership is government. We have this concession -- I'm sorry, the -- for the mobile, all the assets are our own, but for the mobile but we will transfer to government at the end of the license period -- we have additional comments from our [indiscernible]. As [indiscernible] said, the fixed line concession is a great achievement because as you know, the new concession they added a new scope. So as you know, we have the leading operator. We have all the assets. And as Türk Telekom, we developed a brand marketing everything at the end of the concession, if it is not extended, we have to transfer the assets to the government. But obviously, we always extend it and keep our investments. And it is similar and same -- not similar same for all operators. Operator: [Operator Instructions]. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Turk Telekom management for any closing comments. Thank you. Omer Karademir: Thank you all for joining us today. Have a good evening. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling. Good afternoon.
Operator: Good morning, ladies and gentlemen, and welcome to the Teleflex First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded and will be available on the company's website for replay shortly. And now I will turn the call over to Mr. Lawrence Keusch, Vice President of Investor Relations and Strategy Development. You may begin. Lawrence Keusch: Good morning, everyone, and welcome to the Teleflex Inc. First Quarter 2026 Earnings Conference Call. The press release and slides to accompany this call are available on our website at teleflex.com. As a reminder, a replay will be available on our website. Those wishing to access the replay can refer to our press release from this morning for details. Participating on today's call are Stuart Randle, Interim President and Chief Executive Officer; and John Deren, Executive Vice President and Chief Financial Officer. Stu and John will provide prepared remarks, and then we will open the call to Q&A. Before we begin, I'd like to remind you that some of the matters discussed in the conference call will contain forward-looking statements regarding future events as outlined in the slides posted to the Investor Relations section of the Teleflex website. We wish to caution you that such statements are, in fact, forward-looking in nature and are subject to risks and uncertainties, and actual events or results may differ materially. The factors that could cause actual results or events to differ materially include, but are not limited to, factors referenced in our press release today as well as our filings with the SEC, including our Form 10-K, which can be accessed on our website. Now I'll turn the call over to Stu for his remarks. Stuart Randle: Thank you, Larry, and good morning, everyone. Before I review the first quarter 2026 results, I will provide an update on our strategic objectives and our commitment to maximize long-term shareholder value. Teleflex has made demonstrable progress optimizing its portfolio and positioning the company for the meaningful opportunities ahead of us. In July 2025, we completed the acquisition of BIOTRONIK's Vascular Intervention business, expanding our coronary intervention portfolio and establishing a global footprint in the fast-growing peripheral intervention market. In December 2025, we announced agreements to sell the acute care, interventional urology and OEM businesses as part of our overall transformation plan, creating a more focused medical technologies leader with a higher forward revenue CAGR, greater exposure to core critical care and high-acuity hospital markets and a more focused portfolio across Vascular Access, Interventional and Surgical. These strategic divestitures remain on track to close in the second half of 2026. On OEM, we reached an important milestone in March when the Hart-Scott-Rodino waiting period expired. We are focused on completing the remaining closing conditions with a target of closing in the third quarter of 2026. Separately, in March, Teleflex and the buyer of the acute care and interventional urology businesses each received a second request for additional information from the U.S. Federal Trade Commission. We are cooperating with the FTC and continue to expect that transaction to close in the second half of 2026. We remain committed to using the proceeds from the divestitures to fund a share repurchase program of up to $1 billion and to reduce debt by $800 million, reflecting our disciplined approach to capital allocation and our focus on enhancing shareholder value and financial flexibility. We now expect to begin opportunistic share repurchases in the open market during the second quarter of this year, ahead of the previously anticipated timing of following the completion of the strategic divestitures. This action reflects our confidence in the value of the business, the progress we are making on our transformation plan and our commitment to disciplined capital allocation and long-term shareholder value creation. Teleflex is also making progress on its strategic priorities, which include driving durable performance and building a clear financial profile through improved margins, lower interest expense and stronger adjusted earnings per share over time. In the first quarter, we met or exceeded our internal expectations for revenues, margins and adjusted EPS. Pro forma adjusted constant currency growth increased 5.1%, while adjusted operating margin was 18.1%. We remain focused on closing the sale transactions and delivering on our financial objectives for 2026 as well as building further momentum to drive sustainable growth and operating leverage. As previously announced, we launched a multiyear restructuring plan that is expected to achieve approximately $50 million in annual pretax cost savings upon completion in mid-2028. Restructuring activities, which are on track, began in the first quarter of 2026 and savings are expected to accelerate in the second half of the year. In April, Teleflex announced governance changes, including the nomination of Michael J. Tokich, former Senior Vice President and Chief Financial Officer of STERIS, to the Board of Directors as well as the intent to establish a new growth and operating committee of the Board. These actions reflect our continued focus on strong governance, thoughtful oversight and long-term performance. Additionally, we announced that Dr. Stephen Klasko and John Heinmiller will conclude their respective terms on the Board at our upcoming Annual Stockholders Meeting. Dr. Klasko recently accepted a new significant health care leadership role, and Mr. Heinmiller is pursuing other professional interests. On behalf of the Board, I want to thank Steve and John for their meaningful contributions and dedication to Teleflex over their many years of service and wish them well in their future endeavors. Effective following the annual meeting, Andrew Krakauer, who currently serves as the Chair of the Board's Comp Committee, will succeed Steve as Chair of the Board. Andy has served as a Director of Teleflex since 2018. He previously served as CEO and Board member of Cantel Medical Corporation from 2009 to 2016, which was an NYSE-listed provider of infection control products and services during his tenure. Taken together, these actions reflect a more focused portfolio, stronger governance, disciplined capital allocation and a clear path to value creation. And we believe they position Teleflex to deliver improved execution and stronger long-term performance. Finally, I want to welcome Jason Weidman as Teleflex's next President and CEO, effective June 8. Jason is a proven medical technology leader with more than 25 years of industry experience and a strong track record of building and scaling businesses globally. His deep medical technology expertise and proven track record of driving growth, innovation and operational execution make him well suited to lead Teleflex through its next chapter and help accelerate the opportunities ahead. It has been an honor to lead Teleflex as Interim President and CEO, and I look forward to continuing to support the company as a member of the Board. Now moving to our first quarter continuing operations results and updated financial guidance for 2026. All growth rates that I refer to are on a year-over-year pro forma adjusted constant currency basis, unless otherwise noted. Pro forma adjusted constant currency growth for 2026 excludes the impact of foreign exchange, the Italian payback measure in the second half of 2025 of $9 million and the impact of approximately $14 million in continuing operations product revenue that was discontinued at the end of 2025 due to a strategic realignment, but it includes revenue generated by the acquired Vascular Intervention business for the prior full year period. All comments are related to the continuing operations for the first quarter of 2026. For the first quarter, Teleflex revenues were $548.3 million, up 32.3% year-over-year on a GAAP basis and an increase of 5.1% on a pro forma adjusted constant currency basis. In the quarter, we demonstrated strong execution and to a lesser extent, also benefited from some timing of orders in our surgical instrument portfolio. First quarter adjusted earnings per share was $1.39, a 3.5% decrease year-over-year. Early in the second quarter, we were notified that two third-party product suppliers had initiated a recall for certain components included in some of our vascular and interventional kits. We have identified actions to return our products to market and have a remediation program underway. We have included the necessary estimated cost provision within our first quarter results to remediate our current product stock. Although the actions for the remediation may result in some elevated back orders at the end of the second quarter, we do not currently believe that there will be a significant impact on our full year 2026 revenue guidance as we continue to focus on serving the needs of our customers. Now let's turn to a deeper dive into our first quarter revenue performance. I will begin with a review of our revenues by global product category for the first quarter. Starting with Vascular, revenue increased 4.8% year-over-year to $236.8 million, was primarily driven by growth in our hemostatic products in our central venous and other access portfolio. Moving to Interventional. Revenue was $204.7 million, an increase of 3%. Performance for the quarter was driven by intraosseous, right heart catheters and complex catheters. We are continuing our integration of the Vascular Intervention business, which closed early in the third quarter of 2025. In the first quarter, the sales forces of the legacy Teleflex Interventional and Vascular Intervention businesses were combined. As expected, we have experienced some disruption from the integration and restructuring activities, but we continue to anticipate improving momentum in the second half of the year based on our expanded presence and cross-selling opportunities in the cath lab. As part of our commitment to increasing R&D investment for innovative new technologies, we continue to advance our clinical study for the Freesolve drug-eluting resorbable magnesium scaffold technology. Freesolve's combination of temporary scaffolding with drug delivery is anticipated to address the current trend in interventional cardiology and endovascular procedures towards leaving nothing behind. Recruitment for the BIOMAG-II study, which is a European pivotal trial for Freesolve, continues to outpace our assumption for the study, positioning us for a late 2027 data readout. We intend to expand our regulatory pathway for Freesolve in additional geographies, including the initiation of the BIOMAG-III pivotal trial in the U.S. during 2026. In our Surgical business, revenue was $106.8 million, an increase of 9.9%, which was primarily driven by strong performance in our ligation clip and some timing of orders in our instrument portfolio. Instrument orders can be lumpy quarter-to-quarter, and we anticipate some moderation of growth in the second quarter. That completes my comments on the first quarter revenue performance. Now I'd like to turn the call over to John for a more detailed review of our financial results. John? John Deren: Thanks, Stu, and good morning. All results that I speak to will be on a continuing operations basis for 2026. Due to the reclassification to discontinued operations, [ historical ] continuing operations reflects the impact of stranded costs in all periods presented. Given Stu's previous discussion of revenue, I'll begin with margins. For the first quarter of 2026, adjusted gross margin was 61.4%. The 470 basis point decrease year-over-year was primarily due to the adverse impact of tariffs, quality remediation charges primarily associated with the third-party supplier disruption, as Stu mentioned earlier, higher logistics and distribution costs and the addition of the Vascular Intervention acquisition, which has a slightly lower gross margin than the corporate average. First quarter 2026 adjusted operating margin was 18.1%, the 510 basis point decrease reflected the year-over-year gross margin pressure, higher operating expenses associated with the acquisition of the Vascular Intervention business as well as increased R&D investment, partially offset by the positive impact of foreign exchange rates. Adjusted net interest expense totaled $24 million for the first quarter as compared to $17 million in the prior-year period. The year-over-year increase is primarily due to the borrowings used to finance the Vascular Intervention acquisition. Our adjusted tax rate for the first quarter of 2026 is 18.3% as compared to 16.4% in the prior year. The year-over-year increase is primarily due to higher tax expense associated with stock-based compensation. At the bottom line, first quarter adjusted earnings per share was $1.39, representing a 3.5% decrease year-over-year. The year-over-year decrease is primarily due to tariffs, higher interest expense, partially offset by higher revenue and adjusted operating income, including the impact of the Vascular Intervention acquisition and higher R&D spending and a lower share count. At the end of the first quarter, our cash equivalents and restricted cash equivalents balance was $329.6 million as compared to $402.7 million as of year-end 2025. Net leverage at the quarter end was approximately 2.5x. Now turning to our financial guidance. As we have previously indicated, 2026 results include a number of transient factors related to our strategic divestitures that will impact our near-term results, which we expect to mitigate with the close of both transactions. Therefore, we anticipate 2027 will be more reflective of the underlying business going forward, ultimately building a clear financial profile with significant improvements in margins, interest expense and adjusted earnings per share. With that context, I will review the items that will impact our 2026 results. First, our 2026 guidance reflects the fully burdened cost structure for RemainCo, inclusive of approximately $90 million of stranded costs, but does not include any positive impacts from the TSA or MSAs. Secondly, the exact timing of the closing of the strategic divestitures will pace our ability to deploy capital in 2026. As a reminder, we expect to receive net proceeds of approximately $1.8 billion after tax from the divestitures. We remain committed to returning significant capital to shareholders through our previously announced $1 billion share repurchase authorization and our intention to repay $800 million in debt with the remaining proceeds from the strategic divestitures. As previously disclosed, we expect to begin opportunistic share repurchases under the existing $1 billion authorization in the open market during the second quarter. Any such repurchases will be subject to prevailing market conditions and the company's operating cash flow needs. As we look forward to 2027 and beyond, we anticipate these capital deployment actions in combination with the impacts of the TSA and MSA arrangements and our efforts to further mitigate stranded costs and rightsize the organization will result in a significant increase in both our operating income and margins as well as our adjusted EPS. Moving to an update on our 2026 guidance. Please note that our 2026 guidance is provided on a continuing operations basis, excludes the acute care, interventional urology and OEM businesses. We continue to expect pro forma adjusted constant currency revenue growth for 2026 to be in the range of 4.5% to 5.5%. Turning to adjusted earnings per share. We continue to expect a range of $6.25 to $6.55 in 2026. Our guidance does not include the anticipated positive impact from our announced plans to repurchase $1 billion of our common stock and repayment of debt, which will be primarily funded with the proceeds from the strategic divestitures. We anticipate these actions will result in a meaningfully lower share count and significantly reduced interest expense in 2027 and beyond. Although we have not included the benefits of these actions in our 2026 adjusted EPS guidance, we continue to anticipate closing the strategic divestitures in the second half of 2026 with the OEM transaction expected to close in the third quarter. Taken together, we expect these factors will contribute to significantly higher adjusted EPS beginning in 2027. Additionally, for modeling purposes, you should consider the following: the impact of foreign exchange for 2026 is still expected to be approximately $14 million. We continue to expect our 2026 adjusted operating margin to be approximately 19%, which reflects the full impact of approximately $90 million in stranded costs associated with the separation activities and no offsetting benefit from the TSA and MSA arrangements during 2026. In addition, I would also note that our 2026 operating margin is inclusive of R&D investment of approximately 8% of sales. Of note, when taking into account the positive impacts of the TSA and MSA arrangements in terms of reducing the operating expense profile for continuing operations, we estimate that our underlying steady-state adjusted operating margin will be approximately 23%, which is 400 bps above our fully burdened adjusted operating margin guidance for 2026. Looking forward, we see opportunities over the next several years to improve adjusted operating margin through operating leverage from revenue growth and other cost savings initiatives above our steady-state operating margin profile of approximately 23%. Moving to assumptions below the line. Net interest expense is expected to approximate $105 million for full year 2026. Our estimate reflects the refinancing of our $500 million in 4.625% senior notes, which are due in November 2027 and does not assume any debt paydown associated with the after-tax proceeds from the strategic divestitures. Finally, we continue to expect our tax rate to be approximately 13.5% in 2026. That concludes my prepared remarks. I would now like to turn it back to Stu for closing commentary. Stuart Randle: Thanks, John. In closing, I will highlight our 3 key takeaways from the first quarter of 2026. First, Teleflex is in the midst of a transformation that optimizes our portfolio, creates a more focused medical technologies leader and positions our company for meaningful value creation opportunities going forward. We continue to make progress on the pillars of our strategic plan, which are expected to catalyze a strong financial profile beginning in 2027. Second, we are pleased with the performance in the first quarter with pro forma adjusted constant currency revenue growth of 5.1% year-over-year, tracking towards our 2026 pro forma constant currency growth guidance of 4.5% to 5.5%. In addition, the first quarter performance is aligned with our mid-single-digit growth profile aspirations and represents a strong reflection of the durable growth potential of our go-forward business. Third, we continue to expect our 2 strategic divestitures to close in the second half of 2026. We remain committed to return significant capital to shareholders through our $1 billion share repurchase program while also reducing debt to enhance our financial flexibility and support future growth and value creation. We also remain focused on opportunities to offset the stranded costs from the separation initially through the recognition of transition service and manufacturing service fees of at least $90 million on an annualized basis and longer term through cost optimization. We have already initiated restructuring to drive approximately $50 million in after-tax savings and are actively assessing additional cost reduction programs. With a more streamlined portfolio and clear strategic priorities, we will be well positioned to drive durable performance and long-term value for shareholders. We expect our financial performance to improve through 2026 and more fully capture the benefits of our efforts in 2027 and beyond with meaningful increases in adjusted earnings per share. That concludes my prepared remarks. Now I'd like to turn the call back to the operator for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Mike Matson with Needham & Company. Michael Matson: So I wanted to ask one about the second quarter revenue growth expectations. I know you're not giving guidance, but there were a few things in the prepared remarks that seem to indicate growth could be a bit slower than kind of the annual growth, including this recall issue, the instrument order timing and then the interventional sales integration. So I don't know what you're willing or able to tell us on that, but are you comfortable with the consensus estimate of around $567 million? John Deren: So Mike, yes, to your first point, we're not guiding quarterly revenue. But yes, your observations around those things are -- we did say we would see accelerated growth in the second half of 2026. We still believe that. So we expect accelerated growth. So you can start doing the math through the P&L. Yes, we do have these two recalls that could relate to some back orders, but it's really a bump in the road for us. For one of them, we already have product flowing for the larger one and the other one is really small, to be honest. So I think that while there's always some level of risk and there's going to be puts and takes, I think those are not going to be problematic for us for the full year. Yes, and we did see some instrument order timing for Surgical. We'll continue to see how that plays out throughout the year. So it's hard to tell you exactly that that's going to be a adjustment that could come in Q3, but it's possible it would be Q2 as well. But again, we're not guiding Q2 revenues, but that's all I can tell you on that. Michael Matson: Yes. Okay. I understand. And then just on the interventional sales integration that kind of kicked off in the first quarter, how much of that is being caused -- the disruption being caused by head count reduction versus just reshuffling of territories? Or is it a combination of both of those things? John Deren: So there's -- do you want to... Stuart Randle: This is Stu, I'll take it. It's primarily your latter point, on the restructuring of territories. When we integrated the two sales forces, there's territory realignment, and that's the primary cause of that disruption. Operator: And the next question comes from the line of Jayson Bedford with Raymond James. Jayson Bedford: Maybe just a somewhat unoriginal question, but you beat consensus estimates by about $0.17 in the first quarter. No change to the annual guidance. I appreciate there's a lot of factors going into guidance setting. But is the EPS guidance factoring in any new cost you're seeing in the business? John Deren: No. I mean, Jayson, it is early in the year. Again, lots of puts and takes throughout the quarters. Really happy about the performance in Q1. And so we've decided we're going to -- we'll maintain our guidance for the full year right now. We'll have better information as we go through the second quarter, and we'll be able to update as appropriate then. Jayson Bedford: Okay. Maybe just on the top line, growth across the three segments was fairly balanced. Surgical is obviously the outlier. I'm guessing comps were a factor. And obviously, there was a few puts and takes here on the Surgical side. But within the 4.5% to 5.5% growth guidance, can you just give us an idea of which segments lag, which segments drive the growth? And then maybe touch on some of the segment drivers here. John Deren: Yes. So look, I mean, I think we're happy with all of the segments. In Vascular, CVCs and hemostatics it did really well. Surgical, it's really around our Hem-o-lok and the instrument orders, as we noted. Interventional is doing really well with complex catheters, drug -- DCBs as well. So I think we're really happy with what we're seeing across the portfolio. Again, we don't guide by product portfolio. So I'm not going to get too into that. We do see in the long term, Interventional will be the larger grower. I can't -- I won't signal that yet for 2026, but I think that, that is our expectation. We're putting a lot behind the Interventional product space. We're spending most of our R&D dollars there, and we think there's the opportunity for the most innovation there as well. Operator: And the next question comes from the line of Matthew Taylor with Jefferies. Matthew Taylor: Maybe in terms of what you're expecting from costs for the year, can you help us maybe frame the input -- like the impact of any cost inflation across manufacturing and freight? Maybe help us understand like there's any margin headwind you're seeing today or something you expect in guidance for the year? John Deren: So nothing significant, honestly. We -- obviously, we have seen an increase in L&D costs as the Iran conflict moves on. We had a lot of contracts locked in place when it started. So it kept our L&D costs down in the beginning of the year. We have started to see that inflation as we got to the end of the quarter, and we think we have a lot of opportunities to offset it. So we actively have a number of continuing improvement process programs in place to offset that. So right now, we think our -- the risks that we see are within the guidance range we have given on operating margins. Operator: And the next question comes from the line of Ravi Misra with Truist Securities. Ravi Misra: So I'll just ask my question and follow-up upfront. First, can you provide a little bit more detail on kind of what the role of the new Board committee that you announced was? The growth in operations and kind of how that's going to be constructed in terms of who's on it? And then second, just with Freesolve, it sounds like you commented to faster-than-expected enrollment in Europe. On BIOMAG-III in 2026, can you maybe level set expectations in terms of what you see based on those learnings on how long that will take to fill and maybe when we can get a readout there if everything goes well? Stuart Randle: This is Stu. I'll take the growth and operating committee. We've got a Board meeting next week where we will put together the outline for that committee as well as the members. I think it's fair to say it will focus more specifically -- or in a little more detail on the operations of the company and specifically how we put our growth plans in place and how we monitor the execution of those plans. Lawrence Keusch: And then, Ravi, it's Larry. Just on the BIOMAG trials. Yes, we, on BIOMAG-II in Europe, have been enrolling patients ahead of our expected schedule. and we will -- we are approaching the end of that enrollment period. We'll obviously let everyone know when we get that wrapped up. It is a 12-month follow-up from the last patient in. So that should give you some feel as to when we will see the conclusion of that study. And then obviously, there will be the analysis of the data. And we still expect that data to read out in 2027 in the latter portion of the year. Relative to the U.S., as we have indicated, BIOMAG-III will initiate in 2026. It is a study protocol that is very similar to BIOMAG-II. So you should think about it in similar numbers of patients. We'll see how enrollment goes. Different geographies can be different. But I would anticipate that we'll see that data reading out probably sometime in something like 2030. Operator: And the next question comes from the line of Anthony Petrone with Mizuho Group. We'll take our next question coming from the line of Shagun Singh with RBC Capital Markets. Shagun Singh Chadha: So I believe Jason is starting June 8. Just ahead of his arrival, can you just talk about why he was the best fit for the company? And once he does take on the role, when can we expect to hear about the company's strategic vision? And is there a plan for an Investor Day? And then I have a quick follow-up. Stuart Randle: Sure. Thanks for the question. So we're super excited to have Jason start. As we noted, he's going to start on the 8th. Prior to that, he's got some obligations with Medtronic, but he's clearly going to be actively involved with the company prior to officially starting. Why did we pick them? Really, there were kind of 3 or 4 things. First, alignment with our culture and our values, those being really focused on ethics, integrity and accountability. Secondly, we wanted someone who's a proven growth leader. Jason clearly demonstrated that growth when he managed the stent portfolio at Medtronic. Thirdly, we wanted someone who could manage through significant complexity. As you know, we're integrating BIOTRONIK and working on the sales of our businesses. And clearly, someone who's worked in Medtronic, which, as you know, is a giant, highly complex, a matrix organization, he's had a super successful career there. So he's obviously seen and managed through that complexity. And lastly, global perspective. He's operated with a very broad product portfolio throughout his career on a global basis. So those are kind of the key reasons we brought him here. I talk to him almost every day. He's excited to get started, and we're looking forward to having him. Relative to an Investor Day, we don't have anything planned at the moment. We will certainly keep you informed of that after Jason gets on board and gets comfortable with the organization. It's something we've spoken about, and we will plan for some time in the future. Shagun Singh Chadha: Great. And then just as a follow-up, I think last quarter, you provided some directional outlook into 2027. And I was just wondering if you could touch on that. On sales, the midpoint of the 5% growth, is that a good base case to use going forward? And then on operating margins, I think ex stranded costs, you had indicated mid-20s, and you also indicated on your comments today that this year, there's about a 400 basis point on the burdened operating margin. So any directional outlook would be helpful. John Deren: Yes, Shagun, we did not provide any guidance on 2027. I think what we did provide, though, to your point, around a normalized operating margin was more in that 23% level once we account for the stranded costs. And we think we have a lot of opportunity to go above that as we continue to grow and we get some more leverage out of the P&L going forward. But I think that's the only thing we really guided to in -- for 2027. Obviously, we've given you the components to think about in terms of buyback and interest expense and the benefits we'll be seeing in 2027, so -- for your own models. But yes, as far as top line goes, we're not prepared to start guiding top line until we get a little more into 2026. Operator: And the next question comes from the line of Matthew O'Brien with Piper Sandler. Matthew O'Brien: For starters, just maybe just bigger picture, there was a rumor about some interest in Teleflex either strategically or from a private equity perspective, and I'm not sure what you can share, but I heard that, seeing two Board members not standing for reelection. So I'm just wondering if the company was approached about a transaction, you looked at it as a Board said, no, it's not something that we're interested in and hence, the hiring of Jason or if those two pathways or factors are completely independent of each other? And then I do have a follow-up. Stuart Randle: Yes. This is Stu. We don't comment on any market rumors and speculation. We made comments regarding these activities in our March 27 press release. So I'll just refer you to that for our comments. Matthew O'Brien: Okay. Fair enough. And then maybe a question for John. And I know timing of repurchases is difficult to fully understand. But is it -- and it's a big number, $1 billion of repurchases here, but is this something that we think we could be done with by the end of this calendar year? Or do you think it will bleed into '27? John Deren: So given the size -- first of all, as a reminder, we are going to start doing some open market purchases in Q2, given where the stock price is at. We think there's an opportunity to do that. That's, of course, ahead of the proceeds. So no commitment as to how much we're going to buy back in the second quarter until we're able to close at least the first sale of -- which we expect to be the OEM transaction. But given the size of the buyback, there is a good chance that, that purchases will continue into 2027. So if we just think about how the two sales will likely lay out and if you only thought about the proceeds from the sales, you'd likely be buying into the first quarter of 2027, just given the volume limits that we would have. Operator: The next question comes from the line of [ Ross Osborn ] with Wells Fargo. Unknown Analyst: Starting out, how much of the $90 million in stranded costs has already flowed through during the first quarter? And is the quarterly cadence linear or back-half weighted? John Deren: I apologize. Your second part of your question again, if you could. Unknown Analyst: Just in terms of the cadence for the remaining stranded costs, should we expect a linear run rate? Or is it back-half weighted? John Deren: Think of it as a linear run rate. So stranded costs, right, it's -- there's not a great science to this. It's a concept, right? It's the overhead cost that we still maintain for all of Teleflex that we'll be able to -- we believe we'll be able to fully mitigate as -- once we separate the company. When you get into 2027 or even the back half -- back end of this year, once we have the TSAs and MSAs in place, they'll offset the stranded costs entirely. And then it's really about how these restructuring programs take care of them permanently. So you can think about the stranded costs being around for likely the better part of this year until the fourth quarter once the TSAs and MSAs come into play. And they will not be an issue for 2027, and then we have to continue to work through to make sure they don't become an issue after 2027, 2028. So -- but they are in the numbers today, and they are in the comparative numbers, if you will, as we've restated everything for 2025. Unknown Analyst: Okay. And confirming the $90 million and how much was hit during the first quarter? John Deren: I'm sorry? Unknown Analyst: Confirming your guidance of $90 million of stranded costs and then how much flowed through during the first quarter? John Deren: Well, again, these are -- stranded costs are conceptual. They are part of your overhead, your corporate overhead and the like. So they're not specific identified cost in that sense, right? So think about them ratably, I guess, I would say, right, as you go through the year. Operator: The next question comes from the line of Michael Polark with Wolfe Research. Michael Polark: Follow-up on Interventional, 3% pro forma constant currency growth in the quarter. That's below target of mid-single digits plus. I heard some puts and takes. I just want to understand the quarter specifically being slightly below target growth. Is that the sales force integration disruption? Is that the third-party supplier recall? Or is there something else you'd have us consider? John Deren: No. It's -- so we have -- we expected the first half of the year to be slower than the back half for Interventional specifically due to -- there's two things. One, we did a major restructuring. We announced a major restructuring at the end of Q4 related to the VI acquisition. That starts taking place, obviously, in Q1. So the actions were taking place as well as some of the disruption that Stu has already mentioned. So those really are the items I can talk about. And so we view them as transient in the Q1 going in a little into Q2, and then we expect the back half of the year to recover nicely after we kind of get through that transition. Michael Polark: My follow-up on Surgical, the upside growth in the quarter, timing of orders for instruments heard that loud and clear. Are you launching new products there? Do you think that's share gain? Or is it truly timing? And the second piece of that is, does the comment include orders for the bariatric stapler? If it doesn't, I'm curious just for an update on how that product is performing given the market channel. John Deren: Surgical did very, very well, and I think they'll continue to do well. We did well across the product portfolio. Hem-o-lok did well. The bariatric stapler did well. It's on a much lower base. The instrument orders have done well throughout the year. That's definitely -- that's really the only timing issue in the quarter. Everything else was really strong performance for Surgical. So we've been -- we're really pleased with the quarter, and we see some nice opportunities as the year plays out. Operator: The next question comes from the line of Bradley Bowers with Mizuho. Bradley Bowers: I'm on for Anthony. Just maybe a two-parter here. Just wanted to double-click on Interventional. Obviously, modeling is a little choppy, but it was the only one that was a little bit short of our model, but obviously, the ramp is expected. So I wanted to hear about line of sight on the integration and how you expect that to ramp and exit 2027. And then admittedly, this is a little bit picky, but hear about a new CEO coming in, experience in complex businesses, but the recent Teleflex transactions are about making you guys more streamlined. So I wanted to hear about puts and takes. Obviously, the skills translate, but just wanted to kind of hear about the mindset and the ongoing go-forward Teleflex. John Deren: Okay. Well, I'll let Stu handle the CEO comment. But I think at the end of the day, it's consistent with what I've said previously, the first half of the year, we expected to be a little lower in growth because of the transition and the restructurings that we talked about. And again, we expect accelerated growth in the back half of the year. It's best I can give you. Again, we're not guiding by quarter, and we're not guiding by business. With that, I'll ask Stu to answer the other question. Stuart Randle: Yes. I think with Jason coming on board, again, we're very excited to have him. What I didn't say earlier, we really like the breadth of his experience at Medtronic, both in the cath lab and the peripheral business. So he's had experience in stents, drug-coated balloons, coronary catheters, peripheral catheters. So we like that product experience and the growth he demonstrated at Medtronic in all of those positions makes us really comfortable that he's going to be helpful in helping us drive accelerated growth as we go forward. Operator: The next question comes from the line of Travis Steed with BofA Securities. Travis Steed: Maybe at a higher level, just curious how you think about considering kind of all avenues for shareholder value creation and kind of balanced risk-adjusted shareholder returns and going versus going through kind of your longer-term strategic plan. Just would love to kind of hear high-level thoughts on that. Stuart Randle: Yes. This is Stu, I think I'll again refer back to our previous public statements, particularly regarding -- we have said publicly, we'll thoroughly and thoughtfully consider any bona fide acquisition proposal. We're looking at all long-term value creation and how we can best deliver that. So the Board is open and considering and has been very thoughtful in that approach. Travis Steed: Great. That's fair. And maybe on tariffs, what's assumed on tariffs in the guidance? And if you get refunds, is that upside to the guidance? John Deren: Yes. refunds would be upside for the guidance. I think we're where most players are right now with what I would call is like a contingent gain model. So waiting for the tariff actually to -- or get confirmation that we will get the tariffs when we apply for them. So there is definitely upside. Right now, we have about $33 million of tariffs in the full year guidance. So there would definitely be some upside for those refunds. Keep in mind, some of the refunds would be in -- for 2025, what we paid. And then because it gets capitalized and rolled into 2026, there'd be a clear benefit in 2026 for the first 2 quarters. Operator: And that concludes our question-and-answer session. I would like to turn it back to Mr. Lawrence Keusch for closing remarks. Lawrence Keusch: Thank you, Priva, and thank you to everyone that joined us on the call today. This concludes the Teleflex Inc. First Quarter 2026 Earnings Conference Call. Operator: You may now disconnect your lines.
Operator: Good morning, and welcome to Allegro MicroSystems Fourth Quarter and Full Fiscal Year 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Jalene Hoover, Vice President of Investor Relations and Corporate Communications. Jalene Hoover: Thank you, Alliah. Good morning, and thank you for joining us today to discuss Allegro's fiscal fourth quarter and full fiscal year 2026 results. I'm joined today by Allegro's President and Chief Executive Officer, Mike Doogue; and Allegro's Chief Financial Officer, Derek D'Antilio. They will provide highlights of our business, review our fourth quarter and full fiscal year 2026 financial results and share our first quarter outlook. We will follow our prepared remarks with a Q&A session. Today's call includes remarks about future expectations, plans and prospects, which are forward-looking statements. Such statements are based on current expectations and assumptions as of today's date and are subject to risks and uncertainties that could cause actual results and events to differ materially from those anticipated or projected on today's call. The company assumes no obligation to update these statements, except as required by law. For a discussion of these risks and uncertainties, please refer to today's press release and the risk factors contained in our periodic filings with the SEC. Additionally, we will refer to non-GAAP financial measures during today's call. Today's earnings press release, which is available on the Investor Relations page of our website at www.alllegromicro.com, contains important information about our non-GAAP financial presentation and also includes reconciliations of our non-GAAP financial measures to the most directly comparable GAAP measures. This call is also being webcast, and a replay will be available in the Events and Presentations section of our IR page shortly. It is now my pleasure to turn the call over to Allegro's President and CEO, Mike Doogue. Mike? Michael Doogue: Thank you very much, Jalene, and good morning. Thank you all for joining our fourth quarter and full fiscal year 2026 earnings call. We finished fiscal year 2026 with strong momentum, delivering a fifth consecutive quarter of sales growth at $243 million. Fourth quarter EPS was $0.17, nearly tripling year-over-year. FY '26 sales increased by 23% year-over-year to $890 million and EPS more than doubled to $0.54 per share. This performance is a result of our team's dedicated execution of strategic initiatives discussed at our February Analyst Day. In automotive end markets, our focused auto sales, which includes xEV and ADAS, increased 30% in FY '26. Content expansion and share gains drove this growth. FY '26 growth included gains in steering and braking for ADAS applications, increased adoption of high-voltage traction inverters and ramping programs for VLDC motor drivers and xEV powertrain systems. As a result, total auto sales grew 17% in fiscal 2026, well above our SAAR plus 7% to 10% target coming off an inventory digestion period. Industrial and other end markets led fourth quarter sales growth with a data center up 41% sequentially to establish a new quarterly record at 14% of total sales. For fiscal 2026, industrial and other end markets grew 38%, led by data center and robotics and automation. This is well above our high-teens sales growth target for our industrial business. Our high-efficiency motor drivers for 3-phase data center fans continue to gain traction. Historically, these fans cooled CPUs and GPUs but they've now expanded into power supplies and into network switching equipment. We're also seeing growing adoption of our high-speed current sensors in power supplies, battery backup units and capacitor backup units across the data center. Our data center content is not limited by unit volume growth. We are seeing strong growth as a result of our expanding product portfolio and the adoption of new high-voltage data center architectures. As AI racks move from 15 kilowatts to 1 megawatt of power consumption, Allegro's content scales with power per rack. Because we solve the thermal and sensing challenges that come with extreme power density, our content opportunity per rack scales from approximately $150 in today's servers to over $425 in next-generation AI configurations. I'd like to share a few highlights from my trip to Asia last month, where I met with our top data center customers in Taiwan and Vietnam. Three things stood out. First, customers expect data center fan volumes to grow for the foreseeable future, even as liquid cooling is adopted. Continued growth is driven by fan proliferation into power supplies and into network switching equipment, which use a large number of fans and are rarely liquid cooled. Second, design win activity for our current sensors in power supplies and backup systems is large and growing. Both Hall and TMR current sensors are shipping or will soon ship across multiple hyperscaler platforms in AC to DC, PFC and DC-to-DC power stages. Current sensors for data centers are emerging as a meaningful new growth pillar, and we expect this to be an area of significant growth over the next several years. And finally, we're seeing significant design in progress for high-voltage drivers and data center power supplies. In addition to data centers record performance, robotics and automation sales doubled year-over-year in fiscal 2026. We saw increasing adoption of our sensors in factory and building automation applications during the year, along with growing engagement and design wins with humanoid robotics customers. For example, we secured two design wins with leading Chinese robotic companies for use in robotic joints during the quarter. In the first win, our current sensors were selected over local alternatives based on superior performance and our smaller package size. In the second win, our latest inductive sensor was selected in an approximate 90 IC per robot opportunity, where small form factor, high-precision motor control capability and our local coil design expertise were decisive factors. Initial shipments will begin in calendar 2026 with volumes expected to increase in 2027. Now turning to design win and backlog momentum. Our fiscal '26 design wins increased more than 30% year-over-year. Focus auto, including xEV and ADAS, led automotive design win activity with powertrain-agnostic safety, comfort and convenience also achieving strong results. Data center-led industrial design wins for the full year. In addition, we exited the year with a total company backlog sitting at a multiyear high. These metrics give us confidence in our forward-looking momentum. Our R&D investments are guided by our core value innovation with purpose, which drives differentiated sensor and power technology. Great pride in holding the #1 position in magnetic sensing, reflecting our broadest portfolio and our leading performance in the market. Allegro's magnetic current sensors enhance our technology and market leadership positions in output accuracy, bandwidth and power density. To illustrate this leadership, I'll share some recent examples. In Q4, our 10 megahertz TMR current sensor was named EDN's 2025 Sensor Product of the Year. As the industry's first 10 megahertz TMR IC, it offers the highest bandwidth solution available today, enabling the high-speed control required for next-generation gallium nitride and silicon carbide power systems across xEV, data center and robotics applications. We also expanded our sensor portfolio during the quarter with the release of an ASIL D passive TMR angle sensor. This IC delivers the fail-safe reliability essential for the industry's transition to steer-by-wire ADAS systems. Those systems support Allegro's 2 to 3x content uplift compared to conventional steering systems. One of our more differentiated and fastest-growing technologies in magnetic sensing is. We expect CMR to extend our leading magnetic sensing position. During fiscal 2026, TMR represented approximately 30% of our sensor product releases offering the superior accuracy, bandwidth and low power consumption that our customers demand. We're also expanding our lead in power ICs, which we expect to drive continued share gains. In fiscal 2026, we released our first isolated gate driver specifically designed for silicon carbide transistors and are seeing strong customer interest. Our power-through architecture delivers up to 40% greater efficiency -- and we expect to see a 2 to 3x dollar content uplift from isolated gate drivers as customers move toward 800-volt xEV platforms and higher power AI architectures. This is a clear example of how our differentiated technology translates directly into content expansion and share gains. As we enter fiscal 2027, we see demand trends that support continued growth, and we remain confident in our ability to execute towards our target financial model. I'll now turn the call over to Derek to provide additional color on our financial performance as well as our first quarter outlook. Derek D'Antilio: Thank you, Mike, and good morning, everyone. Starting with our fourth quarter results. Sales were $243 million and non-GAAP earnings per share were $0.17. As a percentage of sales, gross margin was 50%, operating margin was 15.6% and adjusted EBITDA was 20.4%. Q4 sales increased by 6% sequentially and 26% year-over-year. Sales to our automotive customers were essentially flat sequentially at $164 million, including an expected decline in China due to the Chinese New Year. Auto sales increased by 18% over Q4 of FY '25 and focused auto sales, which include xEV and ADAS, increased by 25% versus Q4 of '25. Industrial and other sales increased by 23% sequentially, $79 million and 49% over Q4 of FY '25. We led by continued strength in data center to record levels. Sales to our data center customers were 14% of Q4 sales, up from 10% in Q3 and 8% in Q2. And as Mike discussed, we are seeing continued strength in data center demand as we move into fiscal '27. From a product perspective, magnetic sensor sales increased by 2% sequentially to $141 million, an increase by 21% over the prior year quarter. Sales of our Power Products increased slightly 12% sequentially to $102 million and 35% over the prior year quarter. Sales by geography on a ship-to basis were as follows: 30% of sales in the rest of Asia, 25% of sales in China, 17% Japan, 15% of sales in Europe and 13% in the Americas. Now turning to Q4 profitability. Gross margin was 50%, up from 49.9% in Q3 and 45.6% in Q4 of fiscal '25. Operating expenses were $84 million, an increase of $5 million sequentially, largely due to annual payroll tax resets and higher incentive compensation. Operating margin was 15.6% of sales compared to 15.4% in Q3 and an increase of 660 basis points compared to 9% in Q4 of fiscal '25. The effective tax rate for the quarter was 6%. Interest expense was $5 million, which included $650,000 of expenses related to the repricing of our term loan down another 25 basis points to SOFR plus 175 basis points. The fourth quarter diluted share count was 187 million shares and net income was $32 million or $0.17 per diluted share. Non-GAAP EPS increased by 13% sequentially and 183% over a year ago quarter on sales increases of 6% and 26%, demonstrating the significant operating leverage in our business model. Now turning to a summary of our full fiscal year 2026 results. Total sales increased by 23% year-over-year to $890 million. Auto sales were $629 million, an increase of 17% compared to fiscal '25 and were 71% of our total sales. Focused auto sales, which is ex EV and ADAS with $349 million, an increase of 30% year-over-year and represented 55% of our auto sales. Industrial and other sales were $261 million, an increase of 38% year-over-year, led by data center, which more than quadrupled and represented 10% of our total FY '26 sales. From a geographical perspective, the rest of Asia and China sales led regional growth. Rest of Asia sales increased 44% year-over-year due to strength in data center and China sales grew 36% year-over-year, led by growth in our Focus Auto. Gross margin for the full year was 49.4%, an improvement of 140 basis points year-over-year. Operating leverage and factory efficiencies helped to more than offset price and commodity cost increases. The cost of gold in particular, was an approximately 200 basis point headwind in fiscal 2026. And as we move into FY '27, our teams remain focused on our goal to call for conversions as well as other cost reduction in factory efficiency initiatives as we progress towards our gross margin targets. Operating margin was 14.1% of sales. Adjusted EBITDA for the year was 19.1% of sales and earnings per share were $0.54, more than double the prior year. Moving to the balance sheet and cash flow. We ended Q4 with $175 million of cash. Q4 cash flow from operations was $36 million. CapEx was $17 million and free cash flow was $19 million. For the full year, free cash flow was a record $125 million, and we also made $60 million in voluntary debt payments. Bringing our total debt balance to $285 million and net debt to $116 million exiting the year. From a working capital perspective, fourth quarter DSO was 35 days. Compared to 40 in Q3 and inventory days were 128 days compared to 133 in Q3. Finally, I'll turn to our Q1 fiscal 2027 outlook. We expect first quarter sales to be in the range of $245 million to $255 million. The midpoint of this range equates to a 23% year-over-year increase. Additionally, we expect the following, all on a non-GAAP basis. Gross margin to be between 50% and 51%. Operating expenses are expected to decline sequentially to $80 million, plus or minus $2 million. Within that, we expect to continue to make strategic investments in R&D and sales to drive above-market growth, and these are funded largely through continued reallocation of resources and process efficiencies. Interest expense is projected to be $4 million. We expect our non-GAAP tax rate to be approximately 9%. We estimate our weighted average diluted share count will be 187 million shares. And as a result, we expect non-GAAP EPS to be between $0.19 and $0.23 per share. Now I'll turn the call back over to Jalene for questions. Jalene Hoover: Thank you, Derek. This concludes management's prepared remarks. Before we open the call for your questions, I'd like to share our first fiscal quarter conference line up with you. We will attend TD Cowen's 54th Annual Technology, Media and Telecom Conference in New York on May 27, Evercore's 2026 TMT Global Technology Conference on June 2 in San Francisco, Bank of America Securities 2026 Global Technology Conference on June 3, also in San Francisco; and Mizuho's Technology Conference 2026 on June 9 in New York. We will now open the call for your questions. Alliah, please review our Q&A instructions. Operator: [Operator Instructions] Our first question comes from the line of Gary Mobley of Loop Capital. Gary Mobley: I know you mentioned in your prepared remarks that backlog is at a multiyear high. I'm hoping that maybe you can share some additional details in terms of what's changed in the past 90 days as far as revenue KPIs go and then perhaps maybe drilling down by end market. Anything you can provide there would be helpful. Michael Doogue: In the last 90 days, in the prepared remarks, I talked about a trip, I took to visit data center customers. It gave me increasing confidence that we have a strong story there, especially as we see the current sensors ramping on top of continued strong demand in fan drivers. So we're feeling good about the industrial market as we look ahead. In the automotive space, we're seeing good signs of strength, both in terms of the backlog, but also forward-looking design wins. And at our Analyst Day, we talked a lot about the importance of our increasing dollar content story, and it's encouraging to see a preponderance of wins in our automotive area coming in those applications that have higher dollar content. So those would be the two most notable trends. Gary Mobley: Okay. And Derek, I know in the past, you've communicated that the gross profit drop through over the long term, should range between $0.60 and $0.65. It looks like what's embedded in the Q1 guide is something about that, maybe $0.67. So perhaps maybe you can share with us the drop through you expect for the year and perhaps some additional detail by quarter as some seasonal factors might play into the expense equation. Derek D'Antilio: Sure. And as you can see in the numbers, the Q4 drop-through was in the low 50s, and that typically happens as our annual price negotiations with customers happen in that March quarter. Sort of revenue declines in that quarter for those price negotiations. And even though we negotiate potential cost declines in certain areas, whether it be wafers or OSATs or those sort of things, that takes a quarter or 2 to cycle through inventory. So we see some of that benefit going into our first quarter with a drop who's actually closer to 70% in the first quarter at the guide of 50% to 51%. I also mentioned on the call that we have had some significant headwinds, particularly commodity costs and recently fuel costs. And I might get the question of what are we going to do with prices we are doing select price increases, but it's very nuanced, that didn't start in Q4, that will start at the end of Q1. And what we, of course, always look to do is offset any sort of cost increases we have with factory efficiencies with improvements with our vendors. And we did a lot of that in 2026. We improved our gross margin by 140 basis points even with the annual price declines even with the cost headwinds, we'll continue to do that as we go into 2027 and look to do select price increases as we move throughout the year. Operator: Our next question comes from Quinn Bolton of Needham & Company. Neil Young: This is Neil Young on for Quinn Bolton. So data center grew pretty strongly quarter-over-quarter. As you look into fiscal year '27, can you help us think about the -- or help us think through the durability of that growth? And specifically, how much of the forward pipeline is still fan driver driven versus the newer current sensor and isolated gate driver opportunities? And then I have a follow-up. Michael Doogue: Sure. This is Mike. And when we look at the data center business, we see very terrible demand in the call last quarter. There were some back and forth about what is the right growth rate for the business on a long-term basis. And we look at that growth rate for our data center business coming in well north of 20% on a long-term basis. As we look ahead in FY '27, we believe our growth rate will come in well above 20%. We're not going to forward guide with specific numbers, but we do see strength data center coming into FY '27. Back to the question on the mix. The majority of our business is still with the fan drivers, and that's a good story. It's a good story because, as I mentioned in the prepared remarks, the fans are starting to appear in new locations within the data center build-outs, most notably power supplies. So that business continues to grow and remains strong. On top of that, current sensors in these power supplies, that business started to ramp in FY '26 and we believe it will ramp even more strongly in FY '27. The isolated gate driver business is still 18 to 24 months out from having material revenue in the data center but we're encouraged by design and activity that's happening now. Derek D'Antilio: And this is Derek. To add one piece of context. Current sensors entering FY '23 virtually 0 part of that data center business. In Q3, it was about 10%. In Q4, it got closer to that 20% of our data center business. Neil Young: Great. And then you guided June quarter gross margin in the 50% to 51% range, while the longer-term model still is targeting that over 55%. Could you maybe walk us through the biggest drivers of that bridge from here, whether it be op leverage, factory efficiency, mix, new products, et cetera? And which one of those are most controllable versus volume dependent? Michael Doogue: Sure. The three pieces of that really operating leverage. And so when you look at our model, as Gary pointed out, we're going to grow at about 70% drop-through in the Q1, and that always happens in that quarter. But the typical drop-through is between 60% to 65%. That's our variable contribution margin. So as we put more volume through our back-end facility in Philippines and the fixed cost growing inflation, you get a significant amount of leverage. So if you're plugging your revenue numbers like we have at our Analyst Day, that's the biggest driver of overall gross margin going forward. The second biggest piece though is improving that variable contribution margin and we talked about this gold to copper conversion program that's ongoing. It's not going to happen all in one quarter. There's customer qualifications that are required. So it will happen over time. But that was a 200 basis point headwind in FY '26 alone. So as we move through that program, that's a significant uplift in addition to negotiating cost savings with our wafer suppliers and others, especially as they get through these geopolitical times right here. Those are the two biggest pieces, and those are the pieces. The second piece is clearly controllable by us. The first piece is market dependent, which we see good things happening right now. And the third level, which is not insignificant, is continued factory efficiencies. And within FY '26, again, we were able to offset 200 basis points of gold headwinds and still improve our gross margin just through factory efficiencies, and we'll continue to do those things going forward. Operator: Your next question comes from Joe Quatrochi of Wells Fargo. Joseph Quatrochi: Maybe first just to start, can you kind of walk through the puts and takes of focus auto for the March quarter, I think that was kind of flattish sequentially? And then how do you think about that kind of accelerating? Or where could that go in fiscal '27? Michael Doogue: So Focus Auto, the way I look at it, it was up roughly 30% year-over-year in FY '26. So it's demonstrating strength on the annualized basis of FY '26. And I think we'll see something similar in FY '27. And the reason for that goes back to what I mentioned just a few minutes ago, when we look at our design wins, where they're happening, do we have share gains, we get a very positive story in our Focus Auto segment and that we do see strong share gains. We do see significant wins in these areas with expanding dollar content. So we remain positive on the future of Focus Auto, and we remain positive on our ability to outgrow auto production SAAR plus 7% to 10% because of our strong story between share gains and dollar content gains. Derek D'Antilio: And Joe, a little specificity on Q4. The reason why focus Auto was flat to down a little bit was largely China -- we have a large business in China on the focus auto that continues to grow. In fact, our design wins were led by China ADAS applications. So that's encouraging for the future. And within that, we're expecting focus auto and auto to be up in Q1 a couple of percentage points. and then Q1 will be led by data center on the industrial side, as you might imagine. Joseph Quatrochi: Yes, that's helpful color. And maybe just on the industrial side, I think maybe ex data center, that was actually pretty strong sequentially. What's driving that? Is it I assume robotics is still maybe a little bit small, but any help there and just kind of what's driving nondata center industrial? Michael Doogue: Yes. In our category of robotics and industrial automation, it's not large, but I wouldn't necessarily characterize it as small either. So we saw some meaningful movement there. On the factory automation side of things, we're not talking about certainly humanoid robots but there are a lot of robotic systems in factories, product moving equipment, et cetera, and we're seeing strength there. Additionally, we're seeing strength in energy infrastructure. I think there's some pull-through there perhaps because of data center build-outs, and we see continued strength in the 2-wheeler market as well, 2-wheeler transportation. Operator: Our next question comes from Timothy Arcuri of UBS. Timothy Arcuri: Derek, I wanted to ask also on data center and what's being assumed for the guidance in June? Because if it grows in the same -- I mean, it grew 40% in December, it grew 40% in March. If it grows 40% in June, then the rest of the business is down like 3% to 4% and the rest of industrial is down like mid-teens, which doesn't seem to make a lot of sense. So maybe data center is assumed to slow down on a sequential basis in June. Can you kind of go into that? Derek D'Antilio: So you could -- look, data center was 14% of our total sales in Q4. You could increase that by a couple of percentage points, 2 or 3 percentage points. So in Q1, it will be 16%, 17% of our total sales. which implies 20% to 25% growth in the data center. And I wouldn't call it a slowdown. It's the law of large numbers, right? And so if you take 20% to 25% a quarter, that's still a pretty significant growth rate. Remember, in FY '26, entering the year, data center was still 2% or 3% of our sales as we had a real rebound in fans and then the current sensors the last couple of quarters. Timothy Arcuri: Okay. Got it. And then -- so it seems like mature node foundry is getting pretty tight. You have two of your three major foundries there. Are you seeing cost pressure? You did cite gold -- pressure from gold. Is some of it like wafer pricing pressure as well? And can you sort of talk about -- you did talk about maybe raising prices a little bit to kind of pass that on. Can you just talk about the foundry costs? Derek D'Antilio: Yes. So Joe, I think we've done a pretty good job and our foundry partners have been really good working with us. So that's not the biggest headwind we have necessarily right now. I think they've been really good partners. I guess headwind happens to be gold and then more recently, fuel charges for freight and also in our Philippines facility. To touch on the pricing increases, it's not the first place we go. It's not a cost-plus type of situation. We work with these customers. We've worked with for years on finding efficiencies and of course, converting some of those things from gold to copper on the wires. That's the first place. We will do select price increases that will begin here at the end of Q1. Some of that is surcharges related to those two costs that I mentioned. Operator: Our next question is from Vijay Rakesh from Mizuho. Vijay Rakesh: Just a quick question on the data center side again. It looks like if you quadrupled for this fiscal, your content is going up 4x. Just wondering -- sorry, from $150 million to $425 million, I guess. As you look at fiscal '26 -- fiscal '27, '28, any thoughts on how the data center side should grow? And are you going to be breaking it out every quarter? Michael Doogue: As I mentioned, we look at the long-term data center growth rate north of 20% and what we really see as you go through that evolution of dollar content, it's really driven by architectures and the on-ramp of new technologies in the data center, right, whether it be 800-volt architectures, et cetera. So for our current sensors, Derek mentioned, we saw a nice ramp in FY '26. That will be the next step-up for us and the speed with which they ramp is somewhat correlated to the different architectures that are adopted and when and with what market share but we see nothing but positivity there. Like I said, we expect FY '27 to be well above a 20% growth rate and we're seeing very positive signs right now from customers and from the architectural evolutions happening out there that seem to benefit Allegro. Vijay Rakesh: Got it. And in terms of the auto side, are you seeing any memory constraints affecting that in the second half or into '27? That's it. Michael Doogue: Yes, this is Mike. I'll take that one. Our customers all seem concerned. But when we see it is when somehow orders are impacted, and we are not seeing that. We're seeing no impact of material shortages on our orders. So I know it's tied out there, but it's not really impacting our business at this point, at least as far as we can tell. Operator: Our next question comes from Tom O'Malley of Barclays. Matthew Pan: Matthew Pan on for Tom. Just curious, one of the other analog players with high auto exposure is sort of guiding to auto sequential growth in June, pretty well above historic seasonality. Sort of looking at like your guys' historic seasonality in March -- or sorry, in June. And I know you talked about sort of up a couple of points for auto in June. Is there any reason you shouldn't be growing above seasonality there? Derek D'Antilio: No. I mean our guide total for the March quarter is up about 3% at the midpoint. The range is obviously a little bit higher than that at the high end of that. And within that, auto grows a couple of percentage points as China comes back. And then we're also shipping a significant amount of our products as we talked about into industrial and data center. To be honest, we have a little bit of delinquency that we're starting to build in certain pockets in both auto and in industrial that we're putting some capacity in the back end in the Philippines, as you saw, $17 million in CapEx in Q4. So that will help with capacity to facilitate both of those. Matthew Pan: Got it. And just a follow-up on -- we're hearing more about China EVs for exports. How impactful is this to you? And is your content any different on exports? Michael Doogue: I'll take that one. We remain confident in our China business overall. Certainly, China is the largest automotive market in the world, and we're having good success with China OEMs. I would say from a dollar content perspective, we feel positive about the dollar content we're establishing by OEM in the Chinese OEM landscape. So as those cars may now become export models into the world. We have good dollar content in those cars, and we view that as a good to neutral thing. We have no concern about Chinese cars selling at higher levels relative to a dollar content. Operator: Our next question comes from the line of Joshua Buchalter of TD Cowen. Joshua Buchalter: To start, maybe we could -- could you provide an update on what you're seeing in the auto backdrop, specifically on inventories? Like still safe to assume that we're not seeing any meaningful signs of restocking, but that you're comfortable that inventory levels are low. And then should -- I guess, if indeed inventories are at healthy levels, any reason we shouldn't be modeling the 7% to 10% plus SAAR for this fiscal year as we see it right now? Michael Doogue: So we still see somewhat thin inventory levels in automotive. We've seen no clear signs of restocking, at least not at a broad level. So that's the environment that we're in right now. And when we look to the future, as I mentioned earlier, with share gains, with the dollar we have. We certainly model when we look ahead, SAAR plus 7% to 10%, and that's probably the best model to put forth at this point. Joshua Buchalter: Okay. And then on the data center side, obviously, CPUs have gotten a lot of renewed attention recently. Is it safe to assume that most of your cooling fan exposure is on the CPU side? Or maybe you can just help us with the CPU versus accelerated servers exposure as we think about your current sensing and the PMIC side of the house in data center? Michael Doogue: Sure, Josh. I actually did a bit of digging on my trip with customers to just actually model out as cooling is adopted to cool GPUs, CPUs, et cetera, what does that really do to fan demand? And our top customers painted a picture where because of the enormous number of power supplies going into the architectures and the fact that there are fans in those power supplies, they still see a story of growth for fan drivers in the data center even as liquid cooling is adopted. Now to be clear, fans that were cooling GPUs and TPUs will go to liquid cooling. That is a fact. But the proliferation of fans into the power supplies is significant, and it seems that it more than overcomes the loss of fans when GPUs are liquid cool. Operator: At this time, I'm showing no further questions in the queue. I would now like to hand it back to Jalene for closing remarks. Jalene Hoover: Thank you, Alliah. This concludes today's call. Thanks to all of you for taking the time to join us this morning. We look forward to seeing you at various investor events over the coming weeks. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Magnus Grenfeldt: Good morning, and welcome to Hotel Continental, and good morning also to you online. It's a fantastic and sunny day in Oslo, and it is a fantastic day for Smartoptics and a great quarter that we are going to talk about today. I want to start by just a few thoughts to my staff and my team. Thank you very much to operations for always being there, supporting us through the quarter and also supporting us through the relocation of production in Q2. I want to address all of our staff that, much like me, have spent their life contributing to the optical networking industry. Very few people get to contribute to technical innovation that changes humanity forever once. We are starting our second time around now. That's a luxury. To the new people who have joined Smartoptics, warm welcome. You have a beautiful future ahead in this industry. Stepping to the quarter, obviously, super strong momentum and really, really good progress overall and in some of our strategic areas that we've been talking about for a couple of years now. I want to start this conversation around the market that we are in. And I think today versus about a year ago or 2 years ago, there is no doubt the market projections for our market, for the coming 5-year period and beyond look much, much more attractive than they did previously. It seems like consensus is somewhere high single digit to low double-digit growth over the coming 5 years of the industry. So in particular, Cignal AI, which is the analyst firm that we have been using for reference, is projecting $16.5 billion in 2025 to grow to $24.7 billion in 2030. It's not difficult to find higher estimates than this. And some people will say this is only a 10% growth, what's all the fuss. I would like to remind you that Smartoptics game has always been to take market share. We are the challenger of challengers. We are growing faster than anyone else, and we are developing our products to have a larger and larger addressable market. The fact that we have in 2030, another $9 billion to fight for is fantastic for us. That means we can target our technical innovation, we can target our customer activities towards that market and really grow this company for a very, very long time. So great news. You will also notice those of you who have followed us for some time that we are no longer talking about a subset of the market. There are subsets in this market that is growing faster and faster. But with the innovation that we have done in our product portfolio over the past years, I think it's more relevant to look at the whole market. We are not a pure-play long-haul player as an example, but we are certainly there in the gray zone competing for long-haul kind of applications, a development that has happened in the past year or so. That gray zone is huge for us, and it's an important market for us, and it will be an even more important market as we move forward. So a great market around us and broad and high traction in everything strategic that we have been talking about for several quarters. We normally don't report order booking, as you know, for many, many reasons. But from time to time, we talk about our order booking to illustrate a phenomena or to give you a sense of the traction that we are feeling on a day-to-day basis, and I will do the same today. What I want to say is, first and foremost, great traction through the quarter, great order booking through the quarter. Our book-to-bill is considerably higher than one and very stable. If we look at the United States of America, to illustrate the width of our market, we have orders from about 100 accounts. By far, the largest one is a U.S. Tier 2 operating across the United States. It's an unannounced customer. So it's not someone that we've talked about. They represent a little bit above 15% of our order booking in the quarter. Two runner-ups, sort of $1 million to $1.5 million accounts in the quarter are regional Tier 2s also from the CSP segment. So clearly -- and we have several accounts like that. As an example, in 2025, our largest customer was a very similar Tier 2 regional operator operating in a number of states then. They are not among the 3 that I'm talking about here this particular quarter. So great success in what we have referred to as our large account strategy over the years. But that's not it. We have a California-based ISP sort of $1 million account in the quarter. We have financial vertical, so trading, algorithmic trading and such around about $1 million. And we have our first individual neo-scaler placing orders in the same range, million-dollar orders. So great progress also in this emerging segment of neo-scalers where we have a handful or more customers today. EMEA looks similar from one perspective, but still a little bit behind the U.S. We have orders from about 125 accounts, $1 million-plus bookers in the quarter include, as for instance, government in Nordics, Tier 2 business-to-business operators, so typically data center to data center in the U.K. And we have an algorithmic trading company placing orders north of $1 million in the quarter, operating on a global scale, so great potential in those type of accounts, too. Asia, from an order booking standpoint, good news. We have opened up one new market in the quarter. We have a between $500,000 and $1 million PO from the Philippines, which is a market where we have not done business before. So our biz dev activities in Asia are scaling. And you will see also when I talk about revenue that there is some good news also in the revenue. So great position. I will leave the numbers -- I will let the numbers speak for themselves here. And now Stefan will come back in great detail. We have a lot of new shareholders that have joined and invested in the company over the past months and year. So I want to, as we normally do, take a step back and talk a little bit about the drivers in our market. What one should remember is that the megatrend that we are leaning on is something that we have referred to as the ever-growing demand for bandwidth. It's always been there. Drivers come and go, drivers accelerate. All of the forces that we have talked about over the years are still there. The need for modernization of global transport infrastructure, particularly in the metropolitan and regional area networks to support higher bandwidth, the cloud applications, the mobile, the streaming, all of that is still there. And now the ever-growing demand for bandwidth has a new best buddy called AI. So AI is the second megatrend that I talked about that will change humanity forever, and we are very much part of contributing to that development. If there are people who still doubt AI and the existence of AI and whether or not that's going to affect us all and how we do everything in the future, my recommendation is think again. So it's nearly impossible to talk about our customer segments without talking about AI. So I will take that stance today. So we have 3 customer segments: Cloud and AI, Network Operators and Enterprise. And I think what's happening now and what will happen in the coming decade is going to be very, very relevant for all customer segments. So Cloud and AI, those are the cloud service providers, the ICPs, Internet content providers. We package also all of the content delivery networks and such into that and obviously, the neo-scalers. So what's going on in the world is that data centers are being built at a pace that we have never seen before. A lot of those data centers are loaded up with GPU technology, and it's at massive scale. So the GPUs are instrumental machines when all of you, the public are using AI. All of the compute is happening, all the models are running in these GPU-enabled servers. And there are hundreds and thousands of those per data center, and there are many, many, many data centers, and it's still growing. So in order to build one of these data centers, as I said, in Q4, you need power, number one; you need cooling, number two, so water, cold climate or whatever or space for that matter or submerged or whatever really. And you need connectivity. So connectivity is what we do. Fibers in the ground, we light them up and we send massive amounts of data over those fibers to connect those data centers to, for lack of a better term, the Internet to reach the users and also in a growing fashion to connect those data centers together to allow for the emerging machine-to-machine communication between these GPU clusters, which is going to be huge. So owning a data center and owning one of these GPU parts or whatever it might be, you always have the option to buy network products and software and services from Smartoptics and build your own network. That is happening. You also have an option to place your equipment in a multi-tenant data center owned by someone else who then may buy the network connectivity from Smartoptics and connect this data center to the world. You may also use either of the 2 models that I just referred to and call a network operator, a CSP, very much like the 3 customers that I talked about being our lead order bookers in Q1 and ask them to supply you with bandwidth to connect your data centers. And this is happening in the whole world for us. So as many of you know, we have no direct engagements with the hyperscalers of the world, but we have a lot of indirect hyperscaler-related business, sometimes named accounts. As an example, this operator needs to build this network for whoever it might be, say, Meta as an example. And we have a lot of general demand from our operator customers who are selling a lot of capacity to hyperscalers. But hyperscalers are not alone. It's neo-scalers and a lot of other organizations who are building that sort of infrastructure. So high growth for us in the network operator segment, also driven by the same development. Enterprise is an interesting one because I believe that's going to be a very, very important market for us in a few years. We're seeing that happening. We're seeing the enterprises realizing that the token cost for running every AI demand that you have is going to be a significant part of your overall cost in the company. Hence, you will start to invest in your own AI infrastructure and GPU technology to run your models, to run your workloads natively or in a data center somewhere. So I think that -- and this is not for all AI workloads, but it's for some. So I think the enterprise community will build this type of infrastructure for a very long time. We, Smartoptics, we have already started to build our own infrastructure to run our AI models that our customers will connect to and run our models when they buy our software products that are AI-enabled in the future. So a great market also there. So fantastic market and Smartoptics is here to service that, and we are here to stay, and we're here to continue to develop our products to become more and more and more relevant. I want to dig in a little bit more into the quarter and look at the numbers. We start, as usual, by looking at the different geographies. In 2025, it's been an obvious pattern that the U.S., in particular, and the Americas region overall, which is, in our case, 95% U.S. or something like that. It's way ahead, great traction. We're winning a lot of new accounts, and there is just growth everywhere and opportunity everywhere we look. And the development between Q4 and Q1 is a very unusual development. The normal seasonality in our market is that Q1 is the weakest quarter. We're actually sequentially growing Americas to an all-time high in Q1. That is a proof point of the market around us and our performance in that market, our attractiveness for our customers. I also talked last year a lot about EMEA and how I think EMEA will catch up. That was based on the reality that EMEA in 2025 looked a lot like the U.S. in 2023, meaning large accounts, a lot of business development towards larger customers, projects that we can name, identify and design for future wins. And EMEA has gone through the first phases of that now. We have won a lot of new customers in the area. In Q1, the drivers in EMEA, the engine in EMEA is built largely on the Nordics and U.K., Ireland. The other regions are performing absolutely okay, but the growth for right now seem to be the strongest in Nordics and the U.K. But a fantastic quarter for team EMEA. APAC is still very small. It is a biz dev market for us. What we see in Q1 is that our large and established market, Australia, is fairly weak in the quarter. So the $1.2 million doesn't include a lot of Australia. Hence, for the other geographies, it's an okay quarter. There are not that many larger projects in the quarter. There is one sort of $300,000, $400,000 project, and that's in South Korea. So that's a second example of how we're opening up a new market. South Korea is -- has also been more or less virgin territory for us in the past. So overall, good progress with our business development activities in APAC. It is still Japan. It is still the cluster of countries from Singapore down through Malaysia and Indonesia. It is still Australia and New Zealand, and now we're adding the Philippines and South Korea to the mix. So -- and we have opportunities in all those geographies that are significant for the future. Looking at products and growth and revenue, we can clearly see that the -- well, same as always, where we invest money, we get the good growth and returns. So Smartoptics has been on a journey for the past 7, 8 years to invest in our Solutions, Software and Service businesses. Those are very tightly connected to each other. When we sell Solutions, we sell Software and Services. And occasionally, we sell Software and Services when we don't sell Solutions, but that's something we still have in the future to develop our products to become more multi-vendor, to be a pure software play in certain applications and certain areas. But today, they are largely connected with each other. And we can see the same phenomena as we saw in the U.S. that we have sequentially growth Q4 to Q1, which is great. And in my fairly long career in the industry, actually unheard of, again, demonstrating Smartoptics' attractiveness in a fantastic market. We're also growing business area Devices, and that's important because that has been now for more than a year. It's more like 1.5 years now when we have put a little bit more focus on that, have put in a new leadership, have done great changes, have invested in our software platforms to better support that business. And I'm very pleased to see growth in that segment. So it's following the market. It is time to talk about details of the numbers, and I will invite Stefan to do that. Welcome, Stefan. Stefan Karlsson: Thank you, Magnus. So the revenue was a very strong quarter. We have an increase of 59.6% to $22.9 million. And that, as Magnus said, was mainly driven by high growth in Americas and EMEA, mainly within business area Solutions. The gross margin in Q1 was 48.2% compared to 47.3% last year and in line with the full year gross margin for '25 of 47.8%. The underlying margins are still -- are consistent quarter-over-quarter, and we believe that the full year 2025 gross margin still serves as a good guide going forward. The EBITDA is -- was $2.7 million compared to $1.2 million last year with an increase of $1.5 million. And that is split up in the revenue made an increase of $4.2 million and the employee benefit expenses increased with $2.2 million from -- to $6.7 million from $4.5 million with 48%. And that is -- can be broken down into some components where we see 11% is related to nonrecurring costs related to the consolidation of production, and that's around $0.5 million. We have 10% that is an FX component. We have 70% of our cost in NOK and SEK, and we have 20% in U.S. dollars. 14% of the growth is related to organizational growth, where full-time equivalents grew from 129 to 147 persons. And that includes new hires of sales in the U.S. that with the mix with more people in U.S., the average cost per employee goes up. Remaining 13% is related to inflation, annual salary increase and variable compensation related to the positive development in sales. Other operating expenses increased from $1.1 million to $1.7 million and was -- and that component is -- half of it is based on employees and half of it is related to the development in sales. The EBITDA margin increased to 11.7% compared to 8.4% last year. And excluding the nonrecurring cost, the EBITDA for Q1 was 13.7%. The EBIT margin was 7.9% compared to 4.1% last year. And excluding the same nonrecurring cost, the EBIT margin would have been 9.9%. Cash flow from operations in the quarter was good, $2.2 million compared to $2.6 million last year, and we have a stable working capital. Looking on our balance sheet, we have an equity ratio of 56% compared to 58% last year, and the decline is a result from the growing balance sheet. Nonrecurring assets amounts to $9.1 million, up from $8.6 million last year. Current assets is $39.3 million, up from $34.4 million and is related to mainly inventory and trade receivables. Cash, $8.4 million compared to $9.9 million last year. We have available credit facilities of $7.7 million, equivalent to NOK 75 million. We have a high focus on cash. We continue to manage trade receivables, but we expect inventory to increase and that will then result in an increased working capital. Nonrecurring liabilities, a small item, $0.2 million and current liabilities, excluding deferred revenue, amounts to $11.4 million, down from $11.6 million last year. Deferred revenue is still growing and is now $13.6 million, up from $10.2 million last year. The working capital amounts to $14.6 million compared to $13.6 million last year and is up $100,000 from last quarter, and there is no major changes. Inventory is amounting to $18.4 million compared to $14.9 million last year. And the increase is related to longer lead times in components. We see also that, as I said, higher levels of inventory are essential to secure the future growth in sales, and we see a very low risk in our inventory. Trade receivables amounted to $19.1 million compared to $18.4 million last year. We have had normal collections in Q1, and we have a higher share of sales later in the quarter compared to last quarter. We see no risk in our trade receivables. Trade payables has decreased to $5.7 million compared to $6.9 million last year and are on par with last quarter. Our payment terms is mainly 60 days, but we have some suppliers that force us into 30 days. Net other short-term liabilities increased to $17.2 million, and that is mainly related to deferred revenue, as I mentioned, and also we have net tax liabilities of a little bit more than $1 million. The Board has proposed a dividend of NOK 0.6 per share. And the company is facing -- emphasizing an increasing or stable dividend. We see a stable and positive financial development with a solid financial position and a strong cash flow. The dividend is still pending AGM approval later today. Thank you all, and back to you, Magnus. Magnus Grenfeldt: Thank you, Stefan. I want to talk a little bit about the long-term targets. This slide is the same one, and these targets are the same ones that we've been using since mid-last year. So the company at the moment, me and my team, we are in the middle of our yearly strategic review process. We are also in a market that has changed dramatically. The outlook for the coming several years is absolutely phenomenal. And we are, of course, adjusting to that. In Q2, we will release new targets. And I would like to say that there are a number of things that you should expect and there are a number of things that you should not expect. There is nothing wrong with the targets that you see in front of you now. They are strong, solid for us in the company and for people deeply involved in our industry, they are understandable. But I don't think they are good enough for a broader audience. We have to clarify what do we mean and what are we really striving for in the coming 5 years. You should also expect more KPIs from Smartoptics where you can track our progress in greater detail and that we can really lean on when taking our investment decisions going forward. So an overall improvement in that area, but not significantly different. What you should also expect is continued investments. We have a fantastic opportunity ahead of us. And as I've said for several quarters, not investing in the company's future at this point would be full out foolish. So that's the path we're going, and that's the future we have ahead of us. With that, we are done with the presentation part of today, and I would like to hand over to Per, our moderator, if there are any questions. Per Burman: Do we have any questions in the room? Okay. Then we go to Teams. We have our analysts on the call. I see Christoffer Wang Bjornsen wants to start. He's from DNB Carnegie. Christoffer Bjørnsen: So first of all, congrats on the strong momentum in the quarter. It's all exciting. I just wanted to kind of -- if you could give us some kind of non-quantified preview on the need to kind of change a bit the targets in conjunction with Q2. Is it reflecting like something like negative? Or is it more that you're seeing that you're kind of currently tracking well ahead of the trajectory that you set out and you need to kind of talk about higher growth now and then return to below trend in some year further out. It's just like -- it creates a lot of uncertainty when you say that there will be a change in outlook when we get to next quarter. So just any directional hints would be much appreciated, I guess. Magnus Grenfeldt: So directional hints on the strategy, is that what you're asking for and the new targets that we intend to release? Christoffer Bjørnsen: Yes, directionally, like is it -- do you think it will be a positive thing or -- yes, because it's a bit spooky when you say that we are maintaining our guidance for the long term, but we will kind of change it next quarter... Magnus Grenfeldt: Christoffer, if I may, stop you right there. We didn't say that we will change it. We said -- I said -- I hope I said that we will improve it. We will improve it in a couple of ways. We will improve -- yes, make it more simple to understand. Obviously, we are setting tougher targets on ourselves. We are continuing to invest probably at a higher pace than we have. And the market ahead of us is fantastic. We need to capture that opportunity. So I would say for you, for me, Christoffer, it's going to be a very positive development. It's going to trigger us enormously within the company, and I hope it's going to create some excitement in other stakeholders. Christoffer Bjørnsen: All right. That's helpful. And then as my follow-up, can you give an update on the lead times you see from competitors and how they've evolved since last quarter and that's on the demand side and then also how your kind of transition into new facilities has fared and how your supply and capacity looks in the quarters ahead if you're able to deliver on the massive opportunity that is currently out there? Magnus Grenfeldt: Right. So I mean, obviously, to get detailed information, you should probably talk to our competitors because I'm hearing information kind of indirectly from our customers mainly and the several new customers that Smartoptics has onboarded for the past 2, 3 quarters as a result of larger competitors not delivering products to them. I mean the overall trend seems to be the largest players in our market are doing everything they can to satisfy the demands of the largest customers in our market, meaning hyperscalers, a very demanding group of customers with huge growth and huge needs. That is kind of opening up the good old gap that we have been talking about for so many years, the lack of midsized vendors to address the midsized market. I mean, that gap argument is more relevant than ever. We are, as I said, onboarding many, many new accounts as a result of this. The good thing is that they are not changing their overall procedures when they do that. They do it at an accelerated pace, but it is still important when you bring in a new critical vendor of this type of technology and software into your backbone, that's a procedure that has to be thought through. You have to change your operational procedures to fit the new player, Smartoptics in this case. You have to educate people. You have to do a lot of things. So it's not like this is happening overnight. But I would say what took us 1 to 3 years to achieve a few years ago may take 2 to 3 to 4 quarters now. So the processes are way faster. When it comes to Smartoptics delivery times, we're still good. Our inbounds on components is still working nicely. But you also have to be aware that we are currently in the process of planning component deliveries for Q1 and Q2 next year. So we have to take risk, and we have to do the right things. Now this is not a trivial exercise by any means. So far, we have it pretty much right, and I'm hoping that we will continue to have it much like that for the rest of the foreseeable future, but there is a little bit of risk in those exercises. When it comes to our own capability, well, I kind of hinted to that in the beginning here that our book-to-bill is considerably higher than 1. So were we limited to our own capabilities in Q1? I mean, the answer is given by the previous statement. We could have delivered more if we had, as an example, a double-sized production facility or triple size production facility, which we will have going forward. Q1 is also a quarter, as you know, with a lot of holidays, closing all the books, doing all of the stock taking, keeping the orders. So it's a shorter-than-average quarter from an operational standpoint. In Q2, we have a massive project for Smartoptics in the first 3 weeks of the quarter, where we are consolidating all of our production into a new facility. So Q2 for us will be very much a catch-up game now. The teams are working overtime and have been working overtime for a very long time, including Saturdays and Sundays, so on. And -- we're doing all the tricks that we are aware of to increase capacity, including bringing on temporary staff, taking external help and so on and so forth. So knock on wood, the catch-up will go great. And yes, so... Per Burman: Up next is Oystein Lodgaard from ABG. Øystein Lodgaard: So first of all, just on the quarter, is this -- are there any kind of one-off large projects or anything? Or is this more kind of many smaller deals? I'm thinking here about how we should kind of extrapolate the strong Q1 growth. Is this kind of -- should we now assume kind of normal seasonality here for the next year? Or were there any kind of one-off large contracts that boosted Q1 growth? Magnus Grenfeldt: Nothing significant to talk about. I mean, obviously, we are in a different situation now than compared to a year ago. We have a lot of larger accounts that we did not have, well, 1 and in particular, 2 years ago. So obviously, the overall project size when our customers expand their networks in certain regions or areas of the network, et cetera, they are, in general, bigger. There is no doubt. But that's not going to change in Q2, Q3 and Q4. If it does change, it's going to change upwards. So -- yes, so normal seasonality, taking into account what I said about 2 minutes ago is probably a good, as always, a pretty decent way to think about this. Øystein Lodgaard: Yes. And regarding what you said 2 minutes ago about the big move in Q2, do you think that will have a major impact? Or is that something that you -- that will kind of lower revenues, all else equal? Or do you think you should be able to catch up during the quarter? Magnus Grenfeldt: There are things that I know and things that I hope and things that I think here. And I know that the first 3 weeks in the quarter were dramatically lower in revenue than they would have been without the move. That's a no-brainer. That's obvious. I think we will have a great catch-up game, and I hope that we will have a great catch-up game. But the market is not slowing down. We haven't seen any signs of that. So I would assume that when we talk about Q2 in the summertime, we will reiterate that if we had, had a production facility twice the size that we have now, we could have done more. I think that's a fair assumption for now. Øystein Lodgaard: Interesting. And you stated earlier that the market outlook for the coming years is, I think you said, absolutely phenomenal, and we have to adjust to this. Could you just give some flavor on what does that mean? What -- if you have to adjust, does that mean investing more now upfront to capture that opportunity? Does it mean going more broader? Does it mean going even more focus towards the larger customers? Can you say what you mean by that? Magnus Grenfeldt: So I mean, the details of this, we are in the middle of it. I'm the CEO of the company, of course. My influence on this is huge. So my feeling is I pretty much know where this is going to land, but I want to save some thunder. This is a process. We need to get people on board. We need to get the Board on board with our strategy. We need to do a lot of things when we do this. But I think all of the things that you said there are relevant, broadening the scope in terms of what softwares are we going to deliver to the market, what hardware capabilities are our products going to have? Which verticals are we going to address? Are we going to go after larger and larger accounts? I would say, yes, that's a given. Are we going to invest more? Yes, that's also a given. But to what degree is the interesting question here and how to manage that in a responsible way and aggressive enough, I would say. So a lot of forces in play here. Øystein Lodgaard: And last question for me. Devices, once again, very strong results from Devices. How much of that is the market just being very, very strong? And how much do you think is driven by the strategic measures that you have implemented in the Devices business? Just trying to figure out how sustainable that is and if that is kind of a new trajectory going forward? Magnus Grenfeldt: So I wish I knew, Oystein. That's a very, very difficult question to answer. It's again here things that I know and things that I think. So what I do know is that we have done tremendous progress in terms of our tools to deliver products to customers quicker and at higher quality. Those are our software tools. That's where the innovation in this product area is happening in Smartoptics. We've done great progress. Are we done with that? No, we're not done. We're going to continue down that journey. But I think -- sorry, I know that, that has had a positive effect on that business. And what I think is that the overall market is, of course, contributing to this growth to some extent. It's impossible to give you any more qualified numbers on that. Per Burman: Good. Up next is Markus Heiberg from SEB. Markus Heiberg: So a couple for me as well. The first one is on the addressable market that you're talking about there, $16.5 billion in 2025. I would assume that less than half of this is addressable to you or I might be wrong, but you talk about the whole market growth being addressable. So how should we think about that market number? Magnus Grenfeldt: So the way I think about this, and this is a big change, and we sort of started to talk about that change about a year ago, maybe 2 years ago even. If you take Smartoptics' full product portfolio and you say that all of the world is going to be built with Smartoptics, can it be done? Yes or no? The answer is yes. Will it be the most effective and efficient solution for all of those applications? The answer is probably no. We are continuing to invest in performance, capabilities, speeds, feeds and so on and so forth. It's a very multidimensional game we're playing there into our product. They are becoming more and more capable. They are becoming more and more comparable to the more advanced products in the market. And we are also riding some other waves like -- I mean, the advancements in pluggable optical technology that we are using in the lion's share of our product is also helping us tremendously here. So I think if we were talking about $5 billion, $6 billion being exclusively the metropolitan area networks, 2 years ago, we are definitely an attractive player in the very large gray zone between metro and the most advanced applications. We have customers running terabits of traffic over 1,500, 2,000 kilometers today. That is absolutely very, very long distance communication, and that is very, very high capacity transport. That's the gray zone I'm talking about. And that, I believe, is a huge market. We're also adapting our products for 2027 to do even more on that. So this is going to be a continuous opening up of that long-haul market, but not to the extreme. Markus Heiberg: That's very interesting. Magnus Grenfeldt: Very interesting. I agree. Markus Heiberg: And then to my second one here is on the cost and investments going forward. The costs were a bit higher. Of course, you have some FX headwinds and some relocation issue, but it also looks like underlying costs are up quite a lot. So how should we think about that over the coming quarters? Is the Q1 cost base here a reasonable level to look at and you will invest from that? Or are there any things that we should adjust for? Magnus Grenfeldt: Do you want to come up and answer? I think that is... Stefan Karlsson: Yes. I can see if we look on the employee benefit expense, it has increased 48%, 21% was nonrecurring and FX driven. So the remaining increase of 20, 25 percentage points approximately, I think it's reasonable that that's going to be a stable position for our expenses, a stable increase and a good guidance going forward. So -- but of course, in general, we will see that our expense is growing at a slower pace than our revenue. I mean that's the underlying plan to be able to facilitate the increase in EBIT and EBITDA. Markus Heiberg: And a short follow-up on cost to take the gross margin question here also. It recovered very nicely from Q4. Anything in particular that we should be aware of going forward on the gross margin side? Magnus Grenfeldt: No, I think the answer is no. There is nothing in particular that you should be aware of at this point. And what we said in Q4 is that the Q4 was a little bit abnormal in some senses and that the full year 2025 was better guidance. And I think it's -- that's where we are, and I think it's going to be relevant. Per Burman: Good. Then I see that Christoffer has an additional question he wants to ask. Christoffer Bjørnsen: I just want to ask on Fibre Channel. It seems like there's some talk in the market about Broadcom kicking off new generation. Can you maybe talk about how you're positioned for that? And from your experience, how the kind of the refresh of customers' setups have impacted you in the past and how to think about this going forward? Magnus Grenfeldt: Sure, absolutely. Yes. So Fibre Channel is a subset of our enterprise market. So if you look into our Q4 reports over the years, you see that we have been reporting the different market segments. Fibre Channel is -- we've never really done the estimate. But if I were to sort of give a qualified guess, I would say that half our enterprise market or so is related to those type of applications. So we do not dictate the pace in the Fibre Channel market. That's dictated by companies investing in their storage environments. That, in turn, is dictated by when new generations of Fibre Channel technology are released and new generation of, of course, disk systems and so on and so forth. So it's typically every second year or so, we get a new generation of Fibre Channel coming out, and we see a boost that lasts for 18 months or so. And then it cools off a little bit before the next generation comes out, and we see a new boost and it goes on and on like that. I would say, overall, there are very few people who talk about Fibre Channel being a growing market. I mean that can change. It is a rock-solid technology for storage area networks. And of course, storage will always be a very, very relevant piece of the overall IT infrastructure cluster. So one should never say never. At the moment, so Brocade or Broadcom, who are the largest supplier of the switches, that we also have a unique collaboration with in the sense that our optics is the only optics that's approved to sit in the Fibre Channel switches and directors. They are now on releasing Gen 8. I believe they are releasing it this summer. Is that correct? Yes. And that means the big storage OEMs, I mean, the IBM, Fujitsu, Dell Corporation and so on of the world, they will start qualifying Brocade Gen 8 technology this summer. They will be done by that sometime late fall and customers are going to start buying Gen 8-enabled storage area network and storage clusters from sometime next year. We are releasing our response to Gen 8 this summer. It's a 64 gigabit DWDM technology we're talking about that goes together with basically all our other products, line systems and so on and so forth and become part of this solution. It's going to go through the same qualification processes as I just talked about, and we can expect that to have a pickup in 2027. Per Burman: That was all from the call. We have a few questions on the portal as well. Oscar, first here, he has 2 questions. One, risk for shortage of components, et cetera. The second one is, given the growth target, is 13% to 16% EBIT margin conservative given underlying scalability? Magnus Grenfeldt: So I think 2 things there. On the first one, is there a risk of component shortage? I wouldn't characterize this as a risk. It's a fact. I mean the component industry is absolutely running at full pace. There is no doubt. And I mean, these are components sitting inside the components of our components. That's where you see the shortages. So things like laser chips for pump lasers that we use in EDFAs, Erbium-Doped Fiber Amplifier that we use to extend reach in our products is one good example. So it's a fact. We are managing it. We're working now on securing our future, and we have been doing that for 2 years. So yes. So it's here. The second one was related to profitability and scalability of the business model. And I think this is precisely what I talked about in the conversation around what is our new strategy going to look like. And I would like to push that question into the future and come back in Q2 with better guidance on what we are really aiming for with this fantastic company. Per Burman: Then we have Tryg Bruland. In addition to a potential revenue loss, what is the level of extra cost that the moving process in Q2 will incur, USD 1 million is the question or less or more? Magnus Grenfeldt: The cost of consolidation of production. So that's already in Stefan's number, the $472,000 includes all of the extraordinary things that we have done and it includes everything up to and including July, August and then we're done. So... Per Burman: Good. That was the last question on the portal. Magnus Grenfeldt: And I think if I may clarify, it's not lost revenue. It's going to be, if at all, it's going to be slightly delayed revenue because we are still better than most other people in the market. Per Burman: Good. That was it. Magnus Grenfeldt: Then thank you very much. Have a great day, and see you in about a quarter. Thanks. Bye.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the MetLife First Quarter 2026 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Before we get started, I refer you to the cautionary note about forward-looking statements in yesterday's earnings release and to risk factors discussed in MetLife's SEC filings. With that, I will turn the call over to John Hall, Global Head of Investor Relations. John Hall: Thank you, operator, and good morning, everyone. We appreciate you joining us for MetLife's First Quarter 2026 Earnings Call. Before we begin, I'd point you to the information on non-GAAP measures on the Investor Relations portion of metlife.com in our earnings release and in our quarterly financial supplements, which you should review. On the call this morning are Michel Khalaf, President and Chief Executive Officer; and John McCallion, Chief Financial Officer and Head of MetLife Investment Management. Also available to participate in the discussion are other members of senior management. Last night, we released an earnings call presentation, which addresses the quarter. It is available on our website. John McCallion will speak to this presentation in his prepared remarks. An appendix to the deck features disclosures, GAAP reconciliations and other information, which you should also review. After prepared remarks, we will have a Q&A session, which will end promptly at the top of the hour. As a reminder, please limit yourself to 1 question and 1 follow-up. Now, over to Michel. Michel Khalaf: Thank you, John, and good morning, everyone. This was an excellent quarter and a strong start to the year as we demonstrated the full earnings power of MetLife guided by our New Frontier strategy. Adjusted earnings were ahead of last year for all operating business segments with across-the-board top line growth. Margins were resilient, and we deployed capital with discipline, investing responsibly in growth and returning excess capital to shareholders. Importantly, this quarter's performance was balanced and repeatable. Each of the key elements that drive our strategy, diversified businesses, disciplined capital allocation and investment portfolio and balance sheet strength all came together to demonstrate the promise and resilience of MetLife's superior value proposition. Year 1 of New Frontier was about building the right engine to drive growth and establish MetLife as a high-quality compounder over time. Year 2 is about acceleration and driving execution across our portfolio of market-leading businesses, where we serve more than 100 million customers. The first quarter provides early evidence that we're moving forward with urgency and discipline and are well positioned to deliver against the ambitious financial commitments we've established. Turning to first quarter results. We reported adjusted earnings of $1.6 billion or $2.42 per share. Adjusted earnings increased 18% from the prior year period. Adjusted earnings per share increased 23% year-over-year, faster than earnings growth, reflecting our steady capital management. Adjusted premiums, fees and other revenues, excluding pension risk transfers, increased 10% year-over-year. Growth was broad-based, spanning nearly all businesses and regions. Variable investment income totaled $518 million pretax, marking the third consecutive quarter of above-expectation VII. The first quarter result was near the top of the range we announced last month and driven by higher private equity returns, roughly 2.9%, aided by strong venture capital performance. Adjusted return on equity was 17%, at the top end of our 15% to 17% target range and far above our cost of capital. Our direct expense ratio was 11.9%, an improvement from last year and favorable relative to our full year target. This result is even more impressive when you consider the integration of PineBridge, a business with a structurally higher expense profile typical of asset managers. Turning to the performance of our business segments. Starting with Group Benefits, the segment generated adjusted earnings of $439 million, up 19% year-over-year. Life mortality in the quarter was exceptional, as working population mortality continues to trend favorably and was further helped by a light flu season this year. Total sales were up 15% in the quarter and adjusted PFOs, excluding participating contracts rose 4%. Within national accounts, our persistency is in the high 90s, and our average customer tenure is more than 20 years, illustrating the strength of Group Benefits contribution to our recurring revenue model and its consistent compounding of value over time. Looking ahead, our market leadership, scale and enduring customer relationships position us well to drive growth in the most attractive segment of the U.S. life insurance market. Employers continue to see the value of benefits beyond medical coverage as a cost-effective way to support their employees' health and financial security journeys in a tight economy. Moving to Retirement & Income Solutions, or RIS. We reported adjusted earnings of $451 million, up 11% from a year ago, lifted by strong variable investment income. After a record-setting fourth quarter for pension risk transfers and longevity reinsurance, newer additions to the lineup, U.K.-funded reinsurance and retail annuity reinsurance contributed $1.5 billion of new sales, further reinforcing the diversity of our product offerings. The breadth of our global retirement opportunity set is substantial and extends around the world to include top markets such as the United States, the United Kingdom and Japan. These are markets where demographics are driving the demand for income, which our product suite is well suited to provide. Turning now to Asia. The region delivered an outstanding quarter. Adjusted earnings of $487 million increased 31%. Sales performance in the quarter was very strong as the region advanced 22% on a constant currency basis. In Japan, our largest market in Asia, we saw continued strength in both FX and yen-denominated products. We also benefited from a new corporate accident and health product introduced in the quarter. Altogether, Japan sales rose 26% on a constant currency basis. For Korea, our second largest market in Asia, the combination of a solid economy and our product innovation has been a driver of growth with constant currency sales increasing 44%. In Latin America, adjusted earnings totaled $229 million, an increase of 5% despite the impact of last year's tax change in Mexico. Performance was supported by robust sales growth and persistency in the quarter with sales increasing 20% and adjusted PFOs up 11%, both on a constant currency basis. The region demonstrated strong underlying momentum in the quarter, led by employee benefits growth in Mexico, retirement annuity demand in Chile and the ongoing expansion of Accelerator in Brazil. Turning to EMEA. Adjusted earnings of $110 million rose 33% with adjusted PFOs up 15% on a constant currency basis. Our strategic focus on capital-light, accident and health and life products is delivering results. The cumulative impact of strong sales across multiple markets for the past several years is clearly showing up in adjusted PFO and adjusted earnings growth. Before I move on, we made the difficult decision to divest our business in Ukraine, a phenomenal example of resilience in the face of the most challenging circumstances. Going forward, this market-leading franchise will be even better positioned to continue its growth trajectory with its new regional parent. Now shifting to MetLife Investment Management, or MIM. The new segment delivered adjusted earnings of $47 million, an increase of 68% following the first fully integrated quarter post the PineBridge acquisition. Institutional client assets under management decreased 1.9% sequentially during the quarter, mostly due to market depreciation in equity and public fixed income as well as modest net third-party outflows. MIM's pipeline and forward commitments look strong, particularly within private assets. Let me briefly touch on artificial intelligence, which continues to play an important role in advancing our new frontier strategy strengthening how we run the company and driving growth and efficiency. Over the past 5 years, we've invested more than $3.2 billion to simplify and modernize our technology ecosystem. That investment is delivering tangible at scale benefits for our customers, associates and operations. As we continue to adopt AI responsibly, we're improving how we make decisions, enhancing how we serve customers and reducing friction across the enterprise. Our work to embed AI across core operations, combined with consistent execution is reducing complexity and costs while driving productivity and supporting growth and can be seen in the steady improvement in our direct expense ratio. For our customers, AI helps us respond faster, provide more relevant guidance and make our products easier to understand, leading to increased uptake. Above all, governance and risk oversight are built into how we deploy AI, which is paramount given the trust placed in us by our customers. Shifting to cash and capital, we've been active on a number of capital management fronts. First, we repurchased roughly $750 million of MetLife common shares and paid common dividends of around $370 million for a total of roughly $1.1 billion returned to shareholders in the quarter. We repurchased nearly another $200 million of net common shares in April, and we have $1.1 billion remaining on our existing authorization. Second, signaling our financial strength and flexibility, our Board of Directors announced a 4.4% increase in MetLife's common dividend per share. And finally, during the quarter, we opportunistically issued $1 billion of subordinated debt to support our balance sheet and provide growth capital. At its height, the offering was oversubscribed more than 5 times and was issued at tight relative spreads, indicating the value and confidence that the fixed income market attributes to MetLife's balance sheet. It's important to note, we executed these capital actions while also funding the quarter's substantial organic business growth, and we closed the quarter with $3.9 billion of cash at our holding companies, which is at the top end of our $3 billion to $4 billion liquidity target buffer. Before I close, I would like to take a moment to welcome Dan Glaser and Michelle Seitz who joined MetLife's Board of Directors in February. I am confident that Dan's deep experience in the insurance industry and Michelle's track record across investment management will serve MetLife's shareholders well. In closing, this was an excellent quarter that illustrates the investment case for MetLife. Under New Frontier, the decisions we are making and the actions we are taking continue to translate into durable earnings power, capital flexibility and attractive risk-adjusted returns across cycles. Our New Frontier strategy is deeply informed by the environment around us. From demographic shifts and higher interest rates, the convergence of insurance and asset management to the rapid proliferation of AI, we are positioning MetLife to benefit from these forces in a measured commercially disciplined way. We are pleased with the fast start to the year. This quarter's performance strengthens our confidence in the outlook we have shared and reinforces our belief that New Frontier is the right strategy at the right time. With that, I'll turn it over to John to walk through the results in more detail. John McCallion: Thank you, Michel, and good morning, everyone. As Michel mentioned, this quarter reflects not just strong headline results, but the continued strength of our earnings quality, through strong growth, disciplined underwriting, expense control and prudent capital management. So I'll walk through the first quarter results, including updates on our investment portfolio and will do so using the Q1 earnings call presentation. We'll start on Page 3. MetLife is off to a very strong start to the year, benefiting from the strength of our diversified, market-leading businesses, disciplined capital management and an ongoing efficiency mindset. In the first quarter, adjusted EPS grew 23%, while adjusted ROE reached 17% at the top end of our 15% to 17% target range. And our direct expense ratio was 11.9%, beating our 12.1% 2026 annual target. Net income totaled $1.1 billion, or $1.74 per share, while adjusted earnings for the quarter were $1.6 billion, or $2.42 per share. The primary difference between net income and adjusted earnings was net investment losses, primarily stemming from normal trading activity within the fixed maturity portfolio. This quarter, we experienced a higher amount of trading losses because of a more substantial amount of portfolio rotations. In addition, this line included a modest loss as a result of a sale of a portion of our private equity limited partnership interest. As we've seen signs of improvement in the private equity secondary markets, we opportunistically divested roughly $750 million of private equity assets at the end of Q1 at a modest discount. The transaction structure, like previous secondary sales we've completed, will allow MetLife Investment Management to continue managing the assets from the sale. While this is a prudent approach to managing our investment allocation, it also supports growth in our third-party asset management business. Moving to Page 4. We present adjusted earnings for each segment and Corporate and Other, showing a total year-over-year increase of 18% and 15% in constant currency to $1.6 billion, driven by higher variable investment income, strong volume growth and favorable underwriting margins, partially offset by lower recurring interest margins. Adjusted earnings per share were $2.42, up 23% and 20% on a constant currency basis with strong earnings growth supported by disciplined capital management. Now moving to the businesses. Group Benefits adjusted earnings were $439 million, up 19% year-over-year, largely driven by favorable life underwriting and volume growth. The Group Life mortality ratio was 80.1% for the quarter, better than our 2026 target range of 83% to 88%, reflecting continued favorable mortality trends among the working age population. Our nonmedical health interest adjusted benefit ratio was 75.8%, which was above our annual target range of 70% to 75%, in line with seasonally higher expectations for Dental. Within disability, higher average severity also impacted the quarter, along with higher incidence from paid family leave. Group Benefits had strong sales in the quarter, up 15%, primarily driven by growth across both core and voluntary products. Adjusted PFOs increased 2%, reflecting underlying growth of approximately 4%, partially offset by a 2-point headwind from participating contracts, which have limited impact on earnings. RIS adjusted earnings were $451 million, up 11% year-over-year, primarily driven by higher variable investment income and favorable underwriting margins. Mortality in our annuity business was lower compared to Q1 of '25; however, underwriting margins remained elevated due to a large structured settlement contract reserve release in the quarter. Despite RIS' strong results in Q1, we still expect full year adjusted earnings to be between $1.6 billion to $1.8 billion that we provided on our outlook call. Total investment spread was 119 basis points at the top end of our 100 to 120 basis points guidance range. Core spread ex VII was in line with expectations at 95 basis points and down 4 basis points sequentially, as we continued rotating the large Q4 inflows, primarily from PRT mandates. RIS continues to benefit from the strength of its origination platform. While top line metrics were masked by a tough compare versus the prior year quarter, which had PRT inflows of $1.8 billion, RIS adjusted PFOs, excluding PRTs, were up 58%, driven by strong growth in U.K. longevity reinsurance, post-retirement benefits and structured settlements. Asia adjusted earnings were $487 million, up 31%. The primary drivers were higher variable investment income and strong volume growth. Asia's key top line growth metrics continued their strong momentum in Q1. General account assets under management at amortized costs were up 7% on a constant currency basis. A key driver were Asia sales, which were up 22% on a constant currency basis, primarily driven by Japan and Korea, reflecting the traction that we are seeing from new product launches in both markets all while maintaining pricing and underwriting discipline throughout. Latin America adjusted earnings were $229 million, up 5% year-over-year. On a constant currency basis, adjusted earnings were down 9%, reflecting the Mexico VAT change and less favorable taxes versus the prior year quarter, which more than offset strong volume growth across the region and favorable underwriting. Latin America delivered strong top line growth, with adjusted PFOs up 25% or 11% on a constant currency basis. And sales were up 20% on a constant currency basis, driven by strong growth in Brazil, Mexico and Chile, a clear indicator of sustained demand and continued execution across this franchise. EMEA adjusted earnings were $110 million, up 33% and 28% on a constant currency basis, primarily driven by robust volume growth. Adjusted PFOs increased 19%, or 15% on a constant currency basis, and sales rose by 17% on a constant currency basis, with broad-based growth across the region. The strong top line growth over the last several years is translating into a stronger, more consistent earnings power. Turning to MetLife Investment Management, or MIM. Adjusted earnings were $47 million in the first quarter, up from $28 million a year ago and in line with the outlook we provided in February. The primary drivers were business growth, including the acquisition of PineBridge and favorable expense margins. With the first quarter reflecting seasonally higher expenses, we expect adjusted earnings to improve as the year progresses, aided by the continued progress integrating the PineBridge business. Institutional client outflows were approximately $2 billion during the quarter, reflecting elevated market volatility and the impact of bringing the 2 platforms together. However, outflows have stabilized the latter part of Q1 and so far in April, and we're seeing a solid pipeline ahead. Corporate and Other reported an adjusted loss of $177 million in the first quarter compared to a loss of $129 million a year ago. The year-over-year change was driven by foregone earnings from the prior year strategic reinsurance transactions, lower recurring interest margins and less favorable expense margins. This was partially offset by higher variable investment income. And the company's effective tax rate on adjusted earnings in the quarter was 24% at the bottom end of our 2026 guidance range of 24% to 26%. Now we'll move to Page 5. This chart reflects our pretax variable investment income for the 4 quarters of 2025 and the first quarter of 2026, which was $518 million. The higher than implied quarterly run rate in Q1 was driven by private equities, which had an average return of 2.9%, while real estate and other funds had an average return of 0.8%. As a reminder, PE and real estate and other funds are reported on a one quarter lag and accounted for on a mark-to-market basis. On Page 6, we provide VII post-tax by segment and Corporate and Other for the 4 quarters of 2025 and Q1 of '26. Most of the VII assets are concentrated in Asia, RIS and Corporate and Other, consistent with the long-term nature of these obligations. As of March 31, 2026, total VII assets stood at $18.2 billion. Asia represented nearly half of these assets, while RIS and Corporate and Other accounted for about 30% and 20%, respectively. As always, we manage the business assuming a normalized level of VII over time and remain comfortable with our full year outlook. Now let's discuss our private fixed income portfolio on Page 7. We've been investing in private assets, including private fixed income for decades with a proven track record of disciplined underwriting, strong governance and alignment with our liability profile. This chart shows our private fixed income portfolio, valued at approximately $85 billion as of March 31. The majority of these investments are in traditional private placement and infrastructure. Like our general account, this portfolio is high quality, around 95% is investment grade. It's well diversified and built to perform across market cycles. We also have limited exposure to segments generating the greatest attention in today's market. We have no exposure to business development companies, or BDCs, and our middle market loan exposure is under 1% of our general account. Lastly, private assets offer a strong relative value, especially when matched with our long-term illiquid liabilities. With prudent management, these assets deliver extra returns through direct origination, stronger covenants and collateral protections. Now let me turn to Page 8. Here we provide a summary of our software and software-related investments. We've cast a wide net here to comprehensively address this area of focus. We have a deliberately minor allocation in a highly diversified portfolio, across both direct and indirect investment. The portfolio is predominantly investment grade, diversified by issuer, structure and strategy and positioned high in the capital structure. Our $2.5 billion direct exposure, or 0.6% of our general account, is largely concentrated in market-leading, well-capitalized technology companies with robust liquidity profiles. The $6.3 billion of indirect exposure representing 1.4% of our general account is diversified across funds and structures with credit protections and conservative positioning that limit downside risk. Within private equity, software exposure totals $1.3 billion, spread across a highly diversified set of investments, where returns and cash flows will naturally vary across the investments. And most of our venture capital exposure of $3.5 billion is skewed towards AI firms, which are benefiting from higher valuations and contributed positively to returns this quarter. For example, our venture capital portfolio generated a 6.8% return this quarter. In short, our software exposure is intentional, well controlled and not an area of concern from a risk or capital perspective. Now turning to expenses on Page 9. Our direct expense ratio was 11.9% in the Q1 of '26, ahead of our full year target of 12.1%. This compares with 11.7% for the full year 2025 and 12% in the first quarter of last year. This quarter's performance was driven by strong PFO growth and continued expense discipline, which allowed us to successfully absorb the roughly 50 basis point impact from the PineBridge acquisition that we previously disclosed, while still coming in ahead of target. We continue to manage expenses on a full year basis, and this quarter reinforces confidence in our ability to deliver against our 2026 target. Moving to Slide 10. MetLife continues to operate from a position of strong capital and robust liquidity. As of March 31, cash and liquid assets at the holding companies totaled $3.9 billion toward the high end of our target cash buffer range of $3 billion to $4 billion. During the first quarter, we returned approximately $1.1 billion to shareholders, including approximately $750 million of share repurchases. And we repurchased approximately $200 million of additional shares in April. Our capital actions reflect confidence in both the near-term earnings and long-term free cash flow durability. For our U.S. companies, our 2025 combined NAIC RBC ratio was 379%, well above our target ratio of 360%. Preliminary first quarter 2026 statutory operating earnings were approximately $610 million with net income of approximately $170 million. And our estimated U.S. statutory adjusted capital, on an NAIC basis, was approximately $16.2 billion as of March 31, down 5% from year-end '25, primarily due to seasonally higher U.S. entity dividends paid in Q1, partially offset by operating earnings. And finally, in Japan, we expect our initial economic solvency ratio, or ESR, to be in the middle of our 170% to 190% target range for fiscal year ending March 2026, following completion of regulatory filings in June. In summary, MetLife delivered an excellent first quarter, reflecting disciplined execution across the enterprise, as we enter year 2 of our New Frontier strategy. Broad-based top line growth, strong returns and expense discipline underscores the quality and the durability of earnings, while strong capital, liquidity and free cash flow support disciplined and consistent capital management. Our high-quality, well-diversified investment portfolio, built on decades of private asset experience and risk management, positions us well through market cycles, with limited exposure to areas under the greatest scrutiny. Taken together, these results reinforce our confidence in MetLife's ability to compound value over time and deliver attractive, dependable returns for shareholders. And with that, I will turn the call back to the operator for your questions. Operator: [Operator Instructions] Your first question comes from the line of Suneet Kamath with Jefferies. Suneet Kamath: I wanted to start on Group Life, I guess, for Ramy. We've seen working age mortality trend has been improving, I guess, for a couple of years now. And I'm just wondering if you've done some more work in terms of what's driving that and if you think this trend that we've seen is sustainable. I don't think we can hear the answer, at least I can't. Ramy Tadros: Yes, sorry. Let me -- hold on a second. Suneet, can you hear me now? Suneet Kamath: I can. Ramy Tadros: Okay. Sorry, we had a problem with the mic here. So thank you for the question. And let me just give you maybe a bit of color on the quarter and then give you a sense of how we think about the sustainability of the results. We're very pleased with the results in the quarter. We've got about 2 points of favorable prior quarter development coming through. We did see about another 0.5 point of favorable severity, which can kind of fluctuate quarter-to-quarter. And as you noted, we are also seeing overall favorable working age mortality when you look at the CDC data. Look, there's a lot of different potential drivers for that favorability. Some include a pull-forward effect from a COVID perspective, some include the impact of GLP-1 drugs, and there are a lot of other pieces that we're researching and looking into, which I'm not going to go through all the details right now. But when you step back and think about what this means for our results, keep a couple of points in mind. One is while we operate in a competitive environment, this is also a market where we particularly can differentiate on factors beyond price. So we talked about the strategy in terms of how we bring our value proposition to our clients, especially those who are looking to do more with fewer. So life insurance is often bundled with other coverages such as disability and dental and voluntary, and this allows us, from a bundling perspective, to look at overall customer profitability and protect overall margins. And from a specific life perspective, if the favorability that we see does persist and does become credible on these RIS, we would expect some portion of it to flow back into pricing, but that would happen gradually over time. So think of that happening in years, not quarters, if you think about our underwriting ratio. I hope that helps. Suneet Kamath: Yes, that's helpful. And I guess maybe shifting gears to Japan, it seems like we're seeing a lot more actions by regulators in that country. And I think the secondy issue that you are part of. I think, it's an industry-wide issue. But I'm just curious if you can give us an update on what's going on there and if you're aware of any other reviews by the regulators that could impact Met's franchise there. Lyndon Oliver: Suneet, it's Lyndon here. So look, this issue, as you described, has impacted several companies across the industry. And we obviously take this matter very seriously. We've conducted a very comprehensive review all across the company. All the seconded employees have returned to their positions, and we've discontinued the practice. And we take lots of steps to kind of work with our customers, our partners and regulators to resolve the issue. And all the details of the review we've undertaken, all the corrective actions that we put in place can be found on our website. We're in conversations with the FSA about lots of different things. The press release noted we had a reporting order, but all our discussions with the regulators continue to be confidential right now. John McCallion: Yes. And I think just to add to that, Suneet, I mean, just to reemphasize, it's an industry issue, we're not seeing any impact on our business and results and sales, as you saw in the quarter. So I think, as Lyndon said, which kind of -- we're working through it, where all of us, like the whole industry, are working through addressing this with the regulator. And I think we don't see this as anything with any specific company. It's more just a change in industry practice. Operator: Our next question comes from Ryan Krueger with KBW. Ryan Krueger: Maybe I'll start with an opposite side of a Japan question. You had quite strong sales there. Can you talk a little bit more about the positive dynamics you're seeing that drove this? And how you're thinking about the rest of the year? Lyndon Oliver: Yes. It's Lyndon. Let me take that. So look, we did have a very strong quarter. We're very pleased with the performance we've seen in the quarter. Sales are up 22% year-over-year. So let me give you some color about Japan and the rest of Asia. So let's start with Japan. Sales in Japan were up 26% year-over-year, and that's really driven by distribution strength across all of our channels. We've also benefited from very successful product launches in the quarter. We saw life sales grow. That was driven by the yen variable product as well as a U.S. dollar single premium product. In the A&H products, we launched a new product in the quarter, and A&H sales were actually up 77% year-over-year. So strong performance in the yen A&H portfolio. When we look at annuity sales, they remained steady against what was a very strong comparative in the prior year, but we continue to see some momentum in U.S. dollar single premium products. An important dynamic for the quarter was our mix of business, between yen and dollar products, was close to 50-50, reflecting a very diversified product portfolio. Now going to the rest of Asia, sales there were up 18% year-over-year. And here, Korea was a key driver. Sales growth was up 44%. And here, too, we saw momentum in our U.S. dollar sales, where we've been able to leverage what we've done in Japan with U.S. dollar product as well as our investment expertise and take it to Korea. And then, we also saw strength in our Korean won product there, and that was driven primarily by the strong macroeconomic environment, particularly the rising equity markets. So we're off to a strong start for the quarter. Now looking ahead, we can expect a little bit of moderation in year-over-year growth rates just given the strong prior year comparatives, but we really expect the momentum we have to continue going into the second quarter. Ryan Krueger: And on non-medical health, could you give us a little more color on the key drivers that impacted this quarter? And also just how you're thinking about the rest of the year? Ramy Tadros: Sure, Ryan. It's Ramy here. So if you think about the quarter, 3 kind of drivers I would point to. First is dental, very much performing in line with our expectations. We did observe the seasonally higher dental utilization coming through in the quarter, which does impact the ratio, and we would expect utilization to moderate in the second half of the year, and that's kind of consistent with historical trends. For disability, we did experience higher disability claims. Those were coming from the impact of new state-mandated paid family leave programs. These new programs have a claim pattern with higher upfront claims that tend to normalize. So here again, we would expect that impact to also moderate in the second half of the year. And then the third factor, which John referenced in his prepared remarks, we did see slightly elevated severity in LTD. And it's important to note that while this was elevated on a year-to-year basis, when we look at it sequentially, it was actually flat over the last 3 quarters. So we don't really see any evidence of a trend here in terms of severity and very much in line with kind of quarterly fluctuations that we would see. So if you put all of these pieces together, from an aggregate perspective, back to your question, we would expect this ratio to moderate, but look for that moderation in the second half of the year, if you think that coming through our numbers. Operator: Our next question comes from Wes Carmichael with Wells Fargo. Wesley Carmichael: First question was on RIS spread. I think the core spread declined a little bit sequentially. But you've also brought on a lot of new business from PRT and other products over the past couple of quarters. So any help on how you're thinking about core yield or spread? And how that should trend if there's any uplift from deploying some of that cash or reallocating some assets going forward? John McCallion: Yes. Thanks for the question. Wes, it's John. So as you mentioned, RIS spreads for the quarter were 119 basis points and down about 5 basis points in total sequentially, but honestly, at the top end of our 100 to 120 basis point guidance range, VII contributed about 24 basis points. So that was essentially flat, which reflected, obviously, our strong private equity performance. And so if you exclude VII, core spreads were 95 basis points. And that 4 basis points of sequential decline was largely in line with expectations we discussed in February. As we had guided, there was -- obviously, we had a large volume of new flows in 4Q, primarily from the PRT mandates. That created a bit of a headwind in Q1, as we continue to rotate that portion of the -- or a portion of the portfolio. And so as we look ahead into 2Q, we do expect some improvement from lower asset rotations, but we're also operating in an environment where the yield curve remains persistently flat with the short end higher than maybe relative to our outlook expectation of the curve steepening. So that actually puts a bit of a headwind on us. I think taken all together, our expectation for Q2 is that core spreads will remain close to where we are in Q1, maybe slightly above, modest improvement in Q2. And total spreads will continue to track to our full year range. Wesley Carmichael: Got it. And second, I guess, Sun Life issued a press release last week that they're settling a class action lawsuit with policyholders. In their release, I guess, they noted that they can seek recourse from MetLife for, I guess, around CAD 200 million on a gross basis. So -- I realize that's small, but just wanted to see if that's something that we should be thinking about as a near-term impact on MetLife. Michel Khalaf: Wes, it's Michel. Thanks for the question. So I think I believe you're referring to the April 30 press release by Sun Life. The claims made by Sun Life can best be characterized as baseless and misleading. MetLife was not named a defendant in the reference class action suit. And Sun Life has taken no legal action to enforce the alleged indemnity claim against MetLife. As a matter of fact, there are currently no legal proceedings between the parties. We vigorously dispute that we owe Sun Life any indemnity whatsoever for the claims made in the underlying settlement. And the last thing I would say is that Sun Life and only Sun Life is responsible for its own decisions and actions in this matter. Operator: Our next question comes from Tom Gallagher with Evercore. Thomas Gallagher: First one, John, the -- did you say $170 million of stat net income in 1Q? And if so, anything in particular that was weighing on that result? And how -- maybe more broadly, how are you feeling about capital generation to start the year overall? John McCallion: Yes. Tom, yes, on stat capital, I mentioned in the opening remarks, we had about a 4% decline in the quarter. And the largest reason for that is, as I mentioned, dividend seasonality for our U.S. entities. We typically take a larger dividend in the first quarter. And then while dividends from our non-U.S. entities have weighted more heavily towards the remaining quarter. So that's typically been a historical practice for us around capital management throughout the year. I think importantly, nothing has really changed in terms of our capital trajectory or capital generation. I mean, we continue to demonstrate a free cash flow ratio of 65% to 75% and remain confident to do that throughout New Frontier. Finally, in 2025, we saw an RBC ratio of 379%, well above our 360%. So very much in line with where we've operated over the last several years. And overall, we believe this continues to reflect our strong capital resilience and discipline, and there's nothing really to call out. I mean, you saw some normal, I'd say, level of credit losses in the quarter, a little higher trading losses and just -- kind of just general seasonality of Q1. And you can go back and see that it's pretty consistent with prior quarters. Thomas Gallagher: Got you. My follow-up is I just want to ask a higher-level strategy question on the investment side. How are you -- what are you thinking about things? And I know you had some reallocations going on with PRT and the like. But if -- I guess starting on your commercial mortgage loan portfolio, I noticed you've been shrinking that a lot. So it looks like you're not originating as much on that side or at least retaining as much on that side. So I take that to mean you're a little more cautious going forward on the CML side. Where are you reallocating? And where are you more bullish? Is it private credit? Or just a little bit of color on what are you thinking more broadly about where you're looking to allocate new dollars? John McCallion: Yes. Tom, it's a good point. And I think like with any environment and in the way we approach it is, obviously, we think about relative value, right? And we -- this is why it's so important to have a diversified platform where you have strength and capabilities across a number of asset classes because quite honestly, some asset classes can look more challenging at different times. I'd say just on your point of real estate, we are continuing to see an environment there, where we have seen liquidity and price discovery pick up, and we expect this trend to continue through the year. And it's helped kind of normalize pricing and things like that. And so there are, I'd say, improving opportunities, but surprisingly, new issuance and new origination spreads are still relatively tight. So we're being selective when it comes to that, and we think that's the best approach in this asset class. To your question about what else are we looking at, I think we have a variety of different capabilities within the private assets. Asset-backed financing probably is one of the places where we're seeing opportunities for risk-adjusted returns that are very strong. But I think within each asset class, we can find it, but maybe at broad themes around sectors, that's probably on a relative scale place that is showing better value. Operator: Your next question comes from Joel Hurwitz with Dowling. Joel Hurwitz: First one on MIM with PineBridge now on board. Can you maybe talk about the outlook for flows or provide some more color on the strong pipeline that you mentioned in your prepared remarks? And then, can you also talk about the ability to leverage some of the international distribution that comes with that acquisition? John McCallion: Joel, it's John. Look, I'd just start out by saying we're very excited about what's ahead for MetLife Investment Management. This is the first quarter post acquisition. And while it's still early, we're really encouraged by the progress that we've seen across integration, client engagement, pipeline development. From an integration perspective, we really were focused on being quick and deliberate out of the gate. We announced a new MIM leadership team, which took a combination of both firms. We're in process of consolidating key investment platforms to drive operating synergies. And then, we've started out of the gate being focused on being a 1 MIM platform. And -- that was really -- holistically, that was a strategic rationale for bringing these 2 firms together. And we've been proactive with clients and consultants in terms of our outreach and our vision, talking about these investment capabilities, and the feedback has been consistently positive. We're seeing really some great opportunities for early signs of cross-selling to begin to emerge. And so I think -- I'd just say, overall, the early days have just continued to reinforce the strategic fit of PineBridge. In terms of new pipeline, I'd say it's well diversified. We see some being committed, new commitments. We have opportunities for deploying capital under our existing mandates. We have some late-stage client activity. So I think, all in all, as you know, with the institutional asset management, it can be inherently lumpy and episodic at times. But I think what we're really excited about the engagement and the momentum that we're seeing is very positive and highly constructive, and we're just seeing those -- these opportunities develop across asset classes and geographies. As you point out, one of the attractive things about PineBridge coming together is they really brought an international non-U.S. footprint to us. About 50% of their AUM is outside the U.S. So we spend a lot of time with the teams kind of thinking about how we can, as I said earlier, think about those cross-sell opportunities, and we're finding a lot of opportunities out of the gate. So just as we step back, despite this being early integration, and there's some natural, I'd say -- I'll say, early day consolidating situations that occur in terms of flows, we feel very good about the demand that's there for our products, the depth of the pipeline that we're seeing and our ability to continue to generate new net flows. Joel Hurwitz: Got it. That was very helpful. And maybe, Ramy, can you just talk about what you're seeing from a competitive landscape across the various markets you play in, in the group space? And just any color on sort of the drivers of the top line and group ex participating policies being towards the lower end of your target range? Ramy Tadros: Thanks, Joel. Maybe let me just hit about -- hit the top line question first. So as we described before, participating policies do impact PFOs, but don't really impact our earnings. So we always like to think about the true measure of top line growth is one that does exclude participating policies. And in this quarter, we saw slightly over 4% growth using that metric. And as the industry leader, continuing to grow at these levels, and if you look at it in absolute terms, we're certainly very pleased with our growth rate here. And look, while we compete in a competitive environment, we have a value proposition that's resonating in the marketplace and continuing to deliver for our customers, and therefore, deliver for our shareholders. So from a driver's perspective, it's really been hitting on all cylinders this quarter. We have improved persistency. That was broad-based, particularly evident in our dental book. We've also achieved all of that persistency while meeting our expectations in terms of rate actions across the business. Very strong momentum in terms of sales, broad-based across core and voluntary. And we continue to drive our strategy that we talked about at Investor Day from a re-enrollment perspective. We talked about those twin gaps of a confusion gap and a protection gap and how our ability to bridge them is going to drive better enrollment results, and we're seeing that with double-digit voluntary product growth in our portfolio. So all over, I would say, as the industry leader with clear competitive differentiators, we're very pleased with the top line momentum here. Operator: Your next question comes from Tracy Benguigui with Wolfe Research. Tracy Benguigui: I just want to go back to MIM. You mentioned some third-party outflows. Did that come from PineBridge deflections or somewhere else? John McCallion: Yes. No, I think it's a mix, right? So there were -- we did have some expected post-close activity, I'll call it, early in the quarter. And then also, we had, just as you would typically have, client allocation shifts that are unusual to start the year. So it's a mix of both. Tracy Benguigui: Got it. And just appreciate an update on your annuity reinsurance flow. How many cedents are you part of that right now? Ramy Tadros: Tracy, we have, as of this point, 2 partners that we're working closely with on the reinsurance side. And just -- I would just give you a bit more color on that is we're working with partners who appreciate what we can bring to the table in terms of our financial strength, investment capabilities, liquidity and capital flexibility. But I would also say, we are also very selective in terms of who we partner with because we look at the quality of the liabilities being originated, and in particular, we look at the cost of funding for those liabilities. And so we think these are win-win partnerships and really speaks to the strategy of looking to go after adjacencies, which play to our strength. And -- Michel mentioned that in his opening remarks in terms of retail reinsurance. The other adjacency that we're seeing a lot of tailwinds in is the U.K. funded reinsurance. And on a year-to-date between those 2 pieces, we have $2 billion of inflows here, and these are businesses that were basically started from scratch from Investor Day to sitting here today 18 months later. Operator: Our next question comes from Pablo Singzon with JPMorgan. Pablo Singzon: First, could you comment about your outlook for EMEA? Earnings were above the quarterly run rate you had provided before. And operations that don't seem to be affected by what's going on in the Middle East. So I'm just curious how you're seeing the rest of the year unfold there. John McCallion: Just to make sure, Pablo, you said EMEA. Is that what you said? Pablo Singzon: Yes, that's correct, John. Just earnings being stronger and operations not being affected by the conflict in the Middle East? Michel Khalaf: Pablo, it's Michel again. So yes, we're really, really pleased with EMEA's performance. And I would say that's been building over a couple of years now, where strong sales growth is translating into PFO growth and earnings growth as well. I think that's also reflective of the highly efficient structure that we have in EMEA, especially in Europe. With regard to the situation in the Middle East, just to give you a sense of EMEA's earnings, about 2/3 come from Europe, 1/3 from the rest of the region. And about 50% of that 1/3 comes from Turkey and Egypt. So clearly, we've been keeping a close eye on what's happening in the region. Our first order priority is the safety and well-being of our associates there. So far, we have not seen any impact. And I think EMEA's performance in the quarter is -- provides evidence of that. And we think that, provided the situation stabilizes from here, we're not going to see any impact. And if we do, they're not going to be material to EMEA overall and certainly not to MetLife's overall results as well. John McCallion: And I would just add, Pablo, just in terms of outlook, we probably -- obviously, this is a very strong quarter. I wouldn't consider this to be a run rate where we had a $90 million to $100 million quarterly run rate as part of the outlook. And we're probably trending towards the middle to upper end of that range is where we -- going forward. Pablo Singzon: That's clear. And then my second question, disability, maybe for Ramy again. Do you think the trends you've seen so far, right? You called out severity, paid families, would those require repricing beyond normal course? And I guess, how do you frame how you might be positioning the book today versus the past several years when results for the industry were just very strong? Lyndon Oliver: Yes. Well, just in terms of our overall approach for pricing here, we have the ability to reprice about 50% of the book every year in terms of our disability book. And that's driven by a combination of would be client-specific experience as well as our outlook. I would say from an LTD perspective, what we've seen from a 1 quarter of severity this quarter, and I talked about this being flattish over the last 3 quarters, we're not seeing any evidence that would say -- would merit an overall repricing of the book. Outside of the severity that we talked about, the performance is very much in line with our expectations, be it in terms of incidence or closure or recovery rates. So we feel pretty good about where the book sits today, but we'll continue to monitor this and clearly reflect an individual customer by customer experience. And then for the paid family medical leave, I talked about the nature of the product. I think of it as an expanded STD product, and I talked about the front-end nature of those claims. Clearly, as we get a more credible experience as we get into the outer quarters, we will look at repricing actions as needed. But the front-end nature of this isn't a surprise to us. It's -- this is how these plans effectively work. And again, I'll come back to the fact that we can reprice about 50% of this business every year. So think of this as a BAU in terms of hitting our target margins and our pricing actions. Operator: That is all the time we have for questions today. I will now turn the call back to John Hall for closing remarks. John Hall: Thank you, everybody, for joining us this morning, and have a great day. Operator: This concludes today's call. Thank you for attending. 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: Good morning, and thank you for joining today's Planet Fitness Q1 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Brendon Frey for opening remarks. Please go ahead. Brendon Frey: Thank you, operator, and good morning, everyone. Speaking on today's call will be Planet Fitness' Chief Executive Officer, Colleen Keating; and Interim Chief Financial Officer, Tom Fitzgerald. Colleen and Tom will be available for questions during the Q&A session following the prepared remarks. Today's call is being webcast live and recorded for replay. Before I turn the call over to Colleen, I'd like to remind everyone that the language on forward-looking statements included in our earnings release also applies to our comments made during the call. Our release can be found on our investor website along with any reconciliation of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures. With that, I'll now turn it over to Colleen. Colleen Keating: Thank you, Brendon, and thank you, everyone, for joining us for the Planet Fitness First Quarter Earnings Call. I'm pleased to have Tom Fitzgerald joining me on today's call, and I'd like to thank Tom for pausing his retirement to step in as Interim CFO. Tom is an accomplished finance leader with a deep understanding of our business and franchise model. I look forward to working with him again to position Planet Fitness to drive growth and shareholder value as we conduct a thoughtful and disciplined search to identify our next permanent CFO. To start today's call, I'll walk through the key drivers of our first quarter performance and review the actions we're taking to refine our go-to-market strategies and reinvigorate member growth. Tom will follow with a review of the financials and outline our updated 2026 guidance. During the first quarter, we grew net new members by more than 700,000, achieved system-wide same club sales growth of 3.5%, increased adjusted EBITDA 19.5% over Q1 2025 and opened 15 new clubs. While our top and bottom line results exceeded expectations, we are not satisfied with our member growth performance. The fitness industry continues to enjoy a number of long-term tailwinds as more people recognize the critical role movement plays in enhancing both physical and mental well-being, preventing disease and enabling longer, healthier lives. As a result, demand for accessible and affordable fitness continues to grow. We saw this momentum in 2025, delivering 6.4% club growth and adding approximately 1.1 million net new members, a 10% increase in net new membership adds over 2024. A recent Health & Fitness Association study cited that fitness memberships for 2025 were up 5.4% over '24, reflecting that the industry experienced solid growth last year as well. While this favorable backdrop remains in place, during our key Q1 sign-up period, we faced some internal and external headwinds that impacted our join momentum year-to-date. As a result, we are taking targeted actions to reinvigorate member growth. We believe that a combination of 4 factors most directly affected our performance. First, our marketing largely resonated with a more fitness-minded consumer, yet had less resonance with the fitness beginner or more casual gym goer, traditionally our sweet spot given our differentiated nonintimidating environment. Second, we saw some competitive impacts in certain markets, particularly South Central and Southeast U.S. Third, unfavorable weather conditions affected a number of regions during the quarter; and fourth, macroeconomic pressures and uncertainty weighed on consumers. Our overall performance reflects the strength and resiliency of our model. However, the addition of more than 700,000 net new members during the quarter did not meet our expectations. While this was driven by multiple factors, refining our marketing messaging and targeting is directly within our control. We are making immediate and near-term adjustments to broaden our reach and ensure our messaging is both visible and resonates with the fitness beginner and more casual gym goer. Before I further address that, let me provide some context on how the year has unfolded. Member join trends were solid in the first 2 weeks of January, partially offset by temporarily elevated churn. Severe cold and winter weather in late January and February disrupted joins, especially as several of the storms fell on Mondays, our busiest join day of the week. We anticipated that our March campaign, Black Card First Month Free, which was very successful during the same time last year, would improve our join momentum over the remainder of Q1 and into Q2. Yet as we moved through March and into early April, our join trends remained below our plan. Guided by consumer research and member behavior, over the past 2 years, we've evolved our equipment mix to deliver a more balanced combination of strength and cardio equipment, along with additional open floor space. This ensures members can work out their way. At the end of the first quarter, more than 80% of our entire system featured some version of a format optimized layout or equipment offering. As we've shared previously, our data shows this was the right decision as we enhance the member experience and support long-term engagement, and we shared some of this feedback at our Investor Day last fall. This evolution was a notable shift within our clubs. To broaden our reach and reinforce that people of all fitness levels can achieve their goals at Planet Fitness, in Q4 of 2024, we began to showcase more advanced aspirational gym goers and strength equipment in our marketing, which resonated with a more fitness-minded consumer. This was a shift from the lighthearted approachable tone that had previously been a hallmark of our brand messaging. We were encouraged by our net member growth in 2025 and made the decision to extend the campaign into 2026. However, looking at data from Q4 of last year and Q1 of this year, we saw that our messaging and targeting was successful in driving increased penetration with the fitness-minded consumer, yet we may have pivoted too far. To this end, we've identified 2 areas where we're sharpening and intensifying our focus this year, driving member acquisition and reinforcing affordability. Let me start with member growth. We believe we have an opportunity to dial up the brand's no-gymtimidation ethos in our creative and messaging to appeal broadly to fitness beginners or more casual gym goers, a differentiator that sets us apart from the rest of the industry and is a critical advantage relative to other HVLP peers. To support this, we're testing new marketing initiatives aimed at reigniting net member growth with our target audience at the forefront. We also ran an RFP process in Q1 and recently selected a new creative agency. While we are already refining existing work for Q2 and Q3, we anticipate a new campaign to be in market before year-end to set us up for Q1 2027. Additionally, as we shared at our Investor Day, we are investing in more advanced data-driven marketing tools that allow us to be more agile in our messaging. This includes testing different machine learning models as we modernize our CRM engine as well as building a dynamic content optimization engine for both development of creative assets and dynamic ad serving. These tools will enable us to deliver personalized advertising in real time through the right channels, driving acquisition and retention. While we have seen and are actively addressing increased competition from other HVLP brands in certain markets, they generally target a narrower span of fitness levels and age cohorts. In this environment, it is critical that we clearly and consistently message consumers that while our offering has evolved to meet consumer needs, what truly sets Planet Fitness apart is our nonintimidating judgment-free environment. And this is where we can fully leverage our unmatched marketing fund by letting prospective members who are new to fitness know we're the place for them to begin their fitness journey and remain as they progress on that journey. While we know most consumers today are more fitness aware, our sweet spot is the more than 70% of the population that are not a gym member today and who value the welcoming environment at Planet Fitness. We have a clear plan to expand our leadership position, strengthening the Planet Fitness brand, deepening member engagement, shifting elements of our execution to ensure we continue to maintain and extend our leadership in the HVLP space and driving membership and unit growth. Now let me turn to our affordability and the everyday value that we offer. Against a macroeconomic backdrop of increasing financial pressure on consumers, we are reinforcing Planet Fitness' long-standing commitment to affordability. Economic data indicates an increasingly uneven economic recovery with higher-income households remaining resilient, while lower-income consumers experience mounting pressure. We want Planet Fitness to be accessible to all consumers who want to improve their health. Our pricing architecture and consumer value proposition is one of our most powerful strategic levers and historically has been a source of disruption and growth for our brand as the leader in the HVLP space. While we conducted extensive testing over the past couple of years to support a potential Black Card price increase, the consumer and economic backdrop have shifted. Based on our experience, price increases create a near-term headwind to member joins. As a result, given our decision to prioritize member growth, we have decided to pause the national rollout of our Black Card price increase. At the same time, we are a test-and-learn organization, and our objective is to evolve pricing thoughtfully and in line with our brand promise of democratizing access to fitness while delivering exceptional value. Our test-and-learn approach ensures any pricing change is deliberate, data-driven and true to who we are as a brand, reinforcing our HVLP positioning while sustaining our role as the category leader. Given our softer start to the year and the adjustments to our strategies, we are updating certain elements of our full year guidance. Two key factors driving the revisions are the net member growth shortfall in Q1, which has an outsized impact on the year, and our decision to pause an increase to Black Card pricing. Tom will walk through the specifics shortly. These changes also impact the 3-year algorithm we shared at Investor Day last November. And as a result, we've made the decision to withdraw that outlook. I want to reaffirm our confidence in our strategy and the many key initiatives that underpinned it, which we outlined at Investor Day. We are continuing with these investments, and they are progressing well and on track. While we are taking action to address current market conditions, we are doing so while leaning into the same initiatives we outlined in November to drive sustainable long-term member growth. Now I'll turn it over to Tom. Thomas Fitzgerald: Thanks, Colleen. It's a pleasure to be back at Planet Fitness supporting you and the team while we search for a permanent CFO. This is a great brand with an incredibly strong competitive position, and I love the brand, and I love the team. So it was easy to say yes to rejoin Planet on an interim basis. While 2026 is off to a slower start than expected, I believe the factors impacting our momentum have been identified and are addressable through adjustments to our strategies. Before I get into the financials, I would like to provide further insight into what we believe drove the softer net member growth in Q1. In addition to the marketing not resonating with the fitness beginner or more casual gym goers and competitive pressures in certain markets that Colleen spoke to, net member growth was also impacted by higher-than-expected attrition in the first quarter. Now Planet Fitness is committed to delivering an exceptional member experience, ensuring that our members choose to stay with Planet Fitness based on the value we provide, not due to any barriers to cancellation. This is why the company took the lead and rolled out online member management nationally in May of last year. As we have shared before, our monthly attrition has historically been between 3% and 4%. This was true last year even after we introduced online member management more broadly. In January, we experienced elevated churn, which we partially attribute to a heavy rotation of TV advertising that included the use of the phrase "cancel anytime" in the messaging. After adjusting the language, attrition for February and March declined. Though it was still elevated versus last year, the gap was more in line with what we saw in Q4 of last year. For Q1, our attrition rate averaged 3.8% per month, which was within our historical range. For the rest of the year, we expect monthly attrition to continue to be in the top half of our historical range due in part to the implementation of online member management, but also driven by the increased penetration of Gen Z as younger consumers historically churn more than older cohorts. Adding to what Colleen touched on earlier, the headwind from churn was followed by winter storms in January and February. While these weather-related disruptions were known and contemplated when the company issued guidance on the Q4 call in late February, the expectation was that, with better weather, net member growth would improve over the remainder of the quarter, similar to what we had seen in the latter half of December and the first half of January. Unfortunately, this reversion did not materialize to the levels expected for the reasons Colleen and I mentioned earlier. Now to our first quarter results. All of my comments regarding our first quarter performance will be comparing Q1 2026 to Q1 of last year, unless otherwise noted. We opened 15 new clubs compared to 19. We delivered system-wide same club sales growth of 3.5% in the first quarter. Both franchisee and corporate same club sales increased 3.5%. Approximately 90% of our Q1 comp increase was driven by rate growth with the balance being net membership growth. Black Card penetration was 67% at the end of the quarter, an increase of 240 basis points from the prior year. For the first quarter, total revenue was $337 million compared to $277 million, an increase of 22%. The increase was driven by revenue growth across all 3 segments. A 17% increase in franchise segment revenue was primarily due to an increase in National Ad Fund, or NAF, higher royalty revenue from increased same club sales as well as new clubs, and placement and franchise fees. The increase in NAF revenue was primarily due to a 1% increase in NAF contributions from 2% to 3% for 2026. For the first quarter, the average royalty rate was 6.7%, an increase of 10 basis points from prior year. The 5% increase in revenue in corporate-owned club segment was primarily driven by sales from new clubs as well as increased same club sales. As a reminder, we opened 23 new corporate clubs since January 1, 2025, 11 of which occurred in the fourth quarter. Equipment segment revenue increased 123%. The increase was primarily driven by higher revenue from replacement equipment sales and higher revenue from new franchisee-owned club placement sales. We completed 14 new club placements this quarter compared to 10 last year. For the quarter, replacement equipment accounted for 87% of total equipment revenue compared to 78%. Our cost of revenue, which primarily relates to the cost of equipment sales to franchisee-owned clubs, amounted to $45 million compared to $22 million. Club operations expenses, which relates to our corporate-owned club segment, increased 8% to $88 million compared to $82 million. This increase was primarily due to operating expenses from 23 new clubs opened since January 1, 2025. SG&A for the quarter was flat to prior year at $34 million, while adjusted SG&A was $33 million, an increase of 2%. National Advertising Fund expense was $32 million compared to $22 million, primarily due to the 1 point shift this year in marketing from the local fund to the national fund. Net income was $52 million, adjusted net income was $59 million, and adjusted net income per diluted share was $0.74. Adjusted EBITDA was $140 million, an increase of 20% year-over-year, and adjusted EBITDA margin was 41.5% compared to $117 million with adjusted EBITDA margin of 42.3%. By segment, franchisee adjusted EBITDA was $95 million, and adjusted EBITDA margin decreased from 73.7% to 70.4%. Corporate club adjusted EBITDA was $46 million, and adjusted EBITDA margin decreased from 34.3% to 33.1%. Equipment adjusted EBITDA was $19 million, and adjusted EBITDA margin increased from 26.8% to 31.3%. Now turning to the balance sheet. As of March 31, 2026, we had total cash, cash equivalents and marketable securities of $652 million compared to $607 million on December 31, 2025, which included $81 million and $66 million of restricted cash, respectively, in each period. In Q1 2026, we used $50 million to repurchase approximately 614,000 shares at an average price of $81.47. Moving on to our 2026 outlook. As Colleen noted earlier, given the net member growth trends in the first quarter and our decision to pause the planned national Black Card price increase, we are adjusting our 2026 guidance. We now expect system-wide same club sales growth to be approximately 1%; revenue to grow approximately 7%; adjusted EBITDA to grow approximately 6%; net interest expense to be approximately $111 million; adjusted net income to decrease approximately 2%; adjusted net income per diluted share to grow approximately 4% based on adjusted diluted weighted average shares outstanding of approximately 79 million. Our decision to pause the increase on Black Card accounts for approximately 150 bps of the reduction in our outlook for same club sales for the year. The rest of the decrease is due to softer net member growth trends. As we think about the composition of same club sales in the future, our goal is to have the majority of growth driven by member growth versus rate growth. Our outlook for unit growth has not changed. We still expect between 180 and 190 new clubs system-wide and anticipate that the cadence of these openings and the related 150 to 160 equipment placements to be weighted to the second half of the year, especially the fourth quarter. We expect that re-equip sales will make up approximately 70% of total equipment segment revenue for the year with an equipment margin rate of approximately 30%. We expect the second and third quarter to each account for approximately 30% of our full year replacement equipment revenue and the fourth quarter to be approximately 15% of the full year. Lastly, we continue to expect capital expenditures to be up 10% to 15% and depreciation and amortization to be up approximately 10%. In closing, we recognize that the operating environment has evolved in ways that require us to make some adjustments and to execute with sharpened focus on our core target. In response, we are taking proactive steps to reinvigorate net member growth and leverage our industry-leading marketing scale. Our focus will be to communicate the unique value proposition of Planet Fitness to a broader audience and ensure we connect with both our current and prospective members in a way that drives sustainable and profitable growth. I will now turn the call back to the operator to open it up for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Simeon Siegel with Guggenheim Securities. Simeon Siegel: First off, Colleen, any color you can share on how your conversations with franchisees are going amid all of it, just the current performance. And this color -- and then either for you or for Tom, just obviously a notable guidance cut. So maybe just speak to how you arrived at these new numbers, confidence in them. And do you think or do you believe this should be the last cut, and we should be looking at it that way? Colleen Keating: Sure. Thanks for the question, Simeon. So from the standpoint of our conversations with franchisees, certainly, we've got alignment on our overarching strategy. Some of the things we're sharing today as it relates to kind of shift in marketing messaging, this is fairly new news. And we have a town hall with our franchisees next week to share more detail on the go-forward plan. Thomas Fitzgerald: Yes. Simeon, I'll take the second part on the outlook. I think the big change really is how we're seeing same club sales and net member growth for the year coming out of Q1. I think Colleen a couple of minutes ago outlined the 4 reasons behind it. And also not taking the Black Card price up, given our net member trends, we think that makes sense. But that obviously has a bit of a headwind on the outlook for the year. But we think absolutely the right strategic move to make. Our approach was to revise the guidance with the idea that we wouldn't lower it for the rest of the year. Operator: Your next question comes from the line of Randy Konik with Jefferies. Randal Konik: So Tom, just to kind of kind of bounce off that a little more. Coming out of the first quarter, are the trends kind of stable from first quarter into the second quarter? Are they getting worse on a net member basis? Can you kind of elaborate on that a little bit in terms of, again, arriving to the annual outlook change? Thomas Fitzgerald: Yes. Sure thing, Randy. And we don't really comment on the member growth for the year or project it. But to help you out with a little bit of the color, we -- as Colleen said, we added about 1 million net members in Q1 last year. And this year, it was about 700,000 -- a bit over 700,000. And that's with more new clubs year-on-year. So clearly, we expected more. And I think for the reasons Colleen outlined, we think a big reason is the marketing and sort of trying to go after a more fitness-minded target versus our traditional target. And we think the beginner, first-timer is just a much bigger pool. So we're going to redirect what is, as you know, an outsized orders of magnitude, larger marketing spend than anyone else in the industry. So we're going to put the crosshairs kind of back on where we used to. And -- but that's going to take a little time. It's not a flip of the switch, as you know, particularly in a franchise system. So I think that's principally what we're seeing. I would say we don't comment in the quarter, but I'd say we projected the rest of the year based on what we've seen coming out of February after the storms and into March -- through March. Colleen Keating: Maybe I'll chime in on that a little bit. In March of last year, we had a very, very strong performance from our Black Card First Month Free promotion. And while we had some elevated churn in January and then some storm weather impacts that we were seeing coming out of January and into February, we anticipated very strong performance because we knew we were going to be running the Black Card First Month Free again in March, and we had softer performance than we anticipated there. So some of those trends are what we kind of carried forward in reforecasting the rest of the year because we didn't see the momentum in March that we had anticipated. And then maybe just to comment a little bit further on the marketing and the shift in messaging, particularly because we, a couple of times a year, do a brand health tracker. We use a third-party research firm to help us evaluate how our marketing is landing. And when we built the 2025 campaign, "Grow Stronger Together," and "We're Are All Strong on This Planet," we were responding to what we saw in the brand tracker in early '24, which was that we needed to communicate to consumers and prospects that you could get strong at a Planet Fitness and that we had the right complement of strength equipment. The early read on that marketing was that it was working and it was communicating that message. So we saw the lift in consumer sentiment as we evaluated that campaign. What we've come to recognize more recently, particularly in the data that we saw late last year and coming into this year, was that we were penetrating a more fitness-minded consumer. But you'll remember at our Investor Day, Brian Povinelli talked about defending and enhancing. And what this messaging did was enhance, but we missed a little bit of the defending. So where we had a strong ownership of the kind of the beginner or the person who might be more gymtimidated, that 70% of the population that doesn't have a gym membership today, this messaging may have resonated -- or did resonate a bit more intimidating, and we saw that in the more recent brand health data. So that's what's influencing the pivoting on the marketing messaging. Randal Konik: Got it. And then when you think about -- when I look at the Black Card penetration, I believe it was up, and then you're talking about a broader price review. What is the kind of messaging there or thought process there? Because on one hand, you're getting that increased penetration so that fitness-minded person, I'm assuming, is appreciating the value of those amenities in the Black Card spa, yet -- are you kind of looking at that from a perspective of -- is our initial pricing to an initial gymgoer looking too high when they see that Black Card price? Or just kind of give us some perspective of why the broader price review and pausing the Black Card. Just want to get some color there. Colleen Keating: Absolutely. Great question. I'm glad you asked it. So as we think about the increased penetration that we've been experiencing with Black Card pricing and in the mid- to upper mid-60s in penetration across our membership, since we've narrowed the delta, the increase in the Classic Card price to $15 narrowed the delta between Classic and Black. That increased penetration is giving us price, right? It's giving us organic price lift because we're getting more penetration at the Black Card price of $24.99 versus the Classic price of $15. So to be clear, and we've said this over the past year, we are getting price from the increased penetration. We also -- as we've talked about, we have seen -- in the past where we've taken a lift in Black Card pricing, we've seen a slight headwind on joins, certainly a diminution on the penetration, but it builds back over time. Given what we saw in the first quarter and our focus on doubling down on member growth, really leaning into member growth for the rest of the year and kind of the consumer landscape and backdrop, we felt that the most prudent decision was not to put a price headwind when we're doubling down on membership growth. So we've put the pause on the nationwide rollout of a Black Card price elevation. And we're continuing to do price testing in a number of different markets with a couple of different price scenarios. We're always going to be testing, but the Black Card price test was initiated in a different -- much different consumer environment. So we felt it was prudent to refresh our tests, run a couple of new ones and put the pause as we really, really lean in heavy on driving member growth between now and the end of the year. Operator: Your next question comes from the line of Max Rakhlenko with TD Cowen. Maksim Rakhlenko: Maybe piggybacking in a way to the last question. But Tom, can you -- just going back to the comp for the year at plus 1%, because -- just give us more help. You are still getting the benefit from the Black Card mix, as Colleen just discussed. You are going to be cycling the worst of click to cancel in 2Q and 3Q. And then in 4Q, you start to get the benefit from the waterfall given all the boxes that you opened late last year. So in the context of all this, sort of how do we build to the 1% comp? And then how should we think about the member versus rate contribution in the rest of the year? Thomas Fitzgerald: Yes. Max, so I would say that you're right, the clubs coming on board towards the end of the year into the comp base, that helps. It really does come down to the member growth. And as you know, in our business, it's not really what happened last month or last quarter. It's sort of the 12 months prior versus the prior and also the quarter's net member growth versus the net member growth in the prior quarter. And Q1 being so such a big piece of that net member growth change for the year, it kind of has an outsized impact that works its way through. So I think the split -- rate volume split in Q1 was 90-10, 90 rate, 10 volume. And I think, as Colleen said, really doubling down, zeroing in on the primary goal of driving net member growth. we've got to get that split to be different than 90-10. It's kind of unsustainable. And in our business, you can spend a lot of money to drive -- because net member growth is profitable almost no matter what you do, unless you spend an incredible amount of money very efficiently. It's almost impossible not to make net member growth profitable. So that's really what's the beauty of the model, and I think what we want to rebalance. But the way we're calling the year is really based on the lack of the Black Card price increase that I mentioned, which was in our original outlook, not rolling that nationally, as well as just what we've seen as Colleen and I just mentioned on the last couple of questions about what happened through March that we expected more and didn't get it. So we've got some work to do, and I think it will take a little bit of time to redirect it, but we're very confident that this is the right approach. And again, given our outsized spend and position in the industry and the fact that no one really goes after who we go after, we're confident that, that will fall into place and start to reaccelerate member growth and ultimately, comps. It's just going to take a while. Colleen Keating: Maybe I'll bolt on for a minute, too, just because I know you're going to -- you're looking to model, and I think -- so we get asked the question, well, we can share it broadly. The Black Card price was about 150 basis points of the comp for the year, right? And then I would also say kind of the seasonality and the subscription nature of the model. A miss in Q1 is harder to make up over the rest of the year. January join represents 12 months of revenue. If we -- the marketing engine starts kicking at a higher efficiency later in the year, it will take 2 joins in January -- or 2 joins in July to make up a January join because of the seasonality in the subscription model. And the other thing I'll just remind you is, while we had a very, very strong unit openings year last year, at 181 unit openings, 104 of those were in Q4 and many of them late Q4. So they won't actually come into the comp until the 13th draft cycle. Maksim Rakhlenko: Got it. Okay. That's helpful. And then, Colleen, a lot of your comments are around marketing, but there certainly was a lot less color on how you're dealing with a more competitive peer set that, as we all know, it's going to become even more of a challenge over the coming years. So should the takeaway be that in your view, marketing is the biggest issue and not the actual value proposition itself even with an increasing number of peers that arguably offer more for a similar price? Colleen Keating: So I think I would say offer different, not offer more. What -- where we're really doubling down is on the 70% who are not a member of a gym or a club today and are gymtimidated. And we know one of the biggest barriers to joining a gym is that fear of walking through the front door. And I've said that before, our biggest competitor is fear of walking through the front door. As I called out in my remarks, we did see competitive pressure in a couple of very specific geographies. So I called out Southeast, I called out South Central. But do keep in mind, we are 5 to 6x the size of our next largest competitor. So we can't say competition broadly and holistically across the estate is the driver of the softer join momentum in Q1. We do believe, and what we've seen in the brand health track, the data that we've reviewed, is that we're resonating with a more fitness-minded consumer, but that is not as representative of our unique value proposition and the value that we do bring to the table, which is that welcoming all fitness levels, anyone of any age, any fitness level, any body type, you're going to walk into a Planet Fitness and you're going to see somebody who looks like you and feel comfortable in our nonintimidating environment. So we're going to amp that up in the marketing communications to ensure that we're penetrating our core prospective customer base. Maksim Rakhlenko: But on -- any changes to the box or anything like that, is that more a longer term? Colleen Keating: What we've seen is the form in -- the consumer feedback on format optimization is resonating. And Bill Bode shared that at our Investor Day, where our NPS indicates that our members are appreciating the more balanced complement of strength in cardio. So that-ish 50-50 mix of the gym floor having a balance of strength and cardio and also the fact that we've opened up more floor space for people to kind of drop a mat and do their workout their way, that is resonating. We think the creative -- and candidly, we got exactly what we set out to do. We wanted to convey that you could get strong at Planet Fitness, but when we think about the creative, we dialed up a little bit of the sweat level of our talent in the creative and some of our messaging, and we need to bring back a little bit of the lightheartedness and convey the approachability and the no gymtimidation that makes us so unique and special. Operator: Your next question comes from the line of Joe Altobello with Raymond James. Joseph Altobello: I guess first question, I'll piggyback off of the competitive pressures question in terms of the quarter. It sounds like it was regionally confined. But what was it about those competitors or maybe those regions that drove that? Thomas Fitzgerald: Yes, I'll start. Joe, I think it is concentrated. And I think one of the things that we've seen historically is -- and some of them are opening boxes in certain markets fairly aggressively, the newer formats. And sometimes we've seen this historically with Planet, a new gym opens up near one of ours, we lose some members. But over time, we tend to gain them back because they're not comfortable in those environments. And I think back to what Colleen was saying, that's really the -- one of the key things about Planet is we're trying to get you, primarily, the 70% now who don't belong to a gym, to start your journey. And then when you get in, it should feel like -- it should feel very different than any other gym would feel, where it's not intimidating, it's welcoming no matter your fitness level. And we just don't think they have the ability to do that. I'd say the second thing is, candidly, when we took the Classic Card up from $10 to $15, we thought some of them would follow. And in some markets -- in some of these key markets that Colleen mentioned, they haven't. So the headline price is better than ours. And now when you get inside, there's all kinds of extra fees and add-ons and commitments you have to make. But when you're there, you're there. So we think as we reconsider the approach forward, I think, primarily, to compete, we need to make sure our environment is even less intimidating than it is. That's a never-ending quest. We'll never be satisfied with that. And I think the second piece of it is, redirecting to primarily target the people who aren't -- who don't have a gym membership today. Joseph Altobello: Got it. That's helpful. I appreciate it, Tom. And maybe secondly, on the macro pressures on member growth. I'm curious when you started to see a shift there because the testing that you did last year, obviously sounded relatively encouraging and allowed you to move forward with the price increase. But I'm curious what the timing was there. And just as a follow-up to that, it looks like it's still $30 in many markets. So is that going to get rolled back? Colleen Keating: So I'll start. The testing really started in -- back in 2024. So it was a different consumer environment when we initiated that Black Card test. We started that test almost immediately on the heels of the Classic Card price rollout, which was June 28 of 2024. So we're going back now nearly 2 years and a bit of consumer environment. The second part of that question? Thomas Fitzgerald: Yes, I'd say -- I'll pick it up. So we do have some markets still at $29, Joe, if that's what you were asking. And I think we've got -- where we have it, we want to let it run a little longer in part to see how that Black Card and Classic Card mix shifts over time. And also, in some of those markets, the price that other people offer is significantly higher. So we -- and the cost of doing business is significantly higher. So we're going to let them run for a little bit and continue to read, but we don't have any plans at the moment to pull those back. Colleen Keating: I think that's right. I think we've got a number of tests in market, but we're not -- there are no -- and we said no nationwide rollout for the Black Card price elevation, but we don't have any imminent plans of a price rollback there either. Operator: Your next question comes from the line of Jonathan Komp with Baird. Jonathan Komp: Just a broader question. With nearly 3,000 units and your typical approach of testing and learning, is there anything that holds back your ability or speed to which you can test new initiatives, outside of marketing maybe? And when you think about changing the trend in member trends, could you give us a little more concrete, just your specific plans and maybe confidence levels and any thoughts on time line? Colleen Keating: Sure. I'll start with maybe the ability to test. Certainly, we own about 10% of the fleet, and we can move very quickly with great agility to run tests in our own corporate clubs. So that's a test accelerant. The other thing I'll say is we've got a super engaged franchisee base. And even some of the tests that are in flight right now, we reached out to a number of franchisees and have had great participation. And that tends to be true in our system. When we reach out to franchisees and ask them to participate in a test, we find a lot of engagement and strong participation. So we can move with speed and agility in testing. I will say we may tend to test longer because of the size of our estate to make sure we're really pressure testing and because of the seasonality of our business. So we can launch a test quickly and with agility, we may tend to test a bit longer to make sure that we're capturing regional nuances, really understanding the difference in the control group and capturing some seasonality in the test as well. Anything you want to add to that? Thomas Fitzgerald: No. John, maybe I'll take the second part of your question, and Colleen may add. I think the confidence we have in the actions will improve net member growth trends once we get them in place. I'd say it's pretty high. I mean we're going back more to -- in an evolved way, not exactly the same way, but going back to what we did and targeting who we did, and it was successful. I mean we grew faster than the industry for years. We used to talk about a higher percentage of people who don't belong to a gym is now lower. That's really due to us. And the power of the marketing. And I think, to Colleen's point, we got what we were trying to do in a way. That also shows the power of the marketing. Colleen Keating: That's right. Thomas Fitzgerald: So I think putting the big bazooka on the right target with the right messaging, it's not a new idea. It's an evolved idea that we used to run for a long time in our playbook that had a lot of success. So that's primarily what gives us the most confidence. Jonathan Komp: Okay. Great. And then my follow-up, Colleen, in the press release, I think you mentioned confidence in driving enhanced top and bottom line results in 2027. Any more context to that comment and your confidence in driving some re-acceleration after this year and a bit of a reset? And do you see any risk that the trends you're updating guidance for this year creep into less willingness from franchisees to build units? Colleen Keating: Yes. So I think when it comes to a shift in marketing and marketing messaging, it takes a minute to work with the agency and develop the new messaging and the new creative and shoot the creative. And then, of course, we've got to test it. And at the end of the day, the biggest quarter -- the biggest joint quarter where we're going to really see the greatest return on these initiatives, while we're moving on them very quickly this year, we'll best evaluate the benefit when we get into a join quarter like Q1 of 2027. So we see this year as a building year for some of these -- and we communicated some of the things we're investing in at Investor Day, and those are moving forward as well. We've just went into pilot, early pilot, in the launch of our AI-enabled predictive churn model. So that was something that we talked about at Investor Day, that just went into pilot. We're in the short strokes of selecting our partner for the DCO engine. And we're making very good progress on the AI-enabled CRM next best action model that will be in market or be in flight in the back half of the year. That's in the second half that we'll go into pilot in lockstep and in tandem with our new app, our revitalized app. So there's a lot in flight this year. And we communicated that, right, that this was going to be a year where we were building and investing in some new tools that will help us to drive, particularly, top line in the future. And when that top line grows, because of the flow-through, particularly on member revenue, it has an outsized impact on EBITDA. Operator: Your next question comes from the line of Arpine Kocharyan from UBS. Arpine Kocharyan: Your ADA pipeline came down further from 800 to closer to 750 in your latest 10-K. And I think it says including more than 500 clubs over the next 3 years. Could you just maybe address if you're looking at kind of further pruning ADAs, how that's going? And I understand the more accelerated unit openings would bring that number down faster, but wondering what else is driving that lower? Colleen Keating: Yes. I'll start and then, Tom, if you want to chime in. So certainly, part of the diminution on the pipeline is the fact that we had such a strong openings here last year, right? So we had 181 new clubs opened last year. At the same time, and Chip talked about this, there's a slide in our Investor Day deck about this as well, about the ability to take back some territory and resell it. So we've got a new team member on our development team that's actively engaging with franchisees and prospective franchisees. And we're seeing opportunity where we may be able to sell some new territory as well. So we also have talked about population growth and kind of de-urbanization and where -- when transactions happen, we have the ability to recast ADAs, which then in turn kind of fills that pipeline as well. So as we've had transactions occur in our portfolio, we look at the territory. We recast the ADA based on where the population growth has taken place, where there may be another opportunity to support another club in that geo and adjust the ADAs accordingly with a new transaction. Thomas Fitzgerald: Yes. I maybe just add to that, Arpine. I think over time, we've somewhat shortened the number of years in an ADA. So what happens -- and part of it is we want to see how it's going before we commit so much. It gives us more flexibility, more agility -- and so that -- sort of by shortening the tail, if you will -- or not the tail, but the... Colleen Keating: Time line. Thomas Fitzgerald: Yes, the time line and the number of years on average in an ADA, that has a natural sort of reduction there in total opportunities. Operator: Your next question comes from the line of Chris O'Cull with Stifel Financial Corp. Christopher O'Cull: I had a follow-up on the Black Card pricing. And I apologize if I missed it, but are you -- are there any new Black Card pricing structures you're testing? Thomas Fitzgerald: Chris, it's Tom. Good to talk to you again. We -- as Colleen said in her -- on the call, we're going to be testing some things. We're going to be talking to our franchisees about what we want to test. As we typically do, we'll share that what it is, where it is and how it's doing at the appropriate time, but it's premature to talk about that. But I think as we think about really putting net member growth front and center in all that we want to do, I think it does make sense to step back and say, "What are we doing today? And what else do we want to think about and potentially test going forward?" More to come, but... Colleen Keating: It's price and it's the price value relationship. Thomas Fitzgerald: That's right. That's right. Christopher O'Cull: Okay. And then, Colleen, my question -- my main question is about just the marketing changes. And just wondering how you envision reworking the message to reach both nonusers and current fitness-minded gym users. I'm just trying to understand how you manage the risk of trying to be a gym for everyone without losing kind of the simplicity and clarity of a message to like a single group. Colleen Keating: Yes. I think we've long been kind of the opposite brand, and it's been our sweet spot to target that very large 70% of the population that is not a member of a gym today. And we want to ensure that our marketing messaging is reaching and resonating with that population. Thomas Fitzgerald: Yes. And I might add, Chris, over the years, when we were targeting the folks who don't belong to a gym, we also had people who were pretty darn ripped in our gyms. You knew one well. And I know that I see him when I go in the gyms that we have. Now they -- and part of the non-intimidation, too, is just because they are body builders, doesn't mean they act like lunks. And I think that goes back to the no gymtimidation, really making sure our members are comfortable. And those are the folks who are wiping down the equipment after they use it, they put it away, and they're not banging it on the floor, there, you can't clap chalk and all that stuff in our place. And that's what you get in the other places. So that is hard for them to replicate because that's a very hard thing to change given who they've attracted compared to who we've attracted. Colleen Keating: I think the importance is and what has been our sweet spot is that we attract members of all age cohorts, all fitness levels. And we want to ensure that our marketing is conveying that, that environment exists at Planet Fitness. Operator: Your next question comes from the line of Sharon Zackfia with William Blair. Sharon Zackfia: I guess as we think about the impact on more of those new-to-gym members, is there anything you can share on kind of what the membership mix was in new joins of those new-to-gym versus what you've seen historically? Thomas Fitzgerald: Yes, Sharon. Without being super specific, the last couple of quarters, it's been down a little bit. Sharon Zackfia: Okay. And then, Tom, as I think about kind of the impact of this tough first quarter, it kind of implies flat comps for the rest of the year. Is there any curve to that comp for the rest of the year? And how do we think about member growth? I mean, do you think there is an opportunity to end '26 with more members than you currently have? Thomas Fitzgerald: Yes, sure. So we'll stick with our practice of not projecting and providing an outlook on membership. But I do think you're right, Sharon. We see kind of a gradual step down across the quarters without -- we don't provide quarterly guidance, as you know, but it's just based on that subscription model that you know and Colleen and I touched on earlier. That's how we see it. Operator: I will now hand the conference off to Colleen Keating for closing remarks. Colleen, please go ahead. Colleen Keating: Thank you. Planet Fitness is a market leader, and the underlying strength of our brand and our business model remains in place. We have a proven track record of successfully navigating market pressures and near-term headwinds. More than 30 years ago, we entered the category as a disruptor, built on a differentiated offering and an unmatched value proposition at an accessible price point. That foundation continues to guide how we operate today, and we look forward to updating you on our progress as we move ahead. Thank you. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Thank you for standing by. My name is Gail, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Commerce's First Quarter 2026 Earnings Call. [Operator Instructions] It is now my pleasure to turn today's call over to Tyler Duncan, Senior Vice President of Finance and Investor Relations. Please go ahead. Tyler Duncan: Good morning, and welcome to Commerce's first quarter 2026 earnings call. We will be discussing the results announced in our press release issued before today's market open. With me are Commerce's Chief Executive Officer, Travis Hess; and Chief Financial Officer and Chief Operating Officer, Daniel Lentz. Today's call will contain certain forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning financial and business trends as well as our expected future business and financial performance, financial condition and our guidance for both the second quarter of 2026 and the full year 2026. These statements can be identified by words such as expect, anticipate, intend, plan, believe, seek, committed, will or similar words. These statements reflect our views as of today only and should not be relied upon as representing our views at any subsequent date, and we do not undertake any duty to update these statements. Forward-looking statements, by their nature, address matters that are subject to risks and uncertainties that could cause actual results to differ materially from expectations. For a discussion of the material risks and other important factors that could affect our actual results, please refer to the risks and other disclosures contained in our filings with the Securities and Exchange Commission. During the call, we will also discuss certain non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measure as well as how we define these metrics and other metrics is included in our earnings press release, which has been furnished to the SEC and is also available on our website at investors.commerce.com. With that, let me turn the call over to Travis. Christopher Hess: Thanks, Tyler. Q1 2026 was a strong start to the year. We delivered revenue of $86.8 million, non-GAAP operating income of $12.4 million and GMV of $8.3 billion, growing 14% year-over-year, an acceleration of GMV growth from the 12% we reported for full year 2025. We also delivered positive GAAP net income of $3.7 million, which is a milestone that reflects the sustained operational discipline this team has applied over the past several years. We also generated operating and free cash flow of $18.4 million and $14.1 million, respectively, and ended Q1 with approximately $157 million in cash, cash equivalents and marketable securities, with no material debt maturities until 2028. Historically, most investors and operators have described Commerce as storefront-centric, traffic, conversion, checkout. Platform value tied to owning the destination and the transaction. That model isn't wrong. It's just no longer sufficient to explain where value in the Commerce ecosystem is actually accruing. Commerce is now better understood as data-centric, distributed and orchestrated. Product data needs to be structured, enriched and understood. Discovery and engagement happen across many surfaces, not just via an owned website. And multiple systems need to coordinate customer experience, pricing, inventory management and transaction optimization. More simply, Commerce is shifting from a destination to a system. We have deliberately transformed and rebranded this business to lead this change. By bringing together Feedonomics, Makeswift and our core BigCommerce platform, we believe we have built a highly differentiated solution that provides 3 integrated control planes across product intelligence, experience and transaction. That flexibility is increasingly valuable as AI reshapes how Commerce works. We are not replacing the storefront. We are extending it into every product discovery and shopping surface where Commerce is happening, and those surfaces are multiplying fast. Feedonomics is our product intelligence layer. It creates clean, enriched, structured understanding of products. It owns normalization, enrichment, attribute modeling, taxonomy and syndication across marketplaces, ad channels and AI search and shopping channels. In an agentic world, AI does not browse. It queries, structured data and returns confident answers. If merchants' product data is not clean, correctly categorized and enriched, those products do not get surfaced. They end up invisible to the customers that merchants seek to reach. Feedonomics makes merchants visible in the places that matter, and that job gets harder and more valuable with every new AI surface and protocol that emerges. Makeswift is our experience layer. It composes and governs what the customer sees across web, mobile and emerging AI interfaces. It owns UI composition, content, personalization and experience orchestration across channels. AI can produce content, but it still needs to be governed to ensure it's on-brand and consistent across surfaces at scale. AI does not solve this problem, but Makeswift does and its importance only grows as the number of surfaces multiplies. BigCommerce is our transaction layer that executes transactions and commerce logic. It owns cart, checkout, orders, pricing, promotions and APIs for Commerce operations. As Agentic Commerce matures, the question of which systems can be trusted to execute transactions reliably and at scale becomes more important, not less. This layer is the system of record, and the systems of record become more crucial to merchants as Commerce complexity grows. What is important, and often underappreciated is how this also plays out in B2B. In B2C, agentic search and shopping capabilities are changing how products are discovered and in certain categories, shopped. In B2B, it is currently changing how they're specified, priced and ordered across systems. That is a more complex problem and one where data, orchestration and flexibility matter even more than checkout. We also have real momentum here. Manufacturers, distributors and wholesalers require multi-company hierarchies, complex quoting workflows and pricing logic that few closed ecosystems can handle cleanly. We can. And critically, in B2B, the cost of bad data or a failed transaction is not a lost sale, it's a broken business relationship. There is a version of the story where some believe that AI threatens Commerce infrastructure. We believe the opposite. AI answer engines and agentic workflows do not bypass the need for structured product data, governed experience layers and reliable transaction systems, they depend on them. What materially changes is that the bar for each of those layers gets higher, and our architecture reflects exactly that. Modular but integrated. Open, API-first and channel agnostic. Our largest competitor built a transaction layer and closed an ecosystem around it. We built across all 3 layers and did it openly, which means we can be a merchant's full stack or we can be the data and orchestration layer running alongside Commerce platforms they are already on. The intention is to work interoperably with a merchant's architecture, not against it. That is not a positioning statement. It's a structural decision we made deliberately, and it aligns to where Commerce is going. Now let me walk through what we accomplished in Q1. At launch, Commerce was 1 of only 2 platforms to endorse Google's Universal Commerce protocol. We have fully built to the UCP protocol, connecting BigCommerce and Feedonomics, enabling enhanced discovery, orchestration and direct buying within Google's AI experiences with merchants retaining merchant-of-record status and full ownership of their customer data. Two weeks ago, at Google Cloud Next, we took the stage with Accenture and demonstrated their prebuilt agentic operating system, which incorporates Commerce's capabilities natively on GCP and GECX, handling discovery, personalization, checkout and fulfillment end-to-end. Agentic Commerce is not a notional product launch on our road map. It is already running. Beyond Google, our Agentic Checkout is now live on Perplexity, Copilot and Meta via our PayPal StoreSync integration. When a shopper completes the purchase in this model on an LLM chat surface, the order lands in BigCommerce. Enterprise organizations like Dell are using Feedonomics to make their products discoverable on OpenAI and other LLMs, while our Feedonomics Enrichment tools are driving agentic engine optimization or AEO performance across channels. We also released BigCommerce model context protocol, otherwise known as MCP to make it easier than ever for agents to securely interact with BigCommerce stores. We advanced AI capabilities directly within the core BigCommerce platform. Commerce Companion, our AI assistant built into the admin experiences, helps merchants analyze business data, automate routine tasks and accelerate time-to-value. This is AI that works inside the merchant's daily workflow, not just in discovery channels. We launched BigCommerce Payments built with PayPal in Q1, an embedded payment solution that gives merchants a unified view of their finances, and flexible payment options, including PayPal Pay Later, Venmo, Apple Pay, Google Pay, and cards, all from within the BigCommerce control panel. We expanded the number of channels available within Surface, our self serve version of Feedonomics, to now include Meta, Google Ads, Pinterest ads, TikTok ads and Microsoft ads. We are laying the groundwork for additional agentic and AI channel integrations, which will roll out in the coming months. On the customer side, H&M, The RealReal, Petco, and Grainger adopted Feedonomics to enhance product visibility and performance across digital channels. We also added new industrial manufacturing, and distribution customers like StatLab, a leading supplier of histology and pathology consumables and launched brands such as Helix, Linear, a precision motion components manufacturer servicing industrial automation, robotics, aerospace and defense. These customers are examples of where our B2B capabilities resonate most strongly and where the depth of our platform is compelling. On the core platform, we shipped 37% faster checkout. We added advanced promotions with coupon stacking, margin-protective caps and bulk coupon code generation as well as multi-language support with automatic URL subfolders and end-to-end translated storefronts. And we introduced backorder controls and improved catalog management. On storefronts, Makeswift on Stencil is in beta, and native hosting for Catalyst moves to open beta soon, deploying to Cloudflare at no additional cost to merchants. In B2B, we launched our purchase order agent. The agent extracts, validates and routes POs to check out automatically. We also shipped cascading price lists, expanding the complexity of pricing use cases we can handle in B2B. Finally, we recently announced some updates to our pricing and packaging on the BigCommerce platform. Effective June 1, we've replaced our prior standard, plus, pro, and enterprise plans with core growth, scale and performance plans. The vast majority of platform ARR comes from our enterprise plans. Those are sales-assisted plans on defined contract duration and terms. Customers formally using enterprise plans will see no change whatsoever beyond the name change to performance. We are also introducing a fee that applies to orders processed through payment providers, not on our embedded payment provider list. I want to be clear about what this is and what it is not. Contracted customers on our new performance plan, formerly our enterprise plan, pay no additional fees, no matter what payment partner they select. For the vast majority of our remaining merchants, their fee will also be zero, because their orders already run through one of the many providers on our embedded list. We are talking about more than a dozen deeply integrated payment partners: Stripe, PayPal, Braintree, Adyen, Amazon, Klarna, Worldpay, Afterpay, BigCommerce Payments and more, not just a single proprietary gateway. Our merchants have real choice, and that choice comes with 0 fees. This change is not a broad-based price increase. It is a deliberate decision to go narrower and deeper with our payment partners, investing more meaningfully in fewer relationships to deliver better integrations, better checkout experiences, more local payment methods and better conversion for our merchants. We have completed the core elements of our transformation, a unified platform and brand, a clear investment thesis, a leadership team aligned around execution and a strong financial profile give us the leverage and flexibility to deliver on the growth potential of this platform. You are starting to see our product velocity increase meaningfully as a result of these changes over the past 18 months. Our product agenda is in motion, the monetization levers are in place, and our focus is squarely on execution for the remainder of 2026. We are delivering healthy GMV growth, cash flow and profitability, and the business is well positioned for growth. With that, I will turn it over to Daniel. Daniel Lentz: Thanks, Travis. Q1 was a good start to the year across many facets of the business. Q1 revenue was $86.8 million and up 5% year-over-year, above the high end of our guidance range of $82.5 million to $83.5 million. Subscription Solutions revenue was $63.7 million, and partner and services revenue was $23.2 million. Non-GAAP operating income was $12.4 million, above the high end of our guidance range of $9.3 million to $10.3 million. Our non-GAAP operating margin in Q1 was approximately 14.3%, reflecting continued leverage in our operating model. Total ARR ended the quarter at $359.8 million, up sequentially from $359.1 million at year-end 2025. GMV of $8.3 billion grew 14% year-over-year, an acceleration of GMV growth from the 12% we reported for full year 2025 and reached nearly $33 billion across the prior 4 quarters. We also achieved positive GAAP net income in Q1 2026. This was our first quarter of GAAP profitability in our history as a public company. This margin improvement is the direct result of the strong operational discipline that we've shown over the last several years, simplifying our cost structure, driving leverage and reinvesting savings into our highest impact product initiatives. We also expect to deliver GAAP earnings profitability for the full year 2026. As Travis said, in Q1, we generated operating and free cash flow of $18.4 million and $14.1 million, respectively. And we ended Q1 with approximately $157 million in cash, cash equivalents and marketable securities with no material debt maturities until 2028. Our strong balance sheet is a direct result of our operating cash flow improvements and disciplined capital management. We said we would eliminate our remaining net debt by mid-2026, and we delivered that result a quarter early in Q1. Our cash, cash equivalents and marketable securities now exceed our total long-term debt outstanding. This balance sheet position gives us meaningful financial flexibility to invest in our products and growth and to pursue strategic opportunities from a position of strength. Remaining performance obligations and deferred revenue increased year-over-year in Q1. This is an important forward-looking indicator that reflects healthy bookings activity, customer commitments that have been contracted but not yet recognized, and strong demand visibility for the second half of the year. We continue to handle dilution and stock-based compensation responsibly as well. According to a recent Needham research note, stock-based compensation as a percentage of revenue for public software companies was 13.2% in Q4 2025. We ran at approximately 5.4% in the same period, less than half the peer average. That's not an accident. It reflects the same operational discipline that's driven our margin expansion and GAAP profitability. As I mentioned earlier, we facilitated $32.7 billion in GMV over the prior 4 quarters, and we have delivered consistent double-digit growth in this metric for multiple years. GMV captures the economic activity flowing through Commerce infrastructure across B2C and B2B, BigCommerce and Feedonomics, and it gives investors a clearer picture of the scale of our business. Many of our product investments and organizational changes are focused on narrowing the gap between GMV growth and revenue growth. This gap reflects primarily our strong B2B growth, where credit card transactions represent a smaller share of the payments. As we scale BigCommerce payments and drive higher payments monetization, we expect that gap to narrow. Dollarized net revenue retention, or NRR, improved sequentially in Q1, increasing from 95.2% to 95.4%. Driving sustained improvement in NRR is one of the most important operational priorities that we have as a company. And this quarter's sequential improvement is an early but meaningful signal that our product investments are translating into better customer outcomes. NRR improvement is fundamentally a cross-sell and retention story. We are focused on driving higher attach rates for Surface, Feedonomics and BigCommerce payments within our existing customer base, improving time to value and tighter integration across our entire platform to make the full Commerce ecosystem stickier. Each of these levers has a direct impact on expansion and churn. We have more work to do here, but the trajectory is moving in the right direction. For Q2 2026, we expect revenue between $84.5 million and $85.5 million. We expect non-GAAP operating income between $4 million and $5 million. And for the full year 2026, we are reaffirming our overall outlook. That is revenue between $347.5 million and $369.5 million and non-GAAP operating income between $34 million and $53 million. This outlook represents between 2% and 8% full year growth rates with non-GAAP operating margins of 10% to 14%. On a Rule of 40 basis, our non-GAAP guidance implies combined growth plus margin performance of approximately 11% to 22%, depending on how we execute within our ranges across the year. Now let me close with the core reasons why we believe Commerce is well-positioned to deliver long-term value for our shareholders. We facilitated $32.7 billion in GMV over the prior 4 quarters with 14% growth in Q1, clear evidence of our platform scale and its continued momentum. We operate at approximately $359.8 million in ARR, with non-GAAP gross margins in the high 70s, generating meaningful non-GAAP operating income and cash flow. We achieved positive GAAP net income in Q1, and we are on track for full year GAAP profitability for the first time in our history. Our strong balance sheet gives us financial flexibility to invest and operate with confidence, and we are executing on the product investments, payments, agentic infrastructure, surface and B2B, all of which we believe will drive durable ARR growth and expanding monetization in 2026 and beyond. The business has never been better positioned. We have the scale, infrastructure, financial profile and product momentum to deliver on the full growth potential of this platform. With that, Operator, let's open it up for questions. Operator: [Operator Instructions] Okay, so your first question comes from the line of DJ Hynes with Canaccord. David Hynes: Travis, I want to start with BigCommerce payments. I'm curious what success with that effort would look like to you and how investors should measure your progress and kind of key milestones against this goal as it continues to mature. Christopher Hess: Thanks for the question. I'm measuring it in a couple of different ways. One was actually delivering it, delivering it on time and within scope, which was accomplished, obviously, by the end of the quarter, which was exciting. I'm also measuring it by the feedback of the merchants that have been participating, which has been overwhelmingly positive. As that offering evolves, obviously, the monetization of it becomes more and more important. But the real thesis here was to remove friction, create a better experience for our merchants based on feedback and do that in partnership, at least initially with PayPal and kind of go from there. I'll turn it to Daniel as it relates to the financial aspects of it. Daniel Lentz: Yes. From the financial side, DJ, I think number one is just what's the adoption that we're driving, both amongst the existing base, but also for new account sign-ups where that's really kind of the default in the onboarding flow for small businesses and even maybe medium-sized businesses as well. And I think another success criteria really paying attention to is kind of what's the relative retention rate and GMV growth that those merchants are seeing. And the #1 thing that we're focused on is whether or not that product is helping our customers be more successful and grow faster. We believe that it can. We believe that it will. So far, we're doing well. We're ahead of our expectations in the first month or so in terms of GMV adoption. In the long run, I think if it's going well, not only will we see it in retention, we'll also see better PSR attach rates as well over time because obviously, not only do we think it can be better for merchants, but we also think it can pick up some incremental revenue share for us in that part of the business. David Hynes: Yes. Makes sense. That's helpful color. Maybe as a follow-up, I don't know if we've talked about this publicly before, but can you just address the resolve proposal from your perspective and why the company decided to invoke a stockholder rights plan? Christopher Hess: Got you. Yes, I appreciate the question. Listen, the Board and management teams are focused on maximizing value. And obviously, we're going to carefully review any serious offer we receive. This particular proposal implied a 50% discount to the current trading price, which is not a serious proposal from a financial point of view. So as we've stated quite publicly and multiple times, we don't believe this warrants any further engagement. Daniel Lentz: Yes. And then I'll address the shareholder rights plan. So the Board determined that adopting a limited duration rights plan is the right next step to protect stockholder interest. And it's a very normal thing, I would think, under the circumstances for us to do. Under that plan, rights become exercisable if a person or a group acquires, I think, 10% of shares of the company's stock or 20% if it's for passive investors. The intent of that is just to discourage accumulations of shares in control without protections for stockholders and providing the Board time to evaluate proposals in kind of a prudent and careful manner. So ultimately, we think it's about making sure that shareholders are treated equitably. And as Travis said, our position on this has not changed. The proposal really undervalues the company. It's not attractive to stockholders, and we don't think it warrants any further engagement. Operator: Your next question comes from the line of Ken Wong with Oppenheimer. Hoi-Fung Wong: I wanted to ask about the pricing changes to BigCommerce subscription plans. When should we expect the impact of non-enterprise customers to hit top line? And then for the enterprise customers, what's the path to potentially true up those contracts? Daniel Lentz: Ken, thanks for asking this question. Let me take a little bit of time to kind of walk through what this is. So just to be really, really clear about what we've done on the pricing and packaging side on the platform side. We've done a name change of all of our core products, and we've changed kind of what's included in each of those bundles. For your second question on Enterprise plans, it's really a name change to Performance, and there's no other change associated with that nor are we contemplating any further changes with those customers as well. We introduced a fee associated with using payments providers outside of our embedded payment provider list. To be very clear, all customers on kind of negotiated term agreements, formerly Enterprise plans are completely exempt from that. There is no charge that they receive that's incremental no matter what payments provider that they choose. What we are wanting to do, though, for the other 3 plan types, core growth and scale, we really wanted to drive better concentration of resources into a smaller group of payment providers where, to be very clear, we see better GMV growth and results for customers on those providers than we see on what I would call kind of the long tail of partners that we have in the business. And so customers have complete freedom to choose among a list of, I think, like 20 different payments providers, including BC Payments in that list with no fee structure whatsoever. So it's actually a very small amount of volume that we would expect to be impacted by this. To be really clear, we're not trying to create a new revenue line item out of that in particular. Really, this is about trying to drive volume towards payments providers that just see much better GMV growth and service delivery for customers. And that will take effect in June when we make those changes. We've also made some minor changes to service offerings in a couple -- in areas like that. But Travis has talked a lot in the past about the fact that we want to be a little bit more opinionated about what we think is the right architecture and the right selection of partners that we think our customers should be using. We are fundamentally, though, there's no change. We are an open platform. People can use whatever partners they want to use, but we'd like to try to concentrate volume a little bit more on the smaller list. This is also very different from our largest competitor where, yes, there's a fee structure that's similar, but that fee applies unless you use their proprietary payment solution, just one, where we're saying you can use up to 20 with no fee whatsoever, no matter what size the customer is. Hoi-Fung Wong: Understood. And then second, I just wanted to touch on guidance. So very solid first quarter reiterated the full year, but 2Q does tick down sequentially. Can you just walk us through the seasonal dynamics there? Daniel Lentz: Yes, there's just a small timing difference actually. We expected originally to ship BC payments in Q2, and we had some revenue associated with the go-live on that with a partner. We actually shipped it earlier than what we expected. So it actually went out the door at the end of March, which is a good thing. So we end up with a little bit of extra revenue in Q1 associated with that, that we had originally anticipated actually to come through in Q2. Once you account for that timing, it's actually a very normal kind of period-to-period seasonality for what we're seeing in Q1 and Q2. That's really the main driving reason behind that. It's kind of a no news item from my perspective, honestly. In terms of the sequential step down you referred to, Ken. Yes. Operator: Your next question comes from the line of Brian Peterson with Raymond James. Brian Peterson: So maybe a follow-up to Ken's, but more on the margin side. So Daniel, if we think about the investments, was there any timing differences or margin aspects as we think about the first quarter outperformance and how we're thinking about margins for the rest of the year? Daniel Lentz: Nothing major. I would say Q2 sequentially always has -- is going to have a little bit of a step-up in OpEx for us because we actually have our kind of annual salary increase cycle occurs at the end of Q1. So Q2 is the first time that we actually see like the full effect of like merit promotions within our cost structure. That's the major difference that you see actually in the guide from period to period on the profit side. In addition, it's that issue. The profit also is affected a little bit in Q2 by the timing difference I mentioned. on the revenue side. And then finally, we said on our last call that we were planning to step up investments in R&D on kind of like a cash investment basis, about 30% on a full year basis. And we're continuing to ramp up engineering hiring. We're kind of almost the full hiring that we intended behind that reinvestment, but we're seeing a little bit more carrying cost on that step up as you would -- as you see in Q2, and that's reflected in the guide. We're really encouraged by what we're seeing in that investment, by the way. I think if you just look at what Travis covered in his prepared remarks, the volume efficacy, quality of the stuff that we're seeing shipped, going out the door right now is really encouraging. And it's equally focused on retention and expansion of the base as it is on features that are really speaking to new offerings and new customers, which I'm sure there'll be questions for Travis coming on this. But I'd say I am very encouraged by what I'm seeing from a product quality and velocity behind that investment. Brian Peterson: No, that's great to hear. And maybe Travis, just a follow-up for you. I know it's kind of early days on Agentic Commerce, but I think there's some debate in the investment community about is that really just an incremental channel that has higher conversion? Or will that lead to a significantly higher growth opportunity for merchants overall? Would love to just kind of weigh in on that and maybe any milestones that you're kind of looking for in 2026. Christopher Hess: It's a great question. I think it depends on the model. I think in my prepared remarks, I talked about how we were deliberately -- our neutrality was deliberate and modular in nature, knowing that just to be candid, agents don't have a lot of opinions, right? They're going to navigate and surface what's in the best interest of the consumer, at least that's the thesis behind it. And so the neutrality, the openness of how we've done this and how we've architected, we think is a massive advantage. I mean, that's not even touching on the B2B side of this. I think the use cases for agentic and B2B will actually be more material sooner as it relates to the impact on those customers. I think cost savings in general is a general thesis in those sorts of engagements and stripping out manual labor and obviously optimizing workflows and things like that, we're seeing incredible use cases as well as almost once-in-a-lifetime blending of front office and back office and a lot of ERP upgrades and implementations where a lot of that stuff was done 10, 15, 20 years ago was purely back office. Now with agentic, it's forcing everything to come forward and have that blend. I think that's going to accelerate agentic in that space. But generally speaking, I think people want optionality. I think partnering with the best of the best in market around payment providers, around hyperscalers, around other ISVs and partners and controlling, again, for us, data experience and transaction. And really, a lot of it's around governance, quite frankly. I think that's where most people have the angst. I don't think governance was a sexy term in the investment community a couple of years ago. It's going to be front and center as we start talking about this complicated orchestration we've led into for a long time. The governance piece of this is what keeps us really durable and really differentiated. So that's my opinion on it. I would expect it to accelerate mostly upmarket. I think large retail, think large global branded manufacturers, folks that are most directly impacted by the traffic drop-off. I think that will gradually ease into mid-market and eventually become reasonably relevant for SMB. Really depends on the SMB. But I think you're going to see a big push on enterprise B2B here sooner rather than later. They're just not obvious use cases because most of that stuff is behind log-ins and the average general human being doesn't necessarily experience that on a day-to-day basis. Operator: [Operator Instructions] Your next question comes from the line of Scott Berg with Needham. Scott Berg: I guess, Travis, I just want to start off coming off your conference event -- company conference event last week. I guess what are you hearing on B2B e-commerce replacement cycles out there? How are you viewing, I guess, calendar '26 here relative to maybe the last couple of years in terms of the activity that might be out in the end market? Christopher Hess: Yes, we're seeing similar trends, Scott, it's a great question. I've been pretty public about this, too. B2B has been as a platform business for us, has been the majority of net new opportunities have been B2B oriented or hybrid, but mostly B2B. I see that continuing. I think what I just alluded to in the previous question around this ERP movement, front office and back office blend, that has a positive and an indirect negative impact. The positive is it brings everything front and center, and I think there's a lot of prioritizations around optimizing B2B, particularly around agentic. And what I mean by that for us specifically, Feedonomics and the data layer, so think of what Feedonomics is doing around product intelligence and enrichment for B2C, think of how massively and tangibly relative to that is in a B2B environment. You've got massive catalogs, distributed data. A lot of those guys grow inorganically, so they're acquiring other technologies, other businesses, synthesizing all of that and serving it up in very unique and complex ways is a natural fit. And then we've also, through the release of our MCP tooling recently, right, it's going to make our merchant stores for B2B agent addressable. So again, you've got all these new use cases that are going to allow these organizations to take faster advantage of speed to market and efficacy, which I think is going to improve the velocity. The one -- and this is just hypothetical, ERP tends to suck a lot of air out of the room. And so I think the danger in this is you're going to have a lot of things going on at once for very large organizations and the sequencing of that transformation is kind of out of our control. I'm not alluding that it's impacted pipeline in this capacity at all. It has not. I'm just thinking I'm putting my services hat back on and being objective about, there's a sequencing element of this. So for us, I think the sequencing favors us because I think the cost savings from blending front office to back office through agentic is real, and I think that can help fund a lot of the back office stuff that's going to be pretty material as these companies go through these either forced upgrades or reimplementations of ERP. So I think time will tell, but I'm materially encouraged with what's going on in that space, in particular. Scott Berg: Understood. Helpful. And then, Daniel, as we think about the model in the next couple of years, I know payments is early and at least with the new payment platform, and we certainly don't have much for expectations and contribution this year. But how does it impact gross margins as we start thinking about maybe calendar '27 and '28? Is the new payments infrastructure accretive to your current gross margin profile? Or does it create maybe some headwinds there? Daniel Lentz: It's actually accretive. So the way that we've set this up, we are acting as a reseller and kind of a partner in building out the tech that's behind that alongside PayPal. We are not taking on the credit risk of merchants, and therefore, we're not taking on a lot of interchange at all that goes along behind that. And so it's still fundamentally the same economic model where we had before. So I'd say it's accretive to margins. Now if we decide in the future to become -- take on more of a PSP role as we build out this solution, that may change. That will obviously come with different top line revenue recognition treatment and margin structure, but we're not there yet. What I would say, though, and I want to be clear about this, this is kind of the first of many products that we're thinking about within financial technology where we think we can start to build out solutions. We don't have a specific time line or a road map yet on when we're going to add on different things. But -- this is obviously something that we think customers can benefit from by having more integrated solutions, particularly smaller customers, where we have tens of thousands of customers in that size that we want to continue to build out. But I don't see this being dilutive anytime soon. And if it does, it would come with favorable revenue treatment anyway. And if and when we decide to take a step down that direction, obviously, we would talk about that on earnings call so that everybody can build that into their models. But for now, I think you can just model it as it being accretive and a tailwind in that respect. And if that changes in the future, we'll talk about it then. Operator: Thank you, everyone. And that concludes our Q&A session for today. I will now turn the call back over to Travis Hess. Christopher Hess: I want to thank everyone for joining. Obviously, Daniel and I are excited about where the business is right now. Obviously, a lot of execution against our strategy for the remainder of the year, and we look forward to seeing all of you in the interim and next quarter's call.
Operator: Ladies and gentlemen, thank you for standing by. I'm Costantino, your Chorus Call operator. Welcome, and thank you for joining the Türk Telekom conference call and live webcast to present and discuss the first quarter 2026 financial and operational results. [Operator Instructions]. The conference is being recorded. [Operator Instructions]. We are here with the management team, and today's speaker is Omer Karademir, CFO. Before starting, I kindly remind you to review the disclaimer on the earnings presentation. Now I would like to turn the conference over to Mr. Omer Karademir, CFO. Sir, you may now proceed. Omer Karademir: Hello, everyone. Welcome to our 2026 First Quarter Results Conference Call. Thank you for joining us today. Let's go to Slide #3. I will start with a quick update on markets and our leading position. Global markets in Q1 '26 were shipped by rising geopolitical tensions and the feds cautious staff. The Fed kept its guidance that further easing will be approached carefully, pending a sustained improvement in inflation. Regional tension in the Gulf and geopolitical developments triggered a spike in energy prices and volatility in global risk appetite. In Turkey, the Central Bank cut its post rate by 100 basis points in January, but kept it on hold in March and April in response to heightened global uncertainties and risk to the inflation outlook. Year-end inflation expectation in the April 2026 market participant survey stood at 27.56%. Aim at this environment as Türk Telekom Group, we remain focused on sustaining our strong operation and financial performance through our disciplined and proactive approach. We started the year with our strategic long-term investments and strong operational and financial results in the first quarter. I would like to emphasize our key investments in our major business fixed line and mobile, which together represents a significant majority of our group revenues and profits. On the fixed line side, we continue to capitalize on our fiber network exceeding 550,000 kilometers as the fixed line concession has been with us for 24 years. Fixed Internet delivered robust KPIs beyond our expectations and along with corporate data, contributed to solid revenue growth and healthy margin improvement. Fixed subscribers opt for higher speeds. On the mobile side, as of April, 5G was launched successfully across all provinces in Turkey. We offer high speed, low latency and superior mobile network performance, supported by our fiber position. Rational competition environment prevailed in the mobile markets, operators took pricing actions in January and April, subscriber acquisition momentum remained strong. Overall, Türk Telekom Group, we are in a unique leading position in Turkey to provide integrated digital services to our millions of customers across the country, we are excited about our company's future vision and growth opportunities and remain focused on delivering strong financial results. Let's move next slide, Slide #4, for financial and operational overview. Consolidated revenues increased by 9% to TRY 65 billion, supported by fixed and mobile segments. Including the IFRIC 12 accounting impact, revenue growth was 6%, in line with our full year guidance. 70% year-on-year EBITDA growth was well ahead of the revenue growth, pushing our EBITDA to TRY 27.4 billion, along with a solid 300 basis points margin expansion year-on-year to 42.3%. Our net profit increased by a solid 56% to TRY 10.5 billion, supported by strong operational performance. CapEx excluding solar investments and license stood at TRY 17 million. It was higher in year-on-year terms due to our long-term 5G investments. Excluding concession and 5G license related payments, unlevered free cash flow stood at positive TRY 1.7 billion. This figure indicated a decline from TRY 10 billion in first quarter of last year as a result of higher CapEx and one-off base impact in last year from change in net working capital. Net leverage stood at 0.99x compared to 0.6x at 2025 year-end. Excluding payment of USD 1.1 billion in first quarter related to concession renewable and 5G license, net leverage would have remained constant. Moving to Slide #5. I will provide update on our net subscriber additions. Our total subscriber base exceeded 57 million with 613,000 net additions Q-on-Q. Excluding the 163,000 loss in the fixed voice segment, quarterly net additions were 776,000. Fixed broadband subscribers slight declined by 19,000 Q-on-Q2, EUR 15.4 million. Despite the retail price action we took in January, the activation volume was similar to what we have seen in the first quarter of last year. Q1 churn increased modestly in year-on-year terms, while declined Q-on-Q under the impact of accelerating contract expirations. Both retail activation and churn performance are positively impacted by the acceleration in our greenfield fiber investments. Retail net additions exceeded our expectations, thanks to lower churn whose subscriber base didn't change materially. Mobile segment added 712,000 subscribers on a net basis, pushing up the total base to 32.2 million. Both actuation and churn volume remained higher in year-on-year basis, driven by the postpaid segment. Mobile net additions were supported by 571,000 of MTM additions by the corporate segment. Subscriber growth remained on a strong track with 87,000 net postpaid additions excluding MTM postpaid and prepaid segments added 50 -- sorry, 668,000 and 54,000 subscribers. If you can go to Slide #6, let's look at our fixed broadband performance. We had a very strong performance in fixed broadband. We introduced a retail price division for new acquisitions in January as most places in the market followed our price adjustments. Price parities have rebalanced in favor of our retail activations by the end of the quarter. Subsequently, we adjusted the steel segment price for existing customers in March. The contracting volume scored significantly higher year-on-year. ARPU growth remained strong at 18% year-on-year in Q1 despite the last year's high base of 19%. The combination of solid upsell and sustains the contracting performance along with successful price implementation enabled us to maintain high growth. We expect the robust ARPU trajectory to continue in 2026. Average of both our total and retail subscriber base increased by near to 111 and 120 megabits. 6% of our subscribers now use 50 megabits and above package compared to 51% a year ago. Moving on to mobile performance. Let's go to Slide #7. Our strong customer growth continued in mobile segment, the ratio of competitive environment visible by the end of 2025 prevailed in the first quarter of 2026, price revisions were made in January and April. M&P market size, which was higher in the first quarter of 2026 in year-on-year terms declined slightly from its historical height at the end of 2025. Postpaid segment recorded 658,000 net additions in the first quarter. With that, total net additions surpassed 712,000 in total. The ratio of our postpaid subscribers in total portfolio rose to 80% from 76% a year ago. Excluding MTM, postpaid base added 87,000 subscribers. Mobile ARPU excluding MTM came down by 4% year-on-year over last year's strong 21% base. In the first quarter 2026, we are seeing a normalization in annual mobile ARPU growth as already seen in the third and fourth quarters of 2025. Let's go to Slide #9 to update you on our summary financial performance. Consolidated revenues increased by 9% to TRY 65 billion from TRY 60 billion in the same period of the period year. Fixed broadband, corporate data and ICT projects led growth, revenues rose strongly in the quarter, driven by the acceleration in fiber investments. Excluding the FX accounting impact, Q1 '26 revenues reached TRY 61 million, up 6% year-on-year, including increase of 17 points ,8% in fixed broadband, 15% in TV and 28.1% in corporate data, while mobile international and other revenues declined by 1% and 27.5% and 0.7%, respectively. Fixed voice remained flat year-on-year. Fixed internet and mobile revenues together accounted for 77% of operating revenue. Fixed internet made the largest contribution to growth TRY 3.2 billion higher revenues in total year-on-year. Corporate Data and ICT solutions added a further TRY 2.3 billion white call center intentional revenues and equipment sales declined by a combined TRY 2.1 billion. Mobile revenues were lower by TRY 253 million. ICT Solutions recorded significant growth supported by new projects won by our subsidiary, Innova, the decline in cost center revenues in line with our expectation was attributable to projects that completed in the second half of the last year. While our international business was impacted by the decline in international voice revenues, which is kind of a seasonal business with lower margins. Moving on to EBITDA. Direct costs fell 3.5% year-on-year. The decline in interconnection cost was driven by contracting international voice revenues. The equipment costs were lower year-on-year as well. Commercial costs rose 27.7% while the cost declined 2.5% year-on-year. The increase in commercial cost was driven by higher spending across sales and marketing and advertising line items. Between other costs, network expense increased 1.3% year-on-year. The 4.1% year-on-year decline in personnel costs can be explained by the reduction in head count at our call center subsidiary due to project completions in the second half of 2025. Excluding the accounting impact, OpEx to sales ratio improved from 61% in Q1 '25 to 58% pointing to continued enhancement in operational leverage. Consolidated EBITDA increased by 17.1% year-on-year to TRY 27 billion, while the EBITDA margin improved by 300 basis points year-on-year to 43.3%. Excluding the accounting impact, the EBITDA margin expanded by 395 basis points year-on-year to 44.1%. Coming to our net profit. Net financial expenses increased by 27% year-on-year and 66% Q-on-Q. The interest income declined from TRY 2.3 billion to TRY 659 million Q-on-Q as we made a payment of USD 1.1 billion in the first quarter regarding 5G and concessions renewable. Moreover, FX hedging expenses rose 108% year-on-year and 28% Q-on-Q on the back of higher FX liabilities. The average hedge costs remained flat on a Q-on-Q basis. On the balance sheet side, monetary gains surged by 80% year-on-year to TRY 14 million as nonmonetary assets of 5G license and fixed concession extensions were included in our balance sheet in the first quarter of 2026. These long-term assets revalued each quarter with inflation index. In Q4, a total excess of TRY 7.1 billion as deposits, largely consisting of deferred tax expense. The effective tax rate was 40%, mostly due to inflation accounting. We assessed that the deferred tax expense recorded will have a very limited impact on near-term cash flows with the total FX spread over an extended time horizon. Overall, Türk Telekom Group recorded a net income of TRY 10.5 billion for the period, up by 56% year-on-year. driven by strong operational performance. Let's go to next Slide #10 to review our CapEx numbers. CapEx spending rose to TRY 17 million in the first quarter compared with TRY 10 million last year on the back of higher 5G rollout expenditures. As usual, fixed line CapEx, most importantly, the fiber access and core network investments took higher shares in total bit 51% rate, 23% of spending went to mobile, while another 50% went to IT and project investments and rest other investments. Moving on to Slide #11, you can see our debt profile. Türk Telekom have total 30.4 billion cash and cash equivalents of which 56% is FX based. The FX exposure includes U.S. dollar to 2 months of 3.3 billion of FX denominated debt, 2.7 billion concession and mobile stance liabilities, 3.1 million of total hedge position and 382 million of hard currency cash. Net debt over EBITDA increased to 1x from 0.6 as of 2025 and on the back of 5G and concession renewal payments. Net debt over EBITDA would have remained flat Q-on-Q, excluding those payments. In January, we paid the first installment of 5G license, namely USD 365 million and plus 215 million and the VAT amount of concession extension word of USD 500 million. By the end of the year, we will have also paid the second installment of 5G license and the first installment of concession extension. We prepared detailed schedule of payments and income statement and balance sheet impact for your easy reference. You can find it in the appendix of this presentation. I want to emphasize that the increase in FX liabilities is due to our longer-term investment in 5G spectrum and concession. Our future payments are extended over a long-term period until 2035 and the payments will be in Turkish lira. We also actively manage our FX exposure risk through hedge. Moreover, while concession and 5G liability has been additional FX exposure. On the asset side, they are revalued under inflation accounting and hence, creating monetary gains, which, as a result, balance P&L impact overall. Let's go to Slide #12, where we provide update on our cash flow and FX exposures. We recorded USD 2.5 billion short FX position compared to USD 102 million as of year-end due to booking of USD 2.7 billion 5G and concession general liabilities. Excluding those payments, our net FX loan position is positive USD 162 million. Finally, we generated positive TRY 1.7 billion of unlevered free cash flow in Q1, excluding 5G and concession renewable payments compared to THB 3 billion in Q4 and TRY 10 million in the same quarter last year, annual decline is mostly due to higher CapEx. Moving on Slide #13. We provide update on 2026 full year guidance. Our business performance as a whole was in line with our expectations in Q1. We expect operational revenue growth to accelerate in the remaining quarters of 2026. Yet, first quarter inflation came in slightly higher due to regional geographical developments, putting pressure on real growth. We will update our revenue growth guidance, if necessary, based on the performance of our business line in first half and the cost of inflation. We currently do not see major downside risk to our 41% to 42% EBITDA margin guidance. Türk Telekom Group we remain cautious, especially regarding inflation expectations and prudently monitoring regional geopolitical developments and taking necessary actions. This concludes my presentation. Thank you for your listening. And now we can open up the Q&A session. Operator: [Operator Instructions]. The first question comes from the line of Cemal Demirtas with Ata Invest. Cemal Demirtas: Congratulations for good results. My first question is about your short FX position. It's TRY 2.5 billion. Could you further elaborate this in terms of risks going forward? Most possibly, it's going to be critical for the next 2, 3 years? And what are the plans on your sites? And I would like to understand the hedging costs. Did you see any increase in the hedging cost in April compared to March? And do you see any risk on your guidance for CapEx considering the risks on the FX side? This could be very helpful from the CapEx and FX position side. And the other question is about the business side. We see some decline in the mobile side, could you also further elaborate that? And connected with this, how do you see the outlook so far for the second quarter in terms of the business lines. Omer Karademir: Thank you. For your first question of the FX position. Actually, we have -- we don't have a short position. We have long position if we exclude our future 5G and concession payments. So that means for our net sales financial debt, financial payments, we are securing our FX position. And for the -- when these payments happens, so the next schedule is the December of this year, I am reporting our which payments -- the installments of the 5G and the concession payments that will be made in December. After we have made these payments, we will also hedge this open position. We are planning to hedge this open position. So right now, our main strategy is to hedge our financial debt. Based on the hedging cost, actually, we are using the cost costs declining instruments for our hedging policy, and we have access to onshore, offshore and also Central Bank NDF channel we are using the lowest cost for these hedging transactions. So the average cost of hedge didn't change compared to last quarters of 2025. And it is -- it was -- I mean, it was similar for the first quarter. But in April, we have seen some in at, I mean, from the payment side from the cost side. In April, we have witnessed slightly an increase for hedging costs. But the main factor of our expenditure for this hedging transactions comes from the hedge volume. The payments for 5G and concession in the first quarter with the VAT. As a total, it is USD 1.1 billion. That's increased our total hedge amount. The main difference comes from this hedge volume. But with the help of this inflation program of Central Bank and the government as we have witnessed in the second half of the last year, the hedging costs, we are expecting to decline in the hedging costs but hedging volume will be similar until the end of this year. I hope this answers your first question. For your second question, CapEx guidance. You know, we have -- our guidance was -- our guidance is -- for this year is 23% to 24%. It was realized -- sorry, 33% to 34% for this year. The last year's realization was somewhere 29%. The main difference was coming from our mobile investments for the 5G rollout. The first quarter's realization is 26.3% as we have announced based on the FX increase, unexpected FX increase, we -- our budget numbers, budget numbers are in nominal terms. So we try to limit -- we try to be in the boundary of this budgetary volume. In case of an unexpected FX shock. So right now, we are still stick to our guidance for the CapEx. But we cannot predict easily what's going happen since there is a regional conflict and it will, of course, affect the supply chain we haven't seen it is effects in our CapEx spending at the moment but there will be some effects. We are admitting that. But on the other -- hence, our contracts are not 1 year term. They are 2 to 4 years of term that fixed the price of CapEx spending that will also have us. And for your third question, the business side of mobile, our revenue growth is -- the total revenue growth is almost 6%. And the inflation was for the first quarter, almost 10% that was beyond our expectations. That affects the revenue growth, the increase in the inflation higher than the expectation. But we are still in line with our budget target for the first quarter since the fixed broadband compensated our mobile site. But basically, for the mobile maybe you are referring to our ARPU growth. Cemal Demirtas: Yes. Omer Karademir: The mobile parts, there are 2 main effects we can state. One is base effect. The other is inflation for the base FX, we have realized many higher ARPU growth in the late 2024 and 2025. That is one reason. But another reason is the competitive environment in 2025. That happened, let's say, in the middle of the year. But we saw a rationalization and normalization at the end of the last year. And for this year, we are also witnessing -- we are also witnessing continuation of this normalization since we and other operators to be able to make their price division for January, we have 30% of increase in mobile. And for April, we have 15% with the half of this price adjustments -- and with the half of this normalization in the market, we can expect to -- we can expect a recovering revenue growth that ARPU growth. But it will be in the second half of the year, I can say. Operator: The next question comes from the line of Maddy with HSBC. Madhvendra Singh: Yes. I have a few quick questions. The first is on -- maybe I missed it in the comments, but what has been the price actions this year if you could share that. I think the last price hike was in Jan, but if you could talk about any further price actions you have seen so far? And then the second question is on your energy cost. I understand that most of your network is on grid power. So have you seen any price hikes from the -- on the electricity side -- so if you could share that, any anticipation of higher electricity prices, that will also be great. And then the final one is on the -- under the new fixed construction and licensing, which we have issued for 5G and all. Is there any in the asset ownership clauses or is the asset still owned by the government and you just have the right to operate it? So if you could share any color around that. Omer Karademir: So for your last question, is it for fixed or mobile side? Madhvendra Singh: For the ownership of both. Omer Karademir: Thank you. For your first question about our projections of this year, for the mobile, we have 30% adjustments in January and 13% in April for the mobile. We have 2 price actions for the mobile side. For the fixed side, in January, for 21% for new activations and 17% in March for the existing customers. These are our projections of this year. For energy costs, yes. We are both operating in fixed and mobile interest structure. So we have electricity consumption in our business. as we meet the major of our electricity needs from the 3 markets and national tariffs. Although we observed increased volatility in the market prices from mid-February onwards and the first quarter results were in line with our expectations. The energy markets regulatory authority increased retail electricity price by 6% for the lower tier and 18% for the higher tier of the public and private services sector subscriber groups, and it's effective in fourth of April. And I mean it is lower than our expectations, the increase in electricity by the government. And our energy expenses while decreased by 14% year-on-year constitute almost 5% of our OpEx base in the first quarter of 2026. This rate was 6% for the whole year of 2025. And also, we have a solar power plant. It is now operational and installed capacity of 96 megawatts. It is operational in the beginning of this year. and it will meet 15% of our whole consumption, and we will have 2 more power plants. And as a total, we are expecting to meet 65% of our whole consumption from this solar power plant. And additionally, for the climate environment, climate environment of truck for this year because of the rains, the hydroelectricity plants are fully operational. There is -- the cost of producing electricity is lower than the -- than their peers. So this is also an advantage for us. And in briefly, we haven't witnessed an energy cost up to now. And the last -- and for your last question, the ownership. For the fixed -- the ownership is government. We have this concession -- I'm sorry, the -- for the mobile, all the assets are our own, but for the mobile but we will transfer to government at the end of the license period -- we have additional comments from our [indiscernible]. As [indiscernible] said, the fixed line concession is a great achievement because as you know, the new concession they added a new scope. So as you know, we have the leading operator. We have all the assets. And as Türk Telekom, we developed a brand marketing everything at the end of the concession, if it is not extended, we have to transfer the assets to the government. But obviously, we always extend it and keep our investments. And it is similar and same -- not similar same for all operators. Operator: [Operator Instructions]. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Turk Telekom management for any closing comments. Thank you. Omer Karademir: Thank you all for joining us today. Have a good evening. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling. Good afternoon.
Operator: Good morning, and good evening. Thank you all for joining the conference call for the SK Telecom earnings results. This conference will start with a presentation followed by a Q&A session. [Operator Instructions]. Now we will begin the presentation on SK Telecom's First Quarter of Fiscal Year 2026 Earnings results. Tae Hee Kim: [Interpreted] Good afternoon. I am Tae Hee Kim, IRO of SK Telecom. I'd first like to ask for your kind understanding that the earnings call started later than scheduled. Let us now begin the earnings conference call for the first quarter of 2026. Today, we will first deliver a presentation on the financial and business highlights, followed by a Q&A session. Please note that all forward-looking statements are subject to change depending on various factors such as market and management situations. Let me now present our CFO. Jong-seok Park: [Interpreted] Good afternoon. This is Jong-seok Park, CFO of SK Telecom. At the beginning of this year, we said that we would focus on strengthening fundamental business competitiveness centered on customer value and restore profitability through sophisticated AI business in 2026. The first quarter was a significant period in which this direction began to translate into actual results. Thanks to [indiscernible] efforts to regain our customers' trust, the company recorded a net subscriber add this quarter and the fundamentals of our core telecom business are rapidly returning to normal. The performance of the AI business is gradually improving as a result of business restructuring based on a strategy of focus and prioritization. As these changes led to actual results, we were able to post earnings similar to the levels prior to the cybersecurity incident. With business performance returning to normal, the company has decided to resume dividend payments starting this quarter. Dividend per share for the first quarter is KRW 831 (sic) [ 830 ]. We are pleased that we were able to deliver on the promises that we made during the last earnings call. We will make every effort to restore the dividend level by normalizing earnings on a full year basis through continuous improvement of the telecom business fundamentals and creation of additional results from the AI business. Let me now report on the financial results for Q1. Consolidated revenue posted KRW 4.39 trillion, up 1.5% Q-on-Q on the back of MNO revenue growth driven by subscriber growth and the growth trend of the data center business. We posted KRW 537.6 billion in consolidated operating income. Our quarterly operating income exceeded more than KRW 500 billion, which is attributable to extensive efforts to regain customers' trust and company-wide initiatives to improve productivity. Let me now present business highlights by business line. MNO achieved a handset subscriber net add of approximately 210,000 in the first quarter, which is a substantive outcome of diverse measures taken to innovate customer value and restore customers' trust. Yet we are not complacent, but remain committed to further strengthening business fundamentals and competitiveness with customer-friendly products and services. We have expanded customer benefits and usability by restructuring the membership program, and we're currently overhauling price plans to offer more choices to customers. The fixed-line business is also producing stable results, thanks to continued subscriber net adds, an increase in the share of subscribers signing up for higher price plans, including Giga price plan and a stronger subscriber retention trend. We will do our utmost to achieve the dual objectives of subscriber recovery and profitability enhancement through constant change and execution based on the philosophy that customers are the essence of our business. In the AI business, the effects of the strategy of focus and prioritization are gradually becoming visible. AI data center revenue is maintaining a growth trend year-over-year, driven by Pangyo Data Center and higher utilization of Gasan Data Center. The construction of Ulsan AI Data Center is underway, and we plan to pursue additional scale-up by building new data centers in areas, including Seoul. New opportunities are emerging for our AI data center business due to the surge in demand for AI data centers from global tech companies. Based on business experience and differentiated competitiveness across the entire value chain of AI data centers, we will actively pursue partnerships with global players and keep expanding our AI infrastructure business. Within AI B2C business, the agent business is evolving in a direction that creates synergy with the telecom business and enhances fundamental competitiveness. We plan to improve ADAS performance by linking it with our proprietary AI foundation model to strengthen its own competitiveness. With the increase in AI adoption, the B2B market is undergoing structural change driven by AI transformation and new AI-based markets are taking shape. SK Telecom will secure leadership in the rapidly evolving market by utilizing full stack AI capabilities across infrastructure, models and agents and mobilizing the customer base and execution capabilities secured from our B2B business. We ask for the continued support and interest of our investors and analysts as we overcome the crisis and continue driving change and embracing challenges to achieve greater growth. Thank you. Operator: [Interpreted] [Operator Instructions] The first question will be provided by Seung Woong Lee from Yuanta Securities. Seung Woong Lee: [Interpreted] I'm Seung Woong Lee from Yuanta Securities. I have 2 questions. First of all, as you mentioned during your earnings presentation, the company started quarterly dividend payment starting from Q1. And I'd like to understand the overall shareholder return plan and the size of the shareholder return for the entire year of 2026. Secondly, I can see that the company was able to produce earnings results that are similar to the levels prior to the cybersecurity incident. Is it safe to understand that this type of trend will become a new normal? And I'd like to get some guidance from the company on the full year basis earnings outlook. Jong-seok Park: [Interpreted] First of all, thank you for your questions. I'd like to comment on the question on our annual earnings outlook, and then I'll move on to addressing your second question on shareholder returns. First, on our annual earnings outlook. In the first quarter, our operating profit posted KRW 537.6 billion, and the trend has reversed from the downward trend after the cybersecurity incident and shown an upward trend to be approaching the pre-incident levels. Our goal is to improve the full year earnings further from the current levels. For our telecom business, thanks to our efforts to restore customers' trust, which is our #1 priority in 2026, we achieved a net addition to handset subscribers in Q1, contributing to the recovery of the bottom line as well as the top line. For our AI business, we are reviewing and implementing various measures to improve the structural profitability by pursuing pivoting and discontinuation of low-margin businesses through the strategy of focus and prioritization. In addition, data center business is seeing a meaningful growth trend and the B2B business has revised its strategy to focus on AI full-spec capabilities. And we believe that these businesses will drive revenue and contribute to bottom line improvements for the remainder of the year. And finally, we are working to improve productivity in terms of business operations and processes through enterprise-wide AI tool adoption and AX transformation of call centers, and these measures are having a positive impact on cost efficiency improvement. So in short, we will do our utmost to recover the annual [indiscernible] to be higher than the pre-incident levels through profitability recovery of the telecom business, expansion of growth businesses centered on AI data centers and continuous productivity enhancement. Now I'd like to speak about shareholder returns for 2026. As was announced earlier, we resumed quarterly dividend payments with the DPS for the first quarter of KRW 831 (sic) [ 830 ]. I'd like to thank our shareholders very much for their kind understanding and patience. As earnings continue to recover this year, we plan to conduct dividend payments as stably as possible. As for the size of the dividends for the whole year, when concrete full year earnings become more materialized, the Board of Directors will have discussions and make decisions in consideration of business performance and financial structure. I won't be able to share with you any specific number at this point, but I promise that we will do our utmost to restore the dividend levels to the previous levels. At the Annual General Meeting of Shareholders in March, the company transferred capital reserves of KRW 1.7 trillion to retained earnings to allow tax-exempt dividends, which is expected to deliver substantive benefits to shareholders. And for your reference, according to relevant law, tax-exempt dividends are possible from the 2026 year-end dividends. Operator: [Interpreted] The following question will be presented by Joonsop Kim from KB Securities. Joonsop Kim: [Interpreted] I'm Joonsop Kim from KB Securities. I have 2 questions, one on MNO marketing, the other on AI DC. You have produced a recovery trend in terms of the net subscriber adds as well as market share. So I'd like to understand the overall subscriber market share target for SK Telecom and the marketing direction and how you're planning to strike a balance between profitability and marketing. Secondly, you reported that the AI DC revenue in the first quarter has increased by 89% year-over-year. And I'd like to understand how this AI DC business is making meaningful contribution to your profitability. If you can give us some color, I would appreciate it. Jong-seok Park: [Interpreted] Thank you for your questions. I'd like to address your question on our AI DC business, and I will hand over to [indiscernible] in charge of MNO support, who will answer your question on our MNO subscriber targets. First, let me comment on the time line as to when AI DC business will be able to make meaningful earnings contribution. First of all, I'd like to remind you that we only announced the AI DC revenue numbers, and we do not disclose any other indicators, including profitability-related indicators. We're aware that the market is interested in knowing this, but please understand that we are doing so in consideration of various factors, including the domestic data center market situations. Nevertheless, what I can say is that the AI DC business is comparable to the existing telecom business in terms of profitability, and there's much room for the AI DC business to become even more profitable going forward. Since AI DC is our key growth business, we will think of what we can share to help investors better understand our AI DC business performance. Now I'd like to turn to [indiscernible] in charge of MNO support to answer your question on our MNO subscriber targets. Unknown Executive: [Interpreted] I'd like to comment on our MNO subscriber target. The New Year 2026 started with the number of handset subscribers reduced by around 986,000 year-over-year. Reflecting on our performance in the first quarter, we were able to achieve a net add in subscribers on the back of changes in the competitive landscape, back-to-school marketing to attract new subscribers and S26 flagship handset marketing. As a result, we were able to achieve a net addition to our handset subscribers of 208,000. Throughout the year, we will continue to make efforts to recover subscribers by targeting new segments, including foreigners and strengthening competitiveness in terms of products, services and sales channels. When we continue to strengthen fundamental competitiveness through business operation focused on profitability, we believe that the subscriber base and the market share will naturally grow. And based on this approach, we will avoid engaging in excessive spending competition aimed solely at increasing subscriber numbers, but rather focus on market operation on securing high-LTV subscribers. Operator: [Interpreted] The following question will be presented by Aram Kim from Shinhan Securities. ARam Kim: [Interpreted] I'm Aram Kim from Shinhan Securities. I'd like to ask you 2 questions. First of all, telecom's equipment providers, both in Korea as well as abroad are focusing on developing AI-RAN, which is about using telecommunications network infrastructure for AI functions such as inference. So I'd like to get SK Telecom's view on AI-RAN. And secondly, there is an increasing demand and growth for AI traffic. And I'd like to understand what this increase in AI traffic, what kind of business opportunities will this bring to SK Telecom as a telco? Jong-seok Park: [Interpreted] Thank you for your questions. On your questions on AI-RAN as well as business opportunities brought by AI traffic, [indiscernible] in charge of Network Strategy will address them. Unknown Executive: [Interpreted] I'm [indiscernible] in charge of Network Strategy. I'd like to first talk about expected benefits and commercialization plans of AI-RAN. AI-RAN is evolving in 2 domains. One is to improve telecommunications network infrastructure using AI and the other is to use wireless network infrastructure as a platform to provide AI services. So in the first domain, we expect to be able to automate base station operations through AI-based failure prediction, optimization of traffic and resources and power efficiency improvement. This will lead to higher efficiency and improved customer experience. As for the second domain, we may be able to create new business opportunities and generate profit from the provision of AI services such as inference and media processing by utilizing AI computing resources at the base stations. We are actively participating in technology research and standardization together with global players and manufacturers such as Samsung, DOCOMO and NVIDIA for the evolution of AI-RAN. However, AI-RAN is still in an early stage, so we will consider the adoption of AI-RAN by comprehensively considering various aspects such as technology maturity, standardization, validation on commercial networks and other aspects. We will continue to maintain technology leadership in the next-generation network technology areas, including AI-RAN and use the technology leadership to proactively secure new business opportunities. Next, I'd like to make some comments on AI traffic. While there is a significant increase in AI traffic, the share of AI traffic in the entire traffic is still not very high. However, we're considering ways to make AI traffic increase with a connection with AI-RAN and how to distribute traffic across the networks. So we will continue to look into technology to be able to do so. Operator: [Interpreted] There are no questions in the queue right now. Tae Hee Kim: [Interpreted] This concludes the earnings conference call for 2026 first quarter of SK Telecom. If you need further explanations or have additional questions, please contact IR at any time. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Thank you for standing by, and welcome to the NetScout's Fourth Quarter and Full Fiscal Year 2026 Financial Results Conference Call.[Operator Instructions] As a reminder, this call is being recorded.[Operator Instructions] I would now like to turn the call over to Scott Dressel, NetScout's VP of Corporate Finance. Scott, please go ahead. Scott Dressel: Thank you, operator, and good morning, everyone. Welcome to NetScout's Fourth Quarter and Full Fiscal Year 2026 Conference Call for the period ended March 31, 2026. Joining me today are Anil Singhal, NetScout's President and Chief Executive Officer, Anthony Piazza, NetScout's Executive Vice President and Chief Financial Officer. Please note that a slide presentation accompanies our prepared remarks. You can advance the slides in the webcast viewer to follow our commentary. Both the slides and the prepared remarks can be accessed in multiple areas within our Investor Relations section of our website at www.netscout.com, including the IR landing page and the Quarterly Results page. As discussed in detail on Slide #3, today's conference call will include certain forward-looking statements about NetScout's views on expected results of future performance and business strategy. These statements speak only as of today's date and involve risks, uncertainties and assumptions that may cause actual results to differ materially, including, but not limited to, those described in the company's filings with the Securities and Exchange Commission that can be found in our annual report on Form 10-K and quarterly reports on Form 10-Q. As discussed in detail on Slide #4, today's conference call will also include discussion of certain non-GAAP financial measures that the company believes to be useful for investors. While the slide presentation includes both GAAP and non-GAAP results other than revenue and balance sheet information, which are presented in accordance with GAAP, we will focus our discussion on non-GAAP financial information. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. Reconciliation of all non-GAAP metrics to the nearest GAAP measures are provided in the appendix of the slide presentation in today's financial results press release and on our website. I will now turn the call over to Anil for his prepared remarks. Anil? Anil Singhal: Thank you, Scott, and good morning, everyone. We appreciate you joining us today. NetScout delivered strong fiscal year 2026 top and bottom line results, driven by growth across both our Cybersecurity and Service Assurance offerings. Our performance in the fiscal year helped us achieve the key strategic objectives we laid out a year ago, including accelerating product innovation, driving annual revenue growth and expanding margins. We also strengthened our innovation engine through the introduction of differentiated capability across the portfolio, including AI-ready smart data, expanded observability, enhanced edge visibility and adaptive threat protection. We accomplished this in what continues to be a dynamic operating environment, underscoring the strength of our strategy and the consistency of our execution. These results have further reinforced our financial foundation and position NetScout to drive continued innovation, revenue growth and margin improvement in fiscal year 2027. At the same time, we believe market trends across AI, observability and network security are expanding our opportunity set and creating additional revenue for long-term value creation. With that context, let me turn to Slide #6 for a brief review of our fourth quarter and full fiscal year 2026 financial performance for the period ended March 31, 2026. For the fourth quarter, total revenue was approximately $203 million compared with $205 million for the same period last fiscal year, which was in line with our expectations given the shift in customer order timing to the prior quarter as we discussed on our Q3 earnings call. Diluted earnings per share was $0.52, consistent with the same period last fiscal year. For the full fiscal year, which is more representative of the business and the underlying market trends, revenue increased by 4.5% to approximately $860 million, driven by growth in both our Cybersecurity and Service Assurance offerings. We expanded both our gross and operating margins year-over-year and delivered nearly 12% growth in diluted earnings per share at $2.48, exceeding the high end of our guidance range. Now let's turn to Slide #7 for some perspective on our business and some market insights. Starting with a review of our service assurance offerings. The revenue for the full fiscal year increased approximately 3% year-over-year, driven by growth in the enterprise customer vertical with strong contributions from both federal and nonfederal government-related spending. Our Enterprise customers continue to rely on our Service Assurance solutions to advance their digital transformation initiatives. In turn, we are investing in innovation, particularly with respect to observability and AI and to help our customers drive greater efficiency, reduce risk and accelerate troubleshooting and lower costs. An example of this innovation during the year is our Omnis Sensor and Omnis streamer, which work together as an integrated AIOps solution that transforms high-fidelity network packet data into actionable intelligence. Also, our sensor and streamer products include Agentic AI interfaces that enable efficient and cost-effective integration with multi-vendor AI solutions, which facilitate automation and reduces total cost of ownership for our customers. Among our Carrier Service Provider customers, we continue to see measured 5G investment as they balance build-outs with monetization, and we expect this to continue into our fiscal year 2027. At the same time, emerging opportunities such as fixed wireless access, 5G network slicing and AIOps initiative have the potential to drive revenue and cost efficiency for a Communication Service Provider. We believe NETScout is well positioned to support this transition. Our 5G observability solution provides end-to-end visibility for 5G stand-alone slices to support high-performance services such as immersive gaming and large-scale sporting events as well as mission-critical application and services. Moving to our Cybersecurity offerings. Revenue for the full fiscal year increased approximately 8%, with growth across both our Enterprise and Service Provider verticals. Cybersecurity continues to grow faster than the company average and is an increasingly important driver of our long-term revenue growth and margin expansion. Our latest DDoS Threat Intelligence report, which was released in March 2026, assesses the current global threat environment, including newer AI-powered attacks. Foundational services such as DNS and NTP remain under persistent pressure and recent botnet attacks on government, financial and transportation infrastructure show how quickly threat actors can disrupt critical services with either legacy tools or by using AI to increase the scale and sophistication of their attacks. Large coordinated attacks are outpacing traditional defenses and organizations are increasingly turning to automated intelligent protection to keep up. NetScout is well positioned to help customers protect their digital services. Many of our newest innovations support distributed detection and mitigation solutions to provide a more robust and resilient adaptive DDoS protection environment. Additionally, as noted in our earnings release, we just completed a tuck-in acquisition of the assets of DigiCert Incorporation's DDoS protection business that brings the back-end infrastructure of our Arbor Cloud network to fully in-house. We believe this transaction provides us with a greater control of the platform and a clearer path to scaling cloud-based services over time while providing immediate incremental recurring revenue in the cloud DDoS space. Before touching on some of our recent customer wins, I would like to briefly discuss AI and what we believe this new era would mean for NetScout over time. We believe AI will create additional opportunities for both Service Assurance and Cybersecurity by amplifying the need for network visibility and protection. As networks grow more complex and cyber threats increasingly leverage AI tools, we believe the need for adaptive real-time visibility and intelligence protection will continue to rise. These dynamics play directly to NetScout's strengths. We have long been recognized for our packet level approach to network detection, investigation and response. Now our patented deep-packet inspection and metadata aggregation capabilities can generate complex, high fidelity, AI-ready smart data at scale that is purpose-built for advanced analytics like never before. More importantly, we are not competing with foundational AI models. Instead, we are leveraging our differentiated data and domain expertise to enable automation that integrates into our customers' broader observability and AI workflows, helping to enhance visibility and operationalize AI within those environments. From a financial perspective, we believe AI advancement could reinforce the durability of both our cybersecurity and service assurance businesses by supporting upgrade cycles and expanding use cases across our installed base. Taken together, we view AI as a promising opportunity that enhances the value of what we already do best and extends our relevance within customers' critical infrastructures over the long term as they develop and implement their broader AI strategies and initiatives. Turning to customer wins, both Service Assurance and Cybersecurity continue to gain traction. In addition to new customers, we continue to secure a significant amount of repeat business from loyal customers buying new solutions and upgrades along with maintenance services. Two wins from the fourth quarter were: A mid-seven-figure deal with a large European telecom that has been a longtime Cybersecurity and Service Assurance customer. They upgraded their DDoS protection with our Adaptive DDoS offering and our Distributed Threat Mitigation System to enhance their cyber protection. Our adaptive's DDoS mitigates all types of multi-vector attacks before they can impact critical services, while DMS provides enterprise-level protection across both cloud and edge environments with physical and virtual platforms and multiple usage configurations. This client also values our subscription model, which includes support and maintenance and a flexible scale-up and scale-down approach to minimize license wastage. A second deal in the low-seven- figures was with a new customer that is a global leader in chip manufacturing for a variety of industries, including automotive, mobile communications and data centers. This contract included our engineered solution to maintain traffic visibility and address system reliability issues across the network that spans multiple countries. They chose NetScout because of our reputation and ability to provide the critical solutions required to manage the complex interdependency of their networks and applications. With that, let's move to Slide #8 to review our outlook. In fiscal year 2026, we returned the business to revenue growth, improved margins, expanded profitability, delivered strong free cash flows and continue to advance our product capability across both Cybersecurity and Service Assurance. Looking ahead, we are excited about the year in front of us and are leaning into this momentum. We see significant opportunities over the long term to leverage NetScout's deep expertise in cybersecurity and network observability together with our AI-ready data platform to help customers advance their AI and digital transformation initiatives and to manage an increasingly complex digital environment where network performance, availability and security are mission-critical. We believe we are well positioned to drive profitable growth, generate strong free cash flow and enhance long-term shareholder value. These growth dynamics are reflected in our fiscal year 2027 outlook, which Tony will review during his remarks. While we remain mindful of the macro environment, ongoing carrier spending discipline and demand trends across both enterprise and service provider customers, our priorities remains clear. We aim to drive sustained revenue growth by executing against a healthy pipeline with particular emphasis on Cybersecurity and enterprise-led Service Assurance. At the same time, we'll continue to invest in innovation across AI, observability and DDoS protection as well as maintain a disciplined focus on cost management and a balanced capital allocation strategy. We are energized by what lies ahead and look forward to updating you on our progress throughout the year. With that, I will turn the call over to Tony for a review of our financial performance and our outlook for fiscal year 2026 -- 2027. Anthony Piazza: Thank you, Anil, and good morning, everyone. We appreciate you joining us today. I'll start by walking you through the key financial metrics for our fourth quarter and full fiscal year 2026. After that, I'll share some additional commentary on our fiscal year 2027 outlook. As a reminder, other than revenue and balance sheet information, which are on a GAAP basis, this review focuses on our non-GAAP results. All reconciliations with our GAAP results appear in the presentation appendix. I will note the nature of any such comparisons accordingly. Also, as comparisons are on a year-over-year -- also all comparisons are on a year-over-year basis, unless otherwise noted. Slide #10 details the results for the fourth quarter and full fiscal year 2026. Focusing on our fourth quarter performance first. Total revenue was $203 million, down 1% from the same period last fiscal year. This reflects the impact of timing-related order shifts discussed on last quarter's earnings call as certain orders originally expected in Q4 were pulled forward into Q3 as customers utilize remaining calendar year-end budgets. Product revenue totaled $80.7 million compared with $89.5 million last fiscal year, reflecting the timing and mix of certain orders across quarters. Service revenue increased 5.9% year-over-year to $122.3 million, driven by underlying growth and favorable timing of service renewal orders and the mix associated with an enterprise license agreement. We ended the fourth quarter with total product backlog of approximately $50 million, which included $45.8 million of fulfillable backlog. This compares to total product backlog of approximately $33 million, including $25.1 million of fulfillable backlog at the end of the same period in 2025. Our gross profit margin was 79.7% in the fourth quarter, an increase of 0.5 percentage points for the same period -- from the same period in the prior year, reflecting higher gross -- product gross margin due to favorable product mix. Quarterly operating expenses were $117.9 million, up 2.4% year-over-year, primarily related to the timing of variable incentive compensation expense. Our operating margin was 21.6% compared with 23.1% in the same period last fiscal year. We delivered diluted earnings per share of $0.52 for both periods. Moving to the full fiscal year 2026. Revenue increased $4.5 million to 859. -- 4.5% to $859.5 million. Product revenue increased 2.8% to $370.1 million and service revenue increased 5.7% to $489.3 million. As mentioned earlier and in prior quarters, product revenue was impacted by a year-over-year shift in the classification of revenue associated with an enterprise license agreement, reflecting the nature of the customer's composition mix. Service revenue correspondingly benefited from this classification shift as well as the timing of renewals, including back maintenance. Our gross profit margin rose 0.8 percentage points to 80.8%, driven by an increased product margin attributable to higher volume and a favorable product mix. Annual operating expenses increased 2.9% from the prior year. We reported an operating profit margin of 25.4%, up 1.7 percentage points compared to the prior year based on higher revenue, enhanced product margin -- gross margin and disciplined cost management. Diluted earnings per share increased nearly 12% to $2.48. Our annual non-GAAP effective tax rate was 19.9% compared to 19% in the prior year, which benefited from a valuation gain in a foreign investment with favorable tax treatment. Let's turn to Slide 11, where I'll walk you through the key revenue trends by product lines and customer verticals. For the full fiscal year 2026, Service Assurance revenue increased by 2.6% and Cybersecurity revenue grew by 7.8%. During the same period, Service Assurance accounted for approximately 64% of total revenue and Cybersecurity accounted for the remaining 36%. Cybersecurity continues to grow faster than the company average. And over time, we expect it to become a larger portion of our mix, which should be a positive driver of growth. Turning to our customer verticals. For the full fiscal year 2026, Enterprise revenue grew by 5.4% and Service Provider revenue grew by 3.3%. During the same period, Enterprise accounted for approximately 58% of our total revenue and Service Provider accounted for the remaining 42% Additionally, no customer accounted for more than 10% of our revenue for the quarter or the full fiscal year 2026. Turning to Slide 12. This shows our revenue mix between the United States and international markets. For the full fiscal year 2026, the United States represented 55% of revenue and international represented the remaining 45% of revenue. Slide 13 shows some key balance sheet items along with our free cash flow for the period. We ended fiscal year 2026 with $705.1 million in cash, cash equivalents and short- and long-term marketable securities, representing an increase of $212.7 million since the end of fiscal year 2025. Free cash flow was $150.1 million for the fourth quarter and a near record high of $285.4 million for the full fiscal year. During fiscal year 2026, we repurchased approximately 2.5 million shares of our common stock at an average price of $24.29 per share for a total of approximately $61 million under our share repurchase program. From a debt perspective, at year-end, we had no outstanding balance on our $600 million revolving credit facility, which expires in October 2029. To briefly recap some other balance sheet items, accounts receivable net was $151.5 million, representing a decrease of $12.2 million since March 31, 2025. Days Sales Outstanding at the end of the fourth quarter was 62 days compared with 68 days in the same period in the prior year. This change in DSO in the fourth quarter reflects the timing and composition of bookings as well as working capital enhancement initiatives. Let's move to Slide 14 for our outlook. I will focus my remarks on our revenue and non-GAAP earnings per share targets for fiscal year 2027. As Anil noted, we expect to build on our current momentum by driving sustained revenue growth and expanding profitability. For fiscal year 2027, we anticipate revenue in the range of $885 million to $915 million and a non-GAAP diluted earnings per share in the range of $2.65 and $2.80, both representing year-over-year growth on the top and bottom lines. This outlook incorporates the DigiCert DDoS asset acquisition that Anil mentioned during his remarks, which is expected to be immediately accretive and assumes an initial annualized revenue run rate contribution of approximately $20 million, with a partial benefit for fiscal year 2027 given the May 1 transaction close. For the full fiscal year, we expect our non-GAAP effective tax rate to be approximately 20% and weighted average diluted shares outstanding of approximately 74 million to 75 million shares. Our guidance reflects a growing contribution from our Cybersecurity offerings and awareness of the trends in our Service Assurance offerings, including continued spending discipline in the carrier market as well as the current dynamic macro environment. Additionally, I'd like to provide some color on the first quarter of fiscal year 2027. We expect revenue to grow in the mid-single digits range and earnings per share to increase at approximately twice the rate of revenue growth compared with that same -- with the same quarter last fiscal year. So in summary, we delivered on our fiscal year 2026 strategic objectives through new innovations, a return to revenue growth and enhanced margins, resulting in strong performance for the fiscal year. Looking ahead to fiscal year 2027, we plan to build on this momentum by advancing innovation, sustaining revenue growth, further improving profitability and continuing to generate strong free cash flow. Our capital allocation priorities remain consistent, investing in the business for profitable growth, maintaining a strong financial position and returning excess capital to shareholders primarily through share repurchases. We currently have capacity under our share repurchase authorization and subject to market conditions, intend to be active in the market during fiscal year 2027. With a strong cash position, no drawn revolver and ongoing free cash flow generation, we have meaningful flexibility to support our growth initiatives and shareholder returns with a clear focus on long-term value creation. That concludes my formal review of our financial results and outlook. I would also like to note that we will be participating in the Annual Needham Technology, Media and Consumer Conference as well as the Annual B. Riley Securities Institutional Investor Conference in May. I look forward to engaging with many of you there. With that, let's open it up for questions. Operator? Operator: Our first question is from Matthew Hedberg with RBC Capital Markets. Sanika Merchant: This is Sanika Merchant on for Matt Hedberg. Congrats on the quarter. I guess to start, could you talk more about the broader macroeconomic landscape and what demand trends have been like? More specifically, are you seeing any uncertainties from tariffs, AI supply chain dynamics or the war in Iran? And has there been any impact to close rates as a result? Anil Singhal: I think there is a general concerns about what could happen tomorrow. But so far, we have not seen a big impact. We have a strong financial position. We have partners who are supplying the hardware, and we have been able to procure in advance. So overall, the impact on us and even the tariff impact was minimal. So it has not been a big impact on us so far, but we are still cautious about what could happen because of what's happening with Iran war and other thing. But so far, the direct impact has been minimal on NetScout. And yes, just one more thing. So yes, people are always cautious and hold budgets. And that's why sometimes those are flushed in the December quarter, and we benefit from that. So I think overall, while our internal conditions and chances have improved substantially as a result of innovation on -- during the last year, the external environment is -- could get worse, and that's why we are cautiously optimistic on our guidance. Sanika Merchant: Got it. And as a quick follow-up, could you tell us more about how the Fed business performed this quarter and any trends you're seeing there? Anthony Piazza: So the Fed business was good for NetScout for the full fiscal year. Federal generally runs in the mid- to high single digits of total revenue. And this year, fiscal year ran at the high end of that particular range. And so we see good -- we have a strong pipeline in the federal business, but it was really high for us in fiscal year '26. And so therefore, one of the things we're cognizant in the Service Assurance business is if that trend starts to normalize back to what we've seen in the past. But right now, we're seeing good federal traction and a nice pipeline. Operator: And we'll move next to Erik Suppiger with B. Riley Securities. Erik Suppiger: Solid quarter, very good. One, can you just -- last quarter, you had indicated that I think the sensor and streaming business was about $15 million for the first 3 quarters of the fiscal year. Can you give us an update on that? And then we saw some legal actions taken against some of these large botnets where the governments cross-country governments were shutting down some of these botnets. I'm curious if you think that's going to reduce the threat landscape and are customers responding at all to that in terms of their purchasing? Anil Singhal: Yes. So the business which you talked about, about $15 million, we were in the range, somewhere between $10 million and $15 million. And so this is good news as we just launched this solution later in the fiscal year. Regarding the DDoS.. Erik Suppiger: Just to be clear, are you saying you were $10 million to $15 million for fiscal '26. Or was that in the fourth quarter? Anil Singhal: Fiscal year '26. And it was in the second half mostly because the product was introduced only in -- at our ENGAGE conference in October. Anthony Piazza: I think, Erik, like Anil said, that's a relatively new product. We're pleased with the first year out here. And we see opportunity even within some of our backlog, there's some opportunity we already have in there. So we see the opportunity there. I think with regard to some of these sensors and streamers, which target bringing DPI to the observability space and the AI space. I think what we're finding is that there's tremendous interest in this right now. And so we're talking to customers about it, but customers are still trying to figure out what their AI strategy and execution is. And so we're working through that. So even though we've gotten some good initial traction and we see good opportunity, it does take a little while for these type of.. Anil Singhal: Another thing is there is an indirect impact because this strengthens our value proposition of a smart data company. And it makes our core business more sticky because this runs -- our AI solution runs on the foundation of Service Assurance and DDoS solutions. As to your other question about government taking action on the DDoS, I mean that was sort of backward looking. I think these actions were too late for people to be able to fully helped by that. So that will continue. hackers will keep finding new ways. Our product will be used in the initial stage at some point, partly because of some of our innovations and other people who are helping the industry in cybersecurity area, the government will then identify and take some action. And this doesn't reduce the need for our solution and it doesn't reduce the threat landscape, which we'll see in the coming years. Anthony Piazza: I think what we've seen in our threat reports and what's been highlighted by us and others is that AI is actually just accelerating threat landscape. So I don't know that taking out any one party is going to impact the long-term trajectory of the threat landscape. Operator: And we will move next to Kevin Liu with K.Liu & Company. Kevin Liu: Just kind of on the topic of enterprise customers and what they're doing with AI. I'm curious with a lot of your larger, more regulated players, what are you seeing them doing in terms of kind of moving from pilots into more production use cases? And ultimately, do you feel NetScout gets a lot of incremental workloads to kind of monitor and secure there? Or do you think it's more just kind of a shift in kind of what they monitor within their own networks? Anil Singhal: Yes. So Kevin, on the -- I mean, obviously, monitoring the AI infrastructure is an extension of our monitoring and protecting. So the new infrastructure, there's always incremental business that's going to keep the core business growing. But the real AI opportunity for incremental revenue besides that is playing in the agentic AI space, whereas our data either was not easy to consume by third parties. But even if it was consumed, it was not mixed with other data sets so easily. So the promise of agentic AI driving automation is to be able to mix NetScout data with other data set to drive good outcomes. And in that said, we believe our data set may be the most important because it's only available from us in this current form at a scalable level. And yet it's a multiplier to the rest of the data set who generally tell you what is going wrong or what's happening, but not necessarily provide the context of why. And that's what why we do. So I think it's going to highlight the value of our data beyond our existing customer and use cases, which was a dream for last so many -- I mean, last couple of decades. And now it might come through with all the things happening in the AI area. Kevin Liu: A quick follow-up on that. How quickly do you think kind of these agentic AI use cases manifest? Is that within your fiscal '27 or kind of more beyond that? And then just on the backlog that you're carrying today, how much of -- it's up meaningfully year-over-year and sequentially. So just wondering how much of that is kind of due to maybe supply chain constraints impacting your ability to ship versus just kind of timing of orders closed in the quarter? Anil Singhal: I'll let Tony cover after I answer the first question about AI traction. So I think we have to look at there is a lot of investment going on. As you know, part of the supply chain problem is because people by buying a lot of hardware for the AI infrastructure. But it's going to take some time. But I feel that the indirect impact on NetScout core business is already happening. For example, our AI solution runs as a software module on top of the existing deployments. So that makes those deployment more sticky. And even if we -- if the pace of adoption in terms of third-party solution consuming our data, AI solution consuming our data, it may take some time. I think it will have an impact on the core business in the short term. And that's why we have provided this new guidance for the coming year. Anthony Piazza: And then, Kevin, on the backlog, it's really more about timing. It was some large orders that really came in at the end of the quarter and the customer didn't need them yet. And so we've prioritized what had to go out. So it's really more timing. It didn't have anything to do really with any supply chain constraints. Kevin Liu: All right. Great. Congrats on a strong quarter and outlook. Operator: Thank you. This does conclude the Q&A session, and it also concludes the conference call. Thank you for joining us today. You may disconnect at any time.
Operator: Good morning, and welcome to Kelly Services First Quarter Earnings Conference Call. [Operator Instructions] Today's call is being recorded at the request of Kelly Services. If anyone has any objections, you may disconnect at this time. I would now like to turn the meeting over to your host, Mr. Scott Thomas, Kelly's Head of Investor Relations. Please go ahead. Scott Thomas: Good morning, and welcome to Kelly's first quarter conference call. With me today are Kelly's Chief Executive Officer; Chris Layden; and our Chief Financial Officer, Troy Anderson. Before we begin, I'll remind you that the comments made during today's call, including the Q&A session, may include forward-looking statements about our expectations for future performance. Actual results could differ materially from those suggested by our comments. We do not assume any obligation to update the statements made on this call. Please refer to our SEC filings for a description of the risk factors that could influence the company's actual future performance. In addition, we'll discuss certain data on a reported and on an adjusted basis. Discussion of items on an adjusted basis are non-GAAP financial measures designed to give insight into certain trends in our operations. For more information regarding non-GAAP measures and other required disclosures, please refer to our earnings press release, presentation and once filed, Form 10-Q. All of which can be accessed through our Investor Relations website at ir.kellyservices.com. With that, I'll turn the call over to Chris. Chris Layden: Thank you, Scott. Good morning, everyone. I'll begin with highlights from the first quarter. The macroeconomic environment remained dynamic over the first 3 months of 2026. Against this familiar backdrop, employers continue to take a cautious approach to hiring, contributing to a mixed labor market. That said, conditions through the quarter were stable, consistent with our expectations. This stability was reflected in our results as we executed on our strategic priorities. Total company revenue exceeded our expectations and adjusted EBITDA margin was in line with our expectations. In ETM, staffing and overall revenue trends improved sequentially from the fourth quarter, including growth in talent solutions across our technology-enabled and AI-powered MSP, RPO and PPO offerings. In SET, we delivered another quarter of year-over-year growth, our Telecom specialty and life sciences and engineering performance improved sequentially. In Education, we continue to experience pressure from delayed contract decisions and enrollment declines and to a lesser extent, weather-related closings. Across all 3 segments, we continue to align resources with demand and maintain a disciplined approach to expense management as part of our ongoing focus on efficiency. Contributing to stabilizing trends in our results, for new customer wins that were implemented and came online during the quarter. Among them is a significant MSP program with a leading global oil and gas company across its North American operations. Kelly was selected based on the differentiated value of our technology-enabled capabilities. This includes our Helix analytics platform and AI-enabled rate intelligence which provides the visibility benchmarking and cost optimization, large enterprise customers require of a contingent talent management program. With the initial implementation of this new MSP program complete, we have clear line of sight to additional expansion opportunities. This win underscores where our 1 Kelly go-to-market approach is capable of delivering. Leveraging technology in our experience, serving global customers to win in the market and grow. With momentum building across the enterprise, we remain focused on returning to organic growth and margin expansion. Paving the way towards this next horizon is our newly formed growth office. Since it was established in February, the growth office has been collaborating across the enterprise to lay the foundation for an integrated commercial operating framework. This framework will serve as the foundation of a unified 1 Kelly enterprise strategy that brings the full breadth of our portfolio to Kelly's current customers and prospects. Central to this effort is the migration of all commercial teams onto a new unified CRM system, a key component of our modernized tech stack, the CRM will provide enterprise-wide pipeline visibility, enable high conviction forecasting and support cross-selling across business units. We expect the migration to be complete by mid-year as part of our ongoing technology modernization initiatives. Reflecting more broadly on our technology modernization journey, we remain on track with our multi-phase approach. In the first quarter, our team was successful in ensuring a smooth transition following the cutover of our acquisitions in SET from their legacy technology stack to the modernized platform, Kelly acquired through our acquisition of MRP. Armed with the key learnings we gathered from the initial cutover, we're well positioned to execute on subsequent phases and realize the benefits of deeper data and insights, AI and automation and scale and enhanced productivity. As we executed on our strategic priorities through the quarter, we continue to evolve our leadership team. In March, we welcomed Joel Leege as President of SET. Joel is a proven industry leader with broad-based sector experience, having spent nearly 3 decades in staffing, talent solutions and managed services across technology, engineering and life sciences. He brings extensive experience leading complex transformations and integrations, enabling exceptional service delivery for customers and driving above-market growth. This experience is uniquely suited to further enhance SET's competitive positioning and take the business to the next level. I'm pleased to have him as part of Kelly, and I look forward to Joel leading the SET business to new heights of growth and profitability. I'm also reevaluating the leadership structure within the ETM business. This business is core to our strategy. And with this in mind, I'm taking time to assess what we need longer term to ensure we deliver on our growth objectives. In the interim, I will be closely involved in the management of ETM. I have great confidence in the team who have consistently demonstrated their commitment to customer centricity, visibility and accountability. These cultural pillars remain fundamental to how we'll achieve our ambitions and win in the market, both in ETM and across the enterprise. I was pleased to have the opportunity to see the strength of our culture on full display at our recent Impact 2026 Leadership Summit in March. This immersive experience brought together 200 of our leaders for 2 days of dialogue and collaboration focused on transforming Kelly into a more customer-centric, visible and accountable enterprise. Impact reflects our commitment to building on the strength of Kelly's culture from the leadership level down, positioning the company to execute more consistently as we target a return to revenue growth and margin expansion in the second half of the year. In a moment, I'll share more about our pathway toward a return to growth. First, I'll turn it over to Troy to provide more details on the results in the quarter. Troy? Troy Anderson: Thank you, Chris, and good morning, everybody. I'm pleased to report that we started the year with solid execution and results on a number of fronts. For the first quarter of 2026, revenue totaled $1 billion, which was down 10.7% overall versus Q1 of last year, is favorable to our guidance. Excluding the previously disclosed discrete impacts, driven by reduced demand from the federal government and 3 top ETM customers, revenue was down 3.3% on an underlying basis, which was improved 60 basis points versus last quarter. As a reminder, a brief update regarding these impacts. Federal government demand largely stabilized in Q3 of last year with a slight sequential increase this quarter mainly from the government shutdown and seasonal impacts in Q4. For the 3 top ETM customers, 1 stabilized at the current reduced demand levels beginning in Q3, 1 fully ran off in Q3, and the largest 1 remains one of our top customers and has stabilized across Q4 and Q1. At the segment level, underlying ETM declined 0.4% versus the prior year quarter, which is measurably improved versus last quarter and exceeded our expectations. Each Talent Solutions specialty grew versus the prior year quarter. In staffing, we saw a net underlying decline of just 1.2% in the quarter and year-over-year growth across February and March. Overall underlying ETM revenue has been relatively stable across the last 5 quarters. Education decreased 4.8% year-over-year in the quarter, reflecting the prior year delayed new contract decisions, elevated weather-related school closures, and overall reduced demand in key markets due to enrollment declines. We expect education to deliver sequential year-over-year improvement throughout the remainder of 2026 and a return to growth in the second half of the year as a result of new business wins, successfully defending several key renewals and continued penetration of our therapy offering into new and existing clients. SET's underlying revenue declined 6% in the quarter led primarily by near-term demand pressure within the technology specialty. Consistent with ETM and education, we are confident we will see sequential year-over-year improvement each quarter in 2026 with science, engineering and technology contributing most strongly in Q2. Reported gross profit was $196.4 million, down 17% versus the prior year quarter reflecting the lower revenue volume, along with employee-related costs and business mix changes. The gross profit rate was 18.9%, a decrease of 140 basis points compared to the prior year quarter. Approximately 50 basis points of the decline is timing related, which we expect to normalize over the course of the year. Our overall gross profit rate improved 10 basis points relative to Q4 and the year-over-year decline improved similarly. Versus Q4, both ETM and SET saw improvement in their gross profit rates and year-over-year declines. While Education saw rate pressure in light of the revenue decline, cost timing and mix. We expect to see gross profit rate improvement overall and in each BU in Q2 and over the remainder of the year. We continue to make significant progress improving our SG&A expense profile with reported SG&A expenses of $199.3 million, a decrease of 11.7%. On an adjusted basis, SG&A expenses decreased 10.3% year-over-year, reflecting the continued momentum with our structural and volume-related cost optimization efforts. Over the last 3 quarters, the year-over-year decline has averaged over 10%. Additionally, core adjusted SG&A expenses, which exclude depreciation and amortization and incentives, have declined sequentially each quarter since Q1 of 2025. In the quarter, adjusted SG&A expenses decreased across all the segments as we continue to drive durable and sustainable efficiencies in our operating model, through technology enhancements and process efficiencies, including leveraging AI. We also continue seeing benefits from realignments within the ETM segment and integration of MRP and other acquisitions within SET. All of which are progressing well. For the year, we're projecting a net year-over-year decline of approximately $25 million in core SG&A expenses despite investments being made in technology to growth office in other areas. The structural and durable changes we are making will allow us to scale more efficiently as we pivot to growth, thus supporting our expected return to margin expansion in the second half of the year and beyond. Our reported loss per share was $0.17 for the quarter. On an adjusted basis, we delivered earnings per share of $0.03 compared to $0.39 in the prior year. For our adjusted results, in connection with our various efforts. We recognized $9.2 million of charges in the quarter. Integration, technology modernization, organizational realignment and restructuring drove $5.2 million of the charges. The balance is related to costs associated with our controlling shareholder change, executive transitions and initial steps we have taken in our real estate rationalization efforts. We expect to continue incurring various charges throughout 2026 and as we progress on our technology modernization journey, reduce our fixed cost structure, including real estate costs and expand upon our various optimization efforts. Adjusted EBITDA was $15.8 million, with an adjusted EBITDA margin of 1.5%, which was down 150 basis points versus the prior year quarter and in line with our expectations. The year-over-year decline improved 20 basis points relative to Q4. The revenue and gross profit declines drove the decrease versus the prior year with the significant SG&A reductions partially offsetting. At a segment level, similar to the gross profit rate, both ETM and SET improved their margins and year-over-year performance versus Q4, while Education saw pressure in light of the revenue and gross profit declines. We expect each BU to show sequential improvement in their adjusted SG&A margins in Q2 and on a year-over-year basis as we progress through the year. Moving to the balance sheet and cash flow. We utilized $25.4 million of cash from operations this quarter due to the timing of working capital requirements. Total available liquidity as of the end of the quarter was $252 million, comprising $26 million in cash and $226 million available on our credit facilities, providing us with ample capital allocation flexibility. Total borrowings of $130.5 million increased versus the prior year-end, reflecting the working capital needs during the quarter. Our debt-to-EBITDA leverage remained near 1 at the end of the fiscal quarter. During Q1, we maintained our quarterly dividend of $0.075 per share. We remain confident in Kelly's strategy and cash flow generation capabilities and are committed to opportunistically deploying capital in pursuit of attractive returns for shareholders. As we turn to the outlook for the remainder of 2026, our expectations are unchanged relative to the initial view we established in February. Our expectations assume no material change in the macroeconomic or industry dynamics in the coming quarters. For Q2, we expect to show year-over-year improvement relative to Q1 with an overall revenue decline of 7% to 9%, which includes at least 100 basis points of improvement in the underlying decline. For adjusted EBITDA margin, we expect at least 2.5% representing at least 100 basis points improvement relative to Q1 and a significant reduction in the year-over-year decline relative to the past 2 quarters. As we progress through the balance of the year, assuming no new material impacts, we expect to see relative improvement in our year-over-year performance, each successive quarter for both revenue and adjusted EBITDA margin. That should translate to modest revenue growth in the second half of the year in a roughly mid-single-digit decline on a full year basis. For adjusted EBITDA margin, we expect to see measurable year-over-year margin expansion in the second half of the year and a modest increase on a full year basis. We are excited about the momentum we are building and the opportunities that lie ahead in 2026. I'm grateful to all the Kelly team members for their unwavering commitment and resilience as we position the company for growth and enhance profitability over the long-term. I'll now turn the call back to Chris for his closing remarks. Chris Layden: Thank you, Troy. As we look ahead, we remain firmly committed to executing on the priorities we outlined in February. Rooted in the strategic pillars I shared shortly after joining Kelly, these priorities will continue to guide our actions and progress on the pathway toward an inflection point in our results. Growth remains our top priority. The growth office is taking shape and beginning to enhance how we go to market as 1 Kelly enterprise. With the leadership transition in SET complete and organic growth drivers gaining traction in each of our businesses. We have a clear path to improve top line performance as we move through the year. The strength of our pipeline and the steady stream of new wins coming online reinforce our confidence that our go-to-market approach is working, that our ability to convert opportunities is accelerating. On efficiency, we'll continue to align resources with demand while reengineering our cost base to drive structural efficiencies and enhance profitability. Our technology modernization initiative remains on track and our enterprise AI strategy continues to unlock productivity across the business. In our culture, the energy and alignment our team demonstrated at our recent Impact Leadership Summit reinforce what I've known since I joined Kelly. Our people are deeply committed to the success of our company, our clients and the talent we place. We'll continue to build on the momentum with an emphasis on customer centricity, visibility and accountability across everything that we do. We remain on track to deliver our commitments and achieve revenue growth and margin expansion in the second half of the year. There's much work ahead, but I'm confident in our plan, our team and our ability to execute. We look forward to capitalizing on the positive momentum we're building together and unlocking Kelly's full potential for the benefit of all of our stakeholders. Operator, you can now open the call to questions. Operator: [Operator Instructions] Our first question is going to come from the line of Marc Riddick with Sidoti. Marc Riddick: So I wanted to start with some of the cost improvements that you've been working on? And maybe you could talk a little bit about the -- the -- I believe it was $25 million in core SG&A reduction is expected. Maybe you could sort of touch a little bit about some of those efforts and maybe the timing that we might expect there? Chris Layden: Yes. Thanks, Marc. Look, I'm really pleased with the progress that you're seeing as we really look at driving expense reductions across the enterprise. This is one of the priorities that I outlined right as I joined Kelly, our focus on reengineering our cost base, matching resources with demand. And you're seeing us come through and really delivering on that commitment in the first quarter through that disciplined execution. We saw that in the 1.5% margin -- EBITDA margin as well, which was in line with our expectations. It improved 20 basis points year-over-year in comparison to our Q4 trajectory. And as you've heard us talk about and Troy reemphasize, we're going to continue to see that sequential incremental improvement on the EBITDA margin side as we go throughout the rest of the year. Maybe ask Troy, if you want to comment any further on the specific $25 million impact for the rest of the year. Troy Anderson: Yes, sure. Thanks for the question, Marc. We began taking actions, as Chris noted, throughout last year and really accelerated in the latter part of the year in response to some of the elevated revenue pressure but also just with the integration efforts that really with the acquisitions, the cutover to the new technology platform, where we consolidated all the acquisitions in December. So it's really the manifestation of some of the realignments that we did last year and then the integration efforts as we progress into this year and just continue looking at both durable structural changes as well as volume-related changes so that as we pivot to growth, we can scale much more efficiently and really drive that EBITDA margin expansion. Marc Riddick: Great. And then actually, I guess, maybe picking up on that part of the commentary there. Can you talk a little bit about the -- I guess, the timing and milestones that you're looking for, for the remainder of the year on the technology activity as well as, I guess, maybe timing of ERP that we might see going forward? Troy Anderson: Yes. We have another phase expected in the beginning of the fourth quarter of this year, where we'll migrate the platform now to sort of a broader enterprise platform. Right now, again, we have the acquisitions, MRP and the prior SET acquisitions all consolidated on the platform. But that was designed really for those smaller entities. And so we've made some foundational changes in the platform that, then we'll migrate all of those onto that, that now, we'll call it the enterprise platform. We're migrating our enterprise human capital management. So all of our FTEs will now be on the platform and we have some other smaller changes, migrating some customers on a prototype sample basis, just to go through some of the Kelly platform migrations and then -- and we're going to continue working on some of our solutions billing capabilities. So that's some of the more complex, right, non-staffing related capabilities and then work that we're going to be doing to bring the majority of the SET business onto the platform early in '27. Chris Layden: Yes. And Marc, just maybe 1 thing to add on our CRM. The most important near-term milestone in the second quarter which is on track, is the deployment of our HubSpot CRM. It's the consolidation of our CRMs across the business units. We're going to migrate all of our commercial sellers onto the CRM by mid-year. And now having the growth office and Pat's leadership to be able to go and drive that, it gives us the enterprise-wide pipeline visibility and allows us to go and do some of the go-to-market and growth objectives we've been outlining since we started. Marc Riddick: That's very helpful. And then last one for me, just maybe touch a little bit on the demand drivers that you're seeing from customers, particularly the technology demands. Maybe you could talk a little bit about sort of how that sort of pace through the quarter and maybe just what you're seeing overall as far as whether the data center impacts, AI impacts, things like that, what you're seeing now versus maybe the beginning of the year and sort of how that's been progressing? Chris Layden: Yes, sure. I mean, first, some of the near-term pressures you're seeing do reflect some difficulty in our year-over-year comps particularly within SET, as we look at 2025, which is why, as we've talked about across the business, we continue to make sure we've got resources aligned with demand and now under Joel's leadership, we'll be very focused on getting back to market growth. Now that being said, we're actually seeing some encouraging signals, including a net positive consultant count improvement in March. As we exited the quarter, we also are seeing that April is tracking quite similarly. So some positive momentum there. And we also saw some sequential improvement in some of the businesses that we mentioned in our prepared remarks, we're really pleased with the progress we're making in the telecom space. That is being driven by outsized demand in the data center space that we have differentiated capability and we are going to continue to see that demand play out in the market where we have customers across the supply chain who need total talent management solution and the technical solution to support the investment that's happening in the United States and around the world. Troy Anderson: Yes. Marc, this is Troy. I would just add, across the business, we saw improvement as we progressed through the quarter. Again, in Education, we had some weather-related impact that was largely concentrated in January. That was maybe half the decline in the quarter specific to that. And in an ETM, I commented in the prepared remarks about pivoting to growth in the underlying staffing business as we exited the quarter. So we feel good about the trends heading into Q2, which is reflected in the expectation there where we'll see our call for down 7% to 9% overall and at least 100 basis points improvement in the underlying decline. Operator: [Operator Instructions]. Our next question will come from the line of Kartik Mehta with Northcoast Research. Kartik Mehta: Maybe taking a bigger picture look at Kelly today versus prior downturns. Can you just discuss maybe how you think structurally, the company is different today than it was before? Maybe in terms of customer mix, customer relationships? And obviously, in terms of how the company has changed in terms of business mix as you've gone more into SET and higher-margin businesses? Chris Layden: Yes. Sure, Kartik. Good to have you with us. I guess, as I step back and think a little bit about what differentiates Kelly in the market and maybe how that's evolved, all of the steps we took over the last few years to get scale and to get capability in higher specialized areas were all the right steps to take. We have the scale and the breadth of capability to go and compete now in all of the end segments that we're in. We didn't have that a few years ago in areas like technology, as an example, in that we do. We also have a much more robust RPO offering through the -- through some of the inorganic activity with our acquisition of Sevenstep. And we have a leading total talent management solution with the combination of the strength of our MSP offering and RPO offering together. As I think though about what needs to differentiate, Kelly, going forward, it really is, it has to be our focus on our customer and making sure that we're bringing all of that capability to our customer. And we're doing that in large part through better execution, the operating framework that we outlined right away focusing on not only our go-to-market, but also the way that we show up more holistically as an enterprise, Kelly enterprise to all of our customers. The establishment in the first quarter of the growth office was the next step in that journey, driving the operating framework within account management, within how we sell and within how we deliver across these large customers is really important. That is an area of focus that we're going to continue to come back. And we're seeing the roots of that already playing out with some large customer wins, and that focus is going to continue to be what will differentiate Kelly, for many years to come. Kartik Mehta: Maybe Troy, just on that point, you've done a good job of taking cost out. The company seems more efficient. And I'm wondering how you think about the incremental earnings power when we get back to kind of -- to a growth in this industry? Troy Anderson: Yes. It's a good question. And that cost reduction from the earlier question, and I noted this in the prepared remarks, was net even of some investments that we're making in the growth office and some other areas. So you'll see some of that cost moderate -- declines moderate as we go through the year and pivot to growth, but we'll be able to scale more efficiently. Look, we're expecting to achieve our expectations for the year. Margins would be back above 3% in the back half of the year, which is where we were in the last half of '24 and the first half '25. And then, of course, as we continue to grow more, we would expect to expand further from there in a very efficient and effective way. Operator: [Operator Instructions] Our next question comes from the line of Kevin Steinke with Barrington Research Associates. Kevin Steinke: Great. I wanted to just follow up on the discussion about the core SG&A expenses to make sure I'm understanding correctly, I guess with core SG&A, I believe you're equating that with the adjusted SG&A. And if it's down $25 million year-over-year in 2026, if I'm doing my math correctly, it appears that the adjusted SG&A expense on a quarterly basis will kind of flatten out for the rest of the year at about that $192 million level that you saw in the first quarter. Is that -- am I thinking about that correctly? Troy Anderson: Yes. So that's right, that's total -- yes, so $192 million, yes, roughly flatten out. And the reason why I went to this core, which is not something that we've talked about really previously was just, we had a lot of movement with incentives last year with the challenging environment we were operating in. Of course, there was a reduction to performance incentives throughout the year. And of course, this year, we're expecting to perform measurably better and we would expect to return to some of those incentives. So if you strip that out and really just focus on that underlying wages and facilities and some of those things that are more stable and some of those things that we're focused on from the durable and structural reduction perspective, that should flatten out as we progress through the year and we get the year-over-year benefit of the actions taken both last year and this year. And again, that's net of investments that we'll be making as we pivot to growth. Kevin Steinke: Okay. Right. How material is the change in incentive comp that you're expecting in 2026 versus 2025? Troy Anderson: It's probably $20 million to $25 million swing in total SG&A between the years, something in that ballpark. Again, it will be subject to ultimate performance. And of course, each business unit has different -- has incentives tied to their specific performance so you can get some variability in that just based on how individual business units perform. Kevin Steinke: Right. Okay. That makes sense. Yes. So just following up on that, then I think you commented that you expect gross margin improvement throughout the year, I believe. And what would be driving that? And it sounds like a lot of the adjusted EBITDA margin improvement that you're expecting would kind of hinge on the improved gross margins. Is that correct? Troy Anderson: Yes, that's generally correct. I mean, again, we'll continue driving -- I mean, with the -- as we pivot to growth, we'll get some lift there on a relatively, again, flattish expense base on a run rate basis and then with the gross margin improvement. A little bit of timing, I commented on that, just how some of the expenses we're seeing, how they'll play out this year versus how they played out last year particularly in the employee-related expenses, which we saw some pressure on exiting last year. And then we were again up 10 basis points quarter-over-quarter on gross margin despite some of that timing pressure. And then as we benefit from mix, again, as we grow, pivot to growth and some of the areas that we're expecting growth are the higher-margin areas that will benefit us as we get into the back half of the year. We are also, by the way, again, back to an earlier comment about just growth and where we're seeing opportunities. We are seeing a little bit of movement on perm fees. I mean it's still 1% of revenue, but we did see a little bit of benefit from that and particularly in SET in the first quarter. And of course, that helps gross margins and ultimately EBITDA as well. Kevin Steinke: Okay. Yes, that's helpful. Just a couple more. You called out lower student enrollment in the Education segment. Just wondering how meaningful that is or how broad based that is as you look across your various school district clients? Chris Layden: Yes. Thanks. Well, we -- first, I mean we remain really confident in this Education business. It has really significant differentiation. We're #1 in the market. And we continue to see really historic fill rates across the U.S. where we're serving 9,000 schools. Some of the impact, the convergence of factors that really came together are temporary in nature. And so we don't see these as structural as we mentioned in the prepared remarks, there were some weather-related closures. We also saw some budget constraints stemming from enrollment declines. And where that had the biggest impact for us was in Florida, we serve some of the largest school districts in the United States, some larger school districts in Florida. And that concentration was a onetime hit and that demand has now stabilized. And so where we're focused is the 70% of the market that is still not benefiting from an outsourced K-12 substitute management relationship with Kelly. And we are selling around the country. We're very -- as we hinted that, we feel very good about some of the large renewals that have been opened this year, and we're going to continue to sell more districts around the United States. And we're also going to continue focus on bringing in more therapy, more therapy services across that K-12 footprint, not only in Florida but around the United States. So we feel really good about where that business -- what the opportunity is in the Education business and where that business is going to be as we go throughout the rest of the year. Kevin Steinke: Okay. That's helpful commentary. And just lastly, I want to ask about the organic growth drivers. You mentioned organic growth drivers gaining traction. If you could provide a little more color on that? And then related to that. You mentioned the strength of the pipeline. And can you maybe talk about how broad-based that strength is across your various businesses? Chris Layden: Yes, sure. So first, the growth office has been moving quickly. And it's a foundational quarter for us as we begin to put in this integrated commercial operating framework. There is some work we've been doing aligning incentives, obviously, the commercial team, some of the account management teams, putting more rigor around our pipeline management and account planning is all in motion. We will move, as I mentioned earlier, all of our commercial teams to this new CRM platform. And that will give us the visibility that we need to continue to drive the business forward and make sure we've got resources in the right places, not only to go close deals, but also to go and make sure that we're delivering and providing excellent service. The strength in the pipeline continues -- we continue to see a lot of demand for customers looking for total talent management solutions, the robustness of our MSP pipeline is very strong right now. You saw that in the big oil and gas win we had in the quarter. And interestingly, that was not a price-based win. This was a differentiation around our tech stack, our reach and the differentiation of our core -- of our core offering. And we continue to see more and more large global customers coming to Kelly for those total talent management solutions. We hinted earlier our telecom and engineering pipelines continue to be very strong in SET, and we're going to likely continue to see that. We have an opportunity to continue to drive more pipe in our technology business. In our K-12 staffing pipeline continues to be very strong for net new -- net new school districts, and we've seen a nice jump in the amount of therapy opportunities that we're seeing tied to some of our larger school districts. So at a high level, that's how I'd characterize some of the momentum that we're seeing, and Pat in the growth office are going to continue to drive as we go through the remainder of the year. Kevin Steinke: Okay. That's good to hear. Thank you for the comments. Chris Layden: Thanks Kevin. Operator: [Operator Instructions] Our next question is going to come from the line of Joe Gomes with NOBLE Capital. Unknown Analyst: This is George [ Pres. ] I'm filling in for Joe Gomes this morning. So first question I have for you. What have the Hunt companies brought to the table so far? Chris Layden: Yes. Great. Well, as you would have seen a few weeks ago in our filing, we -- later today, we'll be in our annual meeting. The Board has nominated 11 individuals for election to the Board, 3 new members will be joining. Really excited about the extensive experience that the Board brings. Some of our new Board members are bringing to really help with our strategic execution, our long-term value creation, and I'm personally really excited to work with the new Board. As the Hunt's have shared, they continue to express their support of our management team, the strategic direction that we've outlined. And there's been no change, right, to our business strategy, our client relationships, our operational approach, and we're all focused on driving shareholder value. And that's -- and we're excited to bring in this new slate of directors later today. Unknown Analyst: All right. Great. And the early days of your new Chief Growth Officer, Pat McCall, how have they been? Chris Layden: You know really well. And we talked a little bit about this in terms of setting some of the foundation for the commercial operating framework. There's a lot of opportunity for Kelly to show up as one global enterprise. 1 Kelly enterprise to all of our large customers. And so we're putting in the foundation right now, stronger account planning, more rigorous pipeline management, all of the things that will contribute to our growth, and we're really excited about what this will mean to our future. Operator: Thank you. And I'm showing no further questions. And I would like to hand the conference back over to Chris Layden for closing remarks. Chris Layden: Great. Thank you all. We'll see you next quarter. Operator: This concludes today's teleconference. Thank you for participating, and you may now disconnect. Everyone, have a great day.