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Operator: Good morning, and welcome to the Xeris Biopharma Q1 '26 Earnings Conference Call. [Operator Instructions] I will now pass the call over to Allison Wey for opening remarks. Please go ahead. Allison Wey: Thank you, Sarah. Good morning, everyone, and welcome to Xeris' First Quarter Financial Results Conference Call. Earlier this morning, we issued a press release detailing our first quarter 2026 financial and operating results. This press release can be found on our website. Joining me today is John Shannon, our Chief Executive Officer; and Steve Pieper, our Chief Financial Officer. Following our prepared remarks, we will open the call for your questions. Before we begin, I'd like to remind you that today's discussion will include forward-looking statements regarding Xeris' future expectations, plans, strategies, objectives and financial performance. These forward-looking statements are based on management's current assumptions and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied. For a discussion of these risks and uncertainties, please refer to the risk factors described in our filings with the SEC. Any forward-looking statements made on this call speak only as of today's date. And except as required by law, the company undertakes no obligation to update or revise these statements. In addition, during today's call, we will reference certain financial measures that are represented on a non-GAAP basis. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is included in our press release. With that, I will now turn the call over to John for his opening remarks. John Shannon: Thank you, and good morning, everyone. We are off to an amazing start in 2026. First quarter net product revenue grew an impressive 43% to more than $82 million, driven by Recorlev, which nearly doubled with 95% growth, while Keveyis increased 4% and Gvoke remained flat year-over-year. Given the strong start to the year and the positive demand trends we are seeing overall, especially for Recorlev, we are raising the bottom end of our revenue guidance. We now expect full year revenue of $380 million to $390 million, representing more than 30% revenue growth. Turning now to each product, starting with Recorlev. As I said, Recorlev revenue nearly doubled to $50 million, representing a $24 million increase compared to last year. This was driven by both record referrals and record new patient starts. Importantly, coming out of the typical Q1 payer resets, we saw a significant increase in new patients, especially in March, which is fueling our optimism for another outstanding year. I'm also pleased to share that our commercial expansion was completed exactly as planned, significantly expanding our sales force and patient support teams. This enhanced infrastructure will allow us to increase both the quantity and quality of our interactions with health care providers and patients, driving even greater awareness of Recorlev's value proposition in treating hypercortisolemia and Cushing's syndrome. We anticipate the impact of this commercial expansion to begin contributing incrementally in the second half of this year and continue to deliver sustained benefits well into the future. The trajectory we are seeing reinforces our conviction that Recorlev is well positioned to realize its full commercial potential. It remains solidly on path for significant continued growth and is well on its way to achieving $1 billion in revenue by 2035. Turning to Gvoke. Gvoke generated revenue of nearly $21 million in the first quarter. While we anticipated some seasonal headwinds from typical payer resets, Gvoke's performance was slightly below our internal expectations. This was primarily due to Medicare policy and plan changes, which impacted patients' coverage, deductibles and most importantly, out-of-pocket costs, resulting in a reduction in the number of patients getting their prescriptions filled. We expect Gvoke to recover from its first quarter challenges, and it's already beginning to see an increase in prescription demand. Importantly, Gvoke's growth potential remains well intact and untapped since the vast majority of the 15 million patients who should have a ready-to-use glucagon rescue therapy still do not have one. Finally, Keveyis. Keveyis once again delivered exceptional performance in the first quarter with revenue of approximately $12 million, representing a 4% increase year-over-year. This is the second consecutive quarter of year-over-year growth and demonstrates the remarkable brand strength and durability of Keveyis in this ultra-rare market. This performance not only highlights the inherent clinical value of Keveyis itself, but also the importance of the comprehensive patient-centered support infrastructure we have built to serve individuals living with primary periodic paralysis. Turning to our pipeline. XP-8121 is progressing well, and we are on track to begin Phase III later this year. Millions of hypothyroid patients still struggle to achieve stable hormone levels due to GI absorption issues, and XP-81 is designed to address this important unmet medical need. XP-8121 will also enable us to leverage a tremendous amount of existing capability. First, it requires our XeriSol formulation technology, the same technology inside of Gvoke. It will also leverage our drug device combination expertise, our deep connections with the endocrinology community and our extensive commercial infrastructure. From a medical communication standpoint, XP-8121 is receiving significant attention this year as the medical conference season gets underway. This quarter alone, we're presenting 4 separate abstracts, each carefully designed to advance the understanding of hypothyroidism management while highlighting the persistent clinical challenges that prevent many patients from achieving and maintaining stable control. Building on this momentum, we'll plan to host a comprehensive program review later this fall, where we will share additional details of our Phase III trial design. Before I turn the call over to Steve, I want to briefly recap the strong progress we have made against the 3 priorities I outlined in March. First, we remain clearly focused on driving rapid revenue growth. Our first quarter performance and upward revised full year outlook gives us tremendous confidence that our business is on track. Second, we remain focused on advancing our pipeline with key deliverables on track and XP-8121's Phase III start anticipated later this year. And third, we remain committed to disciplined financial management and to maintaining a strong balance sheet, which is driving much of the outstanding performance that Steve will highlight in more detail. With that, I'll turn the call over to Steve. Steven Pieper: Good morning, everyone. As John highlighted, we are off to a strong start in 2026. Our results reflect solid execution and growing confidence in the performance of our business. Total revenue reached $83.1 million in the first quarter, representing growth of 38% year-over-year. This performance demonstrates the strength of our commercial execution and the traction Recorlev continues to generate as we drive rapid and sustained revenue growth. Net product revenue grew 43% year-over-year to $82.5 million, an increase of nearly $25 million compared to Q1 of last year. Recorlev generated net revenue of $49.8 million, representing growth of 95% year-over-year, an increase of $24.2 million, reflecting continued expansion of our patient base with momentum gaining in March and continuing into April. Gvoke generated net revenue of $20.8 million in the first quarter, flat year-over-year with soft prescription demand partially offset by favorable net pricing. As John mentioned, Gvoke's soft start to the year reflects lower total prescription volume, which was primarily driven by a decline in the Medicare channel, resulting from higher-than-normal out-of-pocket costs and a reduction in patients getting their prescriptions filled. Even with this soft start, we still expect modest growth from Gvoke this year, and we are confident it will return to being a steady growth contributor for years to come. Keveyis delivered strong financial results in the first quarter, generating net revenue of $11.9 million. The year-over-year growth of 4% reflects modest improvements in both net pricing and the number of patients on therapy compared to the first quarter of 2025. Turning to gross margin. Our gross margin for the first quarter was 87%, an increase of 2% versus last year. This improvement was primarily driven by favorable product mix dynamics. R&D expenses totaled $8.8 million in the first quarter, representing an increase of 13% compared to the prior year period. This increase reflects higher personnel costs related to incremental investments in our XP-8121 program as we advance towards Phase III initiation later this year. SG&A expenses were $53.1 million for the quarter, reflecting growth of 21% year-over-year. This increase was primarily related to our strategic commercial expansion activities associated with the nearly doubling of our Recorlev commercial team. These incremental investments in both R&D and our commercial organization represent our disciplined approach to scaling the organization in alignment with our growth trajectory, ensuring we have the infrastructure necessary to maximize the potential of both our current commercial portfolio and our Phase III-ready asset. Adjusted EBITDA for the first quarter was $15.1 million, an improvement of $10.7 million versus last year, demonstrating our continued commitment to profitable growth. Underscoring the progress we have made in our profitability journey, we delivered net income of $2.2 million in the first quarter, a significant improvement of more than $11 million compared to last year. Together, these metrics reflect the operating leverage we are generating as we scale our business and validate our disciplined approach to balancing growth investments with financial performance. Moving to our revised 2026 guidance and outlook. As John mentioned earlier, the overall growth of our diversified portfolio is ahead of our initial expectations and the strong performance of both Recorlev and Keveyis are more than offsetting early softness from Gvoke. We expect our overall strong performance to continue as we move throughout the balance of 2026. As such, we are raising the low end of our total revenue guidance to a range of $380 million to $390 million compared to our prior range of $375 million to $390 million. This upward revision reflects the outstanding results we delivered in the first quarter and our confidence that this momentum will continue throughout the year, especially as incremental contributions from Recorlev's expanded commercial infrastructure begin to yield more meaningful results in the second half of the year. On R&D, we continue to expect an increase of approximately $25 million year-over-year, driven by the planned Phase III initiation of XP-8121 later this year, a deliberate and disciplined investment to unlock what we believe is a $1 billion to $3 billion peak sales opportunity. On SG&A, we continue to assume an increase of approximately $45 million, reflecting primarily the full year cost of the Recorlev commercial expansion. Finally, we remain committed to delivering positive adjusted EBITDA in 2026, growing on an absolute dollar basis versus 2025. Our financial story this quarter is one of solid execution and confidence. We are driving exceptional top line growth, improving already strong gross margins and investing deliberately in the commercial and pipeline initiatives that will grow Xeris for years to come. With that, I will now hand the call over to the operator for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Chase Knickerbocker with Craig-Hallum. Chase Knickerbocker: Congrats on a nice quarter here. Can you maybe just help us understand a little bit more on the Gvoke dynamics? Were there any actual formulary changes in the quarter? Or are these strictly kind of redesign dynamics? And then if it's the latter, can you just give us some thoughts on why you guys might be getting a little bit more impacted than some other assets, particularly your competitor in the ready-to-use space? John Shannon: Thanks, Chase. So a couple of things there. One is there's always payer change resets that happen in the first quarter. There's probably a couple of small changes that are in there, nothing really big. It's primarily the Medicare resets. And as I said, that really impacted deductibles and mostly out-of-pocket costs in -- especially in the first quarter for Gvoke. And we saw that pretty standard in the first part of the quarter, and then it started to creep back up a little bit in March, but not quite as much as we would expect, and we can see that it was primarily in Medicare. So we're confident we know where it's at and what's going on there. And then in terms of did it affect BAQSIMI? In Medicare, yes, it did. We can see that in the data. But overall, BAQSIMI probably has a very much -- a very different split of their channel mix than we do. We are -- we've always done very well in the Medicare space, and I think this hit us particularly harder than our competitors. Chase Knickerbocker: And just a follow-up there and then one on Recorlev. So just on another one there on -- with the redesign dynamics, I mean, would you expect a pretty significant recovery in the second half then as some of these beneficiaries hit catastrophic? And then second, just on Recorlev, can you help us understand if you're seeing any benefit yet from the commercial team expansion? Maybe discuss the top of the funnel a little bit if there are some early indicators on some benefit from those new reps. John Shannon: Yes. So back to Gvoke, yes, we expect it to recover. We feel good about that. And there's 15 million people out there, again, that don't have a ready-to-use rescue med, and we need to get it in their hands. So there's plenty of opportunity. We'll continue to drive that, and we feel good about the long-term potential of Gvoke. With Recorlev, yes, I mean, it's -- we saw an unbelievable start to the quarter and driven by record new starts, record referrals at the top of the funnel, as you indicated. But understand this, we don't really think we'll see the real kind of drive and expansion until later in the year. We know from prior experience, this takes 6 to 9 months for them to really fully hit stride. And so that real push will come more in the back half of the year. Operator: Your next question comes from the line of Dennis Ding with Jefferies. Georgia Bank: This is Georgia Bank on the line for Dennis Ding. Two from me. One, despite some Q1 payer resets and any winter-related disruption, Recorlev showed strong sequential growth. Maybe you can help unpack what's driving that underlying momentum a little bit more and what you're seeing in terms of any recovery from seasonal dynamics as you move through March and April into May? And then given the raised low end of guidance, how much contribution from the January commercial expansion is already assumed in your outlook versus what still represents upside as the team ramps through the year? John Shannon: Let me start with kind of the payer resets. I think we saw typical resets, specifically around Recorlev. And then as March kicked in, we continue to grow. And that growth really comes into play with the market dynamics. There are still -- there's lots and lots of people with -- that are being tested and screened and diagnosed with hypercortisolemia. And we're in a perfect position now with our expanded field organization to capture more and more of those patients and get them on drug. So -- and we see that will continue to progress throughout the year. Steve, do you want to... Steven Pieper: Yes, I'll take the -- yes, I'll take the second question on the guidance. So I think based on our prepared remarks, Recorlev performed better than our initial expectations, and that's part of the reason why we raised the bottom end of our guidance. The contribution from the expanded commercial footprint was already embedded in our original guidance. And that's predicated on history, our experience with these expansions. So I think that's what's already assumed in our guidance of $380 million to $390 million. Operator: Your next question comes from the line of Brandon Folkes with H.C. Wainwright. Brandon Folkes: Congratulations on a very good quarter. Maybe just 2 for me. I'll switch gears a little bit. Can you just update us on your latest capital allocation thinking, especially as things track better than anticipated? And then secondly, can you just update us on the gating factors between now and starting the 8121 trial that needs to be done? Steven Pieper: Do you want to start with 8121? John Shannon: Yes. Why don't I start with 8121. As I said, we're on track. We're hitting our milestones this year. We're on track to start this trial by the start of the year. But what I've also said is that we're not going to start this trial until we have kind of the go-to-market commercial presentation ready. It's really important that we start this trial with the go-to-market presentation. So what we're doing now and what we've been doing over the last several months is really scaling up all of that, the device, the formulation, the commercial scale formulation and then putting those 2 things together before we put -- start the trial. So we're going to get all that stuff done prior, and we're on track to do that. And we'll stay on pace and we'll share more about that later this year as we kind of do a full kind of program review later in the fall. Steven Pieper: And then, Brandon, from a capital allocation perspective, yes, certainly, the performance of the business is driving towards a healthy and -- healthier balance sheet that gives us a lot of optionality with our business. I would say, first and foremost, we're focused on reinvesting in the business for growth. So that's kind of the primary lens by which we're deciding on where to invest our next dollar. And then obviously, we have options around what we can do with our balance sheet and our capital structure in terms of debt. That's always -- it's always an option for us. But I'd say primarily, we're focused on things that are going to drive additional growth. Operator: Your next question comes from the line of Jason Dorr with Oppenheimer. Jason Dorr: It's Jason on for Leland. Congrats on the quarter. To what degree is there appetite to expand the pipeline beyond 8121? And if there's appetite there, would that involve bringing in external innovation, something to tune for Recorlev? Or would that be more on the end of developing new molecules with the XeriSol, XeriJect technologies? John Shannon: Thanks, Jason. You just heard Steve talk about our flexibility around our capital and the fact that we're -- our performance is driving our ability to do more things. And we'll focus those things on growth. So things that can drive growth will be the areas we'll spend that capital on. And if that's future pipeline, yes, if it's external inorganic things, yes, especially if they fit in and allow us to leverage our capabilities, both from an R&D perspective as well as from a commercial perspective. So we're looking at all those things with an eye on growth, additional growth. Operator: Your next question comes from David Amsellem with Piper Sandler & Company. Alexandra von Riesemann: This is Alex von Riesemann on for David. So firstly, looking at Recorlev, can you help give us a better sense of what kinds of patients are getting the product? And how are you thinking about other subgroups of patients beyond uncontrolled hypertension and uncontrolled type 2 diabetes? And then secondly, regarding the expansion of the sales force, can you remind us how many reps you have in the field, how many doctors they're targeting and the audience breakdown? John Shannon: Thanks, Alex. Well, our patients are coming -- our patients are, I think, I've said this before, and they continue on the same path. About 60% of our patients are new to therapy, naive to drug. So most of them are first diagnosed and coming into Recorlev. And then the rest are coming from probably switches and from the various other products on the market. In terms of what your next question was around? Steven Pieper: Number of reps. John Shannon: Number of reps. Steven Pieper: And targets. John Shannon: Yes. I think we raised our targets from about 7,000, 8,000 to somewhere in the 12,000 range. So we probably added about 6,000 targets out there with the expansion. We're up to around 80 reps. And then we've also expanded our patient services, reimbursement services and capabilities around pharmacy. So all of those things support the revenue growth that we're seeing and are anticipating. I think you also asked another question around subgroups of patients. I think the thing to think about our patients are all of these patients have hypercortisolemia. They have cortisol levels at 1.8 above the upper limit of normal or even higher. And all of them have other comorbidities that really constitute Cushing's syndrome. And it's across the board. I think obviously, there's probably some skew towards diabetes, resistant diabetes, but it's really across the board, all the various comorbidities. So... Operator: We have reached the end of the Q&A session. I will now turn the call over to John Shannon for closing remarks. John Shannon: As you just heard, Q1 marked another strong quarter for Xeris and an exceptional start for the year, underscoring sustained commercial momentum and disciplined execution against our strategic priorities. We remain focused on delivering impressive revenue growth while continuing to operate with financial discipline. Our performance to date reinforces the confidence we have in achieving our updated full year guidance. We are encouraged by underlying demand trends and the meaningful progress our teams are making to expand market penetration and strengthen long-term value creation. Thank you for joining us today. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Hello, and thank you for standing by. Welcome to ATN International's First Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] I would now like to hand the conference call over to Michele Satrowsky, Senior Vice President and Head of Investor Relations and Treasury for ATN. You may now begin. Michele Satrowsky: Thank you, operator, and good morning, everyone. I'm joined today by Naji Khoury, ATN's new Chief Executive Officer; and Carlos Doglioli, ATN's Chief Financial Officer. This morning, we'll be reviewing our first quarter 2026 results and reiterating our 2026 outlook. As a reminder, we announced our 2026 first quarter results yesterday afternoon after the market closed. Investors can find the earnings release and conference call slide presentation on our Investor Relations website. Our earnings release and the presentation contain certain forward-looking statements concerning our current expectations, objectives and underlying assumptions regarding our future operations. These statements are subject to risks and uncertainties that could cause actual results to differ from those described. Also, in an effort to provide useful information for investors, our comments today include non-GAAP financial measures. For details on these measures and reconciliations to comparable GAAP measures and for further information regarding the factors that may affect our future operating results, please refer to our earnings release on our website at ir.atni.com or the 8-K filing provided to the SEC. I would now like to turn the call over to Naji. Naji Khoury: Thank you, Michele. Good morning, and thank you for joining us today. It's a pleasure to be here. It's only been a few weeks since I joined, and I'm very excited about the opportunity. While I will not be providing a financial operational update on today's call, that will be covered by Carlos. I would like to share some initial observations from my early days in the role. Over the past several weeks, I've had the chance to spend time with our team across many of our markets and throughout the organization. I am encouraged by what I've seen so far, and it's evident to me that the organization has a solid operating foundation in place and meaningful business momentum to build upon. At the same time, I see further opportunities to simplify the way we operate, which I believe will help us optimize performance across each of our business and segments. I can say that we will remain focused on disciplined capital allocation and ensuring that our investments are aligned with long-term value creation. Now as it relates to our intended use of our proceeds from the sale of the tower portfolio, we continue to expect to use approximately $70 million of the initial proceeds to repay the outstanding balance of our revolving credit facility. This will allow us to maintain liquidity and financing flexibility. Beyond that, we're still evaluating our options for the remaining proceeds, which will include potential investments in existing operations as well as advancing select growth opportunities. I expect to provide more detail as appropriate in the months ahead. Throughout my many years in the telecom industry, I've seen firsthand that consistent operational and strategic execution is essential to create long-term value. It's early in my assessment process, and I will have more to share with you as we translate these early observations into more concrete plan. I am excited about the opportunity to build on the progress our teams have delivered so far. With that, let me now turn it over to Carlos to walk through the quarter and discuss the financials in more detail. Carlos Doglioli: Thank you, Naji, and good morning, everyone. Before I get started, I would like to thank our teams across all our markets as well as the broader organization for their continued commitment to building value as reflected on our first quarter performance. Turning now to our first quarter 2026 results. Overall, we are pleased with how the year started. We saw improved performance during the quarter across both our U.S. and international segments, with year-over-year growth in total revenue, operating income and adjusted EBITDA. Our base of high-speed broadband homes passed expanded year-over-year, largely due to a fixed wireless deployment in Alaska during the second half of 2025, and our high-speed subscribers expanded year-over-year, driven by improved penetration in our Guyana fiber network. Our mobility subscriber base was up slightly versus last year as we saw growth in postpaid subscribers, which offset slight declines in our prepaid subscribers related to billing system conversions. Total revenue for the quarter was $182 million, up nearly 2% from a year ago. Adjusting our base revenues to exclude construction and the impact of the previously announced loss of the high-cost support subsidy, core telecom revenues grew 3% year-over-year. The improvement was driven primarily by increases in business, carrier services and other ancillary revenues, which helped offset the expected subsidy-related decline. We delivered operating income of $11.7 million for the quarter, up $9 million versus last year. This improvement was largely driven by revenue growth, our ongoing cost management efforts and reduced depreciation and amortization expense. We incurred approximately $2 million of restructuring and reorganization expenses in the first quarter and expect to incur an additional $1 million to $2 million of these costs in the second quarter. As we previously stated, these actions are embedded in our adjusted EBITDA outlook. On the bottom line, we reported a net loss attributable to ATN stockholders of $3 million or $0.29 per share, an improvement of approximately $6 million compared to last year's first quarter loss of $9 million or $0.69 per share. Across both our international and U.S. segments, we achieved growth in the quarter, bringing total adjusted EBITDA to $49 million for the quarter, up 10% year-over-year. Total adjusted EBITDA margin improved 200 basis points to 26.7% compared to the prior year period. This improvement reflects our continued focus on cost discipline and margin expansion across the business. Let me turn now to segment performance. In our International segment, we continue to see steady top line growth and margin expansion. Total revenue increased 2% to $96 million, and adjusted EBITDA was $34 million, up 6% from the same period last year. The revenue increase reflects growth in carrier services and other ancillary revenues, combined with increases in business and postpaid consumer mobility subscribers, which offset the decline in prepaid mobility subs. Fixed consumer revenue declined year-over-year due to the anticipated end of the government support in the USDA. On a like-to-like basis, revenues grew 3% when normalizing the impact of the support revenue. Higher revenue combined with lower costs drove the increase in adjusted EBITDA and expanded the adjusted EBITDA margin by 140 basis points from 34.3% to 35.7% for the first quarter. In our Domestic segment, revenue was $86 million, up about 2% year-over-year. Adjusted EBITDA increased 11% in the quarter to $19 million. Higher carrier services revenue resulting from steady progress in some of our key projects, combined with an increase in fixed business revenues more than offset the absence of construction revenues in the quarter. Normalizing the impact of construction revenues, revenues were up 3% year-over-year. Higher revenue levels, combined with cost discipline drove the increase in profitability. Now turning to the balance sheet and cash flow. We ended the quarter with a total of $123 million in cash, cash equivalents and restricted cash, up $6 million from year-end. Total debt was $570 million, up $5 million from the end of 2025. Our net debt ratio improved to 2.3x from 2.36x at the end of 2025, benefiting from higher adjusted EBITDA. Approximately 3/4 of our outstanding debt sits at the subsidiary level and is nonrecourse to ATN parent. Net cash from operating activities decreased by approximately $6 million compared to Q1 last year, primarily driven by higher working capital requirements related to the timing of certain government program payments. First quarter capital expenditures were flat at $21 million versus the same period last year. Reimbursable CapEx spend declined to $14 million versus $22 million last year. It's worth noting that we manage our capital expenditures on an annual basis, and we expect spending to remain in line with our guided range for 2026. Turning now to our outlook for 2026. As a reminder, in February, we announced that our Comnet subsidiaries entered into an agreement to sell a portfolio of 214 towers and related operations in the Southwestern U.S. for up to $297 million. We remain on track for an initial closing in the second quarter with expected gross cash proceeds in the same range of $250 million to $270 million as initially communicated. Additional closings totaling $27 million to $47 million are anticipated over the following 12 months tied to construction and operational milestones. Excluding any impact from the tower transaction, we expect full year 2026 adjusted EBITDA to increase modestly from 2025 levels in the range of $190 million to $200 million. Following the initial tower sale close in the second quarter, we would expect a reduction in annual adjusted EBITDA of approximately $6 million to $8 million. We plan to reassess and update as appropriate, the 2026 full year outlook after the initial closing. We also expect capital expenditures net of reimbursable spending to remain in the range of $105 million to $115 million for the year. Overall, we experienced momentum and saw progress in the first quarter. Looking ahead, our financial priorities remain the same: improving margins, expanding cash flow generation and maintaining a healthy balance sheet. We're encouraged by our recent performance, and our 2026 outlook reflects the commitment towards those goals. With that, I'll turn the call back to Naji for closing comments before we open it up for questions. Naji Khoury: Thank you, Carlos. As you've heard, we started the year on a good note. And as stated at the beginning of the call, I am encouraged by the strength of our teams, the solid foundation across the business and the revenue and profitability gains in the quarter. I see clear opportunities to simplify how we operate, sharpen execution and continue to ensure disciplined capital allocation. I am confident our team will deliver on our priorities. My focus will be to translate these observations into concrete actions that support long-term value creation. With that, we'll now open the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Greg Burns of Sidoti. Gregory Burns: Just in regards to your disclosures, why did you stop disclosing total broadband homes passed and subscribers? Carlos Doglioli: This is Carlos. Yes, we felt that it included a number of the legacy products that we were actively decommissioning. So we thought that kind of like focusing on the high-speed subs, which is where we're putting all the efforts and investment was more appropriate. Gregory Burns: Okay. And then in terms of monetization of all the investment you've made over the last couple of years in your network, what do you think has been the biggest bottleneck in terms of driving faster growth or adoption in some of your markets? Has it been like increased competition, has it been pricing pressure? Like why haven't you've been able to drive that kind of the stronger subscriber growth now that you've kind of moved past the investment phase and we're in the monetization phase, why hasn't that monetization been stronger? Carlos Doglioli: Yes. So look, we believe that there's been a good amount of monetization, Greg. When you look at the revenue trends, we've seen growth year-over-year. Certainly, there's been additional competition, especially on the mobility side of things. But we believe that things are tracking in the right direction. I don't know, Naji, if you want to add any comments. Naji Khoury: Greg, I think also we have to focus on migration from subscribers in our copper network as well. So there's a bit of execution on the ground, but everything indicates that we're heading in the right direction. So at this stage, I'm not worried about our ability to add subscribers to fiber network. Gregory Burns: Okay. And then any update around BEAD or other government subsidy programs, maybe the pipeline of opportunities there or the timing on awards that you've won, the timing of like build and monetization of the awards you've already won? Carlos Doglioli: Yes. I think we're working through some of the programs that we already had and that we talked about in previous calls, which are in the range of a couple of hundred million bucks. In addition to that, then we have the provisional awards of BEAD that are over -- around $140 million in total between the Southwest and Alaska, and we're very excited. We believe that those are good areas that we were awarded and that they will give us access to around 10,000 or so homes and obviously, whatever we're able to access on our way to some of those locations. So we're excited about that. Gregory Burns: Does your full year guidance for this year contemplate, I guess, the beginning of revenue monetization of some of these previous programs you've been awarded? And would BEAD be more of like a '27, '28 incremental opportunity? Carlos Doglioli: Yes. So BEAD is going to be more like the next -- the coming years. It's not going to have any significant impact or impact on 2026. We -- there's still a process to be completed before that gets going. So we'll see that in the future years. Operator: This concludes the question-and-answer session. I would now like to turn it back to Naji Khoury, Chief Executive Officer, for closing remarks. Naji Khoury: Thank you again for joining us today and for your questions. Our team looks forward to continuing the dialogue through upcoming conferences and in one-on-one meetings and updating you on our progress as we move through 2026. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Eric Boyer: Good morning, and thank you for joining Bentley Systems Q1 2026 results. I'm Eric Boyer, Bentley's Investor Relations Officer. On the webcast today, we have Bentley Systems' Executive Chair, Greg Bentley; Chief Executive Officer, Nicholas Cumins; and Chief Financial Officer, Werner Andre. This webcast includes forward-looking statements made as of May 7, 2026, regarding the future results of operations and financial position, business strategy and plans and objectives for future operations of Bentley Systems Inc. All such statements made in or contained during this webcast other than statements of historical fact are forward-looking statements. This webcast will be available for replay on Bentley Systems' Investor Relations website at investors.bentley.com on May 7, 2026. After our presentation, we'll conclude with Q&A. And with that, let me introduce the Executive Chair of Bentley Systems, Greg Bentley. Gregory Bentley: Thanks to each of you for your interest in BSY's '26 Q1. Nicholas will describe factors that contributed to commendable operating performance, favorably according as usual for BSY with our annual full year outlook. Werner will put this in the financial terms, which continue to differentiate BSY as leading among peers, both in the quality and in the measures most meaningful to shareholders of sustained profitability and cash flows. I will supplement their on-the-ground reporting with perspectives behind our characteristically even higher prioritized endeavors to benefit our future value, in particular through advancements, which make AI for us, more a seminal opportunity than a terminal threat. Last quarter, I enumerated some respects in which Bentley Systems prospects are rather uniquely enhanced and accelerated by AI. Our advantages, as summarized here, make the case that leadership in infrastructure AI is destined, given our experience and determination within Bentley Systems' grasp. Our long-established incumbency as the digital quartermaster for infrastructure engineering organizations substantive tooling is a differentiating and immediate advantage. Quantification of that pole position will be my focus today. In particular, our modeling and simulation applications have established the de facto standards for responsible and deterministic infrastructure engineering, and the stewardship for each account of their cumulative infrastructure engineering data in Bentley Infrastructure cloud, ProjectWise, SYNCHRO and AssetWise, positions them to leverage AI to compound value for themselves and for their own constituents at a steeper rate than ever. Beyond our existing consumption business models, AI is on the cusp of adding to our growth incrementally, agentic API consumption of our modeling and simulation functionality, especially for optimization of designs and, for instance, to intrinsically improve constructability. And our asset analytics initiative, spawned by AI and already exceeding $50 million in annual revenue run rate, is leading the way toward instant on digital twins to optimize operations and maintenance, commercialized through subscriptions denominated in consumption per asset. Imbued with all these factors and shaping our distinctive AI game plan, our business is anchored by stalwart enterprise accounts. Within infrastructure engineering, these enterprises are on the leading edge of adopting, acting upon and evolving individual proprietary AI initiatives which we are there to support, prioritize and enable. What will never change is that their business is our business, and their success is our success. Underscoring this affinity, 45% of our revenue comes from 220 accounts, which each spend over $1 million per year with us. And almost 2/3 of our revenue comes from 824 accounts, which each spend over $250,000 per year with us, mostly, of course, through E365 consumption subscriptions, which include, in each case, a dedicated BSY technical success team positioned to nurture joint AI initiatives. To understand the extent to which our interests are aligned with rather than opposed to our accounts, let us drill down on project delivery firms, in particular, because engineering news record surveys and ranks them all, publishing individual revenue breakdowns that can help us understand their economics and our own penetration level and potential as digital quarter masters. From engineering news records, 2 lists ranking, respectively, domestic and international headquartered design firms, last published together a year ago, we compiled the composite ENR global top design firms ranked by their verified design billings. For 2025, these 639 global top design firms generated $280 billion of design billings. 25% of these design billings were generated by 25 Chinese organizations. Unfortunately, because they're generally within state-owned entities, geopolitical tensions currently inhibit their accessibility for us. Thus, the top global design firms ex-China consists of 614 top firms generating design billings of $212 billion. Of these, 470 are BSY accounts, together accounting for $198 billion in design billings, 93% of the ex-China total. A considerable portion of those whom are not the BSY accounts are rather pure architecture firms. With our ARR across these BSY accounts totaling $414 million or about 28% of our overall ARR, top design firms are our largest constituency. Per million dollars of their design billings, they spent on average about $2,000 in BSY ARR. On average, each uses about 4 among BSY's top brands plus several other lesser brands. The top brand for these accounts, also now BSY's top brand, is ProjectWise, in use by 270 of the top firms, together generating $160 billion in design billings, representing 76% of the design billings of the ex-China top firms. In our coming quarter, we will describe joint AI initiatives with these firms to compound the reuse benefits from their Bentley Infrastructure cloud data platform. For now, I would like to quantifiably illustrate the aligned incentives for BSY and top design firms to work together on the incipient AI transformation of their business model. The key is that infrastructure engineering software isn't for these firms overhead or administration. It is a most necessary factor of production to enable, capture and deliver their substantive work. Along with attendant labor and associated computing, it's a cost of revenue. To assess the economics, let's consider a representative project with $1 million of design buildings. Triangulating variously, including from BSY's $2,000 average of spending per million dollars of design billings across the universe of all of our top firms accounts projects globally, I estimate that a representative million-dollar design project would consume about $10,000 of design software. Since margins for these firms now reach about 10%, the cost other than for design software, mostly for engineers labor, must then be $890,000. Now what could a top firm gain by theoretically investing to the detriment of its design software vendors to somehow reduce its design software spending, say, by 20%? For that putative inspiration and effort and distraction and risk and liability and investment, which thus couldn't afford to be much, their net profit margin would extensively grow from 10% to 10.2%. But back to the drawing board, consider that investing instead in AI automation and agentic API consumption and computing, even if that say double the all-in design software cost, could save at least 20% of scarce engineering time as that is readily achievable with just agentic automation of drawings production. It seems logical to prefer reducing engineering labor because these top design firms compete with one another for a demographically shrinking talent pool of infrastructure engineers. And with near record backlogs, these resource constraints limit the new projects each firm can pursue, even though there's an abundance of infrastructure engineering work available. Unfortunately, with the prevalent hourly billing commercial model for infrastructure engineering, improved productivity would produce more output with the same staffing, but not more design billings. So one more simple change would be needed to make this fully worthwhile, transform the design billings commercial model for such projects to fixed pricing. Now if I were an infrastructure owner-operator client, the only objection I can think of to fix pricing would be a concern that as a result, corners might be cut, alternatives might not be pursued and thus, engineering quality could be compromised. But now with API consumption enabling demonstrable agentic optimization, that concern can be overcome technically. And each human engineer, now augmented by busy agents and automation, remains daily in the loop, but delivering 20% more design billings on additional projects in the same time, yielding very worthwhile, AI-enhanced economics. The top design firm enterprise by investing in proprietary AI agents to automate and leverage and to API consume trusted modeling and simulation functionality could now generate IP level margins of over 24% on the same engineering inputs. As the owner client gets better assured and more timely quality of designs at no higher cost, everyone wins, including the fully employed and probably gainfully incented engineer, not to mention the software and computing providers. So while respecting confidentiality of our enterprise accounts individual AI plans and strategies, Nicholas will provide a brief update on our infrastructure AI program with accounts for such joint initiatives, among his other content. So over to you, Nicholas. Thank you. Nicholas Cumins: Thank you, Greg. We began 2026 on a strong footing. Our Q1 performance demonstrates our ability to consistently execute against the backdrop of sustained global demand for better performing and more resilient infrastructure. Before going further, my thoughts are with our colleagues and users affected by the conflict in the Middle East. I am incredibly grateful for our team in the region. Their commitment to our users has been unwavering, and their dedication is inspiring. Following up on Greg's remarks, I will start with an update on AI. We continue to execute on our AI initiatives across the portfolio, but I will focus on 2 recent highlights. First, on Bentley Asset Analytics. To take this business to the next level of scale, I am delighted to welcome [ Bryan Friehauf ] as our new General Manager. Brian joins us from GE Vernova and was previously at Hitachi. He brings a wealth of experience in scaling enterprise software businesses in the operations and maintenance phase of the infrastructure life cycle. Second, on Bentley open applications. We have engaged with leading infrastructure organizations, both engineering services firms and owner operators, as part of the infrastructure AI initiative announced at the end of 2025. The feedback has been clear and consistent. There is strong demand for us to instrument our applications so they can power users on AI-driven workflows. Based on this strong feedback, we have prioritized the development of both APIs and MCP servers. In fact, we just released an MCP server for STAAD, our flagship product for structural analysis. To give you a sense of the potential, this allows an AI agent like Claude to interact directly with STAAD to optimize the structural design at machine speed. The ability to iterate on complex design trade-offs so quickly is transformative. Our next steps are to instrument other key applications and to validate the commercial model for this powerful new usage pattern. We look forward to sharing our progress. Now turning to our business highlights. Our year-over-year ARR growth for Q1 was 11.5%, in line with our expectations. Our net revenue retention rate remained strong at 109%, consistent with previous quarters and highlighting the stability and growth within our existing accounts. Our enterprise 365 commercial program continues to drive steady growth, both in terms of conversions as well as floor uplift and renewals, noting that Q1 is our smallest quarter for renewals. New logos contributed again, 300 basis points of ARR growth, primarily within the SMB segment. Through Virtuoso, our flagship commercial program for SMB accounts, we again added over 600 new logos in Q1. At the same time, our growth model is evolving, with an increasing contribution from cross-selling and upselling to existing Virtuoso accounts. While our renewal rate remains high, the sheer scale of the Virtuoso base creates a natural churn dollar amount to overcome each period. Our combination of new logos and existing account expansion allows us to continue to deliver strong net growth. Turning to our performance by infrastructure sector. Resources was the fastest-growing sector in total and across each geographic region. We expect another strong year for Seequent, bolstered by improving mining fundamentals. I will come back to how we plan to expand our addressable market even further into critical resources in a few minutes. Our largest sector, public works utilities, delivered a solid quarter, driven by robust global infrastructure investments. Power line system continues to benefit from increasing demand for grid resiliency and new power generation as well as international expansion. The adoption of SQL applications for the civil infrastructure also supported growth in that sector. Growth in the industrial sector continued to be solid, while commercial facilities remain relatively flat. Turning to our tone of business by geographic region. In the Americas, our largest region, the U.S. delivered solid growth, supported by stable public funding at both the federal and state levels for transportation, grid and water projects. Private investment was also robust, particularly in resources and AI-related data centers and power generation. Latin America delivered a standout quarter, with strong performance from Seequent and mining and from our increased focus on transportation in the region. EMEA was our fastest-growing region in the quarter. This strong performance was achieved despite the conflict in the Middle East, which saw some project delays and a shift in consumption to all the regions. However, this was more than offset by strength elsewhere. In the U.K., growth accelerated as major projects moved into the delivery phase just as we anticipated last quarter. We also saw robust growth in Africa, driven by increased spending in mining. Asia Pacific delivered solid growth, with India once again leading the way, and Australia showing improved momentum. While we continue to navigate persistent headwinds in China, which represents approximately 2% of ARR, the strength across the rest of the region more than compensates. Now I would like to take a deeper dive into our resources sector. This is a part of our business that has become increasingly significant, and we believe it's important for you to appreciate its journey and its forward-looking potential. When we acquired Seequent almost 5 years ago, our primary objective was strategic, to integrate their best-in-class software for understanding the subsurface into the world of infrastructure. We knew that a misunderstanding of ground conditions is a primary cause of delays in risk in major infrastructure projects. As a byproduct of that strategic move, we also acquired a sizable and thriving business in the resources sector. I am pleased to report that the initial strategy has proven effective. Since the acquisition of Seequent, we have grown our subsurface ARR in civil infrastructure by a factor of 4, in part due to successful cross-selling into the existing Bentley accounts. The potential for further growth is significant, as engineering services firms adopt a ground informed design approach, bringing detailed ground investigation in as a foundational step before design begins, much like they already do for above-ground survey. At the same time, Seequent has continued its impressive growth in its core mining market. Seequent's growth rate in 2025 accelerated as the geopolitical climate and race to AI increased the focus on critical minerals. We expect these trends to continue in 2026, contributing to another standout year for Seequent. However, it is important to note that Seequent has delivered strong growth even during the mining exploration slowdown starting early 2023, when production mining companies use our solutions to mine existing deposits more efficiently. But the potential of Seequent's resources extends beyond traditional mining. Seequent's technology is pivotal for other critical resources that are essential to the global economy and to society. Take, for instance, new sources of energy. Seequent software is already instrumental in the operations of more than 60% of the world's high-temperature geothermal electricity generation. Now it's being applied to new enhanced geothermal systems by companies such as [ Fervor Energy ], the winner at our 2025 year infrastructure awards. Their project [ cape ] in Utah, for example, demonstrated how new drilling techniques and digital technologies are making geothermal power increasingly accessible and economically viable. Clean, renewable and consistent baseload energy is more critical now than ever as AI and data centers demand more power. And Seequent's impact extends to the most vital resource of all, water. Groundwater supplies about 50% of global domestic water and over 40% of irrigation water. Most of these resources are under stress due to overuse. Seequent software is used around the world by engineering consultancies to manage these resources, mapping aquifers from California to India, designing managed aquifer recharge facilities and constructing a digital framework for groundwater management models. So nearly 5 years since the acquisition of Seequent, resources have become our second largest sector, accounting for more than 20% of our sector attributable ARR, and it continues to be our fastest-growing sector. In summary, it was a strong start to the year. We are executing well in a robust market, and we're excited about expanding our reach further within the resources sector. Before handing off to Werner, a quick update on our event strategy. We are decoupling our YII awards from our user conference to create 2 distinct world-class events. Our year-end infrastructure event will now be exclusively focused on our global awards competition. We are keeping its intimate and celebratory format. And this year, it will be held in Singapore from October 6 to 7. Separately, we're launching a new large-scale user conference dedicated to product learning, best practices and community networking. The very first will take place in Toronto in April of 2027. We believe this new format will allow both events to thrive. And now for a detailed review of our financial results, over to you, Werner. Werner Andre: Thank you, Nicholas. We are pleased with our strong start to the year, which continues the momentum we built through 2025 and positions us well within our financial outlook for 2026. Total revenues for the first quarter were $424 million, growing 14.5% year-over-year and 11.9% in constant currency. Our growth continues to be driven by our mainstay subscription revenues, which represent 93% of total revenues and grew 14.7% for the quarter or 12.2% in constant currency. Our E365 and SMB initiatives continue to be solid contributors. In our smaller and less predictable revenue streams, perpetual license revenues decreased 18% in constant currency. Perpetual license sales remain a very small part of our business, and are, as always, the less controllable and less predictable component of our revenue mix. Service revenues increased 25.8% in constant currency, driven by long-weighted reacceleration in maximum related services from our cohesive business. Last 12 months recurring revenues now stand at 1.440 billion, increased by 13.3% year-over-year or 11.5% in constant currency, and represent 93% of total revenues. Our last 12 months constant currency account retention rate remained consistent at 99%. Our constant currency net revenue retention rate remained at 109%, consistent with recent quarters. The combination of our high retention rates and new business momentum gives us confidence in the continued durability of our recurring revenue growth. Now turning to ARR. We ended the first quarter with ARR of $1.495 billion at quarter end spot rates. On a constant currency basis, our year-over-year ARR growth rate was 11.5%. Our sequential quarterly growth rate was 2.5%, all organic and in line with our expectations for the quarter. We continue to expect our quarter-over-quarter ARR growth seasonality to be similar to 2025, and thus organic year-over-year ARR growth rates to be relatively stable during the year. Our GAAP operating income was $126 million for the first quarter. As I've discussed previously, our GAAP results can be impacted by deferred compensation plan revaluations and acquisition-related expenses. Moving to our primary profitability measure, adjusted operating income less operating stock-based compensation or AOI less operating SBC. As we announced with our 2026 outlook, this is the first quarter we are applying this refined metric. This change aligns the treatment of cash settled and equity settled acquisition-related stay bonuses, removing M&A-related volatility from this key operational metric. AOI less operating SBC was $141 million for the quarter, with a margin of 33.2%. This quarterly margin performance was in line with our expectations, positioning us well to deliver on our annual margin improvement. As a reminder, we plan to invest earlier this year, resulting in operating expenses being more weighted towards the first half compared to 2025. Our free cash flow for the quarter was $188 million. This result was in line with our expectations and reflects 2 key factors we signaled on our last earnings call. First, our 2025 free cash flow benefited from exceptionally strong collections at year-end. This created a timing benefit in 2025, which, as anticipated, resulted in a tougher year-over-year comparison for the first quarter. Second, the plan for operating expenses to be relatively more weighted towards the first half this year is reflected in comparison to 2025 for both profitability and cash flows. Looking beyond quarterly timing fluctuations on a last 12 months basis, free cash flow of $492 million was up 13%, and we remain on track to meet our full year free cash flow outlook of $500 million to $570 million. We continue to execute a disciplined and balanced approach to capital allocation. During the quarter, we repaid, at maturity, the outstanding balance of $678 million of our 2026 convertible notes, utilizing borrowings under our credit facility and cash on hand. The retirement reduced our fully diluted share count by approximately 10.6 million or 3%. In total, our net debt decreased by $134 million in the quarter. We also returned capital to shareholders, deploying $54 million for share repurchases and $21 million for dividends. Our balance sheet provides significant strategic flexibility. At quarter end, capacity under our credit facility was $756 million, and we reduced our net debt leverage during the quarter from 2.1 to 1.9x adjusted EBITDA. Subsequent to quarter end, we closed on a new $550 million term loan A under the [ accordion ] feature of our credit facility. This transaction was completed at attractive terms and used to repay outstanding borrowings under our revolver and lowering our interest cost. With the term loan in place, total borrowing capacity under our credit facility increased to $1.850 billion. This provides ample capacity to support our strategic priorities, positioning us well ahead of the 2027 notes maturity, while also funding potential programmatic acquisitions, ongoing share repurchases and dividends. We continue to actively manage our interest rate exposure. Our safeguards include a low fixed coupon on our remaining convertible notes and our $200 million interest rate swap expiring in 2030. And finally, we remain comfortable with our 2026 financial outlook range that we provided just over 2 months ago on our Q4 call. With regards to foreign exchange rates, for the first quarter, the U.S. dollar has strengthened, slightly relative to the exchange rates assumed in our 2026 annual financial outlook, resulting in approximately $2 million less revenues from currency changes. If end of April exchange rates would prevail throughout the remainder of the year, our Q2 to Q4 GAAP revenues would be negatively impacted by approximately $3 million, relative to the exchange rates assumed in our 2026 financial outlook. And with that, over to Eric for Q&A. Thank you. Eric Boyer: Thanks, Werner. Before we begin, just as a reminder, please limit yourselves to one question so we can get to everybody today. First question comes from Joe Vruwink from Robert Baird. Joseph Vruwink: Great. I guess, Greg, the example you shared is interesting. I think the prospect of supporting $200,000 more in revenue by spending $10,000 on software is something all of your customers would gladly entertain. What do you think about in terms of Bentley's product efforts in terms of bringing that proposition closer to reality? What still needs to be done? And what sort of deliverables do you need to demonstrate to your customers so that they believe and give you the buy-in? Gregory Bentley: Well, I think the path to that, foreseeably, is the API consumption, the notion that agents spun up by the engineers can do more iterations in the same time, not only will deliver a better quality of design, but the engineering firms will be able to substantiate that to the owner operators to accelerate this transformation to fixed pricing. The -- what's really great about that prospect for us is the -- the more of that engineering firms and owner operators are excited about and ready to act on this transformation to a new commercial model. That's all good for our prospects. It's where everyone wins, as I say. It can't be doubted that this will happen with the AI inflection as it is happening in every other service industry, engineering is one of those. But it's been slow until now, and this notion of optimization that literally is in front of us at the moment is going to speed it up, I think. Eric Boyer: Our next question comes from Matt Hedberg from RBC. Matthew Hedberg: Great. Good start to the year. When we look at your business, you guys all highlighted a number of, I think, really interesting company-specific catalysts that seem to be moving in your favor this year. And to us, when we sit back and look at, it seems to present an opportunity that could push constant currency ARR towards that higher end of the range this year and perhaps accelerate versus last year. I guess when I sit back and think about all these opportunities, if you were to highlight the 1 or 2 things that you're like, these are the most important things that could deliver those results, what would they be? Because it seems like there's a lot of opportunity here for you guys. Nicholas Cumins: Well, I think you're characterizing it exactly the right way, Matt. There's a lot going on that is very positive for the company. We benefit from very strong tailwinds here in both infrastructure and in resources, and as I highlighted during the prepared remarks. So for us to get to the, let's say, higher part of the range, we would need both resources and mining, in particular, to continue to go strong throughout the year. And right now, everything is signaling that this is trending well. We need Bentley asset analytics to continue to grow strongly throughout the year. We need, of course, the core business infrastructure to continue to go well and then probably in order programmatic acquisition. So if you have all of that lighting up, then yes, we're talking about the higher part of the range. Eric Boyer: Next question comes from Jason Celino from KeyBanc. Jason Celino: Great. This actually goes back to Joe's question. There's growing debate among the investment community on whether to charge or not charge for access to data. It seems like Bentley is one of the only software platforms trying to monetize this way through API consumption. And frankly, might be the preferred way investors may want to see it. But do you foresee any risks from like a customer perspective on charging this way since other horizontal software companies have decided to be more open and not necessarily charge for it? Nicholas, the STAAD MCP server that you talked about, are there other MCP servers that you might going to stand up? Nicholas Cumins: Definitely. Right, so maybe a point of clarification first. When we're talking about API consumption, we're talking about an indirect usage to our engineering applications. So as opposed to having a user directly interacting with the applications, we have an AI agent that is directly interacting with the application. Now there's still a user behind the AI agent, but the AI agent, which is now being able to do with the application level of optimization, which was simply not possible for an engineer on its own, okay? Then we have Bentley Infrastructure Cloud, where the data actually resides. And here, indeed, we're not monetizing the access to that data because that data belongs to the infrastructure organization that are entrusting us with that data as part of the platform, right? So those are 2 different things. The ability to leverage AI to optimize designs or even generate parts of the design is just a fantastic value proposition. Clearly, our user base pricing right now, whether we're talking about attended consumption as part of E365 or annual subscription with Virtuoso is not going to capture the full value that is going to be created, right? So we're discussing with the representative accounts who are involved in our coinnovation initiative called infrastructure AI. We're talking about a different commercial approach where we'll be in a API consumption-based pricing, maybe token-based because that seems to be the common denominator across different AI tools. But that's really for the engineering applications. For Bentley Infrastructure cloud, at least in the foreseeable future, the pricing is indeed user based, either user-based consumption, [indiscernible] consumption or annual subscriptions. Gregory Bentley: And may I make clear that today, we only monetize attended consumption. Our strategy is to introduce and increase the API consumption and give users and accounts a chance to explore the potential of that and learn in the process what it cost us, what it could cost them and what the benefits and values are so that we can arrive at an appropriate monetization approach to that, which we are open-minded about for now. Eric Boyer: Next question comes from Siti Panigrahi from Mizuho. Sitikantha Panigrahi: Great. Just following up that AI part, Greg, you laid out really a compelling case for AI within your customer base. Wondering what sort of feedback have you got from your customer? And how should we think about the TAM expansion for Bentley or even the ARPU uplift potential as AI drives even deeper multiproduct adoption, maybe it's not near term, but how should we think about ARPU and TAM expansion? And in the same context, Werner, how are you looking about the margin and even there is a incremental engineering and computing cost implication as in Bentley start focusing on building AI products. How should we think about the investment intensity over next 12 to 18 months? Gregory Bentley: I'm going to ask Nicholas to speak about the account reaction. But I may just say a particular multi-product scenario that has me excited is during design to be able to have an agent using SYNCHRO to explore the constructability of what's being designed while it's being designed. This doesn't imply that the design firms that we talked about will be doing the construction necessarily. Someone will be doing a construction subsequent to their involvement, but they'll be able to say to the owner operator, we're going to be able to give you a design where we already know the economics of construction. We've simulated that in the course of our design. It's just an example of something not even conceivable now that AI will introduce through API consumption. But Nicholas, perhaps you can speak to the reaction of accounts to the prospects for this instrumentation. Nicholas Cumins: After that, and then I'll also get to the TAM question. So the reaction of our accounts is really validating the opportunity for this indirect usage of our applications. Now we do see a difference here between the very large infrastructure organization, in particular, the very large engineering services firms and all the others. The very large ones, by the way, exactly like it was shared with the AC adviser CEO survey of 2025, the very large ones are the ones who are really investing in their own AI-driven workflows. They are the ones who are exploring with us how exactly they will start to use our applications indirectly through AI, right? Now all of the infra organizations we talk to, all of them, whether they're big or small, are welcoming that we deliver our own AI capabilities as part of our products, right? Now back to the very large one, these are still very early days. And as we commented actually last quarter, we're much more in the mode of exploring and validating and then confirming for example, that yes, an MCP server for STAAD makes a lot of sense, and then an MCP serve for another application, another application. And we're very focused on adoption as well. The monetization will come next. Where we are doing monetization right now with AI is really through a different offering, which is Bentley Asset Analytics, which we can talk again in a moment. But now back to your question about the TAM, I think it's a great question because the time that we shared at the moment of our IPO when we became public, was all based on the number of engineers. And effectively, if we're talking about indirect usage of our applications through APIs, we are somewhat removing that natural cap of how many engineers are out there, and how much can they consume within a given day in terms of applications for Bentley? So we're very excited about that as a long -- let's say, longer-term growth opportunity for us to actually expand our TAM by having indirect users of application through AI. Unknown Executive: And Werner? Werner Andre: Yes, maybe on the margin. So I think as Nicholas said, it's early days. It's completely immaterial as of now. But I could say that gross margins will be impacted, but it's likely, and this has to be considered then in the monetization of the products. Eric Boyer: The next question comes from Dylan Becker from William Blair. Dylan Becker: Appreciate it. Maybe Greg or Nicholas here, I think the shift to outcomes obviously makes sense and kind of your ability to facilitate that efficiency gain, I think, is abundantly clear. But I was maybe wondering on the importance of kind of your services or in the direct customer relationships you have from a go-to-market perspective and how you can kind of help those customers bridge that gap from a change management perspective and kind of help maybe accelerate that push in the economic delivery model, if that makes sense. Gregory Bentley: One thing that I'll remark upon is that our dedicated teams in E365 over the past year or 18 months have discovered a new productive way to help our accounts. It's by helping them pursue new business -- it's helping join their pursuit teams to bring new ideas to owner operators. And I hope that will include, as we implement the optimization approaches, how that gets sold and communicated among things to enable fixed price, which is the beginning of that outcome-based contracting. Nicholas Cumins: Yes. At the end of the day, when it comes to the commercial model of the engineering business firms we serve, this is very much to be decided between them and their clients. And then depending on the industry, it will vary quite a lot. Some of them have already embraced fixed base pricing, others are still in time and material. The -- what we can do, besides, of course, demonstrating the part of AI and how it changes the whole value proposition. Besides that, we have a lot of high-level advocacy efforts that we're doing with governments, with the financial sector as well, with the clients. Some of them are through our infrastructure policy advancement team. Some of it is also through our services arm called [ Cohesive ], which is providing consulting to owner operators and getting insights about what else could be done. What's the art of the possible. And potentially, what does it mean for their commercial model. Gregory Bentley: When Nicholas described some have begun fixed pricing, it's primarily those that do private sector work, where private sector owner-operators are quicker to adapt and evolve than government-funded public works and utilities. Eric Boyer: The next question comes from Jay Vleeschhouwer from Griffin. Jay Vleeschhouwer: Nicholas, a quarter ago on the call, you described Bentley Infrastructure Cloud as your data foundation for AI. And I assume it's more broadly so aside from AI that in terms of the importance of infrastructure cloud. With that in mind, could you talk about perhaps some of the adoption metrics for infrastructure cloud? Do you think of it as a kind of prerequisite for or leading indicator for other business, AI or not? And then if I may have pointed to clarification given all the API discussion earlier. In a complex federated system of that kind, how do you assure what customers adopted good or better throughput or performance in a complex API system? Nicholas Cumins: So to the first question, when we're referring to Bentley Infrastructure Cloud as a data foundation for AI, we're really talking about the AI efforts of the infrastructure organizations we serve. So when they upload files, when they connect data systems into Bentley Infrastructure Cloud and all of the data from those files or the systems is not to schema, so that, that data becomes so [ equirable ], it can be analyzed, but it can also be leveraged by AI, right? Now we made it very clear that we are not using that data, which is in Bentley Infrastructure Cloud to train our own AI. That definitely sets us apart from all the software providers out there. Now data ownership is a very, very sensitive topic across all industries, for sure in infrastructure as well. We do not think it's right to be leveraging the intellectual property of some companies to train AI that will benefit other companies, right? We just don't think it's right. So we're not going to do it. So the only time we use data within Bentley Infrastructure Cloud to train AI is when we're explicitly asked by infrastructure organization to do so. And then it really is their data. And by the way, we gave full transparency of what data has been used in order to train AI. That -- it sets us apart to the extent that it really becomes a reason why infrastructure organizations also choose Bentley Infrastructure Cloud as opposed to other alternatives because they really have trust that we're going to be a good custodian of that data on their behalf, yes? Now when it comes to API throughput, indeed a point of clarification. So for example, with the demo I was showing with STAAD, we are, in a sense, in the first step of the instrumentation, where these applications are still running on the desktop. In fact, you can see it with a video. It was still running on the desktop. They're not yet platform services. That will be the next step. So the first thing we're doing is making sure that the APIs exist, that there are MCP services available, so it's easy for AI agents to interact with those applications. But all of that interaction is actually happening on the local computing station on the personal computer. When -- at some point, of course, that's why we're discussing also with the company. We're talking about the longer term here. Some of those workloads will be moved to the cloud to become true cloud services, but then we'll just make sure they are as performant as they should be, like we do for all of the cloud services that we offer. Eric Boyer: The next question comes from Alexei Gogolev from JPMorgan. Alexei Gogolev: Great to see you all. You've mentioned that it is still early days for applying AI to mission-critical engineering, and you're leading the exploration to building and drive the adoption of highest value AI workflow. So could you maybe speak about some of the initiatives on that end? What efforts you're taking? Nicholas Cumins: So we have -- if you're referring also to one of the earlier comments around we're making progress with our initiatives across the portfolio, we have both efforts to deliver our own AI capabilities as part of our products. And then efforts to instrument our applications, in particular, the engine applications, so that they can support AI-driven workflows that are being created by the infrastructure organizations that we serve, right? So those are 2. For the latter one, there is a co-innovation initiative that we've launched at our annual conference last year, YII, so towards the end of 2025, where we invited infrastructure organization to join, talk to us and explore with us what are the use cases they're going -- they would like us to be able to support in applications. And it was no surprise that the actually first case has identified was for STAAD because we had already seen STAAD, which is our flagship product for structural analysis, being used this way because it had an API in some of the submissions for the going digital awards at our annual conference over multiple years, by the way, it was clearly the first one. So no surprise that there was a very strong demand for us to create an MCP server based on that API in order to support the interaction of AI agents with STAAD. And so that's the way we're interacting with them in that context, which is understanding what are the use cases with the biggest potential, validating with them and then creating those MCP servers. And we have multiple efforts across our pretty wide portfolio of engine applications to create the MCP servers directly if the APIs already exist, if not, start to create the APIs themselves, okay. But then now for the AI capabilities that we offer. We have AI capabilities as part of the engineering applications that will automate parts of the design workflow. Typically, we go for the, let's say, mundane tasks, which are extremely time consuming like [ joins ] production that we talked about in multiple quarters ago. We have AI capacities built within Bentley Infrastructure Cloud, for example, in order to facilitate the search of engineering data using natural language. We have AI capabilities being part of Bentley Infrastructure Cloud in order to help navigate very complex construction models as part of SYNCHRO. We obviously have AI pretty much for all of our applications for Bentley Asset Analytics, whether we've developed them or we require them. And we even have AI in Seequent, which I spent time highlighting today as part of my prepared remarks, right? So there are efforts related to AI really across the portfolio. It's a wide range of initiatives. Eric Boyer: The next question comes from Daniel Jester from BMO.. Unknown Analyst: This is [ Will Hancock ] on for Dan Jester. So you hit on data ownership a few minutes ago. And I just wanted to double-click there. Are you guys seeing any shifts in customer behavior, whether that be increased willingness to use data, to train AI models or conversely more cautions around permissions? And then are you guys seeing any variance across end market or customer size? Nicholas Cumins: So what hasn't changed is the fact that it's -- let's say, the largest infrastructure organization, especially the largest engine business firms that are the most advanced in their own AI efforts, and therefore, looking into their own data on how they can train their own AI models. So that hasn't changed. What we have seen in the last few months is a very -- suddenly infrastructure organization realizing that not all software providers have a principal approach to data, and then therefore, pushing for a lot of clarification on terms and conditions and access rates, et cetera, for the data. That's what really sets us apart, which is already back in 2023, we took this very principled approach. Our commitment to data stewardship that made it very clear that our users' data is their data always. And we don't use it to train our AI, unless explicitly directed to do so by the infrastructure organizations we serve. It is a very sensitive topic. And I expect it as basically infrastructure organization become more educated about on one hand, the potential of AI, and second, the fact that there is a difference here across software providers. I do expect this topic to become even more sensitive going forward. Gregory Bentley: And I'll add that while the immediate attention is paid to training AI models, the -- I think the ultimate value of this data will be its reuse in future designs. That's never been the norm because in attended consumption, an engineer will always prefer to start with a blank screen and originate a new approach. But each firm has a very valuable archive of project data in ProjectWise Bentley Infrastructure Cloud and AI will be good at finding and suggesting and modularizing and parameterizing. And ultimately, when that reuse can be informed by the operating and maintenance performance of those designs, which the engineering firms will increasingly be in the business of improving and optimizing, that will be a virtuous cycle that will yet reinforce the valuable proprietary advantage. When I say that engineering firms can earn IP returns, I mean returns on that valuable data and knowledge, their accumulated compounding advantage with Bentley Infrastructure Cloud. Nicholas Cumins: And maybe I'll put one final point because it is such an important topic, because some of you may ask, wait a minute, the other software providers who are shamelessly leveraging the data that is stored in their platform to train their AI, do they have an advantage? And I will clearly say, no. And for 2 reasons. Number one is, because of their stance, infrastructure organizations have a higher tendency of choosing us and our platform because they can trust us. And second is, for all of the AI capabilities that we're developing that I mentioned before as part of our initiatives across the portfolio, right? We don't do it in isolation. We do it always with representative accounts. And we've never had an issue of not having enough data to train our AI models, either by using our own synthetic data or getting data from those representative accounts involved, that they deem they think is not sensitive, not differentiating and they're happy to contribute, right? So we clearly see this as a net positive for -- and a net advantage for us. Eric Boyer: The next question comes from Taylor McGinnis from UBS. Taylor McGinnis: Yes. Can you guys hear me? Gregory Bentley: Yes. Eric Boyer: Yes. Taylor McGinnis: Okay. Perfect. So if I look at your guys' constant currency net new ARR growth historically, I think it's been around $26 million to $27 million. And this quarter, it was $37 million, so up 36% and really strong. So when you just think about the drivers of what drove that strength in the quarter, could you unpack a little bit of that? And was there anything onetime or different seasonally this year compared to what you've seen in the past that might explain some of that? And then just how do we think about that in the context of what you're thinking about demand trends going forward? Werner Andre: So maybe I take that. So Q1 saw a continued strong momentum as we exited 2025. And the quarter-over-quarter growth puts us somewhat ahead of what we saw in Q1 2025. It was, I would say, predominantly let kind of the over by the continued momentum of our Seequent business and mining just doing still very well. So as we said, that puts us in a pretty good position for our full year outlook range. But it's still -- Q1 is 20% of our ARR opportunity based on contract resets, and it's going to see that the rest of the year plays out well as well. Eric Boyer: The final question comes from Joshua Tilton from Wolfe Research. Joshua Tilton: I'll give you guys a break from the AI questions. Maybe just 2 points of clarification on my end. First, you talked about Seequent being really strong last year and expectations for it to be strong again this year. Are you -- do you expect it to accelerate again in 2026? And then my second part to that question is, on the other side of that, you kind of cautioned us -- or maybe I'm reading into a little bit, but you cautioned us around Virtuoso getting big and a churn dollar amount that you have to overcome each quarter. Is there anything we should think about or be paying attention to or anything unusual around that churn that you're trying to signal to us this quarter? Nicholas Cumins: Okay. I'll try to be brief since we are at the end of the scheduled time. So on Seequent, no, we don't expect further acceleration in a sense that as part of our plans for 2026, we assume the same level of growth that we've seen towards the end of 2025, right? So clearly, in 2025, there was an acceleration. And for 2026, we just assume, is it going to continue? And Q1 basically proves us correct, yes. On Virtuoso now, we just wanted to explain that in addition to solid growth coming from new logos, we now also have growth coming from existing accounts because in previous earnings calls, we were only talking about new logos. Now clearly, we've developed a new muscle here, which, by the way, also helps for retention. There's a clear correlation, which is if we see accounts using more than one product, then they will have a higher propensity of staying with us. But the overall retention rate remains stable at a high double-digit, very similar to what we've shared in previous quarters. It's just mathematics. It's a much higher base, of course. So indeed, there is a churn amount in terms of dollars that is to be compensated for. But that's it. It was just explaining all the different puts and takes and explains why even though we have this new muscle, you can see the growth being still very consistent with Virtuoso. Gregory Bentley: Maybe I'll just say -- in closing, your first question about acceleration, there hasn't been questions, particularly about geopolitical events in the world. But the notion that each country needs to be more self-sufficient in its defense and its resources and so forth, represents a commitment to investment in infrastructure, and it's not limited to resources. You need the resources for infrastructure, you need the infrastructure for resources. And I expect that to be not a short-term phenomenon to our benefit. Thank you. Eric Boyer: Thanks. That concludes our call today. We thank you for your interest in time in Bentley Systems, and we'll talk to you again next quarter. Nicholas Cumins: Thank you.
Operator: Good afternoon, and welcome to The RMR Group Inc. Fiscal Second Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. I would now like to turn the conference over to Bryan Maher, Senior Vice President. Please go ahead. Bryan Maher: Good afternoon, and thank you for joining The RMR Group Inc.’s fiscal second quarter 2026 conference call. With me on today's call are President and CEO, Adam Portnoy; Chief Operating Officer, Matthew Paul Jordan; and Chief Financial Officer, Matthew Brown. In just a moment, we will provide details about our business and quarterly results, followed by a question-and-answer session. I would also like to note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company. Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based on The RMR Group Inc.’s beliefs and expectations as of today, 05/07/2026, and actual results may differ materially from those that we project. The company undertakes no obligation to revise or publicly release the results of any revision to forward-looking statements made in today's conference call. Additional information concerning factors that could cause differences is contained in our filings with the SEC, which can be found on our website at rmrgroup.com. Investors are cautioned not to place undue reliance upon any forward-looking statements. In addition, we may discuss non-GAAP numbers during this call including adjusted net income per share, distributable earnings, and adjusted EBITDA. A reconciliation of net income determined in accordance with U.S. Generally Accepted Accounting Principles to these non-GAAP figures can be found in our financial results. I will now turn the call over to Adam. Adam Portnoy: Thanks, Bryan, and thank you all for joining us this afternoon. Yesterday, we reported second quarter results reflecting distributable earnings and adjusted EBITDA at the high end of our expectations, despite operating in what remains an unsettled economic environment. Our second quarter results were highlighted by distributable earnings of $0.44 per share and adjusted EBITDA of $18.5 million. Although we continue to navigate market volatility and geopolitical uncertainty, The RMR Group Inc. has been very active this year executing on our clients’ strategic initiatives. The markets continue to recognize our efforts as both DHC and ILPT remain among the best performing REITs in 2026 from a total shareholder return standpoint, extending the significant outperformance they each achieved in 2025. As a result, The RMR Group Inc. earned incentive fees for 2025 of $23.6 million, and we are on track to earn incentive fees again this year, as both DHC and ILPT accrued incentive fees this quarter. I would now like to go over some recent highlights at our managed REITs. Before turning the call over to Matthew Paul Jordan to provide an update on our private capital initiatives, at DHC, following the successful transition of 116 senior living communities to new operators in 2025, it has continued to focus on improving SHOP operating performance while also strengthening its balance sheet. In the first quarter, DHC generated normalized FFO of $33 million, or $0.14 per share, and adjusted EBITDA of $74 million, both exceeding analyst consensus estimates. SHOP performance showed positive momentum with year-over-year same-property NOI growth of 13.5% and occupancy increasing by 110 basis points. In March, DHC completed the sale of 13 unencumbered non-core communities for gross proceeds of approximately $23 million. Following an active 2025 in which DHC completed approximately $605 million of asset sales, we expect asset sales to decelerate in 2026 with management focused on improving NOI across the retained portfolio. Lastly, in April, Moody's upgraded DHC's debt ratings and revised its outlook to positive from stable, underscoring the company's improving operating performance and balance sheet. At SVC, we recently made significant progress improving its balance sheet and covenant ratios. The RMR Group Inc. was instrumental in helping SVC complete a $575 million equity offering, which accelerated its deleveraging strategy, eliminated near-term refinancing risk, and provided SVC additional flexibility to optimize its hotel performance and execute further asset sales. With the net proceeds, SVC eliminated all of its unsecured debt maturities until 2028. As it relates to SVC's equity offering, I would highlight that The RMR Group Inc. participated with a $50 million anchor investment, further aligning our interests with shareholders and demonstrating our confidence in SVC's business plan. Following several years of strategic capital investments to reposition the retained hotel portfolio, SVC is now transitioning toward an earnings recovery phase supported by new hotel leadership at Sonesta that is focused on improving operating performance. ILPT continues to deliver strong results with first quarter normalized FFO of $0.33 per share and adjusted EBITDA of $87 million, both exceeding the high end of management's guidance. ILPT also executed approximately 862 thousand square feet of leasing during the quarter at rental rates 26% higher than prior rents. Additionally, The RMR Group Inc. recently assisted ILPT with the refinancing of $1.6 billion of new debt for its consolidated Mountain joint venture, which replaces floating-rate and amortizing debt with interest-only fixed-rate debt at an attractive 5.7% interest rate while also extending ILPT's debt maturity profile. Seven Hills, our mortgage REIT, has been actively deploying capital from its December rights offering. During the quarter, Seven Hills originated three loans totaling $67.5 million and generated distributable earnings of $0.24 per share. Total loan commitments increased to approximately $776 million in the first quarter, achieving a record high for the portfolio. Originations thus far in 2026 are at the highest net interest margins achieved over the past four years, which reflects the benefits of our focus on middle market lending where there tends to be less competition for high-quality loans. Lastly, OPI recently received court approval for its plan of reorganization, and we expect it to emerge from bankruptcy by the end of the second quarter and for its shares to be publicly traded. We also expect The RMR Group Inc.’s contract with OPI to be consistent with our previously disclosed terms. More specifically, The RMR Group Inc. will continue managing OPI for a five-year term, with The RMR Group Inc. receiving a flat business management fee during the first two years of $14 million per year, and our property management agreement economics will remain unchanged. To conclude, we are pleased with the progress The RMR Group Inc. has made assisting our clients with their financial and strategic objectives. While there remains more work to do, we are encouraged that the markets recognize the significant improvements at both DHC and ILPT. It is important to remember that our publicly traded perpetual capital clients provide The RMR Group Inc. with stable cash flows, which we are using to pursue new growth initiatives in the private capital space. The private capital segment of our business has grown from essentially zero AUM in 2020 to nearly $12 billion today, and we anticipate this segment will be a key driver of our future revenue and earnings growth. With that, I will now turn the call over to Matthew Paul Jordan to provide added insights on our platform and private capital growth initiatives. Matthew Paul Jordan: Thanks, Adam. As it relates to our private capital initiatives, with a global in-house sales team firmly in place, we are spending the necessary time building The RMR Group Inc. brand awareness. As an example, I recently had the privilege of joining Peter Welch, who leads our international fundraising efforts in Southeast Asia, meeting with potential partners and participating in events where The RMR Group Inc. stood side by side with larger, more well-established international brands. In aggregate, our international outreach has resulted in our leaders meeting with almost 100 global investors representing almost $7 trillion in AUM. With that said, the ongoing conflict in the Middle East has disrupted fundraising. This disruption has played out in the global fundraising data, as fundraising in 2026 dropped 50% from the same time last year. The positive news for The RMR Group Inc. is that North American real estate still garnered 65% of all dollars raised and value-add strategies represented 56% of all fundraising. Within our residential business, which today represents over $4.7 billion in value-add residential real estate across 18.5 thousand owned and managed units, in April we closed on the acquisition of a multifamily portfolio in Greenwich, Connecticut for almost $350 million. The transaction was sourced off market and marks our entry into one of the most supply constrained and affluent housing markets in the country. The RMR Group Inc. Residential will assume property management and will execute a multiyear strategy focused on modernizing the communities, enhancing the resident experience, and unlocking embedded efficiencies. The acquisition is part of a joint venture where The RMR Group Inc. is a co-general partner and, in that capacity, made a $6 million investment for a 5% ownership interest. The remaining equity of approximately $120 million was raised from two institutional partners. The RMR Group Inc. will recognize revenues from this transaction of $600 thousand in our third fiscal quarter and, as general partner, we will earn ongoing operating fees of approximately $750 thousand annually. Longer term, the venture is expected to generate annual cash-on-cash returns of approximately 7.5%, and we expect to receive carried interest from the venture as certain investment hurdles are met. Finally, the venture will not be consolidated given our ownership is limited to 5%, and a portion of our GP interest may become part of The RMR Group Inc. Enhanced Growth Venture. As it relates to the Enhanced Growth Venture, which was launched last fall with the goal of raising approximately $250 million of third-party equity, there remains significant interest in both U.S. value-add multifamily real estate and our seeded portfolio of assets. This interest has resulted in ongoing diligence with a number of potential investors, with the hope that we can provide a more meaningful update on our next earnings call. As it relates to the operating performance within our residential business, we, along with our joint venture partners, remain pleased as occupancy approaches 94%, with resident retention currently over 70% and retained residents absorbing rental rate increases of over 3%. Operating performance at these levels will continue to help with the fundraising in the highly competitive residential space. I would like to also highlight a new disclosure we have made in our investor presentation that emphasizes the discount our shares trade at when looking at our business from a sum-of-the-parts perspective. As we illustrate, if one were to back out the cash and investments held by The RMR Group Inc., our shares are currently trading at only five times the EBITDA generated from the durable cash flows associated with our 20-year evergreen management contracts from our perpetual capital vehicles. This is materially below EBITDA multiples at which our peers trade. We are hopeful this new slide illustrates the significant upside embedded in our shares. In closing, it remains an active time for our organization as we continue to invest in our people, technology, and brand awareness. We are leveraging these investments to reinvent our operating structure, materially increase productivity, and ultimately drive down operating costs to deliver meaningful EBITDA growth. With that, I will now turn the call over to Matthew Brown. Matthew Brown: Thanks, Matt, and good afternoon, everyone. For our fiscal second quarter, we reported adjusted EBITDA of $18.5 million and distributable earnings of $0.44 per share, which exceeded or were at the high end of our guidance. I would also like to note that we reported adjusted net income of $0.11 per share, which fell $0.01 short of our guidance. Going forward, we will no longer provide guidance on adjusted net income, as our investments in leveraged real estate have significantly reduced the usefulness of this metric as we incur depreciation and interest expense on these investments. Recurring service revenues were $42 million, a sequential quarter decrease of approximately $1 million driven primarily by hotel sales, a decrease in the enterprise value of SVC and DHC as they strategically paid off debt, and the wind-down of Alaris Life's business. Next quarter, we expect recurring service revenues to increase to approximately $44 million, driven by approximately $100 thousand of revenue from the multifamily portfolio acquisition in Greenwich, Connecticut that Matt discussed, increased construction management fees, and enterprise value improvements at certain of our managed REITs. Turning to expenses, recurring cash compensation was $37.7 million, a modest sequential quarter increase driven by calendar 2026 payroll tax and benefit resets. Looking ahead to next quarter, we expect recurring cash compensation to remain consistent with the second quarter. Recurring G&A this quarter was $10.1 million after excluding $600 thousand in annual director share grants, which is a slight sequential quarter decrease driven by a reduction in normal course legal and professional fees. We expect recurring G&A to remain at these levels for the remainder of the fiscal year. It is also worth noting that this quarter's income tax rate was elevated at 22% driven by the impact of certain fair value adjustments that we recognized during the quarter, mainly our investment in Seven Hills, that are subject to different statutory rates than our income. For modeling purposes, we may continue to see fluctuations in our income tax rate each quarter as these adjustments impact the timing of tax expense recognition. However, these fluctuations are not expected to materially impact our full-year estimated tax rate of 17% to 18%. Aggregating the collective assumptions I have outlined, next quarter we expect adjusted EBITDA to be approximately $19 million to $21 million and distributable earnings to be between $0.48 and $0.50 per share. As Adam and Matt highlighted earlier, subsequent to quarter end we participated in SVC's equity offering by acquiring nearly 42 million shares for $50 million and acquired a $6 million co-GP equity interest in the Greenwich, Connecticut multifamily joint venture. Our investment in SVC will result in approximately $420 thousand incremental quarterly dividends. Accounting for these transactions, our current liquidity is approximately $133 million, including $75 million of capacity on our revolving credit facility. We continue to be well capitalized with a strong dividend and look forward to executing on our strategic objectives and taking advantage of opportunistic investments as they arise. That concludes our prepared remarks. Operator, please open the line for questions. Operator: Thank you. We will now open the call for questions. We will begin the question-and-answer session. Today's first question comes from Mitchell Bradley Germain at Citizens Bank. Please go ahead. Mitchell Bradley Germain: Thank you for taking my question. Adam, there is a whole bunch of multifamily assets that are owned in different syndications. I am curious, is the expectation of one transaction if you can lock in a larger fund? Is the expectation that this all kind of cleans up with that, or is there the potential for some of these to just continue to remain as one-off investments? Adam Portnoy: Hi, Mitch. Thank you for that question. It is a good question. I think you have to keep in mind part of the way you answer that question is how we put together the portfolio that is our multifamily portfolio. It is the only asset class that we manage that is 100% private. We do not have a public vehicle around multifamily. That portfolio was originally, well, mostly constructed as part of the acquisition of our residential platform about a little over two years ago. Most of those investments are in joint ventures, one-off joint ventures per investment. A few of them are small portfolios. That is how that whole business has been structured, similar to the way we bought it. I expect that we will continue to have many of those joint ventures be the form of the investments we make, especially over the short term. But I think what you are seeing in terms of the Enhanced Growth fund that Matthew Paul Jordan talked about and we have talked about on many calls is we are starting to try to put together a portfolio among the approximately $4.7 billion, which is mostly joint ventures, into, let us say, a fund that we can raise money around. So we are trying to do both. I do not think you will see a transaction that will suddenly, let us say, roll up all $4.7 billion into a new public vehicle— I am not sure if that was your question, but that is not where we are going with that. It is likely to all stay private, likely to continue to be joint ventures, one-offs, small portfolio joint ventures, and our hope is that we can start to build a more dedicated fund around that strategy as well. Mitchell Bradley Germain: Taking that a little bit further, I think the last couple of quarters you seemed a little bit more positive on a potential venture in, I guess we will call it commercial mortgage, as well as, I think, you have mentioned development. Are those two products just a little bit behind multifamily right now with regards to your priorities? Adam Portnoy: They are all top priorities. I will tell you, we are continuing to talk to investors and partners about development projects. I think in the current market environment, the returns required for development projects are pretty high. Development is always difficult when you have a lot of uncertainty, and it is hard to predict the next quarter, let alone 18 months from now, which is typically what you have to sign off on for development projects. So we are continuing to work on those. I expect we will, in the course of the year or so, have some joint venture development projects underway. It is just that today, in the multifamily space, with the portfolio that we have assembled, we are generating the highest amount of interest around that. One comment on the credit that you mentioned, Mitch. We are also very active in talking to investors around credit as well. I would not say it is less of a priority, but we have a lot of money to put out in our Seven Hills mortgage REIT right now, and I think the number is close to $500 million of capacity over the next year of new investments that we are going to be able to make between new money coming into that vehicle and expected loan payoffs. So we have a pretty good pipeline and capacity with our existing vehicles there. We are still talking to investors around credit. There has been a general pullback around credit, given what is going on in the marketplace around some other funds that are in the credit space, especially retail-oriented funds, and so there has been some hesitancy among investors to take those conversations further at the moment. But that is okay from our perspective because we can do a lot of work there anyway. We can put a lot of AUM to work otherwise. Mitchell Bradley Germain: Gotcha. Last one for me. I think at one point you might have had close to $300 million of cash on hand. I think that, obviously, that balance has come down a bit as you are buying some of these assets and warehousing them on balance sheet in anticipation of some of your fundraising. Where are you with regards to how much cash you want to keep on hand for some sort of rainy day? Are we getting close to an amount where you are starting to become a little bit more conservative with allocating capital, or are you still all systems go if the right opportunities are presented? Adam Portnoy: More the “all systems go” if the right opportunities present themselves. We have over $100 million of liquidity between cash on hand and undrawn capacity on our revolver. We are also fairly optimistic that we will be getting some cash back, especially as we are hopefully successful in syndicating the Enhanced Growth value-add fund that we have built up around the multifamily strategy. We have just under $100 million of capital committed to that venture, and if we are successful in syndicating that and getting that fund launched— and we are optimistic that we will get it done— a lot of cash will also be coming back to us, we think. Thank you. Operator: Thank you. Our next question today comes from Christopher Nolan at Ladenburg Thalmann. Please go ahead. Christopher Nolan: Hi, guys. Adam, is Seven Hills participating in the Greenwich project, providing debt financing? Adam Portnoy: Hi, Chris. No. Seven Hills is not providing any sort of financing with the multifamily acquisition in Greenwich. No. Christopher Nolan: And then, I guess, Matthew Brown, did you say adjusted EBITDA in the next quarter will be $19 million to $21 million, or did I mishear you? Matthew Brown: Adjusted EBITDA in the fiscal third quarter is expected to be $19 million to $21 million. Christopher Nolan: Great. I guess as a follow-up in general, Adam, how would you characterize the market for raising equity for commercial real estate as opposed to raising debt for commercial real estate? Adam Portnoy: It is a great question. First, I am going to let Matthew Paul Jordan answer that question. Go ahead, Matt. Matthew Paul Jordan: Well, in terms of the debt, there is a lot of debt available to lend against real estate. We have no lack of interest— just having done this on the Greenwich asset. Adam touched on fundraising around credit, which is very challenging right now for a number of reasons, including a lot of supply in the market in terms of organizations like ours going out with credit vehicles. Fundraising for equity is a very challenging effort right now. The volatility in the Middle East has taken a large number of folks that were putting a lot of money out and put them on the sidelines. Volatility is not a good thing for those that are fiduciaries of deploying capital. The money and the allocations to real estate will be there in the long term, but right now a lot of the conversations we have had are continuing but have slowed significantly. And to Adam's point on the Enhanced Growth venture, I just think it is elongating the fundraising cycle for what we are doing. But there continue to be significant allocations— as we highlighted, we have met with a significant number of global LPs. The RMR Group Inc. itself is still a new brand, so we are spending a lot of time getting our name out there. People are amazed at the capabilities we bring and the breadth of our organization. But things are just going to take longer until the Middle East settles down. Christopher Nolan: Okay. And then I guess as a final question, you are seeing with some private equity shops that they are setting up distressed commercial real estate funds. Is that a potential strategy that you would consider? In my view, that tends to be preparing for some sort of, you know, down cycle. Adam Portnoy: Chris, it is not something we are actively pursuing at the moment in terms of setting up a distressed real estate fund. We have limited pockets within The RMR Group Inc., in the different funds that we manage and groups, that if a really attractive distressed opportunity presented itself to us, we could seriously consider executing on it. But we are not building out a strategy around that today. Christopher Nolan: Okay. Thank you. Operator: Thank you. And our next question today comes from John James Massocca at B. Riley. Please go ahead. John James Massocca: Maybe sticking with the big-picture fundraising theme, you have seen some pullback in some other types of credit funds, private lending being the most notable. Are you seeing any indications of that capital potentially being reallocated to things that are a little more tangible like real estate, or is that just an unrelated phenomenon in your mind? Matthew Paul Jordan: Yeah. I do not think they are related. It is interesting— when you meet with LPs, lending may not even sit in the real estate bucket. It may be in fixed income and other pockets within these large organizations. So we have not yet experienced where credit allocations have been redeployed in a way that has benefited us on the equity side. John James Massocca: Okay. And maybe switching gears a little bit, going back to a little bit of Mitch's last question, what is the appetite today for more wholly owned assets, or at least consolidated assets on balance sheet, to help create the base for funding either the multifamily-focused fund or even maybe a retail fund going forward? Just kind of curious if you think you are at a good point in terms of the wholly owned assets you have today, or if there is more capacity to continue to add to that? Adam Portnoy: Yeah. I think there is a little more capacity to add to it. I do not think we will be adding— until we are successful syndicating the Enhanced Growth venture— wholly owned multifamily assets on the balance sheet. But you mentioned retail. Retail is an area that we could maybe add a couple more assets to the balance sheet if it was the right type of asset. So that is an area that you could see us do some more asset-level acquisitions on The RMR Group Inc. balance sheet to help get that retail strategy further along. John James Massocca: Okay. And then thinking about the quarterly financials, you predicted a little bit— construction supervision revenues were down pretty big, certainly quarter over quarter, but even year over year. How much of that is just the new normal, how much is maybe one-off, and how much is seasonality? Any color on how you would expect that to trend over the remainder of the year? Matthew Brown: Yes. When you look at our construction management fee revenue sequentially, it is really just driven by the start of the year generally being a little bit slower for us as budgets are reset. As we look year over year, at some of our managed public vehicles we had some pretty extensive capital improvement projects going on— mainly within DHC and SVC— that have largely wound down. Those REITs are now forecasting less capital spend in 2026 than they were. We do expect a little bit of a ramp next quarter as we progress throughout the year. John James Massocca: But maybe the year-over-year decline as you think about comparing it to the comparable quarter in 2025 is kind of a good way to think about it going forward? Matthew Brown: Yeah, I think that is a good run rate. Operator: Thank you. And that does conclude our question-and-answer session. I would like to turn the conference back over to President and CEO, Adam Portnoy, for any closing remarks. Adam Portnoy: Thank you all for joining our call today. We look forward to seeing many of you at our upcoming industry conferences, including NAREIT in June, and we encourage institutional investors to contact The RMR Group Inc. Investor Relations if you would like to schedule a meeting with management. Operator, that concludes our call. Operator: Yes, sir. Thank you very much, and we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to the Evaxion Business Update and First Quarter 2026 Financial 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 speaker today, CEO, Helen Tayton-Martin. Please go ahead. Helen Tayton-Martin: Thank you, and welcome, everyone, to Evaxion's Q1 2026 Business Update Call. I'm very pleased to be joined today by our CSO, Birgitte Rono and COO, recently promoted, we will talk more about that; and Thomas Schmidt, our CFO; and our Head of Investor Relations and Communications, Mads Kronborg. So if we move to the first slide, just to provide some orientation as to what we will cover today. We will spend a little bit of time on our achievements in the first quarter of this year and some notable changes that we have made in order to address and focus on our strategy. I will then hand over to Birgitte, who will talk through some of the recent highlights from our R&D portfolio and AI-Immunology platform. Birgitte will then hand over to Thomas, who will walk you through our Q1 financial results. And then we will have some concluding remarks before opening up the call for Q&A. So if I move to the next slide, just to reiterate, we may make some forward-looking statements on the call today, and investors and all listening are guided towards our SEC filed documents. So if I go past our introduction to Slide 5. I just wanted to, as before, emphasize our 4 key focus areas within the organization and give you a sense of the momentum as we perform an update in each of those areas. First of all, our core focus around business development and partnering is very much underway and strengthened. By the way, we have reorganized the organization somewhat, and I'll come on to that to focus on the external outreach and positioning of the company to a broader audience and also to raise the awareness of exactly what it is that Evaxion can deliver in terms of products and the platform. And I'm pleased to say that we have many discussions ongoing there, and we hope to report more on that later as the year progresses. Secondly, in our R&D focus areas, we are delighted to talk about our recent data from our EVX-01 lead program Phase II study in which we were able to update some of the translational data recently at AACR, and Birgitte will talk in more detail about the performance of the cells that we produce in relation to the vaccines given to the patients and the 86% immunogenicity conversion rate we have there. We also were able to present at AACR, a new set of data preclinically in collaboration with our collaborators at Duke University on the scope to use the AI-Immunology platform in glioblastoma. We have always felt that the approach could be applied to other high mutational burden tumors, but also to others where high mutational burden was not a feature, and that is very much part of how we were able to demonstrate the broader applicability of the platform in glioblastoma. And again, Birgitte will speak more to that. Finally, we were able to confirm the completion of the last patient, last visit in the extension phase of our EVX-01 program and our Phase II trial, and more to come on that later in the year. More broadly on the AI-Immunology platform, we continued to optimize and strengthen that around its ability to deliver products across our infectious diseases as well as oncology portfolio and again, also in autoimmune disease, again, where we'll update later in the year. But in this first quarter, I'm delighted to say that we were able to show some initial data on a new polio vaccine concept presented in collaboration with The Gates Foundation. And finally, as Thomas will come on to, we have maintained our disciplined allocation of resources aligned to our stated aims with the portfolio and the platform, and our cash runway remains unchanged into the second half of 2027. Moving to Slide 6. As mentioned, we have reorganized slightly inside the organization. I'm delighted to announce the promotion of Birgitte to the combined role of CSO and COO, which really reflects on how we organize the company and how well it's been run in recent times, but also to enable me, in particular, to have a greater focus externally on behalf of the company in terms of our business development and our investor interactions. Separately, and in parallel, we were able to welcome Jens Bitsch-Norhave to our Board of Directors. And Jens comes to us with a huge amount of experience in BD and corporate strategy and outreach in general, both from a biotech perspective but more recently from J&J and Hengrui, where he is currently Corporate VP and Global Head of Corporate Development. So we're delighted with the way that we've been able to strengthen the organization to focus on our stated strategy, to build and maintain what we have and build greater partnerships. So on Slide 7, just to summarize, we remain a lean and capable and focused team in terms of the management organization. Two of the members are here on the call with me today, and Andreas continues to support and drive the organization's innovation strategy around AI-Immunology. And our Board remains the same but with the addition of Jens, as I mentioned. Finally, moving to Slide 8 to set up our objectives and key milestones for this year. Just a reminder that Evaxion over many years now has the privilege of having a pipeline in Phase II in oncology with our EVX-01 asset in advanced melanoma, our personalized neoantigen-directed peptide-based vaccine, where we've got great data, which Birgitte will touch on in terms of now and what's to come. We have our EVX-03 program, which is a combination of personalized and IRF-based antigens on our DNA platform. And then we also have coming along in preclinical development, aiming for clinical readiness by the end of this year, our off-the-shelf vaccine program, EVX-04 targeted to AML, which will be a single vaccine approach for multiple AML patients. More to come on that. Infectious diseases, we remain focused on driving forward our preclinical assets, EVX-B1 against pathogen staph aureus, our B2 program against Neisseria gonorrhea and also in collaboration in -- with Afrigen on an RNA platform. EVX-B3, our options partner program continues to move forward with MSD. And before our more recent newer program on Group A Streptococcus is making great strides in initial early discovery component design. And our first viral program is continuing to make progress in terms of confirming the candidate components. So a lot going on in the organization. In Slide 9, I just wanted to remind the audience of our 2026 milestones and the fact that we have achieved the first one of those in our EVX-01 additional biomarker and immunogenicity data, and we remain on track in terms of updating on the approach of AI-Immunology in autoimmune disease, our 3-year data for the EVX-01 melanoma program, our planned strategy with the EVX-04 AML program and the early work maturing in our preclinical EVX-B4 program against Group A Streptococcus. And fundamentally, we are driving the partnership strategy to focus on the platform and the assets so that we can continue to build value in the company and focus on delivering those into early development where we believe we can add value. So at this point, I'd like to hand over to Birgitte, who will talk you through our R&D and AI-Immunology update. Birgitte Rono: Thank you, Helen. So today, I'll be focusing on our lead candidate, EVX-01. And as mentioned, this is our personalized neoantigen cancer vaccine currently in Phase II in advanced melanoma. And then I will present the exciting new data demonstrating the scalability of our AI-Immunology platform into the hard-to-treat deadly brain cancer glioblastoma. And lastly, I will showcase how we have applied AI-Immunology to design optimized vaccine antigens for an improved polio vaccine. So if you take the next slide. So as Helen mentioned, we presented EVX-01 Phase II biomarker and T-cell immune data at the AACR Annual Meeting here in April. And we reported that 86% of the EVX-01 vaccine target triggered a specific immune response, and this is substantially higher than what has been reported for other similar vaccine candidates. Furthermore, we also reported that 86% of the immunogenic vaccine target induced a de novo T-cell response, meaning that the EVX-01 vaccine specifically triggers novel T-cell responses and not just amplifying existing responses. And this is of great importance as induction of these novel responses have been linked to clinical benefit. Furthermore, we demonstrated a positive correlation between the predicted quality of the EVX-01 vaccine targets and the magnitude of the T-cell response induced by the vaccine targets. And this high vaccine target success rate, together with this positive correlation demonstrates the strong predictive power of our AI-Immunology platform. If you take the next slide. So EVX-01 continues to deliver strong data, adding to the already existing and promising clinical and immunological data package. So at ESMO last year, we reported a 75% overall response rate, including 25 complete responders and 92 sustained responses, indicating a durable benefit. So importantly, more than half of the patients converted into an improved clinical response upon EVX-01 treatment. And with the newly presented Phase II immune data, this further strengthens the picture with the 86% immunogenicity and the 86% de novo immune responses, demonstrating broad and consistent immune activation. So looking ahead, we have a clear development trajectory. We will announce 3-year data, including clinical outcome in the second half of this year. Further, we are evaluating and discussing additional relevant cancer indications and with further trials expected to be conducted in partnerships. And importantly, EVX-01 has already received FDA Fast Track designation, validating both the unmet need and then also the development potential. So overall, this positions EVX-01 very strongly as we move forward into the next phases of value creation. If you take the next slide. So let's turn our focus to the other promising data set presented at AACR. So in collaboration with Duke University, we demonstrated that our AI-Immunology platform scales beyond melanoma. And here, it's exemplified with glioblastoma or GBM. So GBM is the most common and the most aggressive primary malignant brain tumor. And despite surgery followed by chemoradiation, outcome remains very poor for these patients with a median overall survival of approximately 15 months and a 5-year survival below 10%. So using our AI-Immunology platform, we have evaluated tumor omics data from 24 GBM patients and demonstrated that a fully personalized vaccine design was feasible for all these cases. And importantly, these designs were based on 2 classes of antigens or classical neoantigens and also antigens derived from the dark genome so-called endogenous retroviruses or ERs. So in 21 out of the 24 designs, they included both types of antigens, 2 vaccine designs included only neoantigens and 1 design relied solely on the ER antigens. This analysis showcases the flexibility and the scalability of the platform to integrate antigen from different sources, fitting the patient tumor biology. So overall, the data demonstrate that AI-Immunology can address hard-to-treat low mutational burden tumors like GBM and it also supports broader applicability of the platform across different cancers. If you move on to the next slide. So another example of how AI-Immunology can be used to design improved vaccine was showcased at the World Vaccine Congress. And together with The Gates Foundation, we presented a new polio vaccine concept using AI-Immunology, we designed a novel hybrid capsid antigen and a novel de novo B-cell antigen with the aim of eliciting a strong and broad tumor response against all serotypes. And overall, this highlights the potential of AI-Immunology to reinvent classical vaccines with improved simplicity and also improved breadth. Take the next slide. So having highlighted progress across the key R&D program, let's step back for a moment and focus on AI-Immunology and the data validating its ability to generate high-quality product candidates. So AI-Immunology is clinically validated with positive outcomes in 3 out of 3 oncology trials. And preclinically, we have demonstrated proof of concept across multiple disease areas, including cancer with our IRF targeting off-the-shelf vaccine concept as well as in infectious diseases with several vaccine candidates targeting multiple bacterial and viral pathogens. And importantly, the EVX-01 concept is highly scalable with potential in other solid tumors beyond melanoma. Additionally, the platform's applicability in challenging cancer indications was further validated in GBM. So finally, AI-Immunology supports multiple modalities, including peptides, proteins and DNA and RNA, enabling both pipeline and also partnership potential. So in conclusion, we have demonstrated strong progress across our platform and our R&D pipeline, and we are looking forward to keeping you updated as we advance our programs further. So with that, I will now hand over to Thomas, who will present our quarterly financial results. Thomas Schmidt: Yes. Thank you, Birgitte. And as mentioned, I will now then present and take you through our Q1 '26 results. The highlights of the first quarter of the year really is a continued discipline that we have applied in our resource allocation, of course, aligned with our strategy and certainly investing into our value drivers. So really according to plan. And that also means that we are on track to deliver what we expect of an operational cash burn of roughly USD 14 million for 2026. That also underlines and reconfirms that our cash runway is into the second half of 2027 and remains as such. Also, as earlier communicated, not assuming any partnerships or deals that we will hopefully be making and communicating within that time frame. Looking at the P&L, we have operating expenses overall more or less in line with last year, but slightly reduced. It comes from our R&D with a minor increase as we continue, as mentioned before, to progress and advance our pipeline and programs according to plan. On the other side, our G&A expenses are slightly lower versus last year, also mainly driven by the fact that we have lower capital market costs in Q1 '26 versus the same period in '25. The first quarter resulted in a net loss of USD 3.6 million, again, according to our plan. On the balance sheet side of things on the next slide, reconfirming once again, our cash position and equivalent end of the quarter stands at $18.4 million, which confirms runway until the second half of '27. And the total equity has been reduced since year-end, really as a result of the net result of the first quarter, meaning that we have USD 13.2 million as equity at the end of the quarter. So all in all, financials according to plan, allocation into our main priorities and cash runway confirmed until the second half of 2027. With that, I hand it back to Helen for some concluding remarks. Helen Tayton-Martin: Thanks, Thomas, and thanks, Birgitte. And so I would just like to emphasize that we believe we've made a great start to 2026, achieving the first of our milestones with a really encouraging translational data from EVX-01. We've got various presentations that have been made that validate the capabilities and scalability of the platform, as Birgitte has explained. Business development remains a key priority in terms of engaging with organizations on the value of the assets that we have and the capability to develop those assets as we've talked a bit about. And the cash runway is maintained through to the second half of 2027. So we are rigorously following execution of our strategy and engagement externally and making great progress. So with that, I would like to hand back over to take some questions by the operator. Operator: Our first question comes from the line of Thomas Flaten from Lake Street Capital Markets. Thomas Flaten: Two for me. With respect to the 3-year EVX-01 data, ASCO is obviously too soon. But should we anticipate something like an ESMO readout? Or will you do it independent of a broader scientific meeting? Helen Tayton-Martin: So we will be updating in the context of a scientific meeting. We will not be sort of outside of that, that's not our intention. And we'll confirm which of the 4 conferences it will be once we're able to -- once abstracts are released. Thomas Flaten: I think the GBM data that you put out, albeit early, was very exciting, and obviously, a disease state and great need. Is it your strategic intent to take that into humans? Or would you seek a partnership based on the data you have now and perhaps some additional preclinical data? Helen Tayton-Martin: So we are very excited about the data. We agree it's really interesting and it's really exciting in a very difficult-to-treat disease. We would anticipate that that will be something that we will be partnering. It sort of strengthens the overall personalized approach that we have developed with EVX-01, but probably more to come on that as more data and discussions mature, but it would be a partnering approach for that one, too. Operator: Our next question comes from the line of Michael Okunewitch from Maxim Group. Michael Okunewitch: Congrats on all the great progress. I guess to kick things off, I'd like to ask just a little bit about expansion and I guess, your design philosophy and strategy around that. So first off, when thinking about targets for expanded indications in cancer, in particular, is the plan to go after other diseases where PD-1s have historically been ineffective due to that synergistic activity of directing the antitumor immune response? Helen Tayton-Martin: So I think we've taken a lot of parameters into account. But Birgitte, do you want to comment on how we have been marshaling the approach internally to focus on the rare diseases? Birgitte Rono: Yes. So as mentioned, we are looking at multiple different antigen sources currently, and there's further development in this area in the company. So we would like to be able to provide a cancer vaccine for all patients independently of their antigen profiles or landscapes. So we have so far looked at more than 30 different indications, mapping out their seasonal burden, their ERV burden, et cetera, and can see that for many of these indications, we're able to -- with the capabilities we have currently to design a high-quality vaccine. And of course, one would need to further dive into medical need and current treatment landscapes to find the optimal subpopulations where our therapies would fit, but not necessarily in PD-1 low patient, it could also be in high. So it's mostly -- we are mostly focusing on understanding the antigenic landscape and fitting our therapies towards these profiles. Michael Okunewitch: When thinking about designing new vaccines, do you find that it makes more sense to use one personal vaccine and then see if you could expand that to multiple tumor types with the same vaccine for more universal coverage? Or does it make more sense to go tumor by tumor and create a new back of targets that are directed specifically at the common target for that given tumor type like melanoma or like glioblastoma and have an individual vaccine candidate for each of those different cancers? Birgitte Rono: So the way that we are approaching this is to look into a lot of data from certain indication and understanding, as mentioned, the landscape. If we do see that there are these conserved antigens, so antigens that are shared across patients, we would definitely develop an off-the-shelf vaccine just due to the fact that the statistics are more simple and also the cost for the manufacturing would be way lower than for a personalized approach. Further on, you can -- if there's an off-the-shelf therapy, you can immediately treat the patients and not have to wait for that personalized batch to be ready. So that's -- everything comes back to the patient omics data and the profiles that we are seeing in our analysis. For some indications, we know that developing an off-the-shelf cancer vaccine would be very challenging. So it clearly depends on these different biological profiles. Helen Tayton-Martin: I think the EVX-04 illustrates just where in that setting, I think, the high level of conserved has enabled us to produce a single vaccine for those patients. Michael Okunewitch: I appreciate the additional color and looking forward to the 3-year data coming up later this year. Operator: We will now take our next question. And this question comes from the line of Danya Ben-Hail from Jones. Danya Ben-Hail: Congratulations on the update. You mentioned that there are several parallel partnerships and discussions. Can you provide more detail on whether these discussions lean toward broad platform licensing or specific asset-based collaboration in future? Helen Tayton-Martin: So we obviously can't say much at this point. I think we have stated the priority around partnership on EVX-01. But as you've heard, that has broader applicability than melanoma in our minds. And that has obviously also gathered interest externally with partnering conversations also. Across our infectious diseases portfolio there are a number of assets there, which are of interest to a number of companies. So we can't really provide any more details than that. Suffice to say that we are trying to be strategic around the way we have the partnering discussions in terms of maximizing the value, whether it's from an asset group in infectious diseases or the approach with something like the personalized EVX-01, EVX-03 cancer vaccines. So obviously, we will -- as soon as we can tell you more, we'll be delighted to do so, but we're pushing forward on a more strategic basis, if you will, around how to get the most value out of the assets that we can produce from AI-Immunology. Danya Ben-Hail: Just one more question on the autoimmune platform part. So we should expect more details in the second half? Helen Tayton-Martin: Yes, that's our current plan and aligns to -- as is always generally with Evaxion, generally aligns to scientific relevant conferences to report on data. Operator: There are no further questions for today. I will now hand the call back to Helen Tayton-Martin for closing remarks. Helen Tayton-Martin: Thank you. Thank you very much. And thank you to all those who listened into the call, and thank you very much for the questions that we received. I think in summarizing, we are very enthusiastic and excited about the performance so far in Q1 2026. We are really just getting started and we are achieving our milestones as we have stated them to be. So very excited about the initial data, very excited about the additional updates to come later this year. With that, I'd like to thank you very much, and I think we'll be closing the call. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to The Carlyle Group First Quarter 2026 Earnings Call. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Daniel Harris, Head of Investor Relations. Sir, the floor is yours. Daniel Harris: Thank you, operator. Good morning, and welcome to Carlyle's First Quarter 2026 Earnings Call. With me on the call this morning is our Chief Executive Officer, Harvey Schwartz; and our Chief Financial Officer, Justin Plouffe. Earlier this morning, we issued a press release and a detailed earnings presentation, which is available on our Investor Relations website. This call is being webcast, and a replay will be available. We will refer to certain non-GAAP financial measures during today's call. These measures should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. We have provided reconciliation of these measures to GAAP in our earnings release to the extent reasonably available. Any forward-looking statements made today do not guarantee future performance, and undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the Risk Factors section of our annual report on Form 10-K that could cause actual results to differ materially from those indicated. Carlyle assumes no obligation to update any forward-looking statements at any time. In order to ensure participation by all those on the line today, please limit yourself to one question and then return to the queue for any additional follow-ups. And with that, let me turn the call over to our Chief Executive Officer, Harvey Schwartz. Harvey Schwartz: Thanks, Dan. Good morning, everyone, and thank you for joining us. We wrapped up another strong quarter, headlined by record U.S. buyout realizations, high level of inflows, fee-related earnings of $300 million and a 47% margin. Momentum across the platform continues to accelerate and performance remains strong, reinforcing our confidence in our strategic plan. These results came against a complex global backdrop. Before we go deeper into the quarter, I want to spend a few minutes on the environment and the global macro trends. Geopolitical uncertainty and splintering are front of mind for investors and are influencing capital allocation and investment decisions. But of course, this is not new. Over the past 5 years, we've navigated COVID, the ongoing Ukraine-Russia war and now the war in the Middle East. As a result, there are two subjects that every government official I meet with wants to discuss, national security and stimulating economic growth. By national security, I mean both investment in traditional defense but also energy security. The focus on economic growth and competition across regions is intense with a focus on reindustrialization and onshoring top of mind. Underpinning all of this change is an increasing need for capital and innovative client solutions. Everywhere I go in the world, the message is the same, the demand for private capital continues to grow. Our team and the breadth of our platform is well positioned in this environment. Our diversified set of businesses span private equity, real assets, private and liquid credit and Carlyle AlpInvest. In today's environment, diversification is a distinct advantage. Our deep sector expertise in aerospace and defense, industrial, energy and healthcare, maps directly towards a growing investment opportunity set, and we've been doing this at scale for decades. Now before Justin and I run through the quarter's financial performance, I would like to highlight an important milestone from earlier this week. We closed a first-of-its-kind investment solution anchored by a $5 billion commitment secured for our next vintage U.S. buyout fund. This innovation provides a capital-efficient way to address our clients' needs. It's a solution that provides both access to our next U.S. Buyout Fund and simultaneously offers them a tailored solution to provide liquidity. This solution underscores how we are leveraging Carlyle AlpInvest capabilities in portfolio finance and secondaries alongside our private equity platform to deliver differentiated outcomes for our investors. It was truly a win-win for our investors and for Carlyle. Through this structure, several cornerstone investors have increased their exposure to U.S. Buyout, further demonstrating our confidence in our platform and continued interest in the core sectors we focus on. Also, it's important to note that we haven't launched fundraising for the next U.S. Buyout Fund that will come later this year. Let me move on to some of the strong activity trends we saw in the quarter. As you have seen in prior quarters, we continue to return capital to investors at a faster pace than the industry. Realizations were more than $12 billion, reflecting the high quality of our portfolio and continued prioritization of returning capital to our fund investors. It is also worth noting that we returned a record amount of capital to U.S. Buyout Fund investors this quarter, a rate which is more than 40% higher than our prior record set in 2021. We continue to have a deep set of assets to monetize for our investors. Deployment was $10 billion in the quarter, and we also announced 2 large transactions that will close in the coming months, the $8 billion carve-out of the coatings business from BASF and a $3 billion acquisition of MAI Capital Management. We also invested $4 billion in private credit and nearly $4 billion across a diverse set of strategies in Carlyle AlpInvest. These transactions should also contribute to a pickup in transaction fee revenue in the coming quarters. On inflows, we had a great start to the year, attracting $13 billion of new capital. In Carlyle AlpInvest, we raised nearly $7 billion in the quarter, reflecting strong demand for our broad set of secondaries, co-investment and portfolio finance strategies. We also saw sustained inflows in our wealth vehicles, including CAPM and CAPs. AlpInvest is benefiting from both favorable market dynamics and strong performance. In Global Credit, we raised $4 billion in the quarter. Demand remains strong across our diversified platform. We had a first close on a new closed-end asset-backed finance strategy, that strategy now tops $12 billion, up more than 30% compared to last year. In summary, Carlyle continues to benefit from a diversified platform that can provide durable results across dynamic changes in geopolitics and market environments. As you would expect, 2 months after the shareholder update, we remain quite confident that we will reach or exceed the targets we laid out for you in February. With that, let me turn the call over to Justin. Justin Plouffe: Thanks, Harvey. Good morning, everyone. In the first quarter, we generated distributable earnings of $327 million or $0.89 per share. Fee-related earnings were $300 million at a 47% margin compared to $290 million in Q4. Fund management fees were $545 million, up 4% year-over-year, driven by continued growth in Carlyle AlpInvest and Global Credit. Carlyle AlpInvest continues to be a great growth story with a record level of AUM and record inflows during the quarter. Our underlying recurring fee base continues to grow, and we expect to see management fees accelerate over the next 2 years, consistent with the path we laid out at our shareholder update. Fee-related performance revenues of $45 million in the quarter were 15% higher year-over-year, driven by growth in our Evergreen wealth strategies, where AUM now stands at $19 billion. That's 4x the level from just 3 years ago. We produced $54 million in transaction fees in Q1, and we expect this to increase next quarter driven by the completion of several transactions that have already signed or closed. In Q1, we generated $12 billion of realized proceeds, our third best quarter ever. Net realized performance revenue of $21 million this quarter was lower year-over-year, but this was simply a matter of composition. Most of the first quarter exits were in funds not yet realizing carry, notably CP VII and CP VIII. As we continue to return capital to fund investors and drive value creation, we expect our level of NRPR to increase. We have several transactions that should drive realized carry over the remainder of 2026, notably in our fourth Japan buyout fund, third financial services fund and fourth European technology fund. Now let me turn to some details on our individual segments. In Carlyle AlpInvest, FRE was $68 million in Q1, higher year-over-year despite having $13 million less in catch-up fees for the quarter. Total AUM reached a record $107 billion, up 20% year-over-year. Record quarterly inflows of $6.8 billion were driven by broad-based institutional and wealth activity across the platform. Net accrued performance revenues reached $643 million, a 13% increase year-over-year. Carlyle AlpInvest continues to show great momentum with our next vintage funds expected to have first closings later this year. In Global Credit, FRE was $93 million in the quarter. Management fees of $147 million increased 6%, while transaction fees were modestly lower. Total AUM of $209 billion was up 5% from a year ago and inflows of $3.9 billion in the quarter were led by the $1.5 billion first close of our new asset-backed finance fund. For the last 12 months, credit inflows totaled $25 billion. We continue to see strength in the credit metrics of our underlying portfolio across our diversified credit platform. In direct lending, our current nonaccrual rate is only 1%, and our inception-to-date loss rate over 13 years is just 8 basis points per annum. In structured credit, our default rate of about 50 basis points remains at half the industry average. We continue to actively manage the entire portfolio, and we feel well positioned to take advantage if credit markets experience increased volatility over the rest of 2026. In Global Private Equity, FRE of $140 million in the first quarter was in line with Q1 last year. But the key operating metrics for this business, notably fundraising and realizations show strong momentum. As Harvey noted, we already have earmarked $5 billion in commitments for our next vintage U.S. buyout strategy. This was a fantastic outcome. The solution broadly leveraged the entire firm and highlights our differentiated ability to deliver tailored solutions for our LPs. We returned a record $7 billion in proceeds to U.S. buyout investors this quarter. CP VII alone returned nearly $5 billion of proceeds, driving DPI in the fund to more than 70% with nearly $17 billion in remaining fair value. We've made great progress for CP VII investors over the past 2 years and expect to continue returning capital for at least the next several quarters before we start realizing carry from this fund. Shifting to the balance sheet. We ended the quarter in a strong position. Balance sheet assets attributable to Carlyle shareholders, including cash, net accrued performance revenues and investments net of debt totaled approximately $5 billion or roughly $14 per share. We declared a quarterly dividend of $0.35 per common share, in line with the quarterly level in 2025. We repurchased or withheld 3.8 million shares totaling $205 million in the quarter, and we have $1.9 billion remaining on our $2 billion repurchase authorization. Our diluted share count of 360 million is down over the past year. We remain disciplined and opportunistic in how we think about capital allocation. Investing in growth remains the priority, but share repurchases are an important part of the equation as well, and we will continue to be active on that front. Looking ahead, we entered the second quarter with strong momentum. Dry powder of $96 billion is a record and up 13% year-over-year. Our platform is diversified across strategies, geographies and client channels, making us extremely well positioned to navigate the current market and continue creating value for our investors and shareholders. As we said at our February shareholder update, our growth plan is grounded in a bottoms-up organic strategy for each of our businesses. We see a clear path to $200 billion of inflows, $1.9 billion in fee-related earnings and $6 or more per share in DE by the end of 2028. We fully expect to achieve or exceed each of these goals. With that, let me turn it back to the operator to take your questions. Operator: [Operator Instructions] And we'll take our first question from Alex Blostein from Goldman Sachs. Alexander Blostein: I was hoping we could start with a couple of questions just around the structure that you announced earlier this week. Obviously, quite unique and a creative way to move the franchise forward. I was hoping, Harvey, you could expand on how this solution was originated, just maybe spend a couple of minutes on the actual dynamics within the structure. There's a couple of things going on, but how the assets will be coming in into the SPV and how it's ultimately funded? Curious also on the response from other LPs. And then ultimately, when it comes to financial implications for Carlyle, anything we need to think about with respect to changes in economics, either to Fund VII or VIII or how the fee structure will work for Fund IX? Harvey Schwartz: Great. Thanks for the question, Alex. So -- maybe take a step back for a minute. The Carlyle AlpInvest platform, often sort of secondhand is thought of by people as a secondaries business. And as you're seeing for the last couple of years as we've strategically repositioned the platform, it really is obviously much more than that. It's secondaries co-invest, primary business, and it's a solutions business. And one of the most important parts of that business is this growing solutions business which really is about providing GPs with thoughtful solutions when they want to take incremental exposure or LPs where LPs want to dynamically manage their portfolios. And they've had huge success providing LPs with that value. The genesis of this was really thinking about how Carlyle could -- as a very capital-light firm, optimize the use of our capital. We knew of strategic LPs that wanted to reposition their portfolios in ways that make sense for them. They also wanted increased exposure to U.S. buyout. And we were able to come up with this solution, which is not particularly complicated, but I would say for this industry is innovative, creative and again, solves our clients' objectives. For the firm, obviously, and the team, it's a good outcome because it's a cornerstone financing of $5-plus billion at full fees. There's no impact. The most important thing about putting this together was obviously solving for our LPs needs, but also ensuring that there was perfect alignment with the fund and the future fund raise. And so all of that was really critical to how we brought this together. In terms of the firm and alignment, there's a subordinated portion of equity where the firm is aligned there to supporting, which obviously, our LPs love. But I think this really reflects where this industry is going. And I can tell you, the solutions business already had huge momentum because of what they're able to provide LPs and GPs. But since announcing this, the phone has been ringing off the hook with people looking to engage in terms of how they can either replicate this and create value for their LPs or their GPs. And so I just think this is a direction of travel for the industry, but you really have to have the thoughtful experience of a Carlyle AlpInvest team to actually bring this together. Operator: And we'll take our next question from Ken Worthington from JPMorgan. Kenneth Worthington: I wanted to dig into the outlook for carry in private equity and AlpInvest. For private equity, can you talk us through cash carry in Japan IV and Financial Services II and III, while we wait for CP VII and VIII to kind of come into cash carry. And for AlpInvest, carry comp was the lowest level, I think, we've seen on record. Are we sort of at the point where carry is coming from funds and AlpInvest with really better economics for shareholders? Justin Plouffe: Yes. So let me take the AlpInvest side first. As you probably know, AlpInvest has a European-style waterfall. So a little bit more difficult to predict. I think the most important thing for AlpInvest is the returns continue to be really great. So tremendous momentum in that business admittedly hard to predict the timing of carry. But as long as the returns continue to be strong, then ultimately, that's going to be a great outcome. We've got a variety of deals that are already signed, closed or deeply in process in some of our other funds. You noted Japan buyout, you noted Europe Tech. So those are all going to come through, we would expect in the next few quarters. Again, I'm hesitant to give specifics on timing and amounts because some of those are public, and it will depend on pricing and market environment over the next few quarters. But those are very near term. They're well along the way. In the rest of 2026, they will definitely come through. So we're pretty optimistic about the future, the next few quarters of carrier realizations. A lot of activity going on around the firm, a lot of great returns for shareholders. Operator: And we'll take our next question from Steve Chubak from Wolfe Research. Brendan O'Brien: This is Brendan O'Brien filling in for Steven. Just wanted to touch on the invest -- the AlpInvest business. You guys have had a lot of success in the wealth channel with your CAPs and CAPM products. However, the practice of day 1 markups has come under increased scrutiny of late with one of your competitors seeing pretty meaningful outflows in their retail product as a result. I understand you may not want to overreact to the headlines, but just given what we're seeing in some of the other asset classes within the retail space, it does seem reasonable to be a bit more front-footed here. So I just wanted to give you an opportunity to respond to this criticism whether you're considering any changes to your approach and if you're seeing this have an impact on your conversations with advisers. Harvey Schwartz: So look, conversation with advisers remains very robust, and you see that obviously in the inflows. In terms of any practices, we're not changing any of our practices. The industry participates in different types of asset pools. The team has always, for the most part, purchased asset pools that are much closer to par. Historically, where we've had our best performance in this business for 25 years is actually buying higher performing assets. So we don't -- the team doesn't really historically buy deep discounted very aged assets. But the reception continues to be very strong. As Justin pointed out, the performance has been very strong. And so we feel really quite good about our partnerships and the platform and the engagement from advisers. Operator: And we'll take our next call from Brennan Hawken from BMO Capital Markets. Brennan Hawken: Base fees were relatively flat year-over-year, although they didn't benefit from catch ups here this quarter, clearly. You guys have spoken a lot about how active the back half of the year, in particular, is going to be for fundraising with the super cycle coming up. But could you maybe walk us through your expectations for what the profile of the base fee growth will look like as we progress through that fundraising and it starts to hit the top line? Justin Plouffe: Yes. Sure, Brennan, thanks for the question. Look, the base fees were up 4% year-over-year. They're up 7% on an LTM to LTM basis. We expect that to accelerate. You mentioned the super cycle in fundraising. We're just really starting that for AlpInvest, for private equity. We're going to have opportunistic credit out for the credit business. So we're entering a period where we think our fundraising will really accelerate. We had, as you know, a couple of funds step down. We're past that now. So that rate that you see today, 7%, LTM over LTM, I expect that to accelerate as we go into the super cycle because we're getting really great feedback from LPs and that bodes well for the next few quarters of fundraising. Operator: And we'll take our next question from Mike Brown. Michael Brown: I wanted to ask another question on the wealth channel. So CTAC is a diversified credit fund. You have a small portion of direct lending exposure in there, yet it still saw elevated redemptions last quarter. Why do you think that's the case? And was it just kind of caught up more in the private credit direct lending fears? And when you think about maybe the coming quarters, do you think the redemption requests and gross sales could differentiate going forward? And maybe how are you messaging that kind of or different aspect to the wealth channel? And do you think that message is kind of getting through to the channel? Harvey Schwartz: Yes. I spent a lot of time with advisers. I think that the message is getting through. CTAC is quite diversified, as you know, there's over 900 names. It's across the platform. It's marked Daily. It's one of the few solutions, maybe the only solution out there that's marked Daily. I think we've been marking at Daily for over 5 years. I think going back to 2020. And so advisers respond really well to that. I think when you have an environment like we've seen in the last quarter where you -- and remember, we were later in the queue for redemptions and so they were building through the course of the quarter. And so sort of going from one fund to the next fund, I think that was to be expected. There was no surprise for us in that. The performance remains strong in the adviser engagement. I think we probably will likely just given what you see across the industry, if I had to guess, it's a bit of a guess, I think this period of redemptions may persist for a little while. Some of the analysts have come out with their forecast. I think that's reasonable. But CTAC as a diversified marked Daily credit solution offers a lot of benefits. So the long-term trajectory, we feel quite good about. Operator: And next, we'll go to Bill Katz from TD Cowen. William Katz: I'd like to sort of maybe click into the credit portfolio a little bit. If I look at the AUM, they've been -- fee-paying AUM has been relatively stable now for a better part of a year or so. I was wondering if you can maybe speak to the opportunity. I think you were sort of talking about direct lending, what you're seeing in the insurance channel. And then curiously, yesterday, one of your peers had some very pointed commentary about the efficacy of CLOs. And I was also wondering if you could talk about maybe the durability of that business as well. Justin Plouffe: Sure. Well, we're seeing good fundraising momentum in credit. We raised nearly $4 billion in the quarter really in a broad-based basis. As you know, Bill, we've been resetting many of our CLOs over the past few years. So that's really stabilized the CLO base fees going forward. CLOs went through the financial crisis, and they did incredibly well. There is a very well-established investor base for CLOs. So we actually feel great about that business. Importantly, the most important thing, our investment performance in credit has been really strong. We've been managing CLOs for 25 years. We've got half the level of defaults as the industry does in direct lending. We have a fantastic track record that I think investors have been very responsive to as we continue to grow that business. So private credit, CLOs, these have reached exit velocity in terms of being asset classes that have a place in the financial system. They're not going anywhere. And with the track record that we have, we think we're incredibly well positioned to continue to grow in both areas, frankly. Harvey Schwartz: The only thing I'd add to that, Bill, is that in conversations with institutional investors, a lot of the headlines that have been coming around about the wealth channel and direct lending have really piqued the interest of institutional investors. And as you know, we added significant resources to our team over the past 6 months. So we feel really well positioned with the new team to build market share across the platform. So actually, the momentum feels quite good. And obviously, we don't have some of the challenges that some of the other market participants have in our portfolio. So we feel very well positioned and feel really good about the CLO business. Operator: And our next question comes from Dan Fannon from Jefferies. Daniel Fannon: I wanted to follow up on credit one more time here. Just in terms of the management fee growth, and it's been a bit more stagnant in recent quarters. So curious about the ins and outs in terms of what's your fundraising versus what's leaving and maybe the mix and change in fees as we think about the products as we go through the rest of this year? Justin Plouffe: Sure. Well, I'll note credit management fee is up 10% LTM basis. So -- we are seeing good momentum there. For a bit, there was some CLO runoff, which has now been stabilized as we've gone through so many resets in the past couple of years. The other thing I'd note is we're coming to market hopefully soon with our opportunistic fund. That's a higher fee product. We're raising capital in direct lending, having good success with our private BDC there. That's another product that would have higher fees than CLOs. So I think you'll continue to see the mix improve. And again, tremendous momentum in that platform. If you think back 7, 8 years ago, it was really only a CLO business. Now it is incredibly diversified and durable. No matter what's going on in the market, we have a strategy that can take advantage of it. So that's going to lead to, I think, great fundraising as we go through and navigate these different cycles where maybe a direct only shop isn't so well positioned to take advantage. Operator: And our next question comes from Michael Davitt from Autonomous Research. Patrick Davitt: It's Patrick Davitt, I go by the middle name. I have a follow-up on Brennan's fee growth questions. I know it wasn't an explicit part of the Investor Day deck guidance, but during the Q&A, you suggested a path to mid- to high single-digit FRE growth this year. Do you still think that's achievable? And if so, what are the big levers that get you there after the slower 1Q? Harvey Schwartz: Yes. We feel confident about that -- those numbers. If there was a change in that, we would update you. In Q1, again, I feel really good about the momentum given the fundraising and we expect things to accelerate. Obviously, we can't predict the environment. The world has been a little bit complex. But yes, we feel confident about the trajectory. Operator: Excellent. And our next question comes from Michael Cyprys from Morgan Stanley. Michael Cyprys: I wanted to ask about AI deployment across the portfolio of companies. Just curious where you're seeing any sort of AI-driven revenue uplift versus cost savings in the portfolio, how you might quantify any of the benefits you're seeing so far? And your expectations as you look out in terms of AI as a source of value creation. Maybe you could talk about how easy it is, what's hard and any sort of lessons learned from adoption so far? Harvey Schwartz: I would say that I would say the adoption is steady. I think where obviously you've seen it is where sectors where we're not as exposed, obviously, in software and things like that, I think, obviously, in high-scale automated functions like accounting, lots of processing, rule-based systems, you're starting to see the adoption rate. I would say across the firm taking a step back, we're leaning in very, very heavily into the data science and AI, and I would call sort of what's becoming table stakes in terms of how to think about the point of investment, the 360-degree review of where the opportunity set relates to deploying AI, how to think about disruption, how to drive revenues. And so all that's becoming table stakes. I don't have any specific story to share with you that I would call sort of earth shattering, but I would say the momentum is meaningful. The CEO buy-in at the portfolio level is quite high. And obviously, with the advances that the models are coming out with, literally almost feels weekly it gives you the opportunity to obviously engage a level where you're really starting to begin to see efficiencies and productivity gains. But I think it's going to overall take a little longer than people might expect, but it's still a step function change in the way things will operate. Operator: And our next question comes from Ben Rubin from Evercore. Benjamin Rubin: I wanted to ask another one on your secondaries business, maybe from a different angle. On last quarter's call, you noted that the software represents a relatively small proportion of overall firm-wide AUM. But is it fair to assume that exposure to software for AlpInvest and for the secondaries industry more broadly, is probably higher just given the timing of when capital was raised and the type of companies that were coming to market for liquidity at the time. So I was hoping you could just touch on your approach to risk management for your secondaries platform? And how do you manage concentration risk as it relates to certain industries or even vintage years where entry multiples were probably higher than they've been historically? Justin Plouffe: Yes. Thanks for the question. The AlpInvest team is incredibly thoughtful about managing diversification, not just on a manager basis or a position basis but also on a vintage basis. Their software exposure is low to mid-teens across different portfolios. I would characterize that as market weight or below market weight. But the vintage question that you asked about, that is incredibly important. And I think one of the great values that AlpInvest brings to the table is that they create portfolios that are diversified in vintage exposure. They've been doing this for 25 years, have gone through multiple cycles and are thoughtful about that. So I expect that, that will serve them well as we find out what some of these '22 and '23 vintage deals really end up looking like. Operator: And our final question comes from Brian Bedell from Deutsche Bank. Brian Bedell: Maybe just to talk about transaction fees. So the long-term growth trajectory here and also the short term, you mentioned, I think, some transactions you expect a pickup in 2Q. Just wondering if you could comment whether you think that could approach a record on a quarterly basis. But then more importantly, that growth trajectory over the long term and the efforts that you guys have been making in enhancing that business. We've seen good growth, obviously, over the last 2 years. Is that effort getting more mature? Or do you still think you're in early innings in this process? Justin Plouffe: Well, we definitely do like records around here. I don't know if Q2 will be a record, but we do feel good about the trajectory because we already have seen a lot of activity in the first month of Q2. So that's why I said I expect that number will go up. Look, remember, our capital markets business really is derived from deals that Carlyle is doing across our broader platform. So it's a natural expansion of that business that you'd expect to see as we build the rest of the business out. So quarter-to-quarter, it will depend, obviously, on what's happening in the market. But just over the last couple of years, we've really started to capture all the work that we were doing across the entire platform. And as you continue to see all of our businesses grow, you'll continue to see the capital markets business grow alongside of it. Operator: Excellent. And that will conclude our Q&A session. I'd like to turn the floor back to Daniel Harris for closing remarks. Daniel Harris: Thank you, everyone, for your time today. If you have any follow-up questions, please reach out to Investor Relations after the call. We look forward to speaking with you again next quarter. Operator: Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a great day.
Operator: Ladies and gentlemen, welcome to Swiss Re Q1 Results Conference Call. I am Valentina, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions]The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Elena Logutenkova, Head of Media Relations. Please go ahead. Elena Logutenkova: Thank you, and good morning from my side as well to everyone. I am joined today here by our Group CFO, Anders Malmstrom, and Andres will give you a brief overview of our first quarter 2026 results, and then we'll be very happy to take your questions. Anders, over to you. Anders Malmstrom: Thank you, Elena, and good morning, everyone. Swiss Re delivered a net income of $1.5 billion in the first quarter. All business units posted increased earnings, which were also supported by a low natural catastrophe experience and a strong investment result. Property and Casualty Reinsurance delivered a 43% increase in net income to $754 million and a combined ratio of 79.5% for the first quarter against a target of below 85% for the full year. Large natural catastrophe losses for P&C Re amounted to $133 million, driven by Storm Kristin, which made landfall in Portugal in January. April renewals in P&C Re saw a continuation of the trends we observed in the January renewals broadly in line with what we had expected when we set our targets at the end of 2025. The April renewals are driven by markets in Japan, India and parts of Asia Pacific, representing a modest portion of our overall business at 12%. Our focus on prioritizing portfolio quality over volume remains unchanged as we continue to actively manage the cycle. Competition intensified with different pictures in different lines. We generally defended our market position and importantly, maintained underwriting discipline on terms and conditions. If you take the January and the April renewals together for a more complete picture, overall nominal pricing has been flat in total. We also made some prudent increases to our loss assumptions. And once those are taken into account, the net price change stands at a negative 4.4%. Overall, volume is down slightly with a 2% reduction. We expected a more challenging 2026, and this is clearly what we are seeing in practice as the year plays out. This is simply the nature of our industry, and therefore, you will continue to see us applying discipline and cycle management. Corporate Solutions achieved a 26% increase in net income to $262 million with a combined ratio of 85.1% against a full year target of below 91%. While Corporate Solutions is clearly also having to manage downward price pressure in property, we continue to see underlying growth in our strategic areas of focus, including international programs and alternative risk solutions. Life & Health Reinsurance delivered a 12% increase in net income to $491 million in the first quarter. Following last year's portfolio review, this business is on a stronger footing and has made good progress towards its full year net income target of $1.7 billion. As we announced yesterday, we have strengthened the Life & Health Re team with the hire of Dean Galligan as Head of Transactions, Life & Health Re. This is a new role, which brings together all of our Life & Health transactions expertise and will drive Life & Health Re's transaction-led growth areas, such as our longevity business. Life & Health Re also launched Magnum XP and Promise XP. These are a collection of AI-enhanced tools to support primary insurers with underwriting and claims management. We have already seen this suite of products adopted in all regions, the Americas, EMEA and APAC. The client benefits are clear. These tools speed up the key processes needed to get people into the insurance safety net or make better, more consistent decisions earlier in the claims journey. Turning to the outlook. Our goals are unchanged, deliver on our financial targets and maintain the group's overall resilience. Against the backdrop of geopolitical turbulence, we set aside around $400 million in additional reserves in the first quarter for potential inflationary impacts of the ongoing Middle East conflict. We delivered strong earnings in the first quarter, putting us on a good path towards our 2026 financial targets. With an increasingly challenging market environment, our P&C businesses will continue to focus on disciplined underwriting and cycle management. At the same time, we expect Life & Health Re to make a growing contribution to balance the group's overall performance going forward. With that, I would like to hand back to Elena. Elena Logutenkova: Thank you, Anders. We would be ready to take your questions. Now operator, could you open the line for questions, please? Operator: [Operator Instructions] The first question comes from [ Tyson Dem ] from S&P Global Market Intelligence. Unknown Analyst: Got a couple if I may. Just one on the Middle East reserve you set aside $400 million. I think I'm right in thinking that's $350 million for P&C Re and $50 million for Corporate Solutions. I just wonder if you could say you mentioned it was to do with inflation or potential effects of inflation. I was just wondering if that's all that the reserve is for if it's for other things or how you're thinking about potential claims from the war? And then the second question really was just around life and health reinsurance. The first quarter performance suggests that you actually beat your $1.7 billion target. So I'm just wondering if there's things that you're expecting later in the year that will sort of bring that down to EUR 1.7 billion at year-end. Anders Malmstrom: Okay. Very good. Thank you for the question. So maybe if we start on the Middle East. before I go into directly answer your question, so overall, we did not have any direct claims coming from the war. So [ Swiss Re ], because we have all the war exclusion. So no direct exposure, but that's really the secondary risk that we see coming from the Middle East. And when you think about all the disruption in the supply chain and then in particular, the higher energy prices, I think that's where we strongly believe that we're going to see inflation picking up over the next time. In certain areas, we've already seen that. And that's why inflation is probably the biggest impact that comes from the Middle East war. And so that's why the $400 million is, as you rightly state, $350 million for P&C Re and $50 million for CorSo. On the Life & Health side, we obviously have a really good result. We're very happy with that. It's a consequence of all the repositioning and the strengthening that we've done. It's also, of course, then supported by positive claims development in the U.S. on U.S. mortality, in particular, we had lower large claims and large claims is subject to volatility. So we can't expect that we see every quarter the same positive large loss on a large impact from large claims. So that's why I think we're well on track to that. But I wouldn't say that this is a trend in mortality. This is just normal volatility that we expect. Operator: The next question comes from Nathalie Olof-Ors from AFP. Nathalie Olof-Ors: I will have 2 questions. One is on France on the floodings. In France, if you've seen an impact or if you could give us an indication of what you've seen with these floodings. And then on the reserves, I think I missed the number. You said $400 million and provided the details for CorSo and P&C. Can you give us an indication as to how the Middle East is going to have an impact? Why do you think it is important to put money aside? And what can the effect be? Anders Malmstrom: Okay. Very good. So on the France flooding, this is probably too early to say what this means a Q2 event to my knowledge. So we don't have data. We don't see right now there's going to be a big reinsurance event. Obviously, always -- first, it goes to the primary insurers and then if it hits the triggers, then it would go back to the reinsurers. So that's too early to know that, but we don't expect that to be a material impact for reinsurance. So back to the Middle East. So the reserve overall for the group that we set up here is about USD 400 million, USD 350 million for P&C Re and $50 million for Corporate Solutions. And as I stated before, when we look at the exposure coming from the Middle East conflict from the war itself, we have war exclusions in our programs, which means the direct exposure is very limited. We do in the specialty lines, sometimes have more inclusions, but that's separate, and we did not have any claims so far that were material note. Now the impact of the war is really the second order impact. When you think about the significant increase in energy prices, that will drive inflation. Also the disruption in supply chain will drive inflation. And so that's why we thought it's prudent to put money aside for higher inflation. This is for business that has already been written because -- not claims that happen, but claims will come, can be property prices, can be construction, can be whatever. And I think that's where we believe that higher inflation will have an impact. And that's the main reason we put that money aside. Nathalie Olof-Ors: You mean that the claims are going to -- that inflation is going to inflate the cost of... Anders Malmstrom: Of the claims. Nathalie Olof-Ors: Claims. Anders Malmstrom: Correct. Yes. Nathalie Olof-Ors: Can you give us a few examples from what I remember, there was -- after the COVID, there was an inflation in the price of auto parts versus the scarcity of parts. Can you remind us what you saw with the COVID and in '22 after the war in Ukraine? Anders Malmstrom: Yes. So I don't have the data in front of me for COVID and for the war. But maybe I just can give a bit -- without going too much into details, I mean, higher energy prices increases the production of products, increases the transport of products and throughout the value chain, you can have an impact that drives prices up. And that's really what we want to reflect here with this additional reserves. We have not allocated it to specific claims. We just believe -- strongly believe that it will have an inflationary impact. Nathalie Olof-Ors: Perfect. Operator: The next question comes from Daniel [Pula] from [indiscernible]. Unknown Analyst: Good morning. Can I ask you 2 questions. The first is about the Life & Health business. Could you please explain a little bit the rationale -- the business rationale of your longevity business and its importance? And the second question is about about your investment results, they were apparently very good in the quarter. The stock markets are back on record price levels and the financial markets seem to be in a quite optimistic positive mood in general, although if you look around us, things do not really support this optimism. I was wondering what the projections are in terms of your investment policy. Anders Malmstrom: Okay. So let me start on the Life and Health side. So longevity transaction has become a bigger demand in the industry as you see much more pension risk transfers where companies take -- primary insurers take over pension liabilities from the industry, people. And one of the risks that the primary insurers face is longevity risk, meaning that people live longer than was originally expected. And so that's an area where reinsurance and risk in particular here, can support the primary insurers to take that risk off their balance sheet. And I think for us, this is a good opportunity also to then balance within our portfolio, the mortality exposure that we already have on our books. Reinsurers are traditionally very strong on the mortality side. Longevity goes exactly in the other direction. And so it's a good way on one hand, to support our clients for risk they would like to reduce and on our side to then use the diversification benefits of having risks that go in opposite directions, meaning that if you have a mortality improvement, it helps on the mortality side and it then impacts the longevity side. So a very natural way to manage biometric risk as an insurance company and as a reinsurance company. So that's really the business rationale, and that's also why we were very keen to also now do the first transaction in the U.S. where we have most of our mortality exposure. So your question -- second question about investment results. Maybe 2 things to say. Our strategic asset allocation has very -- is a very conservative one. They have very little equity exposure. We have some private equity but very, very minor. It's mostly fixed income, but it also has a real estate book. And in the real estate book, that's where we do -- I call that normal maintenance of the real estate portfolio, we realized some gains through the sale of some real estate. And that's why we see a higher investment result in Q1. So the overall investment result was 4.6% what we call the recurring one is 4.1% and the reinvestment, so how can you reinvest money right now it's about 4.3%. So that should give you a bit the overall composition of our results. Operator: The next question comes from Rachel Dalton from Insurance Insider. Rachel Dalton: I noticed in your disclosure about the P&C reinsurance service results that there was a note about additional reserves for attritional losses. Could you give us any further information about that, please? Anders Malmstrom: Yes, sure. So it's always when you go through the quarter, this is a normal process. You obviously, at some point, you have to cut off the date where data comes in. And then you look through the process and say, okay, is there anything else that happened? In the meantime that you don't have all the data yet, but you know that there's something coming that where you put up an IBNR reserves, which means it's reserves for claims that have already occurred, but not yet been reported, and that's what we've done at the amount of around USD 100 million. Operator: The next question comes from Thomas Pohl from AWP. Thomas Pohl: I just wanted to ask again, I'm a bit astonished that you have absolutely no impact from [ Middle ] East conflict. You have a war exclusion you say, but does this also cover this turbulences or disruptions at transport, aviation and the kind of problems that occur now with the closing of the strait of and all the problems around it. Could you say a little bit more about that, please? Anders Malmstrom: Yes. So maybe the first point here is that, yes, it is an escalation of -- it's a war right now, but it's an escalation of a conflict that's there since a long time. So we always took a cautious approach to that area specifically. So it's not a new conflict, something new that came up and was not there before. It's just an escalation of that one. As I mentioned before, we have the war exclusions, which means the direct impact is extremely limited here. And so that's why you don't see more impact coming from that event, even though it is obviously a problematic event and an event that we continue to monitor here. Thomas Pohl: But you don't see -- like I said, in like aviation, insurances or transport that the goods don't arrive at time. Is that not a thing that will hit back to you also? Anders Malmstrom: No, no. That will not hit back to us. Because as I mentioned, I mean, this is an area where we already have a cautious approach. Operator: The next question comes from Francis Churchill from Insurance Day. Francis Churchill: How you think about the mid-year renewals? How are you feeling about what ratings doing? And are there any opportunities you see coming up in the mid-year? Anders Malmstrom: Yes. Look, I think we don't speculate and we don't give any kind of forward-looking statements about what we see -- what we can expect for midyear. I think you saw the January 1 renewals. You saw the April 1 renewals, which will only be reflected in the Q2 numbers. They're not reflected in the Q1 numbers. They all looked very similar. So the same impact on those. But we don't really know exactly what's going to happen, and we also don't give forward guidance on the renews. Operator: The next question comes from Jonathan Progin from Finanz und Wirtschaft. Jonathan Progin: I'm wondering about your cycle management. I mean we are seeing prices going down broadly. I mean, not in every business segment, the same amount of the price reduction, but still. And I remember Chubb's Evan Greenberg called the softening kind of like dump. -- what's your view on prices in more general sense? Is this like a -- still reasonable prices? Or do we see a lot of capital -- do you still see a lot of alternative capital flowing in and make it hard for you as a traditional reinsurer to reinsure business and provide your services to reasonable prices. So I mean, just what's your take on it? How does it have to change in your view very, very -- in the next few quarters? Or what's your take on it, not going like too much forward guidance, that's still like describing the current situation and how it's hard for you to do business? And then maybe two additional questions to your strategy going forward in M&A. Where do you see potential additions to your current company structure more like on the P&C Re side or more on the CorSo side, Corporate Solutions? And maybe are you looking for a Lloyd's syndicate? And also, what can we read into the moving the credit maturity new business from P&C Re to CorSo in 2026? Is that like do you want to have it in the CorSo business because you are maybe looking for what sort of potential deals? If you can give some light on that. Anders Malmstrom: Okay. Very good. Let's start on the cycle management. Maybe a few comments here. So first of all, when we talk about cycle management for us, it's important that we keep relevance, which means we keep the market share. And that's what we have done. But at the same time, also keep discipline on the underwriting. So I think terms and conditions are a key part here, and we were able to keep the terms on conditions. We haven't written any aggregates that could change the risk profile. So that's that's for us what it means about cycle management. Simply to your question about price adequacy, in our view, prices are adequate. So otherwise, we wouldn't write it. If prices become inadequate, we obviously have to take actions. We don't want to write inadequate business within adequate prices. So for us, still adequate. We kept market share. But when you see the decline, this is really just the pricing cycle that impacts that. To your second question about M&A, we were very clear that M&A, if we want to do M&A, has to support the core businesses. And we would never do M&A just to do M&A. It has to have a strong business rationale. And then if you basically go through the business units, quite naturally, we would pass on P&C Re. Because P&C Re, there's no benefit in doing acquisitions because there's more capacity and the question, how much capacity you want to deploy and you get to a natural market share and you would lose that new business fairly, fairly quickly. So no interest there. It's very similar on the Life and Health side, we don't really see there a strong rationale to do M&A. So that leads you then to CorSo. And on the CorSo side, we always said we would like to strengthen the business if it helps diversify the business. We have a few areas like credit and surety, where we say this is a good business. Also that's non-correlated to the, call it traditional property insurance business. And that's also one of the rationales why we said, okay, let's centralize the credit and surety business in CorSo have one center of expertise. And also, that's why we did the small acquisition with QBE that we announced earlier in the year, which strengthened the credit and surety business here. So you should always see that if we do M&A, then it has to support the business rationale. We've done the small transactions. We don't have to do anything else if we don't find the right opportunity, and it has to be at a reasonable price. Otherwise, we would not be. So that should give you a bit of the rationale around how we think about M&A. We really have to have strong business support. And you cant -- you shouldn't expect anything big here anyway. Jonathan Progin: All right. Can I just pose an additional question, not maybe very related to your business activities, but it affects you as a big Swiss company. In June, we will vote on the popular initiative to cap the population in Switzerland to 10 million. What's Swiss Re's take on it? Surely, you will have a position there because it will affect you as a multinational company with a lot of expats working in Swiss Re and you want the best talent to be able to come to Zurich or to Switzerland to work for you. Do you expect anything that will affect your business negatively if the initiative will be accepted by the population? Or I mean, how do you prepare internally for one or other outcomes of the initiatives? Can you maybe give us some answer here? Anders Malmstrom: Yes. I mean, look, first of all, we don't make any statements to popular votes. To political processes. That's not our job to do. That's the political process in Switzerland. I think you stated it well. For us, what is important is that we have access to the best people. Zurich is a key location for us. It's the main location. It's the headquarter. And we have access here to the best people, people come here as well. And then we have about, I think about 70 nationalities working for Swiss Re just here in Zurich. And so for us, this is crucial. I think we made that very clear. Other than that, I think it's now up to the political process to go through and then we see where this goes. Operator: The next question comes from Anna Sagar from InsuranceERM. Anna Sagar: I was just intrigued as to Swiss Re's appetite for longevity reinsurance given the 2 billion transaction with the team in the U.S. I was wondering if the U.S. was the primary geography that Swiss Re was focused on or if there are other areas -- other geographies or other regions that it would look to expand into? And also if you could talk a bit about your current capital management strategy and any plans for capital returns to shareholders, that would be greatly appreciated. Anders Malmstrom: Yes, sure. So on longevity reinsurance, when you look at where is the market, where are the opportunities -- there's clearly the U.K. that stands out. You've seen the most transactions in the U.K. We've also seen now a lot of transactions happening in the Netherlands due to the pension reform. You haven't really seen a lot of transactions in the U.S. The main reason is that in the U.S. -- in the U.S. capital framework, there is no charge for longevity risk, which means there's very little incentives for a U.S. primary insurer to reinsure longevity because it doesn't really reduce their capital needs. This has changed since many U.S. companies go through the reinsurance through Bermuda to have a more economic model. Bermuda framework is much more economic than the U.S. framework. Bermuda has a capital charge. And then it becomes interesting also for the primaries to say, okay, I can now capital manage through longevity transactions. But I would say going forward, I would still see this is a slow start now with U.S. liabilities. It's much more -- you will see much more transactions. And I'm not talking about Swiss, I'm talking about the market transactions in the U.K. and also Netherlands going forward. And then your second question about capital management strategy. I mean, I can reiterate what we said. Obviously, first and foremost, we want to maintain and increase the dividend payout and then we supplement that dividend payout with what we call a sustainable share buyback program when we achieve our full year targets. And then I think for the remainder, if there's opportunities to deploy the capital in the business at the right returns, we obviously do that. If not, and we have excess capital above our target range, we would then give that back to shareholders. So that's clearly the strategy. That's also what we have done now at the end of last year, beginning of this year. Operator: The next question comes from Noele Illien from Bloomberg. Noele Illien: You mentioned the sale of some real estate boosting the investment results. Is that a strategy -- is that -- was that a one-off? Or is that -- are you continuing to sell off some real estate in the coming quarters? And I think most of my other questions have been asked. Anders Malmstrom: Okay. Yes, sure, quickly on the real estate, yes, this was a one-off. I mean this is not a strategy to -- I mean, to reduce the real estate exposure, not at all. We like real estate. It is a big part of our asset allocation. It's just normal maintenance, I call it, normal management of the real estate portfolio that we have that from time to time, you realize gains. Yes. But you should not expect that to repeat in the next quarters. Noele Illien: Okay. And was the sales in any particular region? Anders Malmstrom: It was Switzerland. Operator: The next question comes from Glenn Turpa from Intelligent Insurer. Unknown Analyst: I would like to better understand underlying growth in Corporate Solutions. You've mentioned a couple of one-offs that presumably are skewing the numbers, the non-renewal of MedEx and the shift to credit and surety. Maybe by line and by revenue versus new business CSM that you may have into the portfolio? Is there a better view we can have? And once I do have a better view of underlying revenues, and if we were to compare it to the decline in the P&C reinsurance book, I'd be curious to know if that is representative of your appetite of your outlook. Corporate Solutions seems more stable. And is it your preferred flavor for 2026? Anders Malmstrom: Yes, sure. I can give a bit background. And maybe I'll start just the revenue decline that you actually saw in P&C Re is really just related to the pricing cycle that we have seen. That's the main driver here. Now if we then go to Corporate Solutions as you rightly state, I think we had a decline mainly driven by the non-repeat or the non-renewal of the Irish MedX, which we talked about already last year. So that's now fully non-renewed in a way. So if you actually take that out, it's pretty much a flat revenue development. Now we had some support also from FX. So if you take FX out, maybe it would have been a slight decrease. But the key point here is the underlying business where we actually see growth in CorSo is really coming from the international programs. That's an area we had really good success. It's also an edge where CorSo can play, and we have good progress there. And then also on alternative risk transfers. These are the 2 areas where CorSo really was able to grow the business throughout the period now. Yes. And then I would say the accident and health, I would say that's more a -- I call that more business volatility, still an area that we like, that we want to maintain that we might want to grow further. So that are the areas where you should continue to see CorSo perform. Unknown Analyst: And the relative appetite then to P&C considering you're calling it your following prices and maintaining market share? Anders Malmstrom: Yes. I mean on the P&C Re, clearly, we want to keep the relevance. We want to keep the market share. We're not want to shrink them, not at all. We just manage the factor here. Prices are adequate, as I said. But revenue is just following the pricing cycle. Operator: We now have a follow-up question from Daniel [Pula] from [indiscernible]. Unknown Analyst: Yes, quickly. Just quickly, the $400 million provision, what is the underlying inflation projection you have to that number? And one other observation I just made, which I made me a bit curious. In the past, you didn't -- that's at least my perception, talk so much about market share and keeping market share. It was like almost a little bit considered given that the largest reinsurers would stick to more or less their market shares over the cycle, and it wasn't really an issue that was publicly -- at least publicly debated. Now you stress the importance of keeping that market share has something changed in that market? Are you being challenged more than in the past? Anders Malmstrom: Yes. Maybe I'll just start with your second one. This has not really changed in a way. I think it's just the way we want to explain the development of the premiums and prices that you see because you've seen then the decline in property and cat that you see an increase in casualty. And both of them are not driven by the change in risk we are taking. They're really driven by how the prices develop. That was really the main reason that we wanted to highlight the market share discussion. On the inflation question, we don't disclose our underlying inflation assumptions. But I mean, they're based on the public available inflation data that you see disclosed in the market. And here, we just took the -- obviously, you have to go in and it's judgmental. You don't know exactly where the energy prices will end up for the year, but we have the assumption that we will see significant -- we see a continuation of increased energy prices, and that's how we then calculated the impact here. Operator: That was the last question. I would now like to turn the conference back over to you, Elena Logutenkova, for any closing remarks. Elena Logutenkova: All right. Thank you, everyone, for joining our call this morning. If there are any further questions, please feel free to reach out to Media Relations. And otherwise, we wish you a lovely day. Bye-bye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Good day, and welcome to Peloton's Third Quarter Fiscal Year 2026 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. James Marsh, Head of Investor Relations. Please go ahead. James Marsh: Thank you, operator. Good morning, and welcome to Peloton's Third Quarter Fiscal Year 2026 Conference Call. Joining today's call are Peloton Chief Executive Officer and President, Peter Stern, Interim Chief Financial Officer, Saqib Baig; and Vice President of Financial Planning and Analysis, Scott Burch. Our comments and responses to your questions reflect management's views as of today only and will include forward-looking statements related to our business under federal securities law. Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with our business. Please refer to our SEC filings, today's press release and our earnings presentation, all of which can be found on our Investor Relations website for a discussion of our material risks and other important factors that could impact our results. During this call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures and definitions for our user metrics are also provided in today's press release. I'll turn it over to Peter. Peter Stern: Thanks, James, and good morning, everyone. Our Q3 results are proof that the strategy of evolving Peloton from a connected fitness company to a connected wellness company is delivering results. This strategy is in direct response to consumers not only wanting to add years to their life, but also life to their years. Peloton's content, equipment and beloved brand position us to capture more market share within the growing $7 trillion global wellness economy and to achieve ever greater human impact. As I've shared in prior calls, there are 4 pillars to delivering on our strategy: one, improve member outcomes; two, meet members everywhere; three, make members for life; and four, business excellence. Let's start with our progress on improving member outcomes, which is how we empower them to live fit, strong, long and happy. During the quarter, over 400,000 people took our HiLit classes with Rebecca Kennedy. This contributed to 48% growth in our Pilates modality, which is becoming a central plank of our strength program and an area where we are investing both in R&D and instructors as exemplified by the 3 we onboarded last quarter. Speaking of R&D, our work on producing new equipment in one of our existing modalities is progressing well, and I look forward to introducing some exciting new hardware and features to you this fall. In the space of mental well-being, last week, we launched 140th Peloton instructor-led meditation and sleep classes in the Breathwrk as well as daily meditations and [ breath work ] programming that will begin to develop that app into a preeminent platform to help people relieve stress, sleep and achieve better focus. To further our progress in improving member outcomes, I'm delighted to celebrate the arrival of Sarah Robb O'Hagan, our Chief Content and Member Development Officer. Sarah brings a wealth of experience, serving an executive and Board of Director roles for various well-known brands in the fitness space including Exos, Strava, Equinox, Gatorade and Nike. Sarah is focused on accelerating innovation across our content ecosystem, driving engagement and in so doing, deepening loyalty across our community by evolving the member experience. Second, let's talk about our strategy for meeting members everywhere. This part of our strategy is how we grow our Peloton community. Last week, we announced big news in this area, our content licensing partnership with Spotify. This partnership brings more than 1,400 Peloton classes across strength, pilates, bar, yoga, meditation, outdoor and cardio to hundreds of millions of Spotify Premium subscribers globally, exponentially growing our reach. Our work with Spotify provides a powerful entry point into the magic of Peloton, allowing us to efficiently grow our brand through a platform that people everywhere already know and love while also providing a high margin, diversified revenue stream. We expect to bring hundreds more classes to Spotify Premium subscribers each month. Our commercial business unit is another way we can meet members everywhere by reaching people in tens of thousands of gyms across more than 60 countries. In Q3, we delivered another quarter of standout growth in this unit, as revenue increased 14% year-over-year. To build on this momentum, we recently announced the Peloton Commercial Series, which includes a new bike and treadmill specifically designed for heavy traffic gym environments. This equipment, which brings together Precor's industrial-grade durability with Peloton's unsurpassed connected experience, will become available to gym operators in Q2 of fiscal '27 and will help us continue to grow Peloton's international footprint and gym presence. We see tremendous upside in this category as we estimate that we have only a 3% share of the more than $10 billion and growing global commercial fitness equipment market segment. And I'd be remiss if I didn't mention our recent ad campaign featuring Hudson Williams. This campaign went viral because it's a glorious demonstration of the joy of movement that drives everything we do at Peloton. I want to congratulate Peloton's marketing team, led by Megan Imbres, which has delivered more than 60 million organic social views and significant global earned media buzz, helping us put Peloton back in the center of the Zeitgeist, where we belong. Third, let's talk about our strategy of members for life. This is where we work to keep the members we have. Initiatives such as Club Peloton, personalized plans from Peloton IQ and some reactivation offers we implemented in Q3 helped us deliver net churn that was 7 basis points lower year-over-year in Q3, despite the price change we implemented in Q2. These results demonstrate the substantial value we provide to our members. Last, but certainly not least, is our strategy of business excellence. I believe the numbers here speak for themselves, as we achieved an important milestone of positive year-over-year revenue growth in Q3, along with growth in gross margin, adjusted EBITDA and free cash flow. Free cash flow increased $56 million or 59% year-over-year. While our Q4 expectations reflect that our path to sustained year-over-year revenue growth will not be linear, the underlying vectors of growth have never been clearer. As our business model evolves, we expect investors will see our growth materialize in total revenue first, driven in part by revenue streams like the commercial business unit and content licensing. I'm also pleased to share that we expect Peloton to achieve positive net income on a full year basis in fiscal '26, in addition to our previously stated goal of positive operating income. This would be the first time in the company's history that we have achieved either of these metrics for a full year, let alone both. We have rightsized our cost structure, in particular G&A and are now delivering in excess of $1 million of annualized revenue per employee, and we are well positioned to continue delivering innovations in cardio, strength, commercial, mental well-being, content licensing and beyond within a disciplined envelope for R&D spend. Strong financials and consistent cash flow have resulted in a vastly improved balance sheet. We ended Q3 with a 70% reduction year-over-year in our net debt. Add all this up, and from a financial standpoint, we are no longer operating defensively. Instead, we are operating from a position of profound strategic optionality. This enables us to move to a new stage of financial maturity, characterized by strategic capital allocation. In anticipation of the expiration of the prepayment penalty on our term loan at the end of this month, we are evaluating every avenue to maximize shareholder value, including debt optimization, capital returns and accretive strategic investments. With meaningful excess cash on the balance sheet, we have the luxury of patience. We are actively finalizing our holistic capital allocation strategy, evaluating alternatives, including share repurchases, debt optimization and potentially highly targeted investments. Finalizing and executing on this plan will be a key agenda item for our permanent CFO once they are seated. And speaking of a permanent CFO, our search is progressing well. We have met numerous qualified candidates, and we are gratified by the strong interest they have shown in Peloton. As I wrap up these remarks, I want to reiterate my confidence in Peloton's future. We continue to make great progress on deepening our relationships with our members, growing our opportunities to reach new members globally, diversifying our revenue streams and planting new seeds for future growth, all while continuing to strengthen our financial foundation. With that, I will now pass it over to Saqib, who I'm very grateful to for serving so ably as Interim Chief Financial Officer and who will share more details on our financial results. Saqib Baig: Thanks, Peter. In Q3, we achieved total revenue of $631 million. This exceeded our guidance by $6 million and represents positive year-over-year growth. Our performance relative to guidance was driven by higher Connected Fitness equipment sales across Peloton and Precor brands. We ended Q3 with 2.662 million ending paid Connected Fitness subscriptions in line with the midpoint of our guidance range. Q3 average net monthly paid Connected Fitness subscription churn was 1.2% and improved 7 basis points year-over-year. Moving to gross profit and gross margin. As a reminder, in Q1 of fiscal 2026, we began assigning executive compensation and other corporate overhead expenses associated with corporate facilities across the P&L, as we focused on driving more accountability from cost at a functional level. Prior to fiscal 2026, these costs were all recorded to G&A, but are now assigned to COGS, sales and marketing, G&A and R&D. All of the year-over-year changes discussed today reference last year on an as-reported basis. Total gross profit was $327 million in Q3, an increase of $9 million or 3% year-over-year. Total gross margin was 51.9% in Q3, an increase of 90 basis points year-over-year and 210 basis points below our guidance of roughly 54%. Lower total gross margin relative to guidance was driven by opportunistic promotions across our Connected Fitness equipment sales. We operate within strict LTV-to-CAC hurdle rates. And as we saw a 2x LTV-to-CAC ratio, we see an opportunity to get more aggressive. Please refer to our investor presentation for the segment-level breakdowns for revenue and gross margin. Total operating expenses, excluding restructuring, and payment and supply settlement expenses; were $267 million in Q3, a decrease of $50 million or 16% year-over-year, reflecting the continued progress we have made in rightsizing our cost structure. We remain on track to achieve at least $100 million of run rate cost savings by the end of fiscal 2026. We also continued to deliver strong profitability with $126 million of adjusted EBITDA, an increase of $37 million or 41% year-over-year and close to the midpoint of our guidance range. Q3 free cash flow of $151 million represented an increase of $56 million or 59% year-over-year. Turning to our balance sheet. We ended the quarter with a strong cash position of $1.13 billion, a decrease of $53 million quarter-over-quarter. This decrease was driven by paying down roughly $200 million of convertible debt when it reached maturity in February, partially offset by strong cash flow generation in the quarter. The significant progress we have made in profitability is reflected in our net debt of $173 million, which decreased $412 million or 70% year-over-year. Similarly, our gross and net leverage ratios have improved meaningfully to 2.9 and 0.4, respectively. As Peter mentioned, we are focused on strategic capital deployment. A key element of this is managing dilution through a disciplined approach to equity compensation. Our stock-based compensation expense decreased $15 million or 22% year-over-year in Q3. Next, I would like to take time to provide context for the financial outlook for the remainder of the fiscal year. Our full year fiscal 2026 total revenue outlook of $2.42 billion to $2.44 billion reflects an increase of $10 million at the midpoint compared to prior guidance and 2% revenue decrease year-over-year at the midpoint. The increase relative to prior guidance is primarily driven by higher equipment sales observed in Q3. It is worth noting the anticipated content licensing revenue associated with Spotify partnership we announced last week was already reflected in our prior revenue guidance and will be recorded to the subscription segment. Our full year fiscal 2026 guidance for total gross margin is roughly 52.5%, which reflects a decrease of roughly 50 basis points relative to prior guidance and an improvement of 160 basis points year-over-year. Our full year fiscal 2026 guidance range for adjusted EBITDA of $470 million to $480 million is in line with prior guidance and an 18% year-over-year increase at the midpoint. Our Q4 guidance range for ending paid Connected Fitness subscription is 2.55 million to 2.57 million. Our guidance reflects an expectation that our average net monthly paid Connected Fitness subscription churn rate will be roughly flat year-over-year in full year fiscal 2026 despite the price change we implemented in Q2, while gross additions are expected to decrease year-over-year as a result of lower equipment sales. Generating meaningful free cash flow remains a top priority for us. We expect full year fiscal 2026 free cash flow to be in the vicinity of $350 million. I will now hand the call back to the operator for Q&A. James Marsh: Before I turn the call over to the operator, let me ask a couple of questions from our retail investors. Our first question comes from the leaderboard named [ Vic83 ]. His question is, can you clear up some of the confusion around Section 232 tariffs? Are your products exempt? And what is the new view on tariff impact for the year? Do we expect a refund on previously paid IEEPA tariffs? Peter? Peter Stern: Thanks, Vic, for the question. Tariffs are, as you know, a moving target. So we follow it closely. First, the equipment we manufacture here in the U.S. is obviously not subject to tariffs at all. For everything else, based on the tariff policies that are currently in place, imported Peloton and Precor hardware are no longer subject to the Section 232 tariffs on aluminum and steel content, but they do remain subject to all other applicable tariffs, which include the MFN tariffs as well as Sections 122 and 301. Regarding IEEPA, we're closely monitoring the updates from U.S. Customs and Border Protection on when we'll be able to submit our refund request. Our request is somewhat more complicated than the initial round of requests, but we will submit that as soon as the CBP is ready to receive it. The changes that I just described, along with various inventory ins and outs, drive a net benefit to our tariff exposure. So we expect tariffs to represent roughly $30 million of free cash flow exposure for our full year '26, which is a reduction of $15 million relative to the $45 million that we shared last quarter. James Marsh: Thanks, Peter. Our second question comes from leaderboard named [ John H. Schreiber ]. Please provide an update on the company's capital allocation plan, now that the balance sheet has been significantly improved, thanks to several quarters of positive free cash flow? Can shareholders expect the share repurchase plan to be announced soon? Peter? Peter Stern: Thanks for this, John. It's amazing what a difference 2 years have made in the strength of our balance sheet. And so it's my great pleasure to address your question from where we sit today. As you may know, our $1 billion term loan has a $10 million prepayment penalty that expires at the end of this month. So we haven't wanted to touch that until then. At the same time, we are accumulating cash on our balance sheet, thanks to our disciplined operating approach. And at the end of the quarter, you heard Saqib say that we had about $1.13 billion in cash, and that's after paying down the $200 million of convertible notes that came due during the quarter. We're now approaching zero net debt. And we need a lot less cash than we have on our books to operate our business, given the steady cash flows that our subscriptions business, in particular, generates. So all of this gives us, what I referred to in the remarks as, profound strategic optionality. And so we're working with our banking partners on our plan. We're not ready to discuss the details of that plan right now, and this is ultimately something I want to craft in conjunction with our new CFO once they're onboarded, but I'll tell you the 4-part framework that we're using. First, we're trying to reduce our cost of capital. Our current term loan was entered into at a different time and under very different circumstances. And so we believe there's an opportunity to improve our borrowing rates. Second, we're trying to increase our flexibility. Our current term loan limits our ability to engage in shareholder-friendly actions like stock buybacks, and we'd like to reduce those types of restrictions. Third, and you heard Saqib talk about this, we're working hard to find ways to reduce dilution. There are lots of ways of achieving this. We're already taking steps by reining in stock-based compensation and by moving to net settlement of restricted stock units rather than selling to cover for some of our executive officers. But we're evaluating what else we can do here, including your suggestion of a repurchase. Fourth and last, we're making sure that we have the capital we need to operate our business sustainably and to invest in our future. And this includes rigorously vetted organic and potentially inorganic investments. We'll have more to share on all of this after we've concluded our CFO search. But we have the luxury of time, given the strength of our balance sheet. James Marsh: Great. Thanks, Peter. Sheri, you can open the line for Q&A. Operator: [Operator Instructions] And our first question will come from the line of Simeon Siegel with Guggenheim Securities. Simeon Siegel: Peter, I just want to make sure I understand the response to leaderboard member, John, I don't remember the full name, but it was great. How are you thinking about the timing for the strategic actions? Are you suggesting it's a next month thing? Is it a wait for the CFO thing? Just any help on timing, given the balance sheet really is in just such a different place than you were before. So that's been great to see. And then just a quick follow-up comment on the dilution because you mentioned it twice. I think you changed some approaches to how management is paid and incentivized late last year. Can you just speak to your philosophy around executive comp now? And maybe what types of hurdles you think we should be judging you on going forward? Peter Stern: Absolutely, Simeon. And congrats on the new gig, and we are so happy that you're back in the family. I'll take the first part, and then I'll have Saqib talk about dilution and some of the changes on comp. So as I said, first of all, we do have the ability to be patient. It doesn't mean that we feel patient, but we have the ability to be patient here. And as you know, debt maturities can span many years. And so we think it's unwise for us to rush the process, in particular, and I didn't talk about this in my answer to [ John Schreiber ], but we intend to go through a credit ratings process prior to doing any refinancing. And we want to make sure we do that right the first time. It will be the first time that Peloton gets rated. And of course, as you know, the rating has a very substantial implication on the rates that we would pay over the years of that new debt instrument. So we think we get a better outcome, both on cost of capital and flexibility if we're a bit patient and do it right. And certainly, that includes having a permanent CFO in the seat. So once they're there, we would begin that credit rating process. We'll evaluate the results of that credit rating process, and that will basically guide the pacing of any further actions we take, including the refinancing. Why don't we -- I'll go to Saqib now, and he can talk a little bit about the dilution questions. Saqib Baig: Yes, sure, Peter. The impact of stock-based compensation on share dilution is top of mind. And reducing the dilution over time is a top priority for us. So we are taking steps to reduce dilution. We are doing it through a net settlement program for equity vesting for select executives as well as ongoing disciplined approach to equity compensation. Let me give a little bit more color on that settlement program. So in that program at equity vesting, the company withhold some of their vested shares rather than issuing and selling shares in the market to cover for employee taxes and deliver only the remaining shares to employees. Regarding our disciplined approach to equity compensation, you all can see that in the sequential improvement we have been making in our stock-based compensation expense, stepping down from $300 million in fiscal '24 to $230 million in fiscal '25, and we are tracking around $200 million in fiscal '26. Looking ahead, we see this expense continuing to step down in fiscal '27 and beyond. We have also taken significant steps to pay more on performance-based awards in our organization, and we have structured our SBC awards to better align with this approach going forward. One thing you guys can also note is we are awarding fewer RSUs over time. For example, if you compare our 10-K disclosure in fiscal '25 versus fiscal '24, you'll notice a substantial reduction in the number of shares granted. And one thing I would also like to highlight is because the compensation structure has a multiyear grant, we recognize the benefit over time due to the impact of grants vesting from prior year. Operator: One moment for our next question, and that will come from the line of Arpine Kocharyan with UBS. Arpine Kocharyan: So churn has surprised to the upside for more than 3, 4 consecutive quarters for Peloton here. Peter, do you see churn turn stabilizing enough for you to then think about the delta between subscribers that are churning annually versus gross adds and how you look to close that gap over time? Peter Stern: Thanks, Arpine. We feel good about our Q3 churn results. Ultimately, your question goes to, I think, when do we reach the point where the two lines of our gross adds and our subscriber churn cross such that we get to net adds in subscribers. So let me talk a little bit about what we're seeing there. On gross adds, while the number is still declining, the year-over-year rate of decline in gross adds in Q3 of this year is lower than last year. So we're seeing a decelerating rate of decline. And then on churn, after adjusting for the impact of our pricing changes, we're also seeing that our net churn rates are improving on a year-over-year basis. Putting those two things together, if that keeps changing in the ways that I've described, then we would start to see subscriptions growth. And a big goal for us as a management team is on how we accelerate the pace at which that convergence happens, while making sure that we do it in a sustainable and profitable way because as you can tell from our results, we remain really disciplined in our marketing spend, so that our burden, LTV-to-CAC ratio remains efficient. In other words, we will not engage in unnatural acts to bend this curve. Ultimately, the way forward here, the way to move the needle on gross adds is through our investments in R&D, which will result in us introducing new products that are more accessible in our existing categories while launching new categories as well. I do want to point out that in the meantime, while we wait for subscribers to turn, we have a lot of vectors for revenue growth that don't result in paid Connected Fitness subscriptions. So you'll likely see inflections in growth -- in revenue before you see them in subscribers. And this past quarter was an example of that. So some of the vectors that are at play this quarter and will be in the future are selling additional equipment to our existing members. That doesn't generate more subscriptions, but it does generate revenue. The revenue from our commercial business unit, which we talked about earlier, and that grew 14% year-over-year in the last quarter; that's predominantly equipment based. It doesn't come with very many subscribers. The Spotify deal that we just announced is a revenue driver. But those aren't our subscribers, those are Spotify's subscribers. The pricing changes, again, that was a real positive impact in Q3. No subscribers attached to that, but real high-margin revenue. And then even the promotional levers that you saw us pull in Q3, which helped us beat on revenue, don't come with particularly more subscribers or it's an indirect connection, but it does generate the revenue. So that's a little bit of which should help tide us all over while we wait for the ultimate growth in subscribers. Operator: One moment for our next question and that will come from the line of Youssef Squali with Truist. Youssef Squali: Nice to see you guys making real progress on some of these important KPIs. So maybe a couple of questions. One, maybe talk a little bit about the promotional intensity you saw in Q3. I think you called that out as one of the drivers of gross margin. And try to reconcile basically your Q4 guide for Connected Fitness subscribers with your comments around churn being relatively flat. So maybe just give us some color as to what's going on outside of maybe the seasonally weak period that is this quarter we're going into. Is there anything else going on maybe you're pulling back on the promotional intensity that you've done in Q3? And then just one last one. Peter, you talked a little bit about new hardware coming in this fall. Maybe can you just provide some preview of what those may be? I think, new modalities -- would strength be part of it? Would a cheaper tread be a part of it? Just any kind of color you can provide, knowing that, obviously, you'll provide a lot more this fall, more details. Peter Stern: Thanks, Youssef. There's a lot in there. So let me do my best to try to cover all of it. As I said in my remarks, we use an LTV-to-CAC framework to drive our marketing and our promotional spend, right? And that -- we like that framework because it's inclusive of everything from how much money we spend on marketing to how aggressive we are on promotions. And what we saw about a month or so into the quarter was that we had real marketing efficiency. And so we took that opportunity to do a couple of things. One, we had a promotion that was planned to expire sometime toward the end of February, and we extended that promotion an extra week or so. We also saw an opportunity to take a little bit of a deeper price promotion on a variety of our pieces of equipment throughout the sort of back half of the quarter, in order to take advantage of that. And we were still able to land our LTV to CAC at 2x, which is in our long-term goal range for LTV to CAC. So that's basically what happened in Q3 on that front. We don't have any plans to repeat that activity in Q4, so our guidance reflects the expectation that our gross additions will continue declining year-over-year, and that's just us remaining disciplined and also being increasingly, I think, sophisticated about the best times to be promotional, right? So we've done a lot of work, looked at our successes and our failures in the past. And we see that the periods where we acted in Q3 are some of the most productive ones. And Q4, as you mentioned, seasonality on the churn side, is also of a seasonal period for equipment sales as well. So now turning to your question on gross adds and our guide, the seasonality we just talked about, you raised that as well, that is something well known in our business. I also talked about pulling back on promotional intensity and remaining disciplined in our marketing investment. And so all of that basically adds up to the Q4 that we're projecting. With regard to the question that you had about our new equipment, for competitive reasons and because it's an earnings call, not a big product reveal moment, I'm not going to comment specifically on our unannounced hardware today, but I'll just elaborate a bit and say that, one, bringing more price accessibility in our existing modalities is a top priority for us. We have the ability to do this in the bike category because we've been able to take advantage of the large reservoir of refurb inventory that we have available to us, but we have not had a similar opportunity in our other categories. And so that's really driving our R&D in that area. With regard to new modalities, I want to note that they do take a little longer because we're building from the ground up. But as you mentioned, I will remind you that we're already a leader in the strength category. We have roughly 2 million of our members engaging with strength every quarter. And we see an opportunity to broaden our equipment portfolio in that category, and I wouldn't even view that as a singular opportunity. I think there are multiple opportunities for us to pursue that category, which we define as all forms of resistance training. So I hope that tides you over. Operator: One moment for our next question. That will come from the line of Doug Anmuth with JPMorgan. Bryan Smilek: It's Bryan Smilek on for Doug. I guess just two questions. Obviously, good to see the acceleration on the commercial series and revenue overall. Could you just elaborate more on the demand pipeline and how the product and go-to-market strategy is changing, especially as you launch the new products in 2Q '27? And then I guess, more so on the marketing side, Peter, you talked about managing towards that 2 to 3x average LTV to CAC. Can you talk about some channels where you're seeing some of this efficiency and spend that allowed you to get those deeper promos throughout the quarter? Saqib Baig: Yes. Thank you. I can start with the commercial business. So we -- just to double click on the Q3 performance, as Peter covered in his remarks were that CBU grew year-over-year 14% in Q3. As we look ahead in Q4, we expect CBU revenue growth to be a little softer in Q4 due to elevated CBU revenue in Q4 of last year, as we experienced increased demand ahead of tariff surcharges, which were announced in Q4 of FY '25. So I just want you guys to have a context with that. When you think about the long-term growth potential for the commercial business, we see tremendous opportunity. We estimate that we roughly have around 3% of a growing $10 billion commercial fitness equipment segment market share. The commercial fitness market is expanding as we observed rising global health awareness, we're seeing growth in gym and corporate wellness centers and also an increased demand for digitally enabled fitness facilities. And all of these things drive demand for our high-quality equipment. And we believe we have multiple growth vectors. A lot of them are going to play in the long run, but some of them in the short term as well. First, growing the legacy Precor business, and we can do that through sales enablement, channel partnership, investing in our strategy account. This is the core of our CBU business today. Second, we see an opportunity in investing in commercial product road map. As you just highlighted that this quarter, we announced the Commercial Series, which will feature a bike and tread built specifically for high-traffic gym floors. This is a milestone that combines Peloton Digital fitness leadership with Precor trusted industrial scale. And we have received great feedback, two of the leading industry events in this space and look forward to bringing these market -- into the market in fiscal '27. The third thing that I would like to highlight is the opportunity for international expansion, which is a big opportunity for CBU by leveraging Precor's existing global presence to grow the Peloton brand. Currently, we believe CBU is underrepresented outside of the U.S., and we believe we have significant room to grow our market share internationally. Peter Stern: Doug (sic) [ Bryan ] let me cover the second question that you asked, which was about the various channels that we have and their impact on our LTV to CAC. So let me focus on our first party versus our secondhand sales versus our third-party sales. In 1P sales, we saw good efficiency on web. And of course, a lot of that is driven by our e-mail marketing. We have a team that is just absolutely a crack team at working the funnel and getting ever more efficient at customer acquisition with the leads that we generate. Within our first-party retail, we continue to see really encouraging results from our micro stores. And that is relative to our in-line stores, where I think our micro stores are actually now despite being, give or take, 1/10 the size of our in-line stores, they're significantly more productive than the in-line stores, and it shows some of the things that we've learned about the positioning of those stores. And that has given us the confidence to begin investing in the next round of micro stores that we'll have in line for our fiscal '27. We also saw a good customer acquisition from secondhand sales, which in the quarter generated more than half of our gross adds. And that is influenced by our marketing, right? What we have found in our path to purchase research is that when we market to members, then that begins a process for them of discovering all the ways that they can get access to Peloton equipment. And some of them choose to do so, for example, through Facebook Marketplace or through our Repowered marketplace. And that has turned out to be very productive for us. Relatively less productive in the quarter were our third-party retail and our Fitness-as-a-Service rental business, so those, I would say, just to round out the answer to your question, were among the less productive channels. Operator: One moment for our next question, and that will come from the line of Brian Nagel with Oppenheimer. Brian Nagel: So Peter, the first one I'm going to ask, I mean, I guess a little bit bigger picture. Recognizing you haven't provided official guidance beyond this current fiscal year, but on the commentary around the evolution of Peloton to more of a wellness company and some of these green shoots you're starting to see on that front, how long -- again, what's the duration? Do we see some type of -- within the total company results, a real inflection as a result of these efforts? I mean is it -- I guess is it an event that we could expect in the next fiscal year, or are we waiting longer than that? And then my follow-up question, just to kind of tie this all together, again, I appreciate all the comments with regard to the balance sheet; the forthcoming balance sheet rework, how critical is that in order to drive this next leg of growth within Peloton? Peter Stern: Yes, Brian, thank you. So I think the question you're asking is how long do we have to wait until we get back to sustained growth? And there's a couple of ways of looking at that, right? One is subscriptions, the other is revenue. And as I've shared earlier in the call, what we can expect is revenue to come ahead of subscriptions. We're not ready at this point to call when we get back to subscriptions growth, but I was very pleased that we were able to deliver a Q3 with positive revenue growth. While we won't see that likely sustain in Q4, based on our implied guidance for the quarter, I think we're now in a stage where hopefully we'll see some step forward and some steps back, as we right the ship. And the ways that we do that are not only by continuing to build on our leadership in cardio but as we talked about on this call, starting to expand our impact into some areas like strength, where we know that there is substantial untapped opportunity and we have a really ambitious R&D agenda. It's also in things like what we're doing in mental well-being, where we're generating now Peloton content for the Breathwrk app, and that will generate revenue, but app subscribers, not CF subscribers, which are the ones that we typically see investors tracking. We're also making progress in some other areas like nutrition and hydration, and we'll have more to share about that hopefully in the not-too-distant future. And we also find, of course, that when members engage in multiple modalities, they stay with us longer and that can positively move the trajectory on subscriptions as well as revenue. And so for example, the category of sleep is one where we're already a leader in sleep meditations. I made sure to take one last night before this morning's call, and I'd encourage everyone to do that. So those are some of the categories in the areas that will first get us back to revenue growth and then ultimately set the stage for the subscriptions turn. With regard to the balance sheet, we don't need to refinance in order to be able to drive the strategy that we described, but we'd be foolish not to because we are, from where we sit right now, paying more interest than we need to. And so that could generate additional funds for free cash flow or for investments, and that refinancing would also give us the flexibility to engage in shareholder-friendly actions like buybacks that could help reduce the float and address the dilution that we know is on many of our investors' minds. So all of those things are absolutely on the table along with the fact that under the right circumstances, and it would require the right price and real discipline and rigor because we've worked super hard to accumulate this money, so we're not going to fritter it away. If the right investment or acquisition opportunities come to us, we'll take those really seriously as one of the -- not the only public company in our segment of the fitness market, we are pretty common port of call for companies looking for an exit. And if we find the right one at the right price, we would at least seriously consider that. So those are some of the things that we can do with our excess cash. But first and foremost, it's with the goal of serving our shareholders. James Marsh: We have time for one last question. operator. Operator: And that final question will come from the line of Shweta Khajuria with Wolfe Research. Shweta Khajuria: I guess, could you please talk to how you think about the evolution of the business? So certainly, you spoke to the trends that you're seeing in gross adds and retention, implying that net adds could be flat at some point and then turn positive. But as your business evolves, how do you view the overall market opportunity across commercial business unit and partnerships like the one you just announced with Spotify versus hardware sales, whereby is net adds going to be a key metric for you, if your revenue is coming from other diversified sources, so how do you think about that? Peter Stern: Yes, thanks, Shweta, I'll cover that. I mean, we try to be pretty practical and hard nosed when it comes to the business. So quality revenue ultimately is what matters. And by quality revenue, I mean, revenue with good margins and ultimately, really efficient cash flow generation from that. We know that a substantial fraction of that quality revenue for us comes today from Connected Fitness subscriptions. And so that is also an important metric to us. But it's in service of the revenue metric, it's not an end metric in and of itself. That being said, we are acutely focused on that one because we recognize its importance in our profit generation in particular. But we're incredibly excited about our ability to diversify this business, leveraging the power of the Peloton and the Precor brands. So the commercial business growth that we're experiencing is, one, because gym operators are so excited that Precor is back, right? We were such an important supplier to them for many years. I think we took our eye off the ball for a couple of years there. But gym operators, they're all telling us they can see it that we're back, and that represents what we believe to be a sustainable source of high-quality revenue growth for many years into the future. Content licensing is another area that's attractive for us because it allows us to leverage the investment that we've already made in content for our Connected Fitness subscribers and to generate additional high-margin revenue from that existing space. Going back to the commercial business, the Peloton brand is woefully underexploited in that space. Again, gym operators tell us every time we speak with them that the only brand that their members ask for by name is Peloton. And so we've had people lining up to see our products when we've demonstrated at recent fitness conferences. Those hardware sales will come with some subscribers just to tie those things back, but not at the same ratio as a household, right, where you sell one piece of equipment that's basically shared by a couple or 1 or 2 people in that household. In the case of gym, many people share the same piece of equipment. So that's a little bit about how all those things relate to each other. But the evolution of the business is from Connected Fitness to Connected Wellness across all of the categories of cardio, both residential and commercial, strength, nutrition, mental wellbeing, sleep, recovery, realized through high-quality revenue with subscribers as a secondary metric that fuels that high-quality revenue. Okay. Before we wrap, knowing that many of the people who participate in this call are also our members, I want to point out a few items that you shouldn't miss. So first, check out the 2-for-1 Strength class that features Hudson Williams CoStars, Adrian and Tunde. So you too can build muscles like Hudson. I also want to encourage you to join our Live Spring Cross Training plan. Those classes have been dropping Monday through Friday, and they're also available on demand. And finally, if you're training for a marathon, be sure to try our new Pace Your Race: Marathon program that proudly features our cast of global Tread instructors. With that, thank you for joining today, and please join me in wishing James Marsh a happy birthday. Operator: Thank you. This concludes today's program. Thank you all for participating. You may now disconnect.
Operator: Good day, and welcome to the Middleby Corporation's First Quarter 2026 Earnings Conference Call. [Operator Instructions] On today's call are Tim FitzGerald, CEO; Mark Salman, President of Middleby Food Processing Group; Brittany Cerwin, CFO; James Pool, Chief Technology and Operations Officer; and Steve Spittle, Chief Commercial Officer. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Tim FitzGerald. Please go ahead. Timothy FitzGerald: Good morning, and thank you for joining today's call. I'm excited for the next few months and what it holds for Middleby. That starts today with sharing the excellent results achieved across both segments of the business and raising our guidance for the year. It continues next Tuesday during our Investor Day in New York as we lay out our visions for the exciting future of both segments, and it culminates with the separation of the segments into two pure-play stand-alone public companies. But the separation of the business is not the end. In fact, it's only the beginning of a new and exciting chapter for both companies. Following this transaction, Middleby will operate as a focused commercial foodservice leader with a scaled portfolio of best-in-class brands, accelerating innovation and industry-leading 26% segment level EBITDA margins. while Food Processing becomes an independent growth platform with segment level EBITDA margins over 20% and significant expansion opportunities through both organic and acquisition growth initiatives. The separation will allow for focused execution across both companies with significant growth opportunities ahead. While we're only discussing the near-term outlook on today's call, we look forward to showcasing our long-term vision next week. Turning to our first quarter results. Our total revenue of approximately $840 million for Commercial Foodservice and Food Processing exceeded our expectations. This strong top line performance drove adjusted EBITDA of approximately $181 million. Through a combination of these operational results and substantial share repurchases over the past 12 months, this translated to adjusted EPS from continuing operations of $2.16. Same as last quarter for today's discussion on segment level results and trends, I will be discussing the Commercial Foodservice results and outlook, and I've asked Mark Salman, the CEO of Food Processing upon completion of the spin-off to discuss the Food Processing segment performance. Starting with Commercial Foodservice, we generated revenue of approximately $616 million, which exceeded our expectations during the first quarter. The outperformance was driven primarily by the general market with our dealer partners, which again had double-digit growth during the quarter, maintaining the strength we saw to end 2025. We continue to gain share with our dealer partners as a result of efforts to strategically align those relationships and broaden the solutions we now sell through our channel partners. The broad-based strength we saw in the general market was complemented by better-than-expected growth with the chains. Replacement activity is improving given deferrals in the prior years. And more importantly, we have a strong pipeline of new opportunities, which are converting. We are particularly optimistic about the momentum we are experiencing across the industry on beverages, where chain customers are seeking to refresh their menus with new beverage offerings. The investment we have made in the past several years is allowing us to capitalize on this momentum and industry trend. All that said, while the quarter came in better than expected for chains, industry conditions remain challenging, especially as consumer wallets became increasingly strained in March and April. As we look ahead, we're remaining prudently cautious, though we are well positioned for the environment to hopefully improve as we move through the year. Britt will provide additional color, but our guidance assumes a relatively consistent environment to what we are currently experiencing as we await larger chain customers to firm up their plans for the year, particularly in the second half and adapt to the current macroeconomic environment. As we think longer term, the investments we have made positioned us with unmatched competitive advantages, both now and into the future. With the industry's broadest portfolio of leading brands, the strongest innovation pipeline, including IoT, automation, and beverage technologies, and investments in go-to-market and service initiatives that will accelerate growth and drive market share gains for years to come. The foundation of the Commercial Foodservice business is stronger than ever and the strategic investments that we have made over the past several years position us for growth in an exciting next chapter. Before I turn the call over to Mark, I would like to take a moment to welcome Brittany Cerwin as our new CFO. Britt has been an invaluable member of the Middleby leadership team and has been integral to the company's growth since joining 15 years ago. She has quickly and seamlessly stepped into this new role. I'm very excited to work with Britt as we transform the company into a pure-play commercial foodservice equipment leader. I would like to now turn over the call to Mark to discuss Food Processing. Mark Salman: Thanks, Tim. Food Processing delivered our best first quarter ever, delivering record results across key top line metrics with organic revenue growth of 25%, record order intake and our fifth consecutive quarter of book-to-bill above 1. Turning to specifics. In the first quarter, the Food Processing segment generated revenue of approximately $224 million, with orders of $231 million, resulting in a backlog of $416 million, a further increase versus the end of the year. The strength we saw across the business in the first quarter puts us on a solid foundation and builds confidence for the remainder of the year. In terms of drivers, we are realizing growth in the international markets, thanks to the investments we have made over the past several years in our international footprint as our brand can now reach a broader global audience with food processing trends that are evolving around the world. We saw these investments and strategy play out during the quarter with 2 new bakery projects in Kenya secured through our expansion of international offices in recent years and representing our first meaningful order in the country. This is yet another example of how we are uniquely positioned with our total line solutions to deliver value to our customers globally, and that strategy is proving to be a key driver of our organic growth. We are in the early innings of executing our growth strategy with significant market opportunities ahead. What sets Middleby Food Processing apart is this comprehensive approach to serve industrial protein, bakery and snack processors. We have created a portfolio designed to deliver complete end-to-end total line solution offerings that optimize our customers' entire production lines and are committed to delivering the lowest total cost of ownership. This targeted approach has also guided our acquisition strategy. We've built the food processing business by adding brands and products specific to target food applications, which complement our total line solutions. This formula works. Our recent acquisition of Gorreri from Italy is a great example. Since the acquisition 18 months ago, we have unlocked multiple total line solution opportunities in the cake category, not only elevating Gorreri, but growing the order pipeline for our existing brands and providing our customers an unmatched solution only Middleby food processing can deliver. We have consistently executed on our strategic and disciplined approach to acquisition for 20 years. Now, as we separate into our own public company with a strong balance sheet at just 1.25x net leverage, we have significant capacity to accelerate this proven growth strategy. Beyond top line growth, we have clear visibility to improve profitability driven by 3 key factors: lapping tariff-related headwinds from Q3 2025, favorable mix in our backlog and continued margin maturation of recent acquisition. In summary, we are well positioned to deliver both strong top line growth and margin expansion for the remainder of the year. Finally, as you saw in our Form 10 filed on Monday, we have completed the build-out of our management with a highly experienced set of executives prepared to execute on the extensive growth opportunities ahead of us. These include Mark Bowie, who has more than 25 years of manufacturing expertise and proven leadership as COO. Matt Fuchsen has more than 15 years of experience across a variety of roles at Middleby, has been my M&A partner for the past 10 years and will be joining Middleby Food Processing as Chief Strategy Officer. And most recently, Amy Campbell, who has 29 years of industrial manufacturing and public company experience as CFO. I, along with the rest of the team, are excited to share our vision for the future at the Investor Day next Tuesday. Although we have been executing our strategy for many years, I can assure you that we are only getting started on what's possible as we separate into an independent company with the balance sheet and necessary liquidity to support our ambitious growth strategy. With that, I'll now turn the call back over to Tim. Timothy FitzGerald: Thanks, Mark. As you heard from Mark and myself, both segments had a great first quarter, and we're optimistic about what each business will be able to accomplish for the rest of the year. On top of the excellent segment level results, at a corporate level, our capital allocation strategy remains aggressive and focused. We have continued our share repurchase program, having allocated over $520 million so far in 2026, reducing shares outstanding by approximately 7%. This is on top of the 9% reduction we achieved in 2025. We continue to plan to allocate a substantial portion of our free cash flow to repurchases this year. But most importantly, we have a world-class team around the globe and across both segments, whose commitment and execution continue to drive our success. With that, now I'll turn it over to Britt to discuss our financial performance in greater detail and guidance for the second quarter and 2026 full year. Brittany Cerwin: Thanks, Tim. I'm honored to be the CFO of Middleby Corporation and excited to partner with you on the exciting opportunities ahead. Turning to the results. Our first quarter results showcase the strength of our execution, the quality of our business model and the realization of the investments we have made over many years to best position ourselves to capture these opportunities. Let me walk you through the key financial highlights and our outlook. For Commercial Foodservice, first quarter revenues were approximately $616 million, driven by organic revenue growth of 8.1%. Positive impacts were seen from general market, institutional and emerging customer segments with our chain business better than expected. Organic adjusted EBITDA margins were 25.8%. At Food Processing, first quarter revenues were approximately $224 million, driven by organic revenue growth of 25%. Positive impacts were seen from improvement in international markets. Organic adjusted EBITDA margins were 19.5%, including a modest headwind from the timing of a new product introduction that we do not expect to recur in future quarters. Q1 orders reached $231 million and backlog grew to $416 million. Overall, in terms of tariff costs, during the first quarter, we successfully offset the dollar impact of tariffs to our P&L. That said, from a percentage margin basis, tariffs remained a headwind in the first quarter, and we expect that to continue in the second quarter before we lap the impact of the execution of prior year second half pricing and tariff mitigation strategies. We are proactively working to get ahead of new inflationary pressures, particularly around shipping costs and electronic controls through operating initiatives along with targeted and strategic price increases of approximately low single digits that we have already announced for the third quarter. On a consolidated basis, total company adjusted EBITDA for the first quarter was approximately $181 million and adjusted EPS from continuing operations was $2.16. Adjusted EPS expansion was achieved through organic EPS growth, share repurchases utilizing the proceeds from the residential transaction and carryover from the 2025 share repurchase activity, offset by increased interest costs associated with the maturity of our convertible notes and higher stock compensation costs as compared to the prior year. Please refer to Slide 10 of the presentation we have posted online for a complete adjusted EPS bridge. First quarter operating cash flow was approximately $88 million, and free cash flow was approximately $80 million. Our leverage ratio per our credit agreement at quarter's end was 2.3x. As stated in the Form 10 we filed on Monday, following the Food Processing spin, we expect the new company to have a net leverage ratio of approximately 1.25x, which we believe will position them well to pursue the organic and M&A growth opportunities ahead for the company. We expect Middleby RemainCo to have a net leverage ratio of approximately 2.8x at the time of the spin and delever to approximately 2.5x by the end of 2026. Regarding capital allocation, during the first quarter, we repurchased 2.4 million shares or approximately 5% of our outstanding equity, for $366 million or an average purchase price of approximately $153.38 per share. Start the second quarter, we have repurchased an additional 1.1 million shares or approximately 2% of our outstanding equity for approximately $154 million for an average purchase price of approximately $142 per share. Turning to our outlook for 2026. For ease of communication and continuing the same methodology from our guidance last quarter, we provide this outlook on a current company basis, assuming that both Commercial Foodservice and Food Processing remain together for the full year. Let me walk you through our second quarter and full year outlook, starting with the second quarter. For the second quarter, we expect to achieve the following: total company revenue of $815 million to $850 million, which is comprised of Commercial Foodservice at $600 million to $620 million and Food Processing at $215 million to $230 million. Adjusted EBITDA is forecasted to be between $180 million and $192 million, which is comprised of Commercial Foodservice at $154 million to $164 million and Food Processing at $45 million to $49 million. Adjusted EPS is projected to be in the range of $2.27 to $2.39, assuming approximately 45.8 million weighted average shares outstanding. For the full year, we expect to achieve the following: total revenues of $3.36 billion to $3.44 billion, which is comprised of Commercial Foodservice at $2.44 billion to $2.49 billion and Food Processing at $915 million to $945 million. Adjusted EBITDA of $758 million to $790 million, which is comprised of Commercial Foodservice at $645 million to $668 million and Food Processing at $186 million to $208 million. Adjusted EPS is projected to be in the range of $9.54 to $9.70. Please refer to Slides 15 and 16 of the presentation we have posted online at our Investor Relations website for full details. That concludes our prepared remarks, and we are now ready to take your questions. Operator: [Operator Instructions] Our first question comes from Jeff Hammond with KeyBanc. Jeffrey Hammond: Can you guys hear me? Timothy FitzGerald: Yes. Jeffrey Hammond: Okay. Sorry about that. Can you unpack the -- Tim, the March, April trend comment and what you're seeing from an order standpoint, kind of what's changing? I kind of sense that maybe there was a little bit of tone change or maybe I'm misreading it. Timothy FitzGerald: Yes. I think we're just commenting on what are the macroeconomic conditions that we're seeing out there. Obviously, there's a lot of pressure with fuel prices being up, and we're thinking about how that affects the consumer and some of the traffic trends that we're seeing out there. But in terms of order rates, we've been positive. So I mean, I think things have continued well for us early into second quarter. Remember, our lead times are not all that long, but I think a lot of the momentum that we've seen that started in the back half of last year and carried into the first quarter, we have not seen that change thus far. We just, again, are very in tune with what our customers are seeing. But as you can also see, a lot of our chain customers, a mixed bag, but a lot of them are performing much better than they were last year, which is also a good sign for us. And a lot of that is related to the initiatives that we had mentioned that they had taken actually with pricing on the menu and moving to more profitable categories such as poultry and beverage. So I think a lot of good things going on, but remain cautious just given the bigger picture. Jeffrey Hammond: Okay. Great. And then a couple on Food Processing. One, any kind of good lumpiness in 1Q, just very strong start and kind of kind of flattish organic into 2Q? And then if you can quantify the onetime new product intro cost impact on 1Q? And then just speak to M&A pipeline actionability. Mark Salman: Sure. Yes. Thanks for the question. This is Mark. So on the lumpiness, we really tend to look at our business not just quarter-by-quarter, but more so 2 quarters in a row, 3 quarters in a row because this is -- you take an order, you turn it into revenue between 6 to 18 months. So sometimes you do have some greater quarter than others, which if I look at the first half of the year, the organic growth with our guidance is at 9%, which is something we're happy to pinpoint. And the second part of your question was on? Timothy FitzGerald: M&A. Mark Salman: The M&A pipeline. Obviously, we've been active throughout the years. We remain very active. That's one of the thesis of our spin. And we will not give further comment other than we're in a good spot there as well. Operator: And the next question comes from Brian McNamara with Canaccord Genuity. Madison Callinan: This is Madison Callinan on for Brian. First, in CFS, what's been resonating with customers? And what drives future growth? Is it innovation? Is it deferrals coming through? Steve Spittle: Yes. This is Steve. I think it's all of the above. I think when -- specific maybe to our chain customers, the bigger QSRs right now, a lot of the demand that we're seeing, there is a change. Over the last several years, there has been a greater focus with the bigger chains on new store openings. And although that does continue to some extent, you are seeing more going back into restaurants, making sure operations are delivering a very consistent product and a good experience for consumers. So you're seeing the demand in the replacement business start to pick up, which has been a thesis of pent-up demand in that area. But really, the biggest area I feel like we're seeing upside with our big chain customers is when they're adding additional products to drive new menu items and new dayparts. And obviously, beverage is a big category we've talked a lot about on these past several calls. And you're really starting to see that show up meaningfully with some of our customers in their last couple of quarters. And that is very powerful for Middleby just because no matter if you are adding a beverage platform that is anything from coffee to refreshers to shakes, Middleby can do all of that. And so we really have become a one-stop shop for any type of chain customer that's looking to add beverage to their menu. And now you're seeing it actually drive dayparts for them, which is driving traffic, it's driving revenue for them. So it's one aspect of where we see demand coming from, but it's an exciting part of what we think the rest of this year and certainly into next year holds in terms of beverage and just new product adoption for us. Madison Callinan: Great. And then how does the recent updates to the Section 232 tariffs impact the company relative to the tariffs you were already paying? And can you remind us of your exposures to cost inputs like steel, aluminum, resin? Brittany Cerwin: Yes. So as it relates to the tariff changes, so with the elimination of the IEEPA tariff and then the changes to the 232 and incorporating Section 122, we still feel that our overall tariff exposure on a gross basis remains relatively the same. As it relates to the inflationary costs that we're recently seeing kind of in shipping and on the control side, we are anticipating that to be a headwind here and have announced that we will be putting pricing through to cover that. On the Commercial side, we're expecting that to be kind of in the low to mid-single digits. And then on the Food Processing side, obviously, with their contracts, they will -- as they're prudent in their contract pricing and also through parts pricing as well. In terms of the overall exposure, as we do our initial estimate, we believe for each of the segments, that's probably about a 1% headwind on margins. Operator: And the next question comes from Mig Dobre with Baird. Mircea Dobre: Brittany, congrats. Look forward to working with you going forward. I guess my question, starting with Tim or Steve, when I'm looking at the organic growth in Commercial Foodservice, it really stood out to me not only relative to your initial guide, but just relative to what the company has been able to grow over recent years if we're kind of leaving out the post-COVID recovery, right? The Q1 performance was just materially above recent trends. So what's different? What changed? And were there any sort of onetime items that investors need to be aware of either as it relates to prebuying by dealers or some stocking of channel inventory effect or even maybe some of your larger customers on the QSR side that have had any onetime purchases or lumped purchases for lack of a better term in the quarter? Timothy FitzGerald: Mig, so I think we'll kind of pass back and forth between Steve and I. We did not see anything that was kind of onetime or unusual. I think in terms of what changed, it was probably the chains starting to pick up. So I mean I think as we had mentioned last year, I mean, we were doing pretty well with the dealers in general market growing double digit in the back half of last year. And I think we have been taking market share there. And last year, we felt we were also taking market share with chains, but we're over-indexed to the chains, right? So that had been a challenging part of the business, but I think I describe it as losing where you're winning. So I mean I think we're very well positioned with the chain. So it's still a mixed bag, but they are performing better. So as you see the chains inflecting, that's kind of where that is now showing up in the numbers. So you have kind of both parts of the business up as opposed to one up and the other one, which was a larger portion down in last year. So that's really kind of the inflection in the front part of the year. Steve Spittle: Yes, Mig, I would just add, I mean, I think the traction we see both with chains and certainly within the dealer community in the U.S. there's been a lot of work and investment over the last 2 or 3 years to get to this point. I feel like we've done a lot of work with a challenging backdrop, and we've invested both in people, resources, programs, trainings, both at places like the MIC, online trainings. And I think as the underlying markets for dealers in general market for institutional as that has started to come back around, we're taking market share in those segments because of the work we've done over the last 2 or 3 years. And so you're seeing it pay off in areas that we have maybe not been as successful with before wrapping projects together. So like for dealers, they used to potentially buy 3 or 4 brands on a project. Well, now because of the work we've done, they're packaging 6, 7, 8 brands, including stuff like ice, combi, TurboChef, et cetera. So both for dealers and chains, I guess I'm just stressing that we've put a lot of work in behind the scenes over the last 2 or 3 years with some pretty substantial time and investment to drive some of the growth that we're starting to see right now. Mircea Dobre: That's very interesting. Again, looking at your guidance, you're still talking about, call it, 5% organic growth in Q2 at Commercial Foodservice and just the full year organic growth of 5%. Again, if we're excluding the COVID recovery, that's the best organic growth you've had in a decade. So I guess my follow-up is, how sustainable do you think this is? Clearly, the year has guided the way it is, but I'm anticipating here at the upcoming Investor Day, are we to the point in your view that either through your investments in new product or the dynamics in the industry, we're finally back to this business, Commercial Foodservice being able to grow kind of mid-single-digit organically on a more sustained basis? Timothy FitzGerald: Yes. I mean I think we are confident in what we can control. I mean I think the investments that we made, and Steve just talked about a few of them, both with the go-to-market initiatives and all the innovation, we think we have been very thoughtful and executed on that well. And I think we're -- those investments are now made and starting to bear fruit, right? Like some of that was even disruptive as we went through the period, but certainly, the backdrop of the industry in the last 2 years has been disrupted, right? So I think we're confident in our execution and what we can control. We are optimistic that the industry is improving over a very disrupted period. But certainly, the industry is not completely off to the races either. There's a lot of pressures out there with pricing costs, et cetera. But our chain customers are starting to perform better. So I mean, I think as we think about it over the next 3 years, yes, we feel like there's a pretty good setup for industry to be in a better spot than the last 3 years. And certainly, we are in the best position we've ever been. Operator: And the next question comes from Tami Zakaria with JPMorgan. Tami Zakaria: Congrats on the wonderful results. My first question is similar to Commercial Foodservice, do you have any price increases planned this year in response to tariffs? Or are food processing orders part of long-term contracts that have escalators that kick in and that issue gets taken care of eventually over time? Mark Salman: Well, Tami, thank you for the question. First, yes, we always price our contracts based on what we believe is going to be our cost. Whenever we get these big contracts, we go and immediately contract our suppliers to firm up the costing side of it. On the aftermarket, we do take price increases just to reflect the headwind that we typically get on pricing. So I think we're pretty much ahead of the curve at this point of time once we are done with the second quarter with the remaining tariff impact that we've had from 2025. Tami Zakaria: Understood. That's very helpful. And the other question I had was for the Commercial Foodservice segment, EBITDA margin was down year-over-year in 1Q, and it seems you're guiding to down again in 2Q. Do you expect to return to year-over-year growth in 3Q with pricing kicking in? Or is that going to happen in 4Q as pricing takes full hold? Brittany Cerwin: Yes, Tami, this is Brittany. So I think as we go through the first half here, we're still lapping that tariff impact from 2025 on a margin perspective. And also, as we commented here in Q1, we still have some mix challenges that are impacting the margins, and we expect that to start to improve in the back half of the year as we look at the larger chain new unit growth and rollout plans that we have indication for right now. So that's why in addition to what we see from the inflationary pressures that we're facing on the cost side, we're being cautiously prudent in terms of the guidance for the margins for Q2, but do believe with lapsing the tariffs and as we continue to put further pricing out there to help us cover the new inflationary costs that we will start to have some benefits in the back half. Operator: And the next question comes from Chris Senyek with Wolfe. Christopher Senyek: Great quarter. The momentum continues, and I like the surprise upside to the buyback. Ice and beverage continues to be a standout area of momentum in the last couple of quarters. Can you elaborate on what's driving that strength, whether it's cold beverage innovation, menu expansion, customer mix and how we should think about that as we look out over the coming quarters and over the next year? And I guess related to that same question, was there any more front-end loading of the ice and beverage rollouts in the first half of the year for menu changes in the back half of the year with these chains? Or is it sort of you think, going to be pretty non-lumpy over the course of the year this year? Steve Spittle: Yes. Thanks, Chris. This is Steve. Maybe I'll take the last part first. Don't really expect a whole lot of lumpiness in terms of prebuy or how the purchasing happened both last year or throughout this year. I would call out two specific areas where we're seeing growth in both ice and overall beverage. I hit just a little bit earlier, but number one, within the dealer part of our business, we see massive opportunity to take market share, which we believe we have, again, packaging it with other Middleby brands. So we certainly saw increases in market share, both in the dealer community in the back half of this year. That continued definitely into the first quarter and expect that to continue throughout the year. But really in the chain side of our business, I keep talking about, but you're seeing QSRs that have never been in the beverage space adding beverage products to their menu, and it's become very, very prominent. And in many of those cases, it's being powered by Middleby and in some cases, exclusively powered by Middleby. And again, the chains are looking to us more and more to be able to provide a single solution that can almost immediately drive revenue. And from a franchisee standpoint, it's actually a very quick ROI, and that has become critically important to us. So again, I keep coming, it's beverage goes everything from ice to dispense to the actual product sales like it's everything in between and Middleby can do all of that, and that is why we're uniquely positioned. So that's -- so we have the dealer business and then we have a chain business that really is where we see momentum right now. And in many ways, I feel like we're actually just starting to scratch the surface of what the next couple of years can hold. Timothy FitzGerald: I think to that last point, a lot of those products are still coming to market right now. So I mean, I'll say some of them aren't even scratching the surface yet. So a lot of the coverage disruptions that we've got because I think our products are very differentiated. A lot of that will show up really 2027 and 2028. So we've got a pretty robust pipeline there. So that's very exciting for us. Christopher Senyek: Indeed, it is, yes. And then separately, on the buyback, I know there's upside to the buyback in the quarter and that kind of just changed maybe the mix of the buyback guidance. But how should we be thinking about the cadence of cash flow over the next couple of quarters as we think about modeling what might be available for the buyback in any particular quarters? Anything strange with working capital in certain quarters or anything else we should be aware of? Brittany Cerwin: No, absolutely. As you commented, we did have obviously a front-loading here of the buybacks as we continue to utilize the proceeds from the residential transaction and continue to use the vast majority of our free cash flow to convert that. As we put kind of in the guidance slide, we are guiding for Q2 to be around $175 million with the back half of the year about $50 million each quarter. So continuing that trend of the buybacks, and we'll continue to be opportunistic at the right time. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Tim FitzGerald for any closing remarks. Timothy FitzGerald: Great. Yes. Thank you, everybody, for joining today's call. Just again, as a reminder, we've got our Investor Day next week in New York on May 12. So hope to see many of you there. And then also call out that we're going to be at the restaurant show in Chicago, which is May 16 through 19. So that's also a great opportunity to come and visit with us and see a lot of the new products that we're launching, IoT, automation, beverage, get the latest in food service. So thanks very much, and we'll speak to you on the next call. Operator: The conference has concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you for standing by. My name is Christina, and I will be your conference operator today. At this time, I would like to welcome everyone to International Seaways, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the floor over to James Small, General Counsel. James, the floor is now yours. James Small: Thank you, and good morning, everyone. Welcome to International Seaways Earnings Call for the first quarter of 2026. Before we begin, I would like to start off by advising everyone with us today of the following. During this call and in the accompanying presentation, management may make forward-looking statements regarding the company or the industry in which it operates, which may address, without limitation, the following topics: outlooks for the crude tanker and product tanker markets; changing trading patterns, forecasts of world and regional economic activity; forecasts covering the production of and demand for oil and petroleum products; the effects of ongoing and threatened conflicts around the world, including in particular, in the Middle East; the company's strategy and business prospects; expectations around revenues and expenses, including vessel charter hire and G&A expenses; estimated future bookings, TCE rates and capital expenditures, projected dry dock and off-hire days, newbuild vessel construction, vessel sales and purchases, anticipated financing transactions and plans to issue dividends; economic, regulatory and political developments in the United States and globally, the company's ability to achieve its financing and other objectives and its consideration of strategic alternatives; and the company's relationships with its stakeholders. Forward-looking statements take into account assumptions made by management based on various factors, including management's experience and perception of historical trends, current conditions, expected and future developments and other factors that management believes are appropriate to consider in the circumstances. Forward-looking statements are subject to risks and uncertainties, many of which are beyond the company's control that could cause actual results to differ materially from those implied or expressed by the statements. Factors, risks and uncertainties that could cause the company's actual results to differ from expectations include those described in our annual report on Form 10-K for 2025, in our Form 10-Q for the first quarter of 2026 as well as in other filings that we have made or in the future may make with the U.S. Securities and Exchange Commission. Now let me turn the call over to Lois Zabrocky, our President and Chief Executive Officer. Lois? Lois Zabrocky: Thank you very much, James. Good morning, everyone. Thank you for joining International Seaways earnings call for the first quarter of 2026. On Slide 4 of the presentation, which you can find in the Investor Relations section of our website, net income for the first quarter was a record $286 million or $5.75 per diluted share. Excluding special items, adjusted net income for the quarter was $194 million or $3.90 per diluted share and adjusted EBITDA was $244 million. Today, we also announced another record with the declaration of our largest quarterly combined dividend of $4.55 per share, more than doubling last quarter's record of $2.15 per share. The declared dividend is comprised of two main elements: one, a new payout ratio of 85%, which you can expect from us going forward as a practice. Secondarily, a discretionary amount this quarter that we added due to the outstanding performance of the company and current market conditions, as you can see in the upper right section of the slide. We are very proud to have passed the milestone back in March of $1 billion returned to shareholders since 2020. We are even more proud that we will reach more than 20% of that mark when we pay our dividend in June. It took 6 years to achieve the $1 billion in returns and 1 quarter to get to $1.3 billion. We continue to believe in building on our track record of returning to shareholders as part of our consistent and balanced capital allocation strategy. On the lower left part of the page, we sold 7 vessels with an average age of 17 years for $216 million as part of our ongoing fleet optimization. We have consistently demonstrated throughout our 10-year history, we actively upgrade the portfolio throughout the cycle. Standing still in this business is effectively moving backwards. These transactions enhance our flexibility, and you should expect us to continue redeploying capital in a disciplined manner, including reinvestment in our fleet, in-line, again, with our balanced capital allocation strategy. Our LR1 newbuilding continue to join our fleet with 2 deliveries thus far in 2026 and the remaining 2 coming in the third quarter. From our prior call, Tankers International continues to enhance its status as not only a leading VLCC pool, but has expanded into Suezmaxes. As our ships continue to integrate into the Suezmax pool, we have also gained a new pool participant. We are quite excited about the opportunities in front of us as sole owners of Tankers International. One last comment in this section relates to our time charter coverage. We added another Suezmax onto our list for the next 3 years at $40,000 per day, which is great, and we like to have profitable long-term charters. We continue to work the time charter market with a keen eye towards the longer-term rate environment. This market opens and closes like any other arbitrage opportunity. We have $918 million in total liquidity, which includes almost $380 million in cash and $540 million in undrawn revolver capacity. Jeff is going to walk you through the cash flows of the quarter, but our vessel sales, the market environment and our disciplined balance sheet management over the last few years have all combined to put INSW where we are today. Turning over to Slide 5. We've updated our standard set of bullets on tanker demand drivers with the subtle green up arrows next to the bullet represented as good for tankers, the black dash representing a neutral impact and a red down arrow meaning the topic is not good for tanker demand. I won't read those bullets individually, but we believe demand fundamentals are solid and continue to support a constructive outlook for seaborne transportation. The current tanker market is as volatile as it has been in some time, particularly in reaction to the conflict in the Strait of Hormuz. Over the past few months, the market has been adapting to a new status quo, similar to what we saw during the Red Sea disruption and following Russia's invasion of Ukraine. This situation however, is even more significant. As shown in the lower left chart, roughly 15 million barrels per day of crude, nearly 40% of seaborne volumes transit through the Strait. Some of this disruption has been offset by alternative flows, including increased Red Sea exports as Saudi barrels move west to Yanbu, draws from inventories and the release of Russian barrels that have accumulated on the water. That said, these sources have not fully replaced the volumes typically moving through the street. In the near term, the market is benefiting as it works to adjust to this dislocation. However, as the Strait remains closed for an extended period, it could have broader implications for global energy markets until a resolution is reached. As you can see on the lower right, Western markets earnings strengthened meaningfully after the onset of the conflict, so much so that MRs and VLCC rates can now be shown on the same scale, quite an exception. Looking ahead, we believe that the longer the disruption persists, the more meaningful the eventual rebalancing could be once conditions stabilize. Particularly if inventories continue to drop, which could support tanker demand and earnings in the future. On the supply side, on Slide 6 of the presentation, with the aging of the world fleet and the sustained strength in tanker earnings, it is natural to see that the order book is creeping up. In the graph on the left, the order book has grown since the end of 2023, rising to about 16% of today's fleet. The industry needs even more. If you look at the chart on the right-hand side that shows the ratio of removal candidates, which are 18 years or older by the time the order book is fully delivered at 3x the size of those vessels entering the fleet over the next few years. This continues to be the largest story for tanker shipping and is likely to look its way in the near term. These fundamentals should translate into continued up-cycle over the next few years, and Seaways remains well positioned to capitalize on these market conditions. We will continue to execute our balanced capital allocation approach to renew our fleet and to adapt to industry conditions with a strong balance sheet while returning to shareholders. I'm now going to turn it over to our CFO, Jeff Pribor, to provide the financial review. Jeff? Jeffrey Pribor: Thanks, Lois, and good morning, everyone. On Slide 8, net income for the first quarter was approximately $286 million or $5.75 per diluted share. Excluding special items, our net income was $194 million or $3.90 per diluted share. On the upper right chart, adjusted EBITDA for the first quarter was $244 million. In the appendix, we provide a reconciliation from reported earnings to adjusted earnings. While our revenue and expenses were largely within expectations, our G&A expenses were reduced by about $5 million in the quarter due to a commercial settlement where we were reimbursed for legal expenses incurred over the last 2 years. The lightering business in the first quarter had around $6 million in revenue and expenses. Turning to our cash bridge on Slide 9. We began the quarter with total liquidity of $724 million, composed of $160 million in cash and $557 million in undrawn revolving capacity. Following along the chart from left to right on the cash bridge, we first had $244 million in adjusted EBITDA for the first quarter, plus $14 million of debt service, another $15 million of dry dock and capital expenditures as well as an $81 million use of working capital. We therefore achieved our definition of free cash flows of about $133 million for the first quarter. We received $223 million in net proceeds from the sale of 7 vessels in the first quarter, of which about $6 million was paid to the pool for positioning of one of our VLCCs. We spent $28 million in LR1uilding installments, including financing proceeds and costs and $5 million to acquire the remaining ownership stake in TI. The remaining $106 million represents our second largest ever dividend of $2.15 per share paid in March and topping the $1 billion milestone in returns to shareholders. In summary, the result of our activity this quarter yielded a net increase in cash of $210 million, roughly in line with the proceeds from our vessel sales. This equates to ending cash of $377 million, with $541 million in undrawn revolvers for total liquidity of about $918 million. Moving now to Slide 10. We have a strong financial position detailed by the balance sheet you see on the left-hand side of the page. Liquidity is strong at $918 million. We've invested about $2 million in vessels at cost on the books, which are currently valued at nearly $4 billion. And with approximately $225 million in net debt combined with rising asset values, our net loan-to-value is below 7% at the end of the first quarter. In the lower right-hand table, we have included a summary debt profile. Gross debt at the end of the first quarter was $650 million. Mandatory debt repayments through the end of 2026 are about $21 million. Our debt is almost entirely fixed or hedged, which contributes to our total cost of debt below 6%. We continue to enhance our balance sheet to maintain the financial flexibility necessary to facilitate growth as well as returns to shareholders. Our nearest maturity in the portfolio isn't until the next decade. We have 25 unencumbered vessels, and we have ample undrawn RCF capacity. We continue to explore ways to lower our breakeven cost even more and share in the upside with substantial returns to shareholders. On the last slide that I'll cover, Slide 11 reflects our forward-looking guidance and booked-to-date TCE aligned with our spot cash breakeven rate. Starting with TCE fixtures for the second quarter of 2026. I'll remind you that actual TCE during our next earnings call may be different. But in the second quarter so far, we currently have a blended average spot TCE of over $100,000 per day fleet-wide on about 45% of our second quarter expected revenue. On the right-hand side, our expected breakeven for the next 12 months is about $14,900 per day. So based on our spot TCE book to date and our spot breakeven, it looks as though Seaways can continue to generate significant free cash flow during the second quarter and build on our track record of returning cash to shareholders. On the bottom left-hand chart, we provide updated guidance for our expenses in 2026. You'll notice that we've added a few million dollars per quarter to our projected G&A. These increases represent the impact of consolidating Tankers International into INSW's financials. I would also like to note that we've added guidance for what we refer to as other revenue, which are TI commissions that offset this. We also included in the appendix our quarterly expected off-hire and CapEx. I don't plan to read each item line by line, but encourage you to use these for modeling purposes. Now that concludes my remarks. I'd like to turn the call back to Lois for her closing comments. Lois Zabrocky: Thanks so much, Jeff. On Slide 12, we have provided you with Seaways investment highlights and encourage you to read them in their entirety. Summarizing briefly, over the last almost 10 years, International Seaways has built a track record of returning cash to shareholders, maintaining a healthy balance sheet and growing the company. Our total shareholder return represents over 28% compounded annual return. We continue to renew our fleet so that our average age is about 10 years old and what we see as the sweet spot for tanker investments and returns. We've invested in a range of asset classes to cast a wider net for growth opportunities and to supplement our scale in each class by operating in larger pools. We aim to keep our balance sheet fortified for any down cycle. We have nearly $1 billion in total liquidity to support our growth. Our net debt is under 7% of the fleet's current value, and we have about 40% of the fleet that is unencumbered. We only need our spot ships to earn less than $15,000 per day collectively to breakeven in 2026. At this point in the cycle, we expect to continue generating cash that we will put to work, creating value for the company and for our shareholders. We thank you very much for joining us. And with that said, operator, we would like to open the line for questions. Operator: [Operator Instructions] And your first question comes from the line of Liam Burke from B. Riley Securities. Liam Burke: You have some older MRs in the fleet and there's significant demand. Are you seeing charterers -- willing to charter the older vessels? Or are you looking at elevated asset values to maybe divest them? Lois Zabrocky: Well, I would say that we have had great success in clearing out our oldest MRs. And while I was thinking about you, and I was noodling out, if you're able to earn the types of rates that we are locking in. For example, in the second quarter, your free cash flow thrown off per MR in that quarter is going to be over $5 million. So we are constantly looking at high grading, and we've had great success on that front. And having available ships and prompt positions moving oil today is worth a lot of money. Liam Burke: Fair enough. And if you look at spot rates, obviously, they're having elevated rates just [putting it] mildly. How much thought have you given to moving some and locking in on the time charter front? Lois Zabrocky: I can -- I'll start that, and I'll flip it over to Derek. And what we're seeing is that everybody that has a time charter now is certainly eager to hold on to it. And then you can get a healthy rate for a shorter period. But as you go longer, I think the volatility starts to come in and people are a little bit anxious to fix 3-year deals. What do you think, Derek? Derek Solon: Lois, I agree with you. I think, like Lois said in her remarks, we're eager to look for longer-term charters. Longer than a year, certainly in this kind of spot environment. And so the 2- or 3-year numbers are considerably lower than what we're seeing for the 1-year number and in the spot market. So our preference until we see stronger rates in the longer run would be to stay where we are in the spot for a while. When we do see -- outside the market, we do see rates that we like for longer term, like Lois mentioned in her remarks, Suezmax for 3 years at a pretty healthy number. Operator: And your next question comes from the line of Greg Lewis from BTIG. Gregory Lewis: Great quarter. I did want to talk a little bit about the dividend. I mean that was eye-popping. Lois and Jeff, over the last couple of years, you've done a good job of the balance sheet looks great. We've sold some older vessels. We've kind of positioned the company very well, realizing that we're definitely going to keep part of the special dividend as part of the return of cash to shareholders. Are we looking or have we thought about maybe potentially increasing the kind of the small, I guess we refer to it as the permanent dividend. Has there been thoughts with the Board about potentially raising that up just given the fact that we've kind of put the fleet on a much, I don't know, firmer or better footing? Jeffrey Pribor: Greg, this is Jeff. We were just reflecting the other day as we got ready for this release and call that, that dividend started at $0.06 a quarter and then we raised it to $0.12. And that was in a year where there wasn't much net income, but we said, let's put out an amount that is, as you say, permanent that we're confident through the cycle. And then we've had a fortunate circumstance of being in the market that's allowed us to pay a lot more than that. And what we've really focused on this variable component where we wanted to be consistent and consistently raising it. And what you saw this time there is a message that we are at 85% of net income on a 25-year basis. Anecdotally, that's probably close to 100% on a 20-year depreciation basis, but we're at 85% on a 25-year basis. And you should expect that. Now I think you raised a good point. That $0.12, no one is really thinking about it right now when you have such a high amount of income that 85% is way more than that, right? Obviously, $4.55 right now. But over time, I think that's something we'll look at as the company gets bigger and we feel that what we can afford permanently because there will eventually be a down cycle, right? So I think you raised a good point. It is something we think about. But this quarter, we didn't want to confuse the message. We want to stay on message, 85% is the expectation. But because of market conditions and because of our strong balance sheet, thank you for mentioning it and then the liquidity that we have, we have the ability to pay some more. So we thought this is a market where you should share with your owners. So we want -- we didn't want to go away from the 85%. We want to be consistent there. The expectation is clear. But because we're in good market condition and excellent balance sheet liquidity, we have out of discretionary. So -- but your point is valid, all stuff we think about. Gregory Lewis: Okay. Great. And then, Lois, maybe on the market. I mean, clearly, the market is good or great. I was kind of curious, though, around kind of maybe what you're hearing or seeing regarding the dark fleet, right? I know that the U.S. removed or temporarily lifted a ban on some sanctions of like vessels that I guess were previously in the dark fleet. Is there any way to kind of track or think about those vessels in terms of -- I guess, a couple of things. One is, as the Iran war has happened and maybe some of these vessels sanctions are lifting, have those vessels -- have we -- I mean, have there been maybe better utilization or efficiency of those vessels? And then -- and maybe it's still too early to be talking about this, but in -- eventually, this war will be resolved and when this war is resolved, just given the fact that the waived sanctions, has there been any thoughts around what happens to those vessels that have been consistently in the dark fleet? Lois Zabrocky: So I'm going to start that reply, and then I'll have Derek jump in. So for sure, we put a lot of thought into the dark fleet and getting them to go away, right, from the market entirely. You're certainly seeing heightened interest from our administration on the dark fleet. And I think this temporary relief to deliver cargoes to reduce the impacts of the Hormuz closure is very temporary. We still think there's a very high inefficiency rate on those -- on the dark fleet. And Derek, correct me if I'm wrong, but most of the VLCCs, which there's more than 150 now that are sanctioned, which are largely due to the Iranian situation are over 20 years. Derek Solon: A good portion of them are over 20 years. So to your question on are we seeing increased utilization of the dark fleet, that answer is still no, right? One, like Lois just said, they're a lot older. So their efficiency rate -- their utilization rate is quite low. And two, now there's increased pressure from the U.S. administration on these ships. So they're not getting a lot -- even before they Iran war. So we haven't seen them -- they're active, but they're not running at the utilization that the tankers international, right? And then what happens to them long term? It's an easy way to say they'll all quickly find their way to be recycled. That will probably take some time, but they'll run out of work. right? If the sanctions fight harder, the U.S. administration pays more attention to the VLCCs or if the EU pays more attention to sanction ships in some of the smaller fleet, smaller segments, they'll run out of work to do. So from a -- where they enter us on a competitive basis will be -- will have less impact on our markets. Gregory Lewis: Super Helpful. Operator: And your next question comes from the line of Chris Robertson from Deutsche Bank. Christopher Robertson: Just have a question around as ships reposition and ballast from the Mid East over to the U.S. Gulf to load some cargoes here, especially the larger ships and VLCCs and such. What's your view around your own lightering business and activity prospects there? But just general thoughts about lightering operations that could be impacted here as a lot of ships come over this way and what types of inefficiencies could be brought into the system because of that? Lois Zabrocky: I'll flip to Derek on that. I would say Q1 was somewhat negatively impacted by the incredible volatility and changing -- the scramble for what kind of -- where is the crude going to go, what ship is it going to go on? And we're seeing that change in Q2. Derek Solon: Yes, that's right. So Chris, at the start of -- the kickoff of the Iran war in March, there was this scramble for barrels, right, to replace everything that was coming out of Hormuz. So STS activity in the Gulf actually suffered a little bit because you wanted to -- the charters wanted to get oil as fast as they could onto any hole that they could. So this concept of trying to wind up several Aframaxes and the VLCC for lightering, for instance, there was no time for that in the immediate aftermath of the war. But just like you said, as things -- hard to say they've calmed down, right? But as we're starting to get a new sense of normal in this war -- in this current war, now you're starting to see the lightering line up. In Q2, it's early May, we already have more jobs booked for Q2 than we had for Q1, right? And we still have more than half a quarter to go. So exactly to your point, we're seeing a lot more lightering inquiry and a lot more work for our lightering LLCs [ since January ]. Christopher Robertson: Got it. That's helpful. And then do you have any thoughts just around -- we always talk about barrel substitution, obviously, as a starting point, but there's also congestion that happens in the system and ton mile impacts and all these types of things. So on this front, as there's more lightering business and as these larger ships get lined up and there has to be this process, what does that do in terms of removing some effective capacity from the larger system? Derek Solon: That's a great question. Thank you. So when we start to line things up in terms of logistics and STS, you don't want it to become too efficient or that whole process, it doesn't make sense, right? We're seeing delays in other ways, though, not necessarily just not to STS right now, but just as you said, general port congestion. And we're seeing that now, but when we're -- in terms of loading ports, when we're really going to see it in terms of congestion and utilization is when hormes opens and a lot of those ships that are laden with oil make their way to Asia, that will be ultimately a good thing for the economy and for the world. But it's going to take a long time for all those ships to discharge. So that inefficiency that you're speaking about, I think we'll see actually a lot more post-war than we're seeing today. Operator: And your next question comes from the line of Omar Nokta from Clarksons Securities. Omar Nokta: Maybe just perhaps maybe to you, Derek, on this kind of you brought up that point about a reopening scenario. I did want to ask maybe just on that. How do you think in a potential reopening? And I guess it's probably not so simple to assume we'll go back to how things were, at least not initially. But as we kind of think about the reopening scenario for Hormuz and your fleet makeup, how do you see the segments kind of getting affected? Is there a clear winner in terms of vessel class? And then how do you prepare for that? Derek Solon: That's a great question. So if I were to start, Omar, I'd say the start of this war has impacted every vessel class separately, right? It started on the VLCCs running up massively as soon as Hormuz closed as anybody in the Atlantic would get or anybody outside of the AG was getting any barrel that they could. Then the scramble went down to the smaller crude segments where you saw the [Aframaxes] and the Suez really start to run because nobody wanted to wait for a 2 million barrel step. And then it really hit the MRs really really well, and you see the kind of numbers that the MR market and International Seaways is putting up. As Hormuz starts to open, I think we'll see a little bit of a saddle, right? So right now, we're in the high part of it. And then as Hormuz stays close, then we start to see fewer Atlantic Basin barrels, that can start to trend down. But when it opens back up, Omar, I think that's going to be really good for us. You've got more ships able to call AG and you've got a lot more barrels flowing out of there. That's a good thing. You've got this sort of inefficiency when all the ships start to get to Asia that we just talked about on the previous question. And prior to the war, the kind of thing hanging over the tanker market was heavy stocks. We've eaten into that stock -- into those stock levels now because of the Hormuz closure. And given this push for supply chain resiliency, I think we'll start to see people build up stocks quickly. So I think that will benefit the crude market, most in the beginning once Hormuz opens. Omar Nokta: I appreciate that. I know it's a very complicated dynamic, but it seemingly makes -- that makes sense. And I guess we could think about could the Middle East then be offering a premium, right, to drag those ships away from the Atlantic. I guess the other question I had is kind of on the operational or commercial performance. The MRs especially look very strong at 76,000 here in the second quarter for the first 43%. It's a bit better than what we have seen, I guess, in terms of, say, peer averages or market indexes. How -- what would you chalk that up to? Is that a result of some kind of triangulation? Is it actually possible to triangulate in this market? Is it how your fleet is deployed? Any kind of color you can give on such a strong result so far on the MRs? Lois Zabrocky: I mean Omar, it's where were you available? Where do you concentrate your trading and we were advantageously positioned. Derek Solon: That's right, Lois. I think a lot of it in the kickoff of the war was where were you when it started and when did you load. With our MR pools, one of them is heavily focused on the Americas trade, and that was very beneficial post Iran war to be in the Americas where the market is completely skyrocketed. I mean we had fixtures with demurrage at over $150,000 a day for an MR tanker, right? So the Americas is where it started on the MR side that brought up the European trade as well. And funny enough, even now, Europe -- sorry, Asia is starting to come up on the MR market, which we kind of thought would just be a sink of product. Now China has approved some exports. And from an MR market standpoint, a lot of the ships left Asia to come over to the Americas. So now they're undersupplied in tonnage. So having a strong base starting in the Americas is very, very beneficial for us. I think having that diversification in our other pool will be beneficial as the months take on. Operator: [Operator Instructions] Your next question comes from the line of Stephanie Moore from Jefferies. Stephanie Benjamin Moore: I want to -- I appreciate the color on the dividend and your priorities here, but maybe taking a step back and looking at general capital allocation priorities, I would love to get your thoughts in terms of appetite for buybacks here? And then also any thoughts on M&A? There's some movements in the space or rumor movements. So just curious, general appetite as well. Derek Solon: Well, first, Stephanie, we'd like -- both I and the team would like to welcome you to the research coverage universe for International Seaways. So happy to have you on board. Pun intended. So capital allocation, our favorite topic. Yes. I mean we have -- we are -- to recap, we have, over the course of this good market period, de-levered as much as we want to de-lever. -- values keep going up. So even without paying down additional debt, we de-lever a little more. Now we are taking on some really high-quality debt this year with the ECA financing for LR1. So we'll probably tick up a little bit. But that's one of the reasons we were able to have such a high dividend with the discretionary piece this quarter was that we de-levered enough. We also found ourselves with the other pillar of capital allocation is fleet renewal. That -- the principal pillar of fleet renewal for us in 2026 is the LR1 -- the 4 LR1 -- the 6 LR1 program delivering this year. But as mentioned, they're really well financed. And so the capital allocation in the second quarter that we need for that is only $6 million. So therefore, we were able to think about and to announce today additional returns to shareholders on top of that consistent 85% that we're telling the market to expect. Do we look at share repurchases as well? Yes, we have a share repurchase program. We use it from time to time. I would say that the levels of share price where we are, NAV keeps moving up, but we're grateful that our share price is moving up with it and perhaps beyond it. So I think that -- I know that we -- when we looked at a discretionary additional return, we lean to more dividend rather than share repurchase, although the tool is always there. So I think for the fore for right now, that's what we see is probably the consistent payout ratio and with additional cash, it's optionality. We're high returning -- if there's a return on that cash in terms of growth, whether you call it M&A or share purchases that meets our criteria, that's an option or other additional returns to shareholders. Now I don't know if you just about M&A generally -- always looking for good M&A, Stephanie. Operator: And with no further questions, I'll turn the call back over to Lois Zabrocky. Lois Zabrocky: We want to thank everybody for joining International Seaways call today. And I'm just going to conclude with -- in our 10-year history, our first major focus during leaner market times was getting bigger, getting more modern, and we paid down debt along our journey and focusing on that. And all of that has brought us to today where we're declaring $4.55 per share for our shareholders, and we really appreciate everybody for sticking with us. Thank you so much. Operator: Thank you. And this does conclude today's conference call. You may now disconnect. Have a great day.
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: Good day, and thank you for standing by. Welcome to Petrus Resources First Quarter 2026 Results Conference Call. [Operator Instructions] Today's conference is being recorded. I will now hand the conference over to your speaker host, Matt Skanderup, Chief Operating Officer. Please go ahead, sir. Matt Skanderup: Good morning, and welcome to the Petrus Resources Q1 2026 Conference Call. I am Matt Skanderup. I am the COO here at Petrus. Ken Gray, our CEO, is not available this morning for our call. I am joined by our CFO, Matthew Wong; and our VP, Corporate and Commercial Development, Lindsay Hatcher. We've just released Q1 2026 quarter results, and this quarter has been an interesting start to the new year, to say the least. We have seen and continue to see dramatic volatility in the oil market and inflationary pressures due to rising energy prices have suddenly started to make an impact on people's lives no matter where you live. The effect that the current conflict in the Middle East is having on the supply of oil is frankly the most disruptive we have seen in recent history. We are at a point where the demand for oil is simply more than the supply that can be produced, transported and used across the globe. To date, strategic reserves and cautionary measures taken by governing bodies across the world have helped to lessen the shock of the drastically reduced supply and time will only tell how quickly this balance comes back into place. Despite everything that's happening across the globe here at Petrus, we have been working hard to continue to execute projects efficiently and cost-effectively as always. At home here in Canada, we are fortunate to have the opportunity and ability to continue to execute our operations and work to continue to add value to the company for all of our shareholders. During the quarter, we closed the Harmattan acquisition effective February 1, adding a complementary liquids-weighted asset with strong development upside. The assets will provide additional inventory to support our ongoing development plans and add long-term flexibility and optionality. Reported Q1 production reflects only a partial contribution given the timing of when volumes were recognized from an accounting perspective, but the assets are now fully contributing as expected. The Harmattan assets have been seamlessly integrated into Petrus' existing operations. We are also happy to report that we have received final approvals regarding the acquisition from the Alberta Energy Regulator. The team here continues to work hard to ensure the new property is running as efficiently as possible, and we are looking forward to drilling our first wells in the area when we return to drilling after spring breakup. The smooth transition is a complement to everyone here at Petrus who is involved in making this happen. We started the 2026 capital program off strong in Q1, drilling eight new operated Cardium wells in Ferrier. Of those, four are completed and were brought on to production near the end of March with strong initial results, but they had minimal impact on this quarter's production due to the late onstream timing. Completion operations on the remaining four wells are scheduled to start early next week with production expected later in May or in early June. With a wet and snowy April, we chose to hold off on completions of these wells to minimize the costs associated with spring breakup conditions. Overall, the quarter was focused on capital spending to drive as much production and cash flow as possible throughout the remainder of the year. As we look forward to the rest of 2026, we will continue to execute our development plan in line with our previously released 2026 capital budget and guidance. We are constantly evaluating changing market conditions to ensure that we develop our assets efficiently and continue to add value to the company for the long term. On behalf of the team here at Petrus, I would like to thank you for your time and continued support. We would be happy to take any questions you might have now or always feel free to reach out to one of the team members here. All of our contact information is available on our website. Operator: [Operator Instructions] And I see we have a question coming from the line of Nathan Ritchie with Schachter Energy Report. Nathan Ritchie: Congratulations on your results and it looks like everybody at the Petrus team believes in it. The insider buying keeps increasing as well, which is good news. I'm wondering if you could touch on the Ferrier wells, the recent ones. What percentage liquids are you achieving there? And then secondly, are you able to move your drilling program forward a little bit? I know it's spring breakup, but I'm not sure in your particular field, how conditions are and what road bans are like? Lindsay Hatcher: Yes. Thanks, Nathan, for calling in. Matt probably is the best to address the ops question, so I'll let him handle that. Matt Skanderup: Yes. On the first four wells, the liquids weighting is a little bit heavier for sure. The wells that we drilled first were in the southern part of the field. Our liquids weighting right now is probably around 60% on these ones to start with. The next four wells that we're drilling are actually up in North Ferrier in some of our definitely more gassy parts of the field. These wells, though, just given gas pricing and stuff, our intention on these is actually to throttle back the rates. And what the rates will do -- what choking will do will actually keep the liquids weighting higher in the wells. So when you hold back pressure on these Cardium wells, you definitely don't see as much restriction on the oil rates, and we definitely will hold back some gas volumes. So we expect these ones to be probably starting, I would say, probably 40% to 50% liquids weighting and then the liquids weighting will continue to drop. But these ones will be stronger from a BOE perspective. But the philosophy with gas prices being low is just throttle them as much as possible and get as much liquids out of the wells as we can. To your second question as far as accelerating the drilling, we definitely have some pads that are getting close to be ready to go to be able to do that. We -- I would say that by the end of the month, we'll have a decision on whether we accelerate some of these or not. Some of them are in areas where the counties just have road bans where you just can't move the rigs. And then some of them are on crown land and forestry roads. Those roads are still a little wet. We don't want to wreck a bunch of roads. So -- but I would say that by the end of the month, if we're going to accelerate things and oil prices are stronger, then that's the time that we would make that decision. But the volatility is -- it continues, as I mentioned, and we're just continuing to watch it. But we definitely have a lot of pads that are kind of scheduled and ready to go -- should pricing be favorable in that direction for sure. Lindsay Hatcher: Thanks for calling. If you have any other questions, feel free to reach out. Operator: Thank you. And there are no further questions in the queue at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Hello, and welcome, everyone, joining today's Shift4 Q1 2026 Earnings Call. [Operator Instructions] I will now turn the call over to Tom McCrohan. Please go ahead. Thomas McCrohan: Everyone, and welcome to Shift4's First Quarter 2026 Earnings Conference Call. With me on the call today are Taylor Lauber, our CEO; and Christopher Cruz, our Chief Financial Officer. This call is being webcast on the Investor Relations section of our websit,e, which can be found at investors.shift4.com. Today's call is also being simulcast on X Spaces, which can be accessed through our corporate X account at Shift4. Our quarterly shareholder letter, quarterly financial results and other materials related to our quarterly results have all been posted to our IR website. Our call and earnings materials today include forward-looking statements. These statements are not guarantees of future performance, and our actual results could differ materially as a result of certain risks, uncertainties and many important factors. Additional information concerning those factors is available in our most recent reports on Forms 10-K and 10-Q, which can be found on the SEC's website and the Investor Relations section of our corporate website. For any non-GAAP financial information discussed on this call, the related GAAP measures and reconciliations are available in today's quarterly shareholder letter. With that, let me turn the call over to Taylor. Taylor? David Lauber: Thanks, Tom, and good morning, everyone. Thank you for joining us today. Before I get into the quarter, I want to take a moment to acknowledge what is happening in the world. Our thoughts are, first and foremost, with those in harm's way in the Middle East. We are praying for a quick and peaceful resolution to the conflict. That context matters as we talk about our results today, not only because of the difficulties it presents, but because of how we performed despite an otherwise challenging market backdrop. With that said, there are 3 key messages that define our first quarter results. First, our diversified business delivered durable and resilient growth in the face of a difficult environment. Second, our international expansion remains on track and continues to scale. And third, our competitive differentiation across our key experience economy verticals remains as strong as it's ever been. Let me start with Q1 results. We performed in line with our previously provided guidance, including 32% year-over-year growth in gross revenues, 49% year-over-year growth in gross revenue less network fees, 39% year-over-year growth in adjusted EBITDA and 26% year-over-year growth in adjusted free cash flow. When adjusting for our acquisitions, our organic gross revenue less network fees grew 11%, and this was in spite of a drag of roughly 400 basis points from intentionally deprecated legacy revenue streams. We believe there is further room for expansion as we continue delivering our market-leading products to new geographies around the world. The performance we delivered this quarter in our payments-based revenue streams is a testimony to this. Total payments-based revenue less network fees grew 25% in Q1, with the Americas-based revenue less network fees growing 15% and worldwide payments-based revenue less network fees growing 51%. Our most mature Americas market is growing in the mid-teens, and our growth market grew over 50%. We were not immune to the unforeseen events in the Middle East as the conflict impacts inbound travel to Europe as well as many GCC countries. Despite the travel disruptions in the Middle East conflict, we've delivered results above our guiding KPIs. I also want to address the same-store sales environment directly. We've been candid since Q3 of last year about the softer trends we were seeing amongst restaurant SMBs in the Americas. And as Chris will highlight in his remarks, the quarterly same-store sales trends in restaurants and lodging were slightly better than our expectations. However, our outlook for the full year remains fairly neutral, and our guidance reflects this. We are not forecasting a dramatic recovery in the back half of the year. We are forecasting an annualizing over softer comps and modest normalization. We think that is honest, and we think that's right. The bottom line in our results, we delivered in line results with our guidance in a quarter that was more difficult than we've seen in a while. And our full year '26 guidance remains unchanged, calling for 26% to 31% gross revenue less network fee growth. The second message is one I'm genuinely excited to talk about because of the evidence is piling up. Our international expansion is scaling meaningfully, measurably and on the time line we had previously described. We continue to add SMB merchants to our SkyTab POS offering across Europe and are now making meaningful progress in our newest product named Shift4 One. Shift4 One is in 7 countries, and we are on track to be in 15 with this product by the end of the year. As a reminder, our Shift4 One product combines payments, dynamic currency conversion and tax-free shopping in a single device. This is a product we internally developed and it did not exist a year ago. This is the product that will help us unlock the meaningful revenue synergies within the SMB installed base of luxury retailers that are already tax-free shopping customers of Shift4. Some early Shift4 One customers this quarter included [ Brightlink, Pharmacia Barcilla and LaSwash, ] but we have a long runway to go with over 70,000 SMB merchants that are prospective customers on this new product. The value proposition is strong, one device, eligibility detection at the point of payment, tax refund processing, dynamic currency conversion. The early merchant adoption we're seeing confirms that when you walk in with this product, they understand the value immensely. In addition to Shift4 One, we're continue signing net new enterprise luxury retailers to our tax-free shopping offering, which over time, also becomes prospects for our payments offering. This quarter, we signed luxury retailers such as Stella McCartney, Massimo Dutti and 55 Croisette to name a few. The overall integration of Global Blue is on track, and we announced several Global Blue employees to key management roles during the quarter. The acquisition of Global Blue provided local infrastructure, local talent and a pre-existing network in key markets where we previously had little to no footprint. It builds upon other international expansion efforts, most recently in the U.K. and Germany, where we quickly built material merchant density. The opportunity ahead remains larger than ever. The third message may be the most important strategically because I know there's persistent confusion why we win. Let me try to cut through that as clearly as possible. We power the experience economy. Anywhere you shop, dine, stay or play, that is our territory. And the reason we diversified into each new vertical was not simply to cast a wider net, but where we saw the competitive landscape as narrow and where our capabilities were genuinely differentiated. In almost all the verticals, we have diversified into competitors -- in restaurants, which we deem to be the most competitive of our markets, our SkyTab POS grew active merchant counts by over 40% year-over-year with more than half of our active restaurant merchants using our software are now on Shift4 Dine. We are rebranding SkyTab to Shift4 Dine and the logic behind that is simple. We have a much larger and more powerful brand in Shift4, and this is simply our Dine product. In hotels, we continue to win excellent resort customers. We recently signed a 5-year renewal with Choice Hotels, signed New York's Palace Hotel as well as hotels in Greece and Canada. Our sports and entertainment capabilities remain unmatched. We are powering payments at the -- we were powering payments at the big game at Levi's Stadium in February. You'll also see us powering ticket sales in L.A. in 2028. We signed 2 major soccer league teams in the quarter, including Inter Miami and Chicago Fire and 2 major baseball teams, the Houston Astros and the Chicago Cubs. In the U.S., we still have meaningful market share to capture, and we are enabling dynamic currency conversion broadly across our U.S. merchant base in advance of the World Cup later this year. We are heads down making sure DCC is live across our key venues that are hosting World Cup matches as well as hotels we service that fans will be staying in. Before closing, I want to reiterate our approach to expenses. Our track record here is real and a differentiator, and AI has only made us better. It has helped us scale much more efficiently in new markets with fewer resources. We run a disciplined organization but always view room for improvement and have done a reasonably good job of delivering margins above peers throughout various economic cycles. We do see a path back to 50% margins as we sufficiently scale our international operations, but we'll balance the growth opportunity appropriately. The discipline we have towards managing expenses has not changed. We continue to maintain a relentless focus on driving incremental operational improvements, headcount control and preserving our advantage in regards to minimizing customer acquisition costs relative to others in our industry. Let me close by returning to the phrase I've used a number of times with this group because it continues to be true. We can grow meaningfully without finding a new customer, and we can drive meaningful margin and free cash flow improvement by continuing to do what we do well, which is integrate our business and to lead the parts. We have a demonstrated track record of winning despite uncertainty. We have a financial discipline, and we have a simplified corporate structure. We have a global footprint of over 75 countries that we did not have just a few years ago. The macro environment remains dynamic, and we are not dismissing that, but the diversification of our business, the durability of our growth and the quality of the team we have assembled give me genuine confidence on the road ahead. In times of volatility, I think it's important to remind investors that we have grown gross revenue less network fees by a compound annual growth rate of over 35% and adjusted EBITDA by 38% since 2019. Most importantly, this growth was achieved with relatively few dollars deployed when compared with our peer set. Cumulative equity dilution over that time period was just about 18%. I will repeat that. We grew revenues by 8x in 7 years, diversified the business, improved profitability and diluted equity holders by less than 20% I've said this before, and I genuinely mean it, we do our best work during times of uncertainty. The deliberate and measured path we've been on diversifying our revenue streams, expanding into new geographies, deepening our product suite is exactly what allows us to perform reasonably well when the environment gets tough. We are not dependent on one market, one vertical or one macro tailwind. I encourage you all to read through our prepared materials for the additional details they provide. And with that, let me turn it over to Chris. Christopher Cruz: Thanks, Taylor. Q1 2026 delivered record Q1 financial results, underpinned by a durable model, rapid integration and disciplined capital allocation. We continue to execute against our strategy to diversify both geographically and across multiple verticals in the experience economy, enhancing our resilience. These results were all achieved despite the travel disruptions stemming from the Middle East conflict. Gross revenue less network fees, or GRLNF, of $549 million grew 49% year-over-year, in line with guidance. Adjusted EBITDA of $234 million grew 39% year-over-year, delivering a 43% margin, also in line with guidance. Adjusted free cash flow of $88 million grew 26% year-over-year, exceeding guidance and gross revenue of $1.12 billion exceeded as well. Now let's unpack this further. Volumes grew 24% year-over-year to $56 billion, while delivering blended spreads at 61 basis points. The Q1 volume mix was largely in line with our expectations despite some early quarter weather effects impacting the restaurant industry in the Americas. Turning next to the disaggregated categories that make up the Q1 GRLNF. Beginning with our North Star on growth, payments-based revenues less network fees was $345 million, growing 25% year-over-year. This category consists of an Americas region that grew 15% year-over-year, which was largely unaffected by prior year M&A and a worldwide, excluding Americas region that exceeded our expectations growing 51% year-over-year. The next category of subscription and other grew 11% year-over-year. And although this exceeded the annual growth algorithm variable provided last quarter, we expect this category to vary quarter-to-quarter. Finally, the category of tax-free shopping or TFS, it grew 4% on a pro forma year-over-year basis. As a reminder, the TFS category was not in our financial results last year as it was part of the Global Blue acquisition consummated in July 2025. Hence, growth is being provided on a pro forma basis for context. The TFS category experienced headwinds related to the conflict in the Middle East and its disruptive impact on global travel, especially for consumers from the GCC and parts of East Asia looking to travel into Europe. We estimate this impact as having been approximately $4 million to $6 million of headwind on the quarter. Overall, we are encouraged by the resilience of the business that this growth performance expresses. Excluding the effect of acquisitions and divestitures, the organic GRLNF growth for Q1 was 11% on modest SSS. Adjusted EBITDA grew 39% to $234 million, delivering a 43% margin. As mentioned in our prior quarter call, our investments in international market expansion are reflected in our margin trajectory. And given the encouraging performance we continue to see in the worldwide regions and receptivity to our market-leading experience economy solutions, we intend to continue to invest here. Non-GAAP EPS came in at $0.97. Adjusted free cash flow in the quarter was $88 million. And although it exceeded our guidance, it should be viewed as in line when taking into consideration seasonality and timing benefits from Q2. On a non-GAAP per share basis, this results in $0.95 of adjusted free cash flow per share or a 98% conversion from non-GAAP EPS. For the second quarter of 2026, we are introducing guidance as follows: GRLNF of $615 million, which embeds an approximate $20 million impact from travel disruption due to the Middle East conflict, adjusted EBITDA of $278 million and $10 million of adjusted free cash flow. As a reminder, Q2 adjusted free cash flow reflects the seasonality of the TFS category, but the business also experienced some Q1 timing benefit that contributed to exceeding guidance. It's worth reiterating my comment from last quarter that the seasonality of the TFS business is such that the first half of the year is cash flow consumptive while the second half of the year is cash flow generative. When taken together with Q1, the first half is expected to come in line with initial guidance. Additionally, gross revenue for the quarter is expected to be $1.17 billion. For the full year, we are leaving our guidance unchanged and note that this is meant to express the wider volatility of outcomes we are seeing even with part of the year complete. Some colors on the guidance. Throughout Q1 and into April, we saw largely stable consumer trends in the Americas with weather only impacting early in the quarter. This represents an acceleration in growth trends compared to what we were experiencing in Q4, particularly in restaurants and lodging, and it reinforces our neutral SSS full year outlook. In TFS, we are not attempting to forecast a back half impact of continued travel disruptions. However, should conflict-inluenced travel disruptions continue, it would be reasonable to assume that the seasonally stronger Q3 would have a higher monthly headwind than the $4 million to $6 million per month experienced in March, and Q4 would be more in line with the monthly impact observed in March. Last point on guidance. We acknowledge that the seasonality of the business is still something that investors are acclimating to. As such, we wanted to provide quarterly guidance for the back half of the year in our shareholder materials to help calibrate the quarterly cadence of the year, especially on adjusted free cash flow. We reiterate that this quarterly guidance reflects the unchanged outlook on full year results and expresses the wider range of outcomes we think reflect the environment we are in. Now finally, on capital allocation. Every allocable dollar must compete for the best use and is subjected to rigorous process, while the output that guides us is return on invested capital and adjusted free cash flow per share. In Q1, we repurchased 5.5 million shares, resulting in a cumulative $600 million of execution against the $1 billion share repurchase authorization announced 2 quarters ago. As such, we end the quarter with non-GAAP share count flat year-over-year. On capital structure in Q1, our term loan repricing took effect at the beginning of the quarter. Pro forma net leverage was 3.7x in the quarter, and we maintain our view that we do not intend to exceed 3.75 pro forma net leverage on a sustained basis. Based on performance trajectory and guidance, the business would delever by approximately 0.5 turn per quarter, ending the year near our long-term average net leverage level in the low 3s. Before turning the call back to Taylor, I want to thank our fellow shareholders for continuing to work with me on our evolving investor engagement. We are not a culture that is ever satisfied. So we always appreciate the thoughts sparring challenge and engagement. With that, let me now turn the call back to Taylor. David Lauber: Thanks, Chris. And with that, operator, we can open the lines up for questions. Operator: [Operator Instructions]. Our first question will come from Timothy Chiodo with UBS. Timothy Chiodo: Great. Given distribution, always a big topic in the industry, but very topical with investors today, given some of your competitors are announcing large hires of direct sales teams and increasing the size of their direct sales teams, I thought this would be a good time just to take an opportunity to do a refresh on where Shift4 sits with its distribution approach. A few years ago, you in-sourced a large sales team. I believe that you've been hiring more since then. In summary, I'm hoping you could recap the size of the direct sales team in the U.S. today as it stands, how the European build-out has gone? And then also a refresh on how things look in terms of the number of resellers, VARs, agents and any other kind of third-party distribution? And then I have a follow-up around rev share and income statement geography. David Lauber: Yes, sure. So I'll hit that. And I think it is important to give context to the journey we've been on in the United States. Keep in mind, for the vast majority of our history, we were almost exclusively third-party distribution. As you mentioned, that was a combination of value-added resellers in local markets. It was traditional ISOs back in the day and increasingly ISV software providers that serve the experience economy alongside of us. Today, you noted it well, we in-sourced a healthy portion of that distribution network, mostly in the bar category and have those folks working on direct sales. It's been about 2.5 years since that effort began. I'd say we're pretty mature and polished in our approach there, which is that we bring in regular direct sales classes. We've got density in most of the markets we'd like to have it in, say, for kind of a couple of spots in the country. And despite that, the ISV distribution network remains strong. Keep in mind, if you want to sell software to a hotel, in many ways, even if you want to sell software to a restaurant, you're working with Shift4 because we get you into the environments you want to be in. Stadiums is another great example of that. We've got ISVs that want to be inside of stadiums, and we can help get them there given our presence in those stadiums. So the U.S. market is quite mature with regular sales teams rolling in and out. We've got roughly 300 salespeople that are full time at Shift4 in that regard. And then international, we're beginning that journey all over again. So we've got awesome networks of third-party distribution. They're great because they scale quite cost effectively. We've got ISV relationships that we're expanding into. We mentioned a few in last quarter's call. And we're building a direct sales force to go after this huge opportunity that sits inside of Global Blue, the 70,000 SMBs that they service. So all told, our total sales resources, I actually like blushing at this number because we -- the company was half the size is over 700 at the moment. And that's grown at about 18% a year. So Chris will talk about kind of the margin trade-offs of this, but we see the opportunity to be quite immense and we're investing in it quite meaningfully. We've also, as you've seen in the past, acquired local VARs in markets like we did in the U.S. We envision that being able to happen throughout Europe once our sales markets have become more mature. But right now, it's about making sure we've got people who can talk to customers in just about every capacity. And the last thing I'll say, and then I'll turn it over for your second question is we offer pretty significant advantages to ISVs who want to access the same markets as we do. Put yourself in the mind of a retail POS software company, we can offer them integrations for tax-free shopping so that the tax-free shopping experience is great for the merchants right out of the gates. Payments, as you'd expect, gift and loyalty, digital receipts. We can offer a comprehensive suite that just 2 years ago would have been instead of a benefit to the ISV, it would have been quite a pain point that they need to integrate all these different companies. Today, we're having ISVs approach us saying, wait, I can just talk to you and deliver to my customer a complete commerce experience given all the capabilities you have under one roof. On that second part, yes, sorry, that follow-up was really just around, Chris, if there's anything just to flag around income statement geography in terms of the sales salaries, the commissions and the payaways that go to the third parties. If you could just give a recap of where that all sits within the P&L, I think that would be helpful. Timothy Chiodo: On that second part -- yes, sorry, that follow-up was really just around, Chris, if there's anything just to flag around income statement geography in terms of the sales salaries, the commissions and the payaways that go to the third parties. If you could just give a recap of where that all sits within the P&L, I think that would be helpful. Christopher Cruz: Yes, sure. So I think what you're alluding to is that when you look at indirect distribution, that's largely compensated through the form of residual commission. and residual commissions would flow through in the cost of sales line that's large in quarters past, why we've seen growth in that line of cost of sales. And that is deliberate because when you think about the strategy of entering a market before you have the gross profit density in a given region, in a given country, it's prudent to have variable cost structure that can flex up and down as your density grows. At some point in time, you hit a tipping point where you want to internalize that into more of a fixed cost operating expense base, which is geographically where the direct sales and the direct go-to-market expenses would live. They would live inside of the OpEx categories or the SG&A categories. And so that trade-off between a variable cost structure when you're early in the maturity of a region and you're expanding and you don't yet have the full gross profit density sitting on top of that region that's the strategy at the start. And then eventually, as we've seen in Shift4's history, you internalize that cost structure at some point in time. And the economics of that are really attractive trade-offs once you get to those density levels. Operator: We'll now move to Rayna Kumar with Oppenheimer. Rayna Kumar: Good results here. Could you elaborate more on how you quantify the Middle East conflict impact on your tax-free shopping business? Christopher Cruz: Sure. And thanks for the question, Rayna. I'll tackle that one. So it's an interesting nuance, right? Obviously, a very dynamic environment when you're trying to isolate and analyze the impact of travel disruptions that are resulting from the Middle East conflict on a business like tax-free shopping. And for us, that analysis actually can be quite targeted and quite specific because a couple of ways to look at it. First, for context, what does it even mean to look at isolating populations that are most impacted? Well, we look at things through corridors in that product line. And one of the most important corridors when thinking about this conflict is the GCC consumer traveling into Europe and the kind of Southeast Asian and East Asian parts consumer coming into Europe. And those 2 consumer corridors coming into Europe, which is the most important region that our merchants are based, those 2 corridors together kind of make up a little more than 20% of the European kind of volumes. When you look at those 2 corridors, you can then isolate the effect that passenger seat capacity from the airlines themselves has changed, has declined. And when you actually use passenger seat capacity and regress it against volumes and sales, it's actually a fairly tight regression, a fairly high R squared and it becomes a good predictor over a long time series of data that we use to analyze these things. And so with that as context in terms of how we looked at the backwards of what therefore happened in March and looked at kind of the effect in March as having been sort of a $4 million to $6 million headwind on revenues -- on gross revenues less network fees equivalent, you can then take that same methodology and apply it forward. You can look at how the seat capacity from the airlines themselves has actually changed on a forward basis and apply the same modeling, the same sensitivities, the same regression against it and be -- and have a view as to how that could impact the TFS business on a go-forward basis. And probably another important point to sort of say within that is that this seat capacity that has been changed by all of the airlines across these corridors that matter to us -- this is capacity that doesn't necessarily come back that quickly. But within a span of kind of a 4- to 8-week time frame, we sort of see this business across any kind of travel disruption has been pretty resilient and coming back quite quickly. But the analysis, the framework, the sensitivity kind of all grounded within data sets that are very rich and deep and long. At the same time, they're informed by the forward capacity planning of the airlines themselves. Operator: We'll now move to [ Dan Demir ] with Mizuho. Dan Dolev: It's Dan Dolev here. Guys, great results. Really nice to see, well deserved. I wanted to ask about AI. I noticed some of the comments, Taylor. Can you maybe talk to us about how you deploy AI across the organization? And congrats again. David Lauber: Yes, sure. Thanks very much. We do actually read the most commonly used phrases on earnings calls and try not to get too close to the center of the pack. By our analysis, AI was, I think, # 2 or 3. So glad to be able to talk about it, but also try to talk about the fundamentals of the business as well. It is foundational in terms of how we're thinking about how our business should run. I think that's just prudent in the current environment to force embracing of these tools. We look at it largely 2 ways. Obviously, what can it do to help us speed up delivery of product. But I think where we're putting kind of more emphasis is how is every nonproduct or technology-oriented silo of our business thinking about how to embrace AI and really challenging them through the mindset of what are our top vendors, customer relationships, financial institution relationships and just thought leaders doing in their verticals. So our HR offsite will include presentations on using AI for the purpose of speeding up HR workflows. Our legal offsite is right now going on. They've got representatives from the big law firms talking about how to use it. It's really speeding up production, which for us is critical. Our technology scale quite nicely, just given the nature of payment platforms and software, where it's tricky is adding many thousand SMBs a month in brand-new markets. And so we're able to go to market much more quickly. We're able to stand up support infrastructure. We're able to stand up a marketing and sales framework that works for that local market a lot faster. And then I would just say just good corporate citizenship, regular dialogue with companies that we really admire teaching our teams and us teaching them how we've gotten the most benefit out of tools. So we've had former colleagues from Blackstone, friends from Goldman Sachs, soon to be Walmart, all kind of collaborating on how to make this transition as exciting as possible for employees. I think there's a reluctance to embrace tools if you've been in a role for a long period of time. We're challenging that immensely. And that includes, obviously, a substantial amount of deployment of tools into thought leaders inside the company. So it's a super exciting time, but we by no means think we've got kind of the road map figured out. We're borrowing as much from companies we admire as we can. And that goes all the way through the AI vendors themselves. Operator: We'll now move to Darrin Peller with Wolfe. Darrin Peller: Good to see the resilience in the business despite all the macro. I just want to hone in on the 15% organic -- what's effectively organic strength you're seeing in the U.S. and North America. Can you just remind us on the building blocks? I mean I know there might be still some lingering cross-sells from deals you've done over the last several years. But maybe thinking about the verticals and what's really driving that kind of strength from an organic standpoint in this market, which is obviously including, I think you guys have flat same-store sales, right? So just a revisit of the building blocks there and the sustainability would be great. David Lauber: Yes. I'll let Chris hit the macro environment. I'll talk about kind of just what we're doing. tried to address this inside of both my letter this morning and the scripted remarks to just talk about the competitive framework in the United States. There's a lot of rhetoric. There is not a lot of changing of pole position with regard to the competitors we see in a buyer in our markets and how we face off compared to them. So put this stat in the remarks, I think it would surprise most people, but it doesn't surprise us. Our restaurant point-of-sale product is -- location counts are up over 40% year-over-year. That's just one good example of a product that's getting a heck of a lot of adoption. I think it probably surprises the Street. It does not surprise us. We are consolidating the firepower of what historically was a lot of different distribution networks into a single product. It will have results. And the quality of those merchants is rising throughout that time as well, which is really good to see. In the hospitality vertical, our competitive differentiation has not changed. And in fact, as we folded in tools like GX and currency conversion, our value proposition go to purchase gift cards at the largest hotel chain in the world and scroll down to the bottom of the page, and you'll see Shift4 powering that whole experience for them. So that's just one -- another example of how these acquisitions can at times feel like cookie cutter, but in reality, we spend a lot of time thinking about how it rounds out the offering, and we spend a ton of time thinking about what our customers are buying away from us and can we deliver that under one roof. And obviously, something like gift cards is so inherent to the payment experience that when we own it as part of the offering, it's a better customer experience to work with 1 vendor than 2, and we're in rarefied air being able to do that. Loyalty was an incredibly significant set of features inside of that same acquisition, and we haven't even begun to talk about that. But as competitors and companies we admire invest significantly in loyalty, you can get a sense that we were on that curve as well. I could go on and on, but our sports and entertainment wins, I think, have sort of become happenstance, but we alluded to a really nice ticketing win with regard to L.A. in 2028. That's an example of an extension. I don't think people would have assumed is super natural in the sports and entertainment space. So everything is going quite well in the United States. I will say the significant amount of executive attention is focused on how do we replicate all of this and not over a 25-year time line, but over like a 2- or 3-year time line throughout the rest of the world. Chris, anything you want to comment on with regard to the same-store sales environment? Christopher Cruz: Yes, sure. So yes, Darrin, and thanks for the question. You're right to provide the context that when you think about the Americas region within our payments-based revenue less network fees, kind of disaggregated categories, that Americas region is largely -- comes into this year largely unaffected by prior year M&A annualization. So you end up with a very clean view on our most mature region, a region where we've been doing business for multiple decades and where all of our products are also mature, live battle-tested. So you take that region and for us to be able to deliver the mid-teens growth there, you're right to point out that, that wasn't really or supported by much in the way of SSS. We saw like a modest positive on SSS, which is a better trend than what we saw exiting Q4 and certainly is better than what was embedded within guide, but it wasn't a meaningful -- meaningfully positive contributor to that growth rate. And it's important that we also think about what is the context beyond the absolute of that growth rate. To us, we think that we're quite proud of the fact that, that means the region is probably punching at a greater than 3x relative growth to the baseline market, which is something that I think is probably even more important because then the SSS kind of neutralizes across all of the relative players and peers. But that's a bit of the comp. Darrin Peller: Are you guys -- just a quick follow-up, and that's great to hear, by the way, guys. Just on the coming up World Cup, you feel good about getting DCC and all your products ready here for that? David Lauber: Yes, we do. I mean we've got a big estate, and there's hundreds of software suites you could be connecting to us through. But the World Cup actually helps sort of minimize distraction factor because we want it in stadiums and we want it in the hotels around those stadiums. So we feel great about it. Operator: We'll now move to Andrew Jeffrey with William Blair. Andrew Jeffrey: Taylor, I wonder if we could just sort of zoom out and think about sort of how Shift4 slots into the broader global payment processing landscape. You're a $200-plus billion sort of run rate processor in a $20-plus trillion market. Where do you think Shift4's 1 or 2 kind of really meaningful competitive advantages are as you think about becoming maybe the next trillion processors. As we look around at a lot of much, much larger companies that are even growing faster than Shift4. And I'm just trying to get a sense of like where is this company 5 to 10 years from now? How do we get there in a very sort of succinct way? And from whom do you take share to achieve your bigger ambitions? David Lauber: It's a great question. I'm glad you asked it because I think a lot of our sort of strategic moves in isolation can seem strange because I don't think people have a decent enough appreciation for what our core skill sets are. We made a decision as far back as 20 years ago that we were going to double down on the in-person economy. That was actually, at the time, a very defensive play as the likes of Amazons and were coming up and Apple and Google were suddenly getting into the payment flow. So there was a deliberate decision made that we're going to focus on in-person experiences. Restaurants was the first vertical. And we learned a ton about what it means to get hardware, software and payments working together in the most demanding environments, which is like there is a customer at your bar, waiting to pay and you need to deliver all of those things together. At the time, these technologies didn't work nearly as seamlessly as they do today. We've expanded that into basically any place you would physically pay for something where those advantages are quite material. So I think some of the larger players that are growing really nicely that you've mentioned are almost exclusively riding a wave of e-commerce. And that's not to belittle what they do. I think they do an excellent job at powering this transition from purchasing something in a store to purchasing something online. But we continue to find a lot of opportunity where humans will physically want to pay for something as the natural entry point for us. Now it doesn't end there. You think about some of our largest relationships, we're facilitating massive amounts of e-commerce transactions, but they ultimately want to tie that back to a physical experience. So we see an edge there. We see our most innovative customers, groups like Alterra, creating this really seamless experience behind buying a SkiPass online and then using that throughout a bunch of physical experiences. We integrate to those experiences quite nicely, and we help drive that. Now what's nice about that is these verticals are not nearly as advanced throughout the rest of the world as they are here. So our playbook is going to sound kind of uninteresting with regard to taking everything that's made us successful in powering the experience economy in the U.S. and bringing it to the rest of the world but that's awesome. We don't have to learn a ton of new things. We have to learn about local payment methods. We have to learn about certain tax coding in local geographies, but we know how to make all these technologies work together, and they don't work together in the rest of the world. So we think we can continue to ride this wave. We think we are helping our merchants get from physical to digital. But at the end of the day, they want and their consumers want an in-person experience, and we are naturally provided -- well positioned to provide that. Now where is share coming from? It's generally coming from a fragmented network. So it could be coming from software providers. It could be coming from legacy banks providing bank terminals. We're actually delivering a solution that sort of takes 5 or 6 vendors off the table in exchange for Shift4. And that's what we're seeing high demand for throughout Europe today. The tax-free shopping experience prior to our acquisition of Global Blue was when it worked its best was a handshake of 5 different highly competent vendors. Now it's one. So hopefully, you can sense the enthusiasm. But I think the root of your question is the right one, which is how do you get confidence going into luxury retail? Well, that in-person experience is as demanding as setting up a local restaurant, meaning we need people in that location, on site to help work the merchant through their challenges and deliver the whole commerce experience, and we're uniquely positioned to do it. Christopher Cruz: Yes. I'll just add that the question almost takes me down like memory lane because when you think about the market environment in some of the worldwide region, the international markets, it's reminiscent of all of the things, all of the commerce challenges that we were solving in kind of the early and mid-2010s in the U.S. or the Americas market and bringing that kind of simplification of the many parties that you have to work with to deliver an in-person software integrated payment experience, that is literally straight out of the vault, straight out of the playbook of the Americas, literally probably in all of our strategy write-ups and memos and materials from the mid-2010s. And so the idea of where that share is coming from, Taylor is exactly right. It's going to come from the point solution providers of each of those parts. whether that is a local bank that's providing stand-alone unintegrated pin pads and devices, whether that's a partner only, whether that's a point solution software vendor. It's the combination of all that we disrupted in the Americas that we're bringing into the worldwide markets. And it's why we're so excited about the growth there. And the growth there is actually, as we said, exceeding our expectations, and that's how we know international is working. Operator: We'll now move to Dominic Ball with Rothschild & Co. Dominic Ball: Great numbers on the quarter, particularly the international growth. Just a question a bit beyond the quarter. And Chris, I know we've discussed this previously. A lot of the -- or the majority of Shift4's growth going forward is international, but U.S. restaurants still remain an important part of the current merchant base. Following commentary from DoorDash yesterday, alongside seeing DoorDash POS across San Francisco, Phoenix, New York, a formal launch of DoorDash POS is becoming more imminent and more of a kind of when rather than if. So when delivery platforms evolve from more of a partner -- from a partner to a peer, how do you think about the competitive responses available to Shift4? David Lauber: I'm going to let Chris hit it, but I actually want to emphasize that I don't think that's well appreciated what this online delivery trend has looked like throughout the U.S., especially over the last kind of 6 years, like COVID did accelerate a lot of it for restaurants where like a meaningful portion of sales have gone to network-affected players. We do enable that through most of our software providers. So Chris can talk about kind of how we think about competition in the space. But I think our restaurant growth is quite strong, and I don't think people realize these numbers also have a headwind of a lot of business going out of the physical location and going on to platforms like that. So it should speak even higher for our ability to get into restaurants and deliver them solutions. But Chris, do you want to address the DoorDash question? Christopher Cruz: Yes, sure. It's an astute observation. And it really speaks to the dynamism of restaurant technology as a sector, as an environment. It's not too far into the past that you have to look to find some pretty innovative ideas from players within the ecosystem of restaurant, such as right down to the food service providers that essentially are kind of a short handful of players that are providing and supplying the food to pretty much all of America's restaurants. At points in time in history, even they have had POS strategies because it's highly logical to get as close to the merchant environment and seeing the data of the flow-through and trajectory as possible. We value that data, many others within restaurant value that data. And I think that's why our strategies have various points in time involved partnering with a lot of these players within deep integrations and DoorDash is no different. These integrations are actually quite valuable to us, valuable to them. And I think our strategy has never been as myopic to sort of look at all of these players and say, okay, this is a pie, a winner take all or this is like a way that we can actually work together, grow that pie and actually have an opportunity to see whether there are greater ways to value that data, greater ways to work together. So I do think that these kinds of, we'll say, competitive shifts and dynamics, they're not new within the restaurant space. It's partially why within the various categories of the experience economies we serve, we actually like a lot of our other categories as well because the competitive dynamics are quite different. But within our most competitive area, the vertical that is restaurants, this dynamism isn't new. But at the same time, I think our model affords a very partner-centric approach where we're able to actually take advantage of some of these innovations and through a partner lens. David Lauber: Yes, I'm going to just reattack it because I think it's such a fun question because you mentioned one company, you could have just as easily said AI. What can AI do to single vertical software. this is where the scars and triumphs of a 28-year-old business in the payments industry really inform our thinking. We have run vertical software for over 20 years. And as a single vertical software provider in restaurants, you should always be paranoid about who's going to come up around you. We can define the barriers to entry as slightly harder or slightly easier, but there have been MICROSES, there have been Toast, there have been touch Bistros, there have been Rebels. There have been many companies that we've since bought because I think our paranoia about the value you deliver as a single-service software provider and the cost you pay to acquire customers is incredibly important to pay attention to. So we respect the heck out of most of our competitors. But again, are we worried about somebody eating our lunch in a vertical that we've specialized in, in 20 years and grown despite some of the trends that you mentioned, not particularly today. Operator: We'll now move to Craig Maurer with FT Partners. Craig Maurer: Just 2 modeling questions for me. For Rest of World payments-based revenue growth, what was the growth on an FX-neutral basis? And just secondly, knowing that the subscription line is volatile and moves based on what legacy revenue streams are shut off, et cetera, how should we think about the quarterly cadence underpinning the mid-single-digit growth guide for the year? Christopher Cruz: Yes, sure. So on the first one, so the FX-neutral impact, it would have been basically relative to the 51% of growth that you would have seen in that payments-based kind of worldwide region, it would have had an almost 10-point kind of impact within the quarter. Now that is, I think, isolated as a year-over-year factor in this quarter that I think will dissipate in forward-looking quarters, future quarters because if you remember, if you kind of look back to the euro-USD kind of cross the most -- the widest it was or the widest it is in this quarter relative to the -- looking at the forward curve would have been isolated into Q1. But that said, I think from the perspective of the commentary, the worldwide region from a payments-based revenue less network fee standpoint, it still exceeded kind of our expectations and not isolating that variable. And then can you reiterate the second and third part of the question? David Lauber: It was on the volatility of subscription and the other question... Christopher Cruz: Yes. Yes. Subscription and other volatility, I think we tried to flag that upfront. So we provided, as a reminder, the growth algorithm that we provided in Q4, it flagged that subscription and other would probably be in the low single-digit category in terms of disaggregated revenue category growth. and that it would be volatile quarter-to-quarter. So from that perspective, I think you have to continue to anticipate that things remain in line and that volatility will express itself through some of the coming quarters. David Lauber: The only thing I think worth calling out on international, just to layer into what Chris mentioned is that our customer base internationally is a lot more homogeneous today in these early days than what you'd see in the United States. So adding multibillion-dollar non-U.S.-based enterprise customers is not yet a thing. We believe it can be a thing. We are on the same evolution we went through in the United States, which is kind of SMB, the small- to medium-sized hotels, the larger enterprise opportunities, which are groups of these merchants. So the majority of that volume growth that you're seeing there is coming -- is expressed as like almost a location count growth rather than a volume per merchant shift, if that makes sense. Operator: We'll now move to Sanjay Sakhrani with KBW. Sanjay Sakhrani: Chris, I was just wondering if you could just unpack the travel stuff a little bit more for me. Just want to make sure I understand sort of the trend line that you saw in the quarter and then going into April and maybe even early May and sort of what's baked in? Because I know you have that headwind in the second quarter, but like where would be the risks from here on out in terms of travel? Christopher Cruz: Right. So to reiterate the point, what we're isolating within travel disruption as a result of Middle East conflict is trying to isolate down into the corridors within the tax-free shopping category of the business. And when we looked at those corridors, obviously, March would have been directly impacted passenger seat capacity effectively minimized to almost nil. And what we attempted to do was look at the forward capacity and the change in that -- in those flights across those corridors. So from the perspective of how we analyzed it, I don't need to reiterate what I had mentioned to Rayna, but that's what's baked in. And I think it's important to understand that, that is not any attempt to kind of forecast conflict. I think it really is just trying to look at, well, what is the kind of combination of all of these airlines that have really put forward not just an outlook, but also have put forward an outlook that's now underpinned by how they would have deviated passenger flights -- sorry, passenger seat capacity by having deviated flights. They've sold tickets now against where those new flights are going to be. And so for the most part, this travel disruption dynamic, as we know it right now, it's fairly baked in, and it's not that easy to change because it's driven by passenger seat capacity outlooks. And in general, when we've looked at these travel disruptions in the past, regardless of what the origin is, the tax-free shopping business has generally been able to rebound within a 4- to 8-week period, and that's also something that's reflected into our Q2. But by no means are we trying to forecast kind of an underlying continuation of travel disruption, let alone trying to forecast a duration around conflict. Sanjay Sakhrani: I guess I'm just trying to make sure I understand like have there been any additional sort of impacts as we think about people canceling their travel plans and obviously, FIFA coming up, there's been some mixed numbers around that, too. I'm just curious if that sort of plays into some of the forecasts that you've made and embedded in the guidance. David Lauber: So again, I'll let Chris comment, but I think it's -- I want to clarify this statement. A lot of the -- all of the commentary Chris made is very specific to Global Blue tax-free shopping. And there's a reason for that. That is not a consumer cohort that is very sensitive to economic activity. They tend to travel and spend a lot almost regardless of the economic conditions where you have disruptions in that business, you have disruptions because these people cannot travel or are reluctant to travel for one reason or another. So it's actually much easier to kind of -- well, I shouldn't say it's easy, but it's easier than trying to predict how many people are going to choose to attend the World Cup and what are they going to spend on tickets. It is these people would have otherwise traveled, but they can't. And what we're careful to do is to give line of sight into how long we know they are unlikely to be traveling for, but also not try to predict award because that's a bit of a fool's errand. So we've got good visibility through Q2. Chris, I don't know if you want to characterize it, but I think that's kind of the extent of our great visibility into the conflict. Christopher Cruz: Yes. The only other thing I may add is just a little bit of color on some of the other interesting things that we saw. And again, these aren't meant to be sort of extrapolation points. But when you do have some of this travel disruption, part of the resilience of the tax-free shopping business is sort of the second derivative effects that maybe are a little less intuitive when -- unless you're deeply studied and understood the dynamics of the business. But you have the disruption as a result of a conflict geopolitically. And what that actually created at least within this quarter was actually relative to forward outlooks like the U.S. dollar strengthened against the euro. And what that actually ended up -- what we saw as a result of that was our most important corridor within tax-free shopping is actually the U.S. consumer coming to Europe and spending, and that actually outperformed in the quarter. So it created a bit of a counterpoint to the travel disruption and the conflict for the corridor that was GCC to Europe or Southeast Asia to Europe. It was a bit offset by actually strength and outperformance in U.S. to Europe, largely underpinned by purchasing power. And so there are some of these elements in the business that are maybe second derivative effects. I don't know if that's getting at the heart of the question, Sanjay, but they, I think, are worth noting because it helps at least provide a little bit of color as to why the volatility of outcomes on both sides remain higher as a result of what we're seeing in the current environment. Operator: Thank you. At this time, we've reached our allotted time for questions. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Supremex 2026 First Quarter Earnings Conference Call. [Operator Instructions] Before turning the meeting over to management, please be advised that this conference will contain statements that are forward-looking and subject to a number of risks and uncertainties that would cause actual results to differ materially from those anticipated. I would like to remind everyone that this conference is being recorded on Thursday, May 7, 2026. I will now turn the conference over to Martin Goulet of MBC Capital Markets Advisors. Please go ahead. Martin Goulet: Thank you, operator. Good morning, ladies and gentlemen. Thank you for joining this discussion of Supremex' financial and operating results for the first quarter ended March 31, 2026. The press release reporting these results was published earlier this morning. It can also be found in the Investors section of the company's website at supremex.com, along with the MD&A and financial statements. These documents are available on SEDAR+ as well. The presentation supporting this conference call has also been posted on the website. Let me remind you that all figures expressed on today's call are in Canadian dollars unless otherwise stated. Presenting today will be Stewart Emerson, President and CEO of Supremex, as well as Norm Macaulay, Chief Financial Officer. With that, I' you to turn to Slide 13 of the presentation for an overview of the first quarter, and I turn the call over to Stewart. Please go ahead. Stewart Emerson: Great. Thank you, Martin, and good morning, everyone. We started 2026 with strong momentum, top line growth accelerated and adjusted EBITDA margins expanded meaningfully, demonstrating the earning power of the platform we've assembled. Our performance was driven by improved volume, which contributes to support absorption of fixed costs and by disciplined cost management as operating and SG&A expenses increased at a lower rate than revenue. Both of our businesses sustained the momentum built in the second half of 2025, delivering sequential improvements in revenue and EBITDA margins. While we remain measured in our outlook, we see continued momentum building and expect operating conditions to improve gradually through 2026. That said, let's turn to operations, beginning with Envelope. Q1 2026 revenue was up 5% year-over-year and up 3.9% sequentially from Q4 2025. Envelope volume grew 6% year-over-year, driven by the 2 acquisitions completed in the second half of last year and by further volume gains from new customers and increases in share of wallet. We're now beginning to lap the volume headwinds from the U.S. direct mail customer that we've discussed on prior calls, with average selling price down modestly at less than 1% year-over-year, which was a meaningful improvement from recent quarters. While average selling price remains slightly lower, our teams have executed well on 2 priorities: quickly backfilling volume to maintain fixed cost absorption and rigorously maintaining the cost base, particularly important given that the replacement volume comes at lower prices and higher operational intensity than the single direct mail customer it replaced. The volume is sequential margin expansion quarter after quarter. Further, we expect the additional improvements as we realize synergies from integrating tuck-in acquisitions and relocating the Indianapolis Envelope production to other facilities across our network. On the latter, 2 important machines and some infrastructure were moved, excess equipment was sold or scrapped, and the sales organization was relocated to the local packaging plant in Indianapolis. Warehousing should be moved by the end of this month, after which we'll hand back the keys. We expect this initiative to deliver more than $1.5 million in annualized run rate savings, contributing meaningfully to margin expansion, as we move through the balance of 2026. Closing facilities is never a pleasant experience, but it has reinforced my appreciation for the resilience of our business and the commitment of our people. Turning to Packaging. We delivered another strong quarter delivered by continued momentum across the core business. Folding carton continues to benefit from share of wallet gains with customers -- with consumer packaged goods customers in health and beauty and over-the-counter pharmaceuticals, new business wins from our other customers and the contribution from the current Trans-Graphique packaging application, which closed in July 2025. [Technical Difficulty] sequential growth in e-commerce solutions measured and supported by new customer wins and higher volume from existing customers. One area I don't highlight often enough is labels, an omission worth correcting. Our label operations are currently run out of 2 facilities in the Greater Montreal area, a small plant in Laval and within our LaSalle Envelope facility. Last month, we added scale by acquiring Fantasia Printing Ltd, doing business as iFlex Labels, a small manufacturer based in Saint-Laurent, Quebec, and generating approximately $3 million in annual revenue. Importantly, iFlex sits roughly 1 kilometer from our Lachine plant, and we've moved quickly to announce the consolidation of its operations into the Lachine facility, which has both the capacity to support absorption and the room for further expansion. This acquisition has also created the opportunity to reorganize the broader label footprint, and we've announced the closure of the Laval facility with those operations consolidating into Lachine as well. We expect to relocate the iFlex business in mid-August and the Laval transition following shortly thereafter. This reorganization should deliver in excess of $500,000 in annualized run rate savings. Finally, while there's no real estate or headcount savings, consolidating the label assets from the LaSalle Envelope plant puts everything under one roof and provides important operating leverage and synergies. It's important -- it's worth emphasizing the strategic logic here. Labels are highly synergistic with our folding carton business. Customers who purchase folding cartons very often purchase labels as well and vice versa. Building scale in label positions us to leverage our preferred relationships to cross-sell more effectively across our packaging platform and capture share of wallet we've historically left on the table. With our label business now well equipped with a combination of flexoweb and digital capabilities, we expect this consolidation to drive both efficiency gains and commercial synergies supporting profitability across the segment. Speaking of profitability, the Packaging segment delivered an adjusted EBITDA margin of 15.4% in the first quarter, expanding both year-over-year and sequentially, and it's the highest quarterly margin we've posted in 3 years. And as you just heard, we anticipate further upside ahead as we continue to drive efficiency and capture synergies across the network. With that, I turn the call over to Norm for a review of the financials. Normand Macaulay: Thank you, Stewart. Good morning, everyone. Please turn to Slide 14 of the presentation. Q1 total revenue came in at $74.8 million, up 6.6% from $70.2 million last year. Envelope revenue was $50.9 million, up 5% from $48.4 million last year and up sequentially from $48.9 million in the fourth quarter. The year-over-year variation reflects a 6% volume increase driven by the contribution of Enveloppe Laurentide and Elite Envelope for the entire period. It also reflects new customer wins and share of wallet growth in the U.S. Meanwhile, average selling prices decreased 0.9%, reflecting a less favorable customer and product mix in the U.S. That said, the reduction was significantly less than in previous quarters, as we are cycling the factors that negatively affected 2025. Packaging and Specialty Products revenue came in at $24 million, up 10% from $21.8 million last year and relatively stable on a sequential basis. The year-over-year increase is mostly due to higher folding carton revenue, driven by share of wallet gains with large multinational consumer packaged goods customers, ongoing momentum in our e-commerce packaging activities, new business wins from existing customers and revenue from the acquisition of Trans-Graphique acquired in July 2025. Moving to Slide 15. Adjusted EBITDA totaled $9.9 million or 13.2% of revenue, up from $8.8 million or 12.6% of revenue in last year's first quarter and up sequentially from $9.1 million or 12.5% of revenue in the fourth quarter of 2025. Envelope adjusted EBITDA was $8.4 million or 16.6% of revenue versus $8.3 million or 17.2% of revenue last year. Sequentially, it was up from $7.8 million or 15.9% of revenue in the fourth quarter. The improvement mainly reflects the favorable impact of higher volume on the absorption of fixed costs, which more than offset the effect of lower average selling prices. Packaging and Specialty Products generated adjusted EBITDA of $3.7 million or 15.4% of revenue, up from $3.3 million or 15% of revenue last year and up sequentially from $3.2 million or 13.2% of revenue in the fourth quarter. The year-over-year increase is essentially due to the effect of higher volume on the absorption of fixed costs. Finally, corporate and unallocated costs totaled $2.3 million compared to $2.8 million last year, mostly due to lower professional fees. Turning to Slide 16. Adjusted net earnings for the quarter were $1.9 million or $0.08 per share versus $2.2 million or $0.09 per share last year. Please note that this year's tax rate was higher due to the nonrecognition of $0.8 million in income tax benefits. Otherwise, adjusted net earnings would have been about $0.5 million above last year's. Moving to cash flow on Slide 17. Net cash flows from operating activities were negative $0.8 million as opposed to positive $7 million last year. The variation mainly stems from working capital requirements this year, primarily due to the settlement of income taxes arising from last year's sale-leaseback transaction as opposed to a working capital release last year. As a result of lower operating cash flow, free cash flow was negative $1.8 million in Q1 2026 versus positive $6.8 million a year ago. Turning to Slide 18. Net debt stood at $4.1 million as at March 31, 2026, up slightly from $1 million 3 months ago, mainly due to the working capital requirements described a moment ago. As a result, our ratio of net debt to adjusted EBITDA was 0.13x versus 0.03x at the end of Q4 2025. Our strong financial position leaves us with significant flexibility to finance our operations, our future investments, including acquisitions as well as to continue returning funds to shareholders. During the quarter, we repurchased more than 57,000 shares for a consideration of $0.2 million. Finally, the Board of Directors declared a quarterly dividend of $0.05 per common share payable on June 18, 2026, to shareholders of record at the close of business on June 4, 2026. I'll now turn the call back to Stewart for the outlook. Stewart Emerson: Great. Thanks, Norm. As I said at the beginning, we're pleased with our results and are cautiously optimistic about the outlook. This may not always be linear, but we have planted enough seeds over the past several quarters to believe that we have positioned ourselves to continue to grow earnings. Operationally, our sustained focus on productivity improvement and rightsizing our footprint continues to pay off. Meanwhile, our sales teams are leveraging our capabilities by driving volume growth to expand our reach in key markets and further support absorption. Financially, our near debt-free balance sheet provides exceptional flexibility to advance our business plan and deliver sustainable long-term profitable growth. Having completed 4 tuck-in acquisitions over the last 10 months, our appetite for M&A remains strong. We will continue pursuing tuck-in opportunities that leverage our existing footprint while increasingly evaluating more substantive targets in the packaging space. Finally, we remain committed to reward our shareholders with regular quarterly dividend payments and use excess cash flow to repurchase our shares. This concludes our prepared remarks, and we are now ready to answer your questions. Operator: [Operator Instructions] First question comes from Donangelo Volpe from Beacon Securities. Donangelo Volpe: Congratulations on the Q1 results. Just looking at, I guess, the optimization efforts in Indianapolis, can you guys provide some color on the timing and phasing of this through 2026 and how that potential margin flow-through looks through the remainder of the year? Stewart Emerson: Donangelo, thanks for the question. So yes, so maybe just to back up a little bit. The Indianapolis Envelope facility served us really well for the 10 years when we were making our foray into the Midwest U.S. It was a great platform. Over time, we talked in the past about older equipment, less efficient. Over time, about 70% of its production was -- or sales were being produced in Canada, leaving it with only about 30%. As we acquired the Royal Envelope platform in Chicago 2 hours away, it became less strategic for us. So we closed January -- at the end of January, ceased production the same day of the announcement. And we're just wrapping up the remediation and cleanup and expect to be out of the facility by the end of June, at which time the fixed costs will reduce significantly. On an annualized basis, we think it's about $1.5 million worth of savings, and it's relatively linear once we get past the end of June. Donangelo Volpe: And then I guess pivoting over to the packaging side. You guys referenced strong folding carton momentum with large multinational CPG customers. I'm just wondering if you're seeing broader wallet share opportunities with those customers across different packaging formats. Stewart Emerson: Sorry, you cut out a little bit there for me. Can you just repeat that question? Donangelo Volpe: Yes, no problem. So with -- like you guys referenced strong folding carton momentum with large multinational CPG customers. I'm just wondering if you're seeing broader wallet share opportunities with those customers across different packaging formats. Stewart Emerson: The opportunity exists across the other products within packaging and related products, but we haven't really experienced share of wallet growth in that space. The move to improve our label platform is really designed to take advantage of the exact question you're asking. Most of the growth has been share of wallet, but within the folding carton space itself. As we bring the label assets together and the label capabilities, we now have high-end digital label printing as well as the flexoweb set. We think that's really the time we can leverage the spend to sort of cross-sell. But to date, it's largely been within the folding carton sector. Normand Macaulay: Yes. And it's going to -- I mean, the label acquisition is going to facilitate those conversations with our CPG customers. So we'll continue to see some of that as we move forward. It's just perhaps not as immediate as you would think. Donangelo Volpe: And then just talking on the Label acquisition, I understand $3 million in annual revenue. Can you just provide some color on what the EBITDA profile was for the company pre-synergies? Stewart Emerson: In the mid-teens. Donangelo Volpe: And then final one for me, and I'll pass the line. I guess, just on the financials. Looking at the operating cash flow was negative despite kind of the EBITDA growth you guys experienced this year. I guess beyond the onetime tax payments, just wondering how investors should be looking at working capital intensity as packaging becomes a larger share of revenue moving forward? Normand Macaulay: The working capital intensity shouldn't shift very much. We expect it to kind of stay at the same level, if not decline ever so slightly as we move out in time as revenue grows. Stewart Emerson: Yes, I can maybe just give a little more color from an operations standpoint. Envelope tends to be more finished goods intense and label or packaging, folding carton and e-commerce particularly tend to be a little bit more raw material intensive. So as one is coming down and the other is growing, it should be -- it should balance out. And the reason for that predominantly on the raw material side is the supply chain is much more offshore than it is domestic in packaging. Thank you, operator, and thank you to everybody for joining us this morning. We invite you to join our Annual Meeting of Shareholders to be held at 11:00 this morning. If you're in Montreal, we're downtown, and we look forward to speaking to everyone again on our next quarterly call. Thank you. Have a great day. Operator: This brings a close to today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Hello, everyone, and thank you for standing by. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Compass Minerals Second Quarter Fiscal 2026 Earnings Call. [Operator Instructions] I would now like to turn the call over to Brent Collins, Vice President, Treasurer and Investor Relations. Brent, please go ahead. Brent Collins: Thank you, operator. Good morning, and welcome to the Compass Minerals Fiscal Second Quarter 2026 Earnings Conference Call. Today, we will discuss our most recent quarterly results. We will begin with prepared remarks from our President and CEO, Edward Dowling; and our CFO, Peter Fjellman. Joining in for the question-and-answer portion of the call will be Ben Nichols, our Chief Commercial Officer; and our Chief Operations Officer, Pat Merrin. Before we get started, I will remind everyone that the remarks we make today reflect financial and operational outlook as of today's date, May 7, 2026. These outlooks entail assumptions and expectations that involve risks and uncertainties that could cause the company's actual results to differ materially. A discussion of these risks can be found in our SEC filings located online at investors.compassminerals.com. Our remarks today also include certain non-GAAP financial measures. You can find reconciliations of these items in our earnings release or in our presentation, both of which are also available online. And with that, I will now turn the call over to Ed. Edward Dowling: Thank you, Brent. Good morning, everyone, and thank you for joining us today. I'll get right to it. In the second quarter, we retired our remaining $150 million of the 2027 senior unsecured notes earlier than anticipated. We continue to push on operational improvements at Goderich and elsewhere. We had a strong winter across much of North America, and our salt business delivered on high level of sale commitments while continuing to build on the foundation we have put in place. We are making progress, and we recognize that we have more work to do. In the Plant Nutrition, we are showing outstanding momentum of the objectives we outlined 2 years ago. With the winter season behind us, it's worth looking at how much the first half of this year has improved from last year. In both the Salt and Plant Nutrition businesses, revenues are up, operating margins are up. EBITDA is up. Company-wide debt is down and SG&A is down. And we completed new collective bargaining agreements with 2 of our sites, including the Goderich mine. That's quite a great start to the year. Now let's talk about what we're doing in each of our businesses. The improvement processes that we successfully deployed within our SOP business is the same approach that we are using in the salt business, starting with our larger operations. A focus on restoring good long-term operating practice is critical to improving performance. This requires that we focus on key metrics that will drive performance, safety, utilization, equipment availability, production and development rates and improved mining planning process, all of which are advancing. This is a key part of our Back to Basics framework. Production cost per ton in the salt business moved up year-over-year, and I want to explain why. The reported number reflects several factors: regional weather activity, the product mix, the pace of our operational improvements. During the quarter, we began selling production from the current year's production, which flows through the P&L. While the production cost per ton within the mines are improving, we've not yet met the efficiency gains we've expected. Pete will walk you through this in more detail. As I noted earlier, we recently completed a new CBA with the workforce at Goderich. It was a fair agreement for everyone and reflects a genuine partnership between the company and our workforce. This mutually beneficial arrangement allows us to continue building on the safe reliable operation while allowing us the mine's efficiency and flexibility. We've also concluded CBA at another site in the process of completing negotiation at others. While the highway deicing season is behind us, our focus turns to building inventory and preparing for next year's deicing bid season. Our production and inventory planning will be informed in part by the commitments we win in the upcoming bid season. The North American highway deicing market remains structurally tight. Inventories across the system are low following the past winter, which is constructive from both the pricing and tender size growth. We are moving into the bid season within this framework firmly in mind. We'll be focused on maximizing the value of every ton we commit for the next season. The market conditions are constructive, and we will approach the upcoming bid season with the same discipline that we've brought to the market in recent years that has allowed us to see growth in pricing and margins. Based on our first half performance, the current operational plans, we've updated our full year adjusted EBITDA guidance within the midpoint essentially unchanged. We have adjusted the segment outlook. Plant Nutrition is running ahead, and we have moderated salt to reflect the impact of regional product mix sales as well as the pace of operational improvements I described earlier. Pete will walk you through the updated ranges. Consistent with our Back to Basics framework, as announced earlier this year, we simplified our portfolio with the sale of our Wynyard SOP operation, which was completed during the quarter. The sale strengthened our cash position and now allows Plant Nutrition business to focus on our world-class Ogden facility. Turning to the balance sheet. At the end of March, we redeemed the remaining $150 million of our 2027 senior unsecured notes. We funded the paydown from cash on hand and removed our nearest maturity. This represents a significant deleveraging milestone and provides us with more financial flexibility. Reducing debt remains one of our top priorities and strengthening our balance sheet as a result. This is what investors expect, and it's what we're doing. Before I hand it over to Peter, I want to briefly note the recent changes to our Board. We've added 4 new directors over the past year. Each brings deep knowledge and relevant experience in the industrial and manufacturing businesses, some of which have direct experience in salt and plant nutrition industries. The Board is aligned with our strategy and brings operating and financial expertise we need for this phase of the company's development. With that, I'll turn the call over to Peter to walk you through the numbers and our outlook. Peter Fjellman: Thanks, Ed. I'll walk through our financial results as well as our updated outlook. For the second quarter of fiscal 2026, consolidated revenue was $453 million, down $41 million or 8% versus prior year Q2. The decrease is primarily due to lower highway deicing sales in the current quarter. Adjusted EBITDA was $86 million compared to $84 million in the prior year Q2 or up 3.3% over prior year. Adjusted EBITDA margin was 19.1% compared to 17.0% in the prior year. The improvement reflects adjusted EBITDA margin growth in both the salt and the plant nutrition business as well as lower SG&A expense year-over-year. In the Salt business, revenue was $383 million compared to $433 million in the prior year Q2. Tons sold were 4.1 million, down 19% versus prior year, which is a function of timing and velocity of the winter weather. On a per ton basis, operating earnings were $15.85 per ton, up 21% versus $13.10 per ton in the prior year Q2. The per ton progression reflects price realization, offset partially by increased distribution and product costs. As Ed mentioned, the sales mix dynamic in Q2 warrants some additional commentary. Our salt business serves customers and end uses across several businesses from multiple production facilities across different geographies. In any given year, the volume each facility contributes depends significantly on where winter weather occurs. With different pricing and cost structures, volume shifts in a given season can impact comparably. So the reported cost per ton reflects 3 things: the geographic mix driven by weather, product mix and the production cost dynamics at the facility level. In the Plant Nutrition segment, revenue was $67 million compared to $58 million in the prior year Q2. Adjusted EBITDA was $17 million, up 202% year-over-year with the adjusted EBITDA margin improving to 25.2% in the current quarter from only 9.6% a year ago. I want to note that we closed on the sale of our SOP operations at Wynyard during the quarter. Q2 '26 only reflects a partial contribution from that asset prior to the sale, which makes the year-over-year comparison even more impressive. The Ogden story continues to be strong. We're achieving year-over-year cost favorability from better operational execution and strong asset utilization. On a year-to-date basis, first half adjusted EBITDA was $152 million compared to $116 million in the first half of last year, a 32% increase year-over-year. Adjusted EBITDA margin for the first half of the year was 17.9% compared to 14.5% for the first half a year ago. These combined results show that the plan we put in place is working. We are working hard to maximize value, control costs and manage working capital and inventory. And the result is that we are enhancing profitability and delevering the balance sheet simultaneously. Switching to the balance sheet. As Ed noted, we redeemed the remaining $150 million of our 2027 senior unsecured notes. The redemption, which was funded from cash, extends our maturity profile and delevers the balance sheet. We also renewed our accounts receivable securitization facility during the quarter on improved terms. Combined with the retirement of the 2027 notes, our significant debt maturity is now in 2028, which gives us meaningful runway to continue executing on our operational priorities without near-term refinancing pressure. At quarter end, total net debt was $639 million, down $119 million versus Q2 prior year. Our leverage ratio was 2.7x on a trailing 12-month basis compared to 4.6x last year. We are focused on continuing to strengthen that balance sheet. Liquidity at the quarter end was $379 million, comprised of cash of $74 million and revolver capacity of around $305 million. We are updating our full year adjusted EBITDA guidance range of $212 million to $236 million with a midpoint of $224 million. We have adjusted Salt segment outlook. The midpoint is now $233 million compared to the previous midpoint of $241 million. The adjustment reflects the factors I mentioned above. Plant Nutrition adjusted EBITDA is now $43 million to $47 million compared with the midpoint of $45 million, up from the prior midpoint. Volumes are up, pricing is favorable and Ogden is delivering strong cost performance. This is a straightforward story and a reflection of the commitment we made 2 years ago to restore the business to historical levels of financial performance. The range of our corporate adjusted EBITDA, capital expenditures, depreciation, depletion and amortization and the effective income tax rate remain unchanged. Interest expense net is now lower at $62 million to $67 million to reflect the paydown of the 2027 senior unsecured notes. Operator, we're now ready for questions. Operator: [Operator Instructions] Our first question comes from the line of Joel Jackson with BMO Capital Markets. Joel Jackson: It's Evan on for Joel. Just a couple here. If you could talk about what we can expect from salt costs over the next couple of years before the potential mill project comes online at Goderich? Edward Dowling: We don't generally guide on costs. But as we work our way through our operational improvements, those unit costs at the mine should continue to decrease from where we are now and to really our performance at the mine, if you look at some of the key KPIs reaching a point heretofore not done at the mine. We need to do that because we're still facing headwinds with regard to where we sit in the mine plan. Joel Jackson: Great. And in the full year guide for this year, in salt specifically, you raised volumes, but you lowered your margins. Can you talk about some of the puts and takes there? I understand some issues at Goderich, but you're also raising the volumes. So just some color on that would be great. Edward Dowling: Yes. Let me just pass that off to Peter, if that's great. Peter Fjellman: Sure. Thanks for the question, right? Overall, it's really coming down to the reported cost per ton reflects those 3 things that we mentioned in our opening comments. It is geographic mix. It is production dynamics at a facility level and product mix. And this year, it's simply the heavier winter proportion of winter sales get into our served markets, including limited winter impact out West and volume and higher cost served markets as well as kind of mix within our C&I business, always carry different cost profiles. So our guidance is updated to reflect basically those factors. Joel Jackson: Can I sneak one more in? I know it's early, but are you seeing any specific trends in the bid season coming up in terms of volumes and bids and prices for the rock salt bid season? And any color on channel inventories? Edward Dowling: Yes. So Joel, thanks for the question. It's early days in the bid season here for us, very early days. But as we said before, we expect the market to be constructive. And we're focused - that said, our primary focus is always value over volume. And we're focused on maximizing value on every ton of production across all of our facilities. We'll have much better visibility to this and be able to report on it at our Q3 earnings call. Operator: Our next question comes from the line of David Silver with Freedom Capital Markets. David Silver: I guess I would like to follow up maybe on Ed's comments in the press release where I'm just going to quote you, but you said, "We know we still have - we know what we have to do. We still have work to do in terms of addressing salt mine production efficiency." Could you just kind of highlight what's included in the work that you have to do there? Edward Dowling: Yes. Thanks, David. I appreciate the question. This is really core to what we're really focused on in the company is really driving our costs everywhere, not just at Goderich, but everywhere into a more competitive position. And these are things like improving maintenance practices so that we can improve the availability of the equipment to actually run more hours in the day and actually take advantage of that through our utilization. We're seeing really good inputs on that kind of elimination of waste, improvements in our mine planning efforts and other things. We've got a handful of teams underway working on this very diligently, and there's more to come here. Later this month, we'll be commissioning a bunch of other teams to really tackle some really great enterprise opportunities for us. Let me just ask Pat if there's anything else he'd like to add to that. Patrick Merrin: David, this is Pat. I think Ed hit those points well. We're focused on the basic fundamentals of how mines operate. And that comes down to at Goderich, are the machines getting fixed and are they available? Are we using them? And are we using them the way we should be? And then optimization of our mine planning process, all of which has been underway for a year or so. And so we're seeing benefits of that. They're just not coming in as quickly as we would have liked, but the improvements are continuing. Edward Dowling: Thanks for that, Pat. We are seeing some really great shoots coming up from this effort. I feel pretty good about that. And we'll be reporting more and more on this as time goes by. David Silver: And then if I could just follow up on your comments about the new collective bargaining agreements. And in particular, I'm going to ask you, well, whatever is most important, but I was thinking Goderich first. And in particular, I know that over a longer period of time, there has been some meaningful changes in how you go about things and allocate labor at the mine. Does the current collective bargaining agreement that you highlighted, does that include any greater flexibility on your part in terms of how you can deploy labor and equipment just in the normal day-to-day operation of Goderich? Edward Dowling: Yes. The simple answer to that is yes, that it's a mutually beneficial agreement. And we're all incented, including the workforce to improve performance. Let me pass it off to Pat, and he can give you a little more color on that, but we want to keep this pretty high level. Patrick Merrin: Yes. David, we can't get too far into the details. But what I will say is that we have spent a lot of time over the last 18 months or so working on the relationship with our union, which has improved dramatically. And I think the CBA reflects our desire and their desire to see the site succeed. And we're looking forward to continuing to work with our workforce in driving improvements from safety, costs and tonnage, and we think the CBA is going to allow us to do that. David Silver: Okay. And I appreciate you keeping it high level. One last question for me, and it would be regarding Ogden and the very strong improvement there on your SOP business. When I look at the results, I mean, there's a number of highlights, but I'm just kind of scratching my head and wondering is the meaningful improvement there in, let's say, per ton margins, really all the metrics. But how much of the improvement there is related to, let's say, accessing more brine-based tons or more brine-based potassium as opposed to supplemental purchases of KCI. So how much of it is maybe just nuts and bolts of operating the evaporation ponds and everything versus maybe tapping into a richer source of brine with more potassium in the original brine? Edward Dowling: Yes, David, that's a great question. And it depends where you really start the clock of looking at it. We turn the clock back a couple of years. Remember, our earnings out of that tire business, including Wynyard was something in the mid-teens. And now we're going back to sort of historical levels of about $50 million a year, which is really kind of $40 million to $50 million is what we said was our target. We're there and with more improvement to come. A lot of that improvement is exactly what you said. It's about managing the ponds correctly and building up the salt at the right grade. Remember, we talked about the harvest to production ratio and all those sort of details, getting that right and then putting sufficient inventory in front of our wet plant so that we can manage and stabilize the plant in a better way. So that's been a great success for us. We'll continue to do that. And I just want to remind you that - and we'll continue to supplement as appropriate with KCI. But the big improvement over the last couple of years is really just managing the ponds better, restoring that. Remind you that we're not done yet that we've got an important capital project to execute, which will be done later next year, where we're going to - which is really the dryer compaction plant where we have yield losses and other things, very high circulating loads, inefficient operations, make a product that we could want to improve the quality of and we'll execute that project, and we'll see more capacity at lower cost, all things being equal with a better quality than what we're producing right now. Operator: And we have a question from David Silver of Freedom Capital Markets. David Silver: Okay. Great. I did want to ask a question, I guess, about your particular tax situation here as you look at fiscal 2026. And in particular, I would love to maybe get Peter's comments on what kind of cash tax liability maybe in a reasonable range we should expect. I mean it's a very complicated tax analysis to do with the different geographies. And on top of that, the big settlement with the government of Ontario, I guess. So in thinking about kind of - we're trying to do our cash flow work here, free cash flow work, what could you point us to in terms of a cash tax liability for this year? Edward Dowling: Okay. Well, look, it is a complicated question. The short answer is within our guidance, everything is built into that, nothing has really changed. In terms of the details, let me pass it off to Peter to try to address your question with a little more substance. Peter Fjellman: Sure. Thank you. David, thanks for the question. Look, as we spoke before, right, the tax at Compass here swings in our effective tax rate is what happens, right? It's based on relatively income in Canada, losses in the U.S. and a relatively small number for income tax purposes, right? So as we think through how that's compared and comparability, that number will tend to fluctuate quite a bit from an effective tax rate. From a cash standpoint, which is your question, remember that we did make some OMT related to the Ontario mining matter and a resolution of that in previous quarters and working through that, but obviously have adjusted our balance sheet and our cash payments in previous quarters, and we're working through that as well. So at this point, there's not a lot to guide on cash tax, and we'll have a better update here in Q3 and Q4. Edward Dowling: Yes. Thanks, Peter. Just let me just close here with that thought, which back a year or 2, we have a lot of sort of non business issues in the company and getting these matters behind us in terms of the refinancing that we've done, the Ontario mining tax, a number of legal issues, we've really cleared much of this out of the company. And the great news there, it's allowed us to really focus on more on what's important. David Silver: Okay. Great. And just last one for me, but just at a very high level, I mean, I do have a question about your thinking heading into this current bid season. And I know it's very, very early days and whatnot. But when I think about how the past winter played out, I mean, when we spoke, I don't know, 2, 2.5 months ago, it was really kind of hand to mouth or very tight supply across your primary marketing region. And the way the winter worked out, I mean, the last month or so was pretty calm or pretty mild, I guess, you'd say. A nd I'm just kind of wondering, do you think the industry is still kind of in a scarcity mode? Or has the mild March weather, I mean, given a chance for the situation to kind of normalize? Just last year, you got single digits or low single digits on volume and price. And I'm just kind of scratching my head. I'm pretty sure you're trying to - you're interested in improving upon that result. But maybe just some comments from the field what you think the winter ending inventories look like maybe at the key customers and yourselves? Edward Dowling: Let me just make an early comment. It's always important to - when we talk about inventories to talk about where. We had a really strong winter in much of our, how to call it, northern system and inventories remain tight there. We've had better winter in the South. That's part of what's driving the mix and cost. But in the U.K. and out West, particularly where our lowest cost salts actually produce, it was less so. So there's inventories remain higher there. So it's really important to kind of understand where you are. Within that context, our objective is to maximize value. Let me pass it off to Ben here for some comments. Ben Nichols: David, this is Ben. I think as I stated, we think that the scenario is very constructive for value moving forward. We see the industry is thin on inventories coming out of the last season, all things being equal. While it is early in the bid process, the few data points that we have seen are positive and support the thesis that we've stated. So we're excited about the bid season. The team is very focused on driving value for every ton that we sell, and we'll have a lot more detail for you when we get together about a quarter from now. Operator: With no additional questions in the queue, I'll turn it back to Ed Dowling, President and CEO, for closing remarks. Edward Dowling: Well, thank you all for your questions and your interest in Compass Minerals. I'm going to leave you with this. We had a strong quarter, but the journey isn't finished. Some of the hard work has continued to drive operational improvements and we are. Some is continuing to improve the plant nutrition business, and we are. Some of it is retiring debt to improve our balance sheet, and we are. And some of it disciplined execution on our commercial side. We're doing that, too. The direction is right. strategy is sound. The team is committed. We look forward to updating you on our next call. Operator: Thank you. This concludes today's conference call. You may now disconnect.
Operator: Good morning, and welcome to U.S. Energy Corp.'s First Quarter 2026 Earnings Conference Call. [Operator Instructions] Today's call is being recorded, and a replay will be available on the Investor Relations section of the company's website at usnrg.com. Before we begin, I would like to remind everyone that today's discussion will include forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the company's most recent SEC filings included in the Form 10-Q filed today and the Form 10-K for a discussion of these risks. Statements made on this call speak only as of today, and the company undertakes no obligation to update them. Joining us this morning are Ryan Smith, President and Chief Executive Officer; and Mark Zajac, Chief Financial Officer. I will now turn the call over to Mr. Ryan Smith. Ryan Smith: Thank you, Mason, and good morning, everyone. Thank you for joining U.S. Energy's First Quarter 2026 Earnings Call. I appreciate your time. And more importantly, I appreciate the engagement we've had with so many of you over the past few months as our story has come into clearer focus. I want to start by framing what this quarter actually represents because the context matters for how investors should evaluate our reported results. The first quarter reflects a company in the middle of a deliberate transition. We've intentionally divested noncore legacy oil and gas assets. We have intentionally redirected the proceeds into the largest organic development project in our company's history. And we've intentionally accepted near-term financial optics that don't reflect the legacy E&P business because the U.S. Energy of 2027 and beyond is not a legacy E&P. It's an integrated industrial gas, energy and carbon management platform anchored by one of the most distinctive geologic assets in the country. So while the headline numbers reflect the company in the build phase, we believe the business is more clearly positioned around Big Sky than at any point in this transition. In the past 90 days alone, we have reached final investment decision on our Big Sky Carbon Hub processing facility, executed a fixed-scope EPC contract with CANUSA, completed our Phase 1 cap stack through a March equity offering and an expanded senior secured credit facility, formally suspended our equity line of credit and signed a 5-year 100% take-or-pay helium offtake agreement with an investment-grade global industrial gas counterparty. Each of these on its own would be a meaningful catalyst. Together, they materially advance U.S. Energy's transition from a legacy E&P company toward an integrated industrial gas, energy and carbon management platform. I'd like to walk through this morning in four parts. First, the operational and strategic progress at Big Sky; second, the helium offtake and what the broader industrial gas and carbon market backdrop means for us; third, our capital structure, where Mark will take a few minutes; and fourth, the path from here, near-term catalysts, Phase 2 and the value creation opportunity ahead. Let me start with operational progress because this is where the work gets done. On March 18, we announced final investment decision on the Phase 1 processing facility at the Big Sky Carbon Hub and executed a fixed scope engineering, procurement and construction agreement with CANUSA EPC, an experienced engineering firm with a track record in gas processing and energy infrastructure. This was the pivotal milestone that moves us from a development stage project to a project under construction. Capital is now flowing into the project. Long lead equipment is on order. The plant is designed for approximately 8 million cubic feet per day of inlet capacity, targeting roughly 14 million cubic feet of high-purity helium and approximately 125,000 metric tons of refined CO2 per year at initial operations. Commercial operations remain targeted for the first quarter of 2027. I want to be very specific about what FID actually means at U.S. Energy because in our part of the market, the term is sometimes used very loosely. For us, FID was supported by completed engineering, completed permitting, a fixed scope EPC contract with a credible counterparty, a fully funded Phase 1 cap stack and a contracted helium offtake. That is the institutional standard, and we hold ourselves to it. On the field side, drilling and completions wrapped in August of 2025 with 3 successful drilled wells plus 2 that we acquired. Two Class II permitted injection wells, which are the standard wells used for CO2 injection in oilfield operations are operational. Gathering infrastructure installation is scheduled for this summer with facility commissioning targeted for the third quarter and first gas through the plant in the first quarter of 2027. The modular plant design materially limits on-site complexity, which is one of the reasons we have confidence in our schedule and budget. On the regulatory side, both of our monitoring, reporting and verification submissions at Big Rose and Cut Bank are in active EPA review. Based on our interactions to date, we have not identified any material issues, and we continue to expect approvals during the summer of 2026. These approvals are required to access the Section 45Q tax credit framework that underpins approximately $130 million of credit value over the first 12 years of Phase 1 operations alone. I want to pause on that number for a moment, $130 million in federal tax credits from a single Phase 1 facility for a company with a market capitalization that is a fraction of that figure. That represents a policy-backed commodity independent revenue stream that sits underneath everything else that we're building. And under the Inflation Reduction Act, the 45Q credit at $85 per metric ton has bipartisan support and is currently available for 12 years for projects that begin construction before the year 2033. Our base case uses today's rate and any future enhancement is pure upside. With that foundation in place, I'd like to now turn to our recent helium commercial agreements, which underpins our initial revenue profile. On April 27, we announced the execution of a 5-year helium sales agreement with an investment-grade global industrial gas company, a leading helium distributor, for the sale of contained helium produced at Big Sky. The contract is structured as 100% take-or-pay over a 5-year initial term. Phase 1 capacity is up to 1.2 million cubic feet per month or roughly 14.4 million cubic feet per year at a fixed plant gate price of $285 per Mcf with CPI-linked escalation beginning March 1, 2028, and a year-3 pricing redetermination that preserves upside. I want to be very direct about what this contract does. It eliminates volume risk, it eliminates demand risk and it establishes helium as the initial contracted day 1 revenue stream of our multi-revenue platform, and it converts what was until April, a commercial assumption into a signed agreement with an investment-grade counterparty. It also says something about how the broader market views our asset. Investment-grade industrial gas companies do not sign 5-year 100% take-or-pay agreements with development-stage projects without extensive technical and commercial diligence. This is, in effect, a third-party validation of the Big Sky resource, the development plan and our ability to execute. Now let me put this in the context of the broader market because the macro backdrop for what we are building has gotten more favorable since we set out on this path. Global helium supply remains structurally constrained. Geopolitical disruption, including ongoing instability in the Middle East and uncertainty around long-term supply from Russia, Algeria and Qatar has tightened an already tight market. Helium is a nonsubstitutable critical input for semiconductors, MRI machines, fiber optics, aerospace and the entire AI data center build-out. Demand is inelastic and domestic supply is limited. Our pricing of $285 per Mcf, while excellent, is, in our view, conservative relative to current market dynamics, which is why we incorporated a potential 3-year reprice into our offtake agreement. And crucially, U.S. Energy is an American domestic producer of a critical industrial gas with all the policy tailwinds that implies. Beyond helium, the carbon management side of our business is equally important. Section 45Q has bipartisan support and was reaffirmed and extended under the IRA. The market for carbon management services is forecast to grow more than 145x from 2023 captured volumes to 2050. Today, there are roughly 20 operational CCUS projects in the United States. We will be the 17th largest by capacity. And uniquely, we are the first U.S. project that does not depend on natural gas processing, ethanol fermentation, ammonia, power generation or direct air capture as the source of CO2. Our CO2 is the byproduct of helium extraction. There is no combustion, there's no fermentation. There's no energy-intensive capture step. That is a structural cost advantage that very few projects in the world can claim. And that in turn connects directly to how we're approaching the remaining oil business. Cut Bank continues to provide low decline established cash flow that supports the platform build-out. But more importantly, Cut Bank has approximately 70 million barrels of incremental recovery potential through phased CO2 enhanced oil recovery with feedstock supplied internally by Big Sky, eliminating third-party CO2 supply risk. Our 170-plus permitted Class II injection wells provide a low incremental CapEx path to a multi-decade production tail. We have approached the oil business with discipline. We're not adding incremental rigs or chasing growth for growth's sake. We're using Cut Bank as the captive CO2 outlet that completes our integrated value chain. With that operational and commercial picture in place, I'd like to turn it over to Mark to walk through the capital structure, where we've made significant progress this quarter. Mark Zajac: Thanks, Ryan, and good morning, everyone. I want to keep my remarks focused on the capital structure because that is where the most consequential financial work has happened this quarter. There are 3 pieces I'll cover, the Phase 1 capital stack, the equity line of credit and the path forward. First, the Phase 1 capital stack is now complete. In March, we executed an equity offering that brought in capital needed to fund development and strengthen the balance sheet. On April 20, we amended our senior secured credit agreement, doubling the borrowing base to $20 million, fixing the interest margin at 200 basis points over the alternative base rate and importantly, suspending quarterly financial covenant testing through the fiscal quarter ending March 31, 2027. The facility allows revolving borrowings through its May 31, 2029 maturity with no prepayment penalties. These are favorable terms for a project under construction, and they provide the flexibility to execute construction without covenant pressure during the build phase. This capital stack will take us through completion of Phase 1 and into revenue generation. Second, on the equity line of credit, we have not drawn on the ELOC since March 2 and concurrent with the closing of the expanded debt facility, we have formally suspended further use of the ELOC. We took this step deliberately to address a perceived dilution overhang associated with the facility. The message is clear, the equity capital structure is set for Phase 1 and the focus from here is execution, not further dilution. Third, the path forward as we transition from Phase 1 build to Phase 1 operations and begin positioning for Phase 2, the multistream nature of our platform opens capital avenues that were not available to us as a legacy E&P. Project finance debt becomes more accessible as we derisk through our MRV approvals and contracted offtake. The 45Q tax credit stream itself becomes a financeable asset, either through a transferability or a structured monetization, representing a potential nondilutive capital source not currently in our base case. Longer term, our existing senior secured facilities are appropriately sized today. We expect to transition to a larger longer-dated facility as revenues and credit profile matures. From a near-term liquidity standpoint, we have the capital we need to deliver Phase 1 into commercial operations in the first quarter of 2027. From here, the focus on capital side is optimization and prepositioning rather than funding the build. With that, I'll hand it back over to Ryan. Ryan Smith: Thanks, Mark. Let me close with how we see this path forward because I think this is where the gap between intrinsic value and where the stock trades is most apparent. Looking out over the coming quarters, we have a sequence of identifiable independent derisking events. MRV approvals are anticipated this summer, Gathering and EOR prep installation is scheduled across this summer and fall. Plant commissioning is targeted towards the end of 2026 with first gas and first revenue in the first quarter of 2027. And alongside the operational catalysts, we are beginning to advance commercial discussions on direct merchant CO2 sales, a second monetization path beyond sequestration credits and one we believe could meaningfully enhance unit economics with very modest incremental capital. Beyond those near-term milestones, the next layer of value is in how the platform scales. Phase 2 is the first step in that scaling, and it is entirely excluded from our base case financial model. Phase 2 is a second processing plant on the same footprint, leveraging the same infrastructure, the same regulatory approvals, the same field operations and the same commercial relationships. Our acreage, our permitted wells and our geology already support 2 to 3x the Phase 1 capacity with no new land and no new approvals. Because the heavy lifting is already done, the incremental capital required to execute Phase 2 is meaningfully lower on a per unit basis. And as our credit profile matures and the asset derisks, we would also expect the cost of capital to improve. When you compound these two effects, lower per unit CapEx and a lower cost of capital across a second standardized unit, the project economics become quite compelling. Our internal modeling supports project NPV that is multiples of where Phase 1 stands today and equity returns that fundamentally rerate the company. Alongside that operational scaling, there is also a financial dimension to how value can be realized. I mentioned $130 million of 45Q credit value across the first 12 years of Phase 1 operations. Under current rules, those credits are transferable. We have a credible pathway to monetize a significant portion of that stream ahead of the underlying schedule, either through a transferability transaction or a structured credit sale. That is a nondilutive capital acceleration that, again, is not in our base case. We are working that work stream now, and we will share more as transactions advance towards execution. When you step back, those operational and financial elements ultimately shape how the market should evaluate this business. I'd like to close with a candid observation about valuation because it gets to the heart of why we made the strategic pivot in the first place. Small-cap E&P companies trade at roughly 3x trailing EBITDA in today's market. Small and mid-cap midstream and gas processing companies have traded roughly 8x. Blue-chip industrial gas companies trade at roughly 17x or significantly higher than that. Those are not our forecast. Those are public market multiples that anyone can verify. Once Phase 1 is operating, U.S. Energy is no longer a small-cap E&P. We're an industrial gas producer with a contracted offtake, a regulated carbon management business with policy-backed revenue and a low-decline oil business that is integrated into the platform as the captive CO2 outlet. We don't need every part of that re-rating to happen for shareholders to do very well from here. Today, we trade at a meaningful discount to our internally calculated Phase 1 NAV against a forward EBITDA multiple that is well below where any of those referenced categories trade. The arithmetic of closing even a portion of that gap is very significant. Our job between now and Phase 1 commissioning is to keep executing the operational and commercial milestones that allow the market to make that re-rating. To put a fine point on the quarter, we reached FID, we executed our EPC. We completed the Phase 1 cap stack. We signed a 5-year take-or-pay helium offtake. Construction is underway. The commercial operations countdown is months and not years. And the macro backdrop for helium for carbon management and for American energy production has rarely been more favorable than it is now. I'm more confident in the business plan today than at any point since we set out on this path. I want to thank our team in Houston, in Montana and across our partner network for outstanding execution this quarter, and I want to thank our shareholders for their continued support and patience as we transition through the build phase into the cash flow phase. We have a tremendous amount of work ahead of us, but the path is clearer today than it ever has been. Operator, with that, please open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of John Davenport from Johnson Rice. John Davenport: I wanted to start on the CO2 side. You had mentioned that you're evaluating the revenue stream outside of just the tax credits, and doing some research on our own, we've seen it's -- the spot market for CO2 is trading as high as $900 per ton. So I'm curious what you guys have been evaluating there? Maybe how much of that 125,000 million tons per annum you might sell outside of tax credits and just some more information on that. Ryan Smith: John, yes, no, that's a great question. And those numbers that you just laid out are accurate. I think just backing up a little bit, it was very important for us to be able to forecast our base case projections on Phase 1 of this project to what we can control, right? And we can control our helium sales. We can control our carbon sequestration, AKA CCUS activities. We can control our oilfield. So everything that we've talked about, that we've modeled out, that we've underwritten internally to reflects that $85 per metric ton of CO2 sequestration and utilization numbers. That being said, everything you said is spot on. The end user, call it, whether it's food and beverage grade, whether it's other industrial users, the pricing for that market is robust. The end user, which -- it would be tough for us to distribute to the end users. You'd have to go through a distributor similar to how we do it with helium. But being able to, call it, reallocate that CCUS CO2 into, again, large-scale, long-term investment-grade counterparty CO2 distributor, especially to one of the coasts or the Midwest, the numbers are extremely compelling. Even if you take that $850, $900 end-use number and cut it in half, right, that's 4 to 5x on a pretty conservative basis of revenue selling into that market. So right now, our initial plant, which we plan on capturing 125,000-plus metric tons a year of CO2 for sequestration and EOR purposes, not all of that CO2 that comes off of that plant is the same. Roughly 2/3 of it is a higher purity CO2 grade, that would need a little bit of incremental capital to kick up that purification for industry and food and beverage. But 2/3 of 125,000, it's a big number, right? It's about ballpark 80,000 metric tons a year, a little over 200 metric tons a day. So running those numbers at a fairly conservative, $350 to $400 per metric ton price, it's -- I mean, it increases our revenue profile something like three or fourfold right out of the gate. So one thing I think that we're currently working on now is, one, understanding that market and who the big players are similar to our helium offtake. It's very important to me to have the highest quality counterparty on the other side of those transactions. We've started discussions early stage with a couple of them, and it's something that we're going to pursue heavily in the second half of this year. And then going forward, as we grow the platform from Phase 1 to Phase 2, which would be multiples of Phase 1s getting that CO2 into the end user industrial merchant markets is an absolute goal for us. It takes this from extremely attractive economics to something much, much greater than that if we could accomplish that. So you're spot on. It's an extremely attractive market, similar to helium. It's structurally short in the United States, similar to helium. It goes to industries that are growing and constantly need it. So it's a big focus for us going forward. John Davenport: Okay. And so if I heard you right, basically, the stream of CO2 that's produced wouldn't be able to go directly to those industrial users. There would have to be some incremental processing before that can happen. Obviously, it would be worth it to get 10, 20x the tax credit price. But that's -- I just wanted to make sure I had that correct. Ryan Smith: It would be. It would be either -- it could be two things, right? It depends on the end user and the distributor. It would be either a little bit of extra equipment on our site. I would say nothing overly meaningful, maybe a mid-single-digit capital increase on the whole project or some of the end users have their next stage purification facilities at their distribution sites, whether it's in the Gulf Coast, whether it's in the West Coast, whether it's in the Midwest. So I guess it could be ready for straight distribution. It would really just depend on economics and what the distributor wanted us to do. Operator: Your next question comes from the line of Tom Kerr from Zacks Small-Cap Research. Thomas Kerr: On the new helium offtake agreement, are you able to talk about the pricing and how that was determined or achieved? Some of the helium spot prices are higher than that, the Middle East conflict have risen prices a little bit. Are you able to talk about how you arrived at that price, the $285, I think. Ryan Smith: Yes. I mean I think from a high level, absolutely, and good to hear from you, Tom. Thanks for the question. We had an offtake agreement on my desk to sign for a couple of weeks before the Middle East stuff kicked off. And I don't sign stuff when it shows up the same day. So we kind of set out it for a while, made sure that all the numbers were right. And then either fortunately or unfortunately, all of the stuff in the Middle East kicked off. So we immediately kind of reopened negotiations and pricing. So pricing ended up going up 50-plus percent kind of overnight on the production side, meaning the producers that drill and process and deliver gaseous helium. And -- so I guess, simplistically, like I would call it 50% or so was what was realized by that happening. I think it's important as part of our agreement to understand that we signed for $285 escalates CPI every year over 5 years, so call it $300 and change over the life of the contract. Our counterparty is coming and picking it up at the plant, and that's our bottom line number that we're getting. Something that you see quite often, I would say, the vast majority of the time is companies that announce their helium pricing are giving a top line number, and they're still responsible for tolling fees for transporting it a couple of thousand miles on their own nickel and those costs are extremely significant. I've seen ranges from $125 to $175 all in from what is being deducted from the top line price that people announce. So if you're comparing our announcement with, call it, some other announcements out there, I think a more promotional way to think about our price would probably be in the low $400 range from where you've seen other people announce it. Transportation was something that I was very concerned about not taking on that risk on our side. Driving a tube trailer over the Rocky Mountains in the winter was something that it doesn't seem like it has a lot of upside to me with the size of our counterparty and they're just ingrained infrastructure on their level as well as owning all the -- further down the supply chain, liquefaction and distribution capabilities. It just -- it made a whole lot of sense for us to have them pulling up to our plant a couple of times a month and paying us on the spot. So that's kind of how I would look about price. In regards to term, we had all kinds of choices, options in front of us on term, ranging from 1 year to 10 years. And we settled on 5, as you know, with a revisit pricing after 3 years, which was something that was extremely important to us. And to be honest, I'm not sure we could have gotten it before the Middle East kicks off, right? Like we're optimistic about helium prices going forward. At some point in time, the Middle East will slow down. Some of these supplies will come back online. But I do believe that all of the -- in the news -- industries, whether it be AI, semiconductors, health care, national defense, aerospace, et cetera, like that demand for helium is not going anywhere, but up and to the right. And I believe the analysis shows that the demand is going to grow significantly more than the supply options both on a global basis and then extremely more on a domestic basis. If the Middle East tensions that have happened over the last few months have shown both the end users and the distributors anything, it's that a molecule of helium coming from the United States is worth a whole lot more than something coming from Qatar, Russia or Algeria. So I think there's kind of a 2-step value thesis on helium going forward based on domestic supply and then just market demand. Thomas Kerr: Got it. That makes more sense. One more quick one for me. Can you update us or refresh our memory on sort of the all-in CapEx for the projects, for all 3 projects? I know it's in the $20 million to $30 million range. And just how much have we spent and how much is left to spend at this point in time? Ryan Smith: Yes, great question. That's always kind of a moving number just because -- I mean, of course, we have it pinned down. But like building out this infrastructure is very phased, right? I mean it's a 14 different time line thresholds for payment and construction going forward. I would say the way to think about it at the beginning was it was in the low $30 million for all of the kind of go-forward infrastructure that we hadn't already spent money on. We've made a significant dent in that number so far. We started ordering our long lead time items and equipment whenever we announced it, a few -- I don't know when exactly the FID announcement was, maybe a month ago or so. But I think that we cut our first big check on the remainder that same week. We've done it recently. We probably have another $25 million or so to spend over the projects. A lot of that is front weighted here over the next, call it, 2 or 3 months and then a little bit of a kind of a trickle on the remaining 25% between then and the end of the year. Operator: Your next question comes from the line of Dennis Richter from Securities Pricing & Research. Dennis Richter: My question is regarding if there are shut-in opportunities with the Cut Bank field. I mean it's a legacy old oilfield and obviously, you're looking to inject CO2 starting in first quarter next year. Are there currently opportunities in terms of bringing back wells that are -- have maybe not been economic at past prices, but now at the $90, $100 level could basically provide incremental cash flow until you got the Phase 1 accomplished? And then kind of a follow-up question to that, could you talk about your Montana field office and your staffing and in terms of people that are implementing these capital infrastructure aspects and your experience there or the folks that are experienced there? Ryan Smith: Yes. No, great question. So on the first one, I think there is, and we've done some of them on available opportunities on shut-in wells. I think that backing up a little bit, understanding that oil asset is paramount to answering that question. It's an older proven legacy oilfield. It has a lot of wells on it. The wells are vertical wells. And a lot of those have been shut-in. Until you kind of, I'll call it, build/rebuild that reservoir pressure through tertiary recovery, i.e., injecting CO2 like we're going to be doing, turning legacy vertical wells back on is -- it's not overly attractive because you'll get some barrels out of the ground right off the bat. But without increasing the reservoir pressure from legacy levels to something more enhanced, you're probably looking at like a 1 or a 2 barrel a day type of steady state once they're back and flowing. And then to get something that's meaningful, i.e., adding $1 million -- a couple of million dollars to our bottom line, doing the level of that work going and working over those wells, I'm not sure that -- I know we would make money on it, but I'm not sure that it's a compelling enough return to kind of spend that capital. So some of the proverbial like very low-hanging fruit, turning some wells back on that we normally would not have done. We've already done that. We've added 40 to 50 barrels a day over the last month just doing that. And I think that, again, not a huge number, but just if you can pick up a few dollars laying on the ground with low capital expense, that's always something that we'll do, and we'll continue to evaluate. But without a doubt, most of the upside comes from those wells that I'm discussing, getting the reservoir pressure up, turning them back on. And instead of having 1 or 2 barrels a day come out of 10 wells, you have 10 or 15 plus coming out of those shut-in wells. On the Montana operations side, great question. And I think you might be the first person that's asked me that. We absolutely have a -- again, relative to the size of the area, a fairly large presence in Montana. I think we're the third largest employer up there after local municipal health care and school districts. We have roughly 13 to 15 people that run our day-to-day operations that are up there. They've been with this asset ever since Quicksilver and Blackstone owned it, and we inherited them with the deal. And I mean, there's not 15 people more familiar with this asset in the world than the folks that are up there. This is their sole focus. This is their sole job because this is what they do every day. And like everything else, we have a field office up there under our subsidiary in a nice little building that looks like a small insurance company. And we have an equipment yard a little bit outside of town just for staging and holding equipment, et cetera. So from a day-to-day operations perspective, it would be very hard, in my opinion, if not impossible, to improve that just due to the familiarity with the asset that these folks have. And then of course, we have our -- a little more senior on the corporate chain people here in Houston, along with one of our senior guys who's based out of Denver, that's ex EOG, ex Anadarko that kind of oversees them and spends a lot of time in the field as well. Dennis Richter: I'll go back into the queue. I have a follow-up question, but I think... Ryan Smith: You can go ahead and ask it now, if you want. Dennis Richter: Okay. In terms of accelerating to Phase 2, Mark, you mentioned in terms of the -- getting the EPA approvals for the 45Q credits. Some of these credits you mentioned can be monetized. Could you kind of talk about what's -- provide more color on your options once you get that approval as you expect in that summer time period? And what would be the hurdles to get Phase 2 implemented earlier? Ryan Smith: Yes. Another good question. This is Ryan. I'll address that because I'm pretty close to that situation. So I'm going to answer them in a different order than you asked. I'm going to answer the second one first. Our Phase 2 hurdles, of course, you always have operational and technical stuff you need to do. But by far, our Phase 2 hurdle is optimal capital stack for that Phase 2. So much of what we're doing is infrastructure heavy cost, right? Like Phase 1 is 90% of the capital we've spent on this project so far is on the infrastructure side. And I expect Phase 2 to be very similar. Our resource there is extremely proven, resource, meaning resource under the ground, helium, CO2, et cetera, and it's so large that the deliverability risk of feedstock into perpetuity for these phases is extremely low. The caveat there is the infrastructure costs are very significant. So our Phase 2, which we're already working on early stage, right? Like it's not anything that's new from Phase 1. It's just bigger. So all of the work that we've done on the technical side, on the engineering side, on the processing side has materially been completed. So really just coming up with the blueprint for Phase 2 and all the little things that come into that and getting everything on a piece of paper, if you will, to plan that process out and get it going. And we're working on that now. If the money fairy put all the money I needed on my desk today to do that project, we could start on it today but I don't think that's going to happen. So how do we come up with the right mixture of capital to fund that is concurrently what we spend a lot of time on here. And I think that's twofold. One, just like you've seen in midstream companies and gas processing companies with so much value on the infrastructure, on the pipelines, on the plant facilities, these things are tailor-made to add debt capital to, right? Like I mean you see some of the big midstream companies run at 6 to 7x leverage. I would never do that here. But I do think once Phase 1 is up and running, we've been very conservative about applying leverage to this. We over-equitized it on the front end on this first phase just because I wanted to kind of a 50-50 equity debt capital stack going into it. But as we get going, I think it's fair to assume more project finance layered debt to expand is something you'll see. And then how do you plug that equity piece? I don't want to go out and do a big giant common equity blast, right? Like it's not good for the shareholders, of which our Board and management team here are extremely significant shareholders. So we would be wearing that dilution just like everybody else. One avenue, a very attractive avenue is what I'll call tax equity financing. You've seen a lot of them in wind. You've seen a lot of them in solar of companies that are generating, whether it's 45Z, 45-some other letter and a little bit on the 45Q side, which is what we are of a forward selling of those credits over the life of your credit realization forecast to end user buyers that want that offset. And that ranges from Microsoft and Google to big insurance companies to East Coast institutional funds. So it's a pretty large and pretty dignified group of buyers of those credits. And everyone is a negotiation. Every one is a different structure. But I think like a way to think about it is whatever your -- a reasonable outcome is whatever your forecasted 45Q credit stream is, nobody is going to pay you 100% of it, 100% for all of it just because they want to leave a little bit of cushion, but somebody -- and there's comps in the market for this, will come in and buy 60% or 70% of your 12-year forecasted 45Q stream at a discount rate of 10%, still pay you to operate it going forward and then you pull a very meaningful portion of that capital forward. So one thing, I've talked about this a little bit, probably maybe not in this much detail that we're looking at concurrently with Phase 2 on capital optimization is forward selling through a tax equity financing, Phase 1 45Q credits, getting that capital upfront and then on a dollar-for-dollar basis, recycling that capital straight into the ground for Phase 2 development. It makes a lot of sense from a financial projection perspective, from a rate of return, from an ROCE perspective, it's really a no-brainer, pulling 12 years of value forward on day 1 and redeploying that capital into something that scales up into the right on a nonlinear basis compared to Phase 1. Dennis Richter: I appreciate that. Yes. I mean that forward pulling those credits, I mean, I see this with other companies, it's almost become self-financing. I mean it's a fantastic setup. And I don't think -- I think your comments earlier from both Mark and you, Ryan about that the market doesn't really appreciate what you have accomplished and what you have put -- these assets you have put together. I have to kind of -- I totally agree in terms of having valued companies for 25 years, the disconnect between the value that you are creating here and have already and the market price is just significant. So I applaud you for what you have accomplished. I appreciate it. Operator: There are no further questions at this time. I will now turn the call over to Mr. Ryan Smith, CEO, for closing remarks. Ryan Smith: Yes. I want to thank everybody for joining us this morning. Thank you to everybody that asked questions. I was happy to answer them. And I want to thank our shareholders for sticking with us through this process. We've made a lot of tangible progress over the last 2 months. That was kind of the fruition of the work we've been doing for the last 18 months. And we have a lot of stuff in front of us that we expect to accomplish this year before getting this project online in the first quarter of next year. So the Board and management here are very excited and very confident about the value we are building at this company, and we look forward to continue sharing it with you, both on a daily basis as people reach out to me and on calls quarterly going forward. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning. Welcome to the Amprius Technologies First Quarter 2026 Earnings Conference Call. Joining us for today's presentation are the company's CEO, Tom Stepien; and CFO, Ricardo Rodriguez. [Operator Instructions] Following management's remarks, we will open the call for questions. Please note that this presentation contains forward-looking statements, including, but not limited to, statements regarding our financial and business performance, our business strategy, future product development or commercialization, new customer adoption and new applications, our growth and the growth of the markets in which we operate and the timing and ability of Amprius to expand its manufacturing capacity, scale its business and achieve a sustainable cost structure. These statements involve known and unknown risks, uncertainties and other important factors that may cause Amprius' results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied in such forward-looking statements. For a more complete discussion of these risks and uncertainties, please refer to Amprius' filings with the Securities and Exchange Commission. This presentation includes a non-GAAP financial measure, which is adjusted EBITDA. This non-GAAP financial measure does not replace the presentation of Amprius' GAAP financial results and should only be used as a supplement to, not a substitute for, Amprius' financial results presented in accordance with GAAP and may not be comparable to calculations of similarly titled measures by other companies. A reconciliation of adjusted EBITDA to net loss, the most directly comparable GAAP financial measure is included in our press release, a copy of which is filed with the SEC and posted on our website. Finally, I would like to remind everyone that this conference call is being webcast. A recording will be made available for replay on the company's Investor Relations website at ir.amprius.com. In addition to the webcast, the company has posted a press release that accompanies these results, which can also be found on the Amprius Investor Relations website. Before turning the call over to management, I want to highlight a few near-term IR events. On May 12, Tom Stepien will be at Xponential in Detroit. Any investors that are attending the Expo are welcome to stop by the company's booth. At the same time, Ricardo will be at the Needham Conference in New York City on May 12 and 13. His fireside chat will be streamed online and will be available for replay on the company's IR website. On May 14, the management team will be in New York City and taking investor meetings with KKR. The following week, management will be attending the B. Riley Conference on May 20 and 21 in Los Angeles. And to round out the month, management will be at the Craig-Hallum Conference in Minneapolis on May 28. Looking to June, the team will start off the month in Chicago for the William Blair Conference. Management will then attend the Jefferies eVTOL Summit on June 8, the TD Cowen Technology Summit on the 17th, the ROTH London Conference on June 17 and 18 and the Northland Conference on June 23. We hope to connect with many of you at these upcoming events. I will now turn the call over to Amprius Technology CEO, Tom Stepien, for his comments. Sir, please proceed. Thomas Stepien: Welcome, everyone, and thank you for joining us this morning. Let's start with Slide 3. Last quarter, I compared the advantages offered by our batteries to the difference between standard brewed coffee and espresso. It's an idea that illustrates the difference between our cells and those of our competitors. In this analogy, a standard graphite battery is like normal drip coffee and we're the concentrated power of espresso. Our batteries contain the same energy as standard cells in a much smaller package. If you match the volume and weight of standard coffee with a double espresso, you achieve twice the energy. When you double the energy in a battery, you can double flight time for an unmanned aircraft or double the travel distance of a light electric vehicle. That's the Amprius Espresso advantage. Turning now to Slide 4. This energy advantage continues to drive robust financial performance. And in the first quarter, we sustained our strong business momentum. Our second-generation SiCore, silicon anode batteries are gaining broad adoption across unmanned aerial system customers, and we are pleased to see the momentum we have built in Europe is now taking hold in the United States. U.S. defense spending is at an all-time high with a growing emphasis on UASs, commonly referred to as drones. Three Amprius customers leveraging our SiCore batteries have recently received notable multimillion dollar awards. First, I'll mention Kraus Hamdani Aerospace, a Northern California-based drone manufacturer. Their K1000ULE is a fully electric ultra-long-range Endurance UAS capable of 24-hour flight in a 1,000-mile range, designed for autonomous intelligence, surveillance and communication missions across land, sea and air. They recently received a major sole-source award from the U.S. Department of War for their UAS and a separate contract worth up to $270 million from the U.S. Air Force Central Command. Then there's AeroVironment, a leading U.S. defense technology company and a long-term Amprius customer. March 2026, AV won a $117 million firm fixed-price U.S. Army contract to deliver P550 UASs designed to provide frontline units with real-time intelligence and targeting in contested environments. And then there's Teledyne FLIR, a global leader in thermal imaging, surveillance sensors and unmanned systems and another tenured Amprius customer. They recently announced a European order for their Black Hornet 4, a palm-sized nano drone measuring just 25 centimeters long with a 200-millimeter rotor diameter. The Black Hornet 4 provides soldiers with live video feeds, target data and real-time situational awareness for intelligence, surveillance and reconnaissance in both dismounted and vehicle integrated operations. We commend these 3 customers on their recent wins. Their success boosts our visibility into future purchase orders for SiCore cells. We look forward to continuing to earn their trust and business. We are pleased to announce that our silicon anode cells were selected by a leading light electric vehicle customer based in China. This customer placed a $21 million multi-quarter purchase order for batteries for 2- and 3-wheeled vehicles. China is home to many of the world's most successful battery companies, which makes it especially satisfying to win business in this highly competitive region. Meanwhile, our ongoing project with the U.S. Defense Innovation Unit continues to expand. In July 2025, Amprius won a development contract from the DIU. In the March quarter, the contract was increased for a third time and now totals $18.1 million. This recent increase adds delivery of 3 types of silicon anode cylindrical cells and 4 standard-sized pouch cells. Standardization is really critical for the government. It reduces cost, simplifies logistics and ensure systems can use the same safe, reliable NDAA-compliant power sources. It is gratifying to receive awards from credible and independent media and trade groups. After winning a competitive CES Innovation Award in January, we were recently named a top 100 Greentech company by TIME. Turning now to our financial performance. I'm pleased to report Q1 revenue of $28.5 million, up 2.5x year-over-year and 13% higher sequentially. The strong results give us the confidence to increase our revenue guidance for the full year to at least $130 million, $5 million above our previous forecast. While it is not our practice to provide specific guidance for the current quarter, I would note that our revised annual forecast implies a reacceleration of sequential top line growth in the June quarter. Ricardo will provide more highlights on our financial performance and outlook shortly. He will also share details on our press release earlier this morning in which we announced an agreement to exchange our outstanding public warrants for common shares, which will simplify and strengthen our capital structure. Let's now take a look at Slide 5. Taking a step back, I'd like to review our substantial opportunity set in 5 principal end markets. The first is UASs, including drones used for defense, public safety, security and logistics. Defense platforms that require high energy density typically support long loiter missions and are primarily targeted for ISR, intelligence, surveillance and reconnaissance. Public safety drones include DFR, drone as a first responder, systems integrated directly into emergency workflows. DFR programs are expanding nationwide because they deliver faster situational awareness, reduced response times and materially improved public safety outcomes. As more agencies adopt DFR as a core part of 911 operations, demand for higher performance, longer endurance batteries continue to accelerate, and that plays directly to our strengths. Our second market segment is satellites and space, where our high energy density cells directly improve launch economics. Satellite launch providers charge customers by weight, making our ability to deliver the same energy at roughly half the weight, our Espresso advantage, extremely valuable. The $21 million multi-quarter purchase order I mentioned earlier is an example of our traction in a third segment, light electric vehicles. The customer advantage here is sitting more capacity into standard packs or constrained spaces and enabling range. We're optimistic about the opportunity in a fourth segment, robotics. Robot performance is closely tied to battery characteristics as our CTO, Ionel Stefan, recently shared with a leading battery journal. "Balancing the extreme discharge demands of actuation with the computational intensity of real-time AI processing requires a new generation of energy solutions." He said, "high silicon anode cells represent a breakthrough, delivering the energy density needed to extend operational run time while minimizing the weight penalties that constrained efficiency." Our fifth market segment is eVTOL, electric vertical take-off and landing aircraft. eVTOL and other advanced air mobility customers are developing autonomous point-to-point regional transport for both passengers and cargo. These vehicles only work with high energy density batteries because aircraft must lift a heavy structure, a pilot and 3 to 4 passengers. Without enough energy per kilogram, the vehicle simply can't achieve the required range, payload or safety margins. If standard cells are chosen, the aircraft can likely get off the ground, but it likely cannot perform the required mission. Working with a third-party research firm, we size these 5 end markets, as shown on the right-hand side of Slide 5. Lithium-ion battery applications across these markets are estimated at $7 billion this year, growing to $13 billion by the end of the decade, nearly doubling in just a few years. Looking further out, we expect growth to accelerate meaningfully, reaching $35 billion by 2035. Let me now turn over the call to Ricardo to review our Q1 results in detail. Ricardo Rodriguez: Thank you, Tom, and good morning, everyone. I'm happy to report that Amprius had another record-breaking quarter. As shown on Slide 6, we delivered $28.5 million of revenue in Q1, which translates into 13% growth over the fourth quarter of last year and a 153% increase year-over-year. As Tom mentioned, those results give us the confidence to increase our 2026 full year revenue forecast by $5 million to at least $130 million. I'll provide more color on the outlook shortly. As Tom noted, our revenue growth was driven by continued expansion in our SiCore customer base, combined with increasing order volumes from existing customers as they scale their own deployments. Cycle represented 97% of product revenue in the quarter, continuing our transition away from our legacy SiMaxx platform. In the quarter, we generated 58% of our revenue from Europe, the Middle East and Africa, 21% from North America and 21% from the Asia Pacific region. The North American share increased meaningfully, both sequentially and year-over-year, consistent with the growing interest we're seeing from U.S.-based customers. While we expect this mix to fluctuate over the course of the year, we think the U.S. business could accelerate in the second half. Now moving on to cost of revenue and gross margins. Our Q1 gross profit was $5.7 million, producing a gross margin of 20%. For context, Q4 gross margin was 24%. So we did step back quarter-over-quarter, and I want to be transparent about why. Overhead costs associated with our Fremont facility are being absorbed across a larger SiCore revenue base, while the SiMaxx product line continues to wind down. Our Q1 SiMaxx-related overhead costs were up more than $3 million. Essentially, these are fixed costs against only $618,000 of revenue. That created a material but temporary drag on the blended margin. We also had 1 month of expenses from Colorado in the quarter, which are gross -- without which our gross margin would have been 22%. Turning over to operating expenses. Quarterly R&D expenses were $3.8 million. SG&A was $8.6 million, bringing total operating expenses to $12.4 million, which was down approximately $19 million quarter-over-quarter, though that comparison is heavily distorted by the $22.5 million noncash impairment charge for Colorado in Q4 of last year. On a clean basis, our adjusted OpEx run rate is up modestly quarter-over-quarter, driven by targeted investments in our sales and go-to-market organization as we build the team to support the commercial momentum Tom described. Putting these elements together, our Q1 operating loss was $6.7 million compared to a clean operating loss of approximately $2.9 million in Q4 after removing the Colorado onetime charge. The increase reflects the gross margin stepback I described and the continued investment in commercial and R&D capabilities. Q1 adjusted EBITDA was negative $1.8 million, which compares to negative $5.2 million in the same quarter of last year. After 2 quarters of positive adjusted EBITDA, we had expected a modest step back in Q1 due to the SiMaxx phaseout and the 1-month Colorado cost carryover that I described. Our Q1 GAAP net loss was $5 million or negative $0.04 per share based on approximately 136.9 million weighted average shares outstanding. Now turning over to the balance sheet and cash flow. We ended Q1 with $62.4 million of cash and no debt. Our cash position is down from $90.5 million at year-end due to several factors, which consumed $37.3 million of cash in the quarter. First, accounts receivable increased by $11.5 million, reflecting the strong revenue growth we experienced near the quarter's end. Over $6.5 million of that figure has already been collected. We also paid approximately $20 million to settle our Colorado facility lease obligation as previously announced. That agreement settled what would have been an expense of more than $110 million in highly favorable terms. Largely due to that transaction, our liabilities were reduced by $29.8 million in the quarter. Q1 capital expenditures were of $980,000 funded largely through the DIU contract. Total shareholders' equity stood at $109.4 million at quarter's end. Before turning the call back to Tom, I'd like to spend a moment framing our outlook and commenting on the warrant exchange agreement transaction that we announced this morning. Let's also please turn to Slide 7. When we communicated our 2026 baseline of at least $125 million of revenue, we said we would rather size the upside as it happens than commit to it ahead of time. We continue to see healthy demand indicators, a growing backlog, higher production volumes at all of our manufacturing partners and increasing urgency from defense-related customers around NDAA-compliant supply. With this in mind, we are raising our revenue guidance to at least $130 million in 2026. The setup for the rest of the year is constructive for our economics, particularly as our collections normalize and additional capacity from our Korean and U.S. manufacturing partners comes online. We continue to expect 2026 adjusted EBITDA of at least $4 million and a net loss of no more than $8 million or less than $0.06 per share, assuming 136.9 million shares. Our CapEx will ramp up over the course of 2026, but remain below $10 million for the year, and we expect this to be funded by our contract with the Defense Innovation Unit. Finally, I'd like to briefly comment on the recent announcement of our agreement to convert over 7 million public warrants that were held by institutional investors into common stock. This agreement reduces future dilution by converting warrants that would have been exercisable at lower prices into a fixed number of shares on terms that we believe are favorable to existing shareholders. It is consistent with the broader optimization of our capital structure that we've been executing, such as closing the ATM, settling the Colorado lease and now managing our warrant overhang proactively. We're constantly looking for opportunities to simplify the balance sheet and optimize the capital structure as our operating performance gives us the leverage to do so. Thank you to everyone who worked with us on this and to the Amprius team for enabling it, thanks to the prompt execution of our plans. Now I'm happy to turn the call back to Tom. Thank you all for your continued attention and support. Thomas Stepien: Our Q1 performance bodes well for a successful 2026. Revenue increasing at double-digit percentage points quarter-over-quarter, continued gross margin at or above 20% and with our warrant exchange underway, we are removing a potential dilution overhang. Competition in the lithium-ion battery space is fierce, and we embrace it. In 2026, the team is driving next-generation silicon anode performance with higher energy density and sustained power without sacrificing safety or reliability while meeting all manufacturing and country origin requirements. We're expanding our portfolio to reach new markets and converting more customer engagements into formal qualifications and deployments, particularly in mobility-focused platforms. We remain deeply bullish about the opportunities in front of us, and we look forward to meeting and reconnecting with many of you at the investor conferences we'll be attending in the weeks ahead. Thank you for your continued interest in and support of Amprius. And with that, let me -- I'll turn it over to the operator for questions. Operator: [Operator Instructions] Now our first question will come from Colin Rusch with Oppenheimer. Colin Rusch: Tom, you've been with the company now about a year, and one of the big focuses was around driving better visibility on customer volumes, so you could plan on production. Given some of the fluctuation that we're seeing with mix and margins here, I just want to get a more fulsome update on where you're at in that process and how much there is to go in terms of being able to drive increased volumes with key customers and do a little bit more work around planning and supply chain optimization. Thomas Stepien: Yes. Thanks, Colin. There is a lot of upside going forward here. We are in early days. We are starting to see some of the one big beautiful bill dollars. The bill was signed, what, 10 months ago. The 3 customers that we referenced in the call are starting to receive contracts. The suppliers to those customers, including Amprius on the battery side are next. We see that also in some of the light electric vehicle work. We announced a win. We've been a little bit of vague about that in the past because it's been smaller purchase orders, but now there's larger ones coming in. So there is a lot of opportunity out there for us. We are going to robotics conferences that we have not attended in the past. So we're going on offense. We're adding people to the team. We have some additional firms that are helping us. We just signed up a new group in South Korea that's helping us get started there before we establish our own team in place there. So we are very bullish about this market in general, and we are making plans so that we can capture as much as we can get. Colin Rusch: And then for my follow-up, I just want to focus in on some of the mobile robot opportunities here. And given the form factor and the flexibility that you guys have with the different SKUs and the potential for multiple zones within some of these spots, particularly on the humanoid side. I just want to get a sense of kind of product market fit, what you're seeing from a competitive standpoint and the evolution of that opportunity to move into more substantial production. Thomas Stepien: Yes. It's early days on robotics. We don't have any real meaningful revenue in our Q1 numbers. We're starting to have some really good discussions with folks in the U.S. and in Asia about what really is ideal. And to a certain extent, some of these companies are learning for themselves. One thing that we have learned is Amprius' strength, our high energy density really helps us in unstructured environments. If you have a warehouse robot and you can go around the corner and plug in, okay, maybe we're not as strong. But if you have a variety of different power needs, I referenced Enel's analysis in the call, where you have some intense power needs if you're lifting and then you have some low energy needs for extended use. Those play to our ability to have blended batteries, some that are power focused, some that are energy focused, a lot of which are balanced. So we're getting started. We have some really good conversations with customers and done well that will start to show up in terms of revenue toward the end of this year, early next. Operator: Your next question comes from Mark Shooter with William Blair. Mark Shooter: Congrats on the progress in the quarter. So last earnings call, I believe we had just entered the Iran conflict. So I'm wondering how have your conversations developed over the last 3 months, especially with the U.S. military and the defense contractors? Has there been any increase or a sense of urgency from these drone programs that you can talk about? Thomas Stepien: Yes. Again, we're starting to see some of the flow in. We referenced some over the weekend calls, I think, in the March quarter, and that has translated to some of the business. One of the customers that we talked about in the call was one of those customers. So We, as a nation here in the U.S. is getting serious. I think we've seen that in a number of public announcements, and we're starting to see that flow down to us. It will likely continue the Gauntlet 2 and the drone dominance program. The Gauntlet itself starts in August. There are some qualifiers next month in June. We know the 11 winners in Gauntlet 1. There's more that are entering into Gauntlet 2. So we're really close with that community and intend to stay close and intend to emphasize our ability to have a longer loitering time, which for many of the scoring in these drone contest is super important. Mark Shooter: And one follow-up for Ricardo about the warrant transaction at the tape this morning. Can you unpack a little bit more of the strategy around the transaction? And is there any more color you can provide to us on what the potential dilution would have been and what it will be now? Ricardo Rodriguez: Thanks, Mark. Yes, definitely. So I mean, just to get us all on the same page, right? So there were basically just nearly 16.5 million public warrants that were issued back in 2022 in September, when the company went public with a strike price of $11.50. And here, what we're basically doing is we took $7.1 million of those warrants and negotiated with the holders of those warrants to convert them into stock at an exchange ratio that will be determined here next week. Per our math, we are basically saving shareholders at least $70 million of dilution that would have otherwise happened if those warrants were exercised. The other bit is when these warrants are held by institutional investors, they manage a hedge, right? They generally just want the performance from the warrants rather than the performance to be linked to the stock and its volatility. And given where the stock has been trading meaningfully above $18 a share, which is the level at which we can call the warrants, if we trade above that level for 20 out of 30 trading days, they, in essence, had a 100% short position relative to those warrants. So I do think that this should relieve some of the short interest on the stock to the tune, if you believe the math of about 7.1 million shares at least. Operator: Your next question comes from Derek Soderberg with Cantor Fitzgerald. Derek Soderberg: I wanted to start with the $500 million in defense orders awarded to your long-standing customers. What's 6:35 PM Amprius' typical attach rate look like on those programs? And can you sort of frame the timing of when those might translate into POs? Thomas Stepien: Yes. So we haven't traced attach rates because some of these programs are brand new, right? We enjoy those 3 customers, and these are long-standing customers, right, that have been with us for a number of years. So we are in some of the programs, but not all. And then some of the companies, of course, have changed over time, and there's different divisions. AV bought BlueHalo. So it's a bit of a different company than it was when we first got close to them 4 or 5 years ago. So the good news is that we are a known quantity and the groups tend to talk to each other. We were getting to the point where we're starting to share road maps. As these companies are concerned about getting to U.S.-made batteries and U.S. content, we're able to share our road maps on exactly when we will get there, who will build those for us. That gets us closer and that allows us to have the right kind of discussions with the engineers and the program managers that are selecting different components, batteries, motors, cameras, et cetera, for these unmanned systems that they're either producing today or have on the drawing board for release in future quarters. Ricardo Rodriguez: And Derek, maybe just to add, I think a rough guide when thinking about what this could mean for us is the batteries are usually 5% to 15% of the bill of materials depending on how advanced UAV is. And the timing -- I mean we do think that this will have to be fulfilled in the second half of this year spilling over into the following year, but that's being determined by the manufacturers right now. Derek Soderberg: Got it. Super helpful. And then just on the gross margin guide for '26, 25% for the full year. It looks like Q1 came in around 22% ex-Colorado. What specifically gets you back to that 25% for the full year in the back half of the year? Ricardo Rodriguez: Yes. I think there are 3 points that are worth considering here. The first one is our U.S. mix continues accelerating due to what we just discussed, right? U.S. customers pulling demand ahead of even our own schedule and really driving quite a bit of the growth of the business. There's also the mix of China within that, which we are working to manage as well. Our sales there, along with the rest of the Asia Pacific region are accelerating too. And so if you look at what the team basically does every single week, month and quarter, we're kind of playing this game of Tetris, where the demand comes in, in a certain set of flavors, and then we work to sprint to supply it across our different SKUs and manufacturing partners within a certain period of time and not leave any revenue on the table. And so you can gear that for profit or you can gear it for revenue depending on what growth rate you're managing to and we are managing that process pretty extensively day by day literally. And so were there another 3 to 4 percentage points of gross margin on the table if we had the logistics coordination capabilities of a couple of hundred million dollar revenue company? I think so. And so this is just a matter of us sharpening our acts, when it comes to that regard, developing those capabilities and in essence, getting that margin back into the company. It's easy to fulfill as much revenue as possible and then have all of your profits go to the FedEx and UPS if you don't manage that. And so we continue sharpening our acts in this regard. The team is pretty focused on it. And we do believe that the 25% gross margin target that we set externally is still pretty well in sight -- and we'll catch up in the -- mainly in the second half of this year. Operator: Your next question comes from Austin Bohlig with Needham. Austin Bohlig: Congrats on the nice quarter. First question has to do with kind of your current customer base. I think last quarter, you guys revealed like a customer base of 550. Curious on what like the new customer add was in the quarter? And then secondly, it sounds like you guys continue to go deeper with these current customers. So just wanted to talk about -- or if you could talk about the cadence on how that is going with current customers. Thomas Stepien: Yes. On the first part, the counts, Austin, thanks for the question. It continues to be robust. And more than 50% of our shipments in the first quarter were for new customers, which certainly bodes well for the future. It's a little bit of a misleading statistic, the actual number of counts, so we're going to tend to move away from it. But it's very robust, lots of interest. We'll be at Xponential, the drone conference that is coming up starting Monday in Detroit. So that's -- that continues to go well. And we're starting to see, again, increased interest, some of that because of the mandates for U.S. Batteries, National Defense Authorization Act approved batteries. Korea is coming online. We have 3 CMs there. There's work underway at the 1 cylindrical CM in the U.S. and more coming. We're not ready quite to announce who's next. But we are getting ourselves organized in order to intersect that demand that we see. Ricardo Rodriguez: And Austin, maybe just to add, I think the reason why the customer count metric has sort of run its course is we are seeing a lot of scalability with small customers by leveraging our battery pack partners. So if you look at a lot of the folks that were competing in Drone Dominance, even some of the ones who won they're buying ourselves through our pack partners. And so that's giving us even more scalability than we thought of only a couple of months ago. And it does tend to, over time, maybe give us a lower customer count that's kind of meaningless when the real customer count is actually increasing and accelerating relative to where we were in the last quarter. Austin Bohlig: Okay. And then I guess, Ricardo, one follow-up for you, like a modeling perspective, how should we think about OpEx kind of progressing through the year off of this Q1 number? Should we expect it to grow sequentially or kind of taper off as maybe SiMaxx continues to roll off? Ricardo Rodriguez: Yes. So through the year, and I think we have it there on Slide 7. So through the year, we do expect it to, in essence, top out at $50 million for this year. And with the main change basically being this reallocation of roughly $1.4 million of costs from cost of goods sold over to OpEx. Some of the main hires that we were looking to make this year actually started in Q1 already. So they're reflected there. And then any incremental ones will be managed below this level of roughly $50 million a year. Operator: Your next question comes from Ryan Pfingst with B. Riley Securities. Ryan Pfingst: Could you provide some commentary broadly on how you've progressed with Nanotech to gear up for production with them and where you might stand related to signing up additional U.S. or other allied manufacturing partners? Thomas Stepien: Yes. So Nanotech is a cylindrical provider in Chico, California, north of Sacramento. Step 1 with them was to validate the cell and make sure that they can handle our silicon anode materials and produce a product that is on par with some of our CMs that do that in Asia. They've done that. Percentage-wise, they are about 10% better. We have a 6.8 amp hour, those who are keeping score here, which is above the 6.6 amp hour cell of its kind. This is a 21700 cell. It can handle up to 20 amps and some of the competing cells and can handle less. So we are pleased with the technical performance of the cell that they make for us that we make together. And we are in the process of scheduling demand. There is demand for that cell. There is demand for U.S. cells, and they're a go-to company to do that. The second part on others, we have numerous discussions underway. We are being encouraged by the Department of War to continue to advance those discussions, and we are. We're not quite ready to announce anybody yet, but we are actively working on that. It will be focused on the pouch cells. The pouch cells are about the size of the T bag. That's what the DIU has funded us to advance both in Fremont with our prototype line as well as manufacturing in Korea and in the U.S. So stay tuned. We are hard at work, and we will eventually be able to share news of who we're working with there. Ryan Pfingst: I appreciate that detail, Tom. And then secondly, curious if you can talk about the potential opportunities that the recent defense budget request might provide you guys. Thomas Stepien: Yes. So as we all know, the big beautiful bill puts it about $1 trillion in defense spending and a couple of analysts have commented that, that is heavily weighted, more biased to the unmanned aerial systems, which, of course, is our strength. As we have commented in the call and previously. The proposed $500 billion addition has more of that coming. There's this group called DAWG, Defense Autonomous Working Group, I think it stands for. And that group is -- the proposed budget is something like $58 billion, which is the size of the marine budget today. A lot of that is, again, with drones and counter drones. So that is our sweet spot. So we're starting to see more of that come. We are in the right discussions. Ricardo and I were just on a call with some guys from the DoD just yesterday about some of this. So we are in a privileged position. It's wonderful when -- the market is expanding and the product characteristics that we have align up. So we're seeing really strong product market fit. We got more work to do. There's areas that we want to reinforce, but it's coming together, and we feel good about where we are. Ricardo Rodriguez: And the other thing there, Ryan, is basically that you can apply the same rough rule that we mentioned to Derek, right, roughly 5% to 15% of the bill of materials is battery inside of it. And I don't think our current market analysis captures the effect of this budget request if it were to be approved. Operator: Your next question comes from Eric Stine with Craig-Hallum. Eric Stine: So I know last quarter, you talked about or highlighted that for the 11 key components of your battery that you had reached NDAA compliance. And I know that an objective there or near-term objective is to get those suppliers under long-term agreements. So just curious where that process stands, I guess, a couple of months later. Thomas Stepien: Yes. So getting the 11 components, the internals, anode, cathode, separator, electrolyte, et cetera, is super important. And as you commented, Eric, we checked that box last quarter. We have several under contract, several of the major components, not all, but several. And the nice thing is that we have primary and secondary, and we have a very good understanding of the landed cost. What will it take to get Japanese anode powder to Korea? What would it take to get Korea anode powder to the U.S. So we understand the details of that. We understand what they should be costing and those that we have not entered into long-term agreements with, we're having the arm wrestling on the should cost versus the landed cost. So we're progressing well. We have shipped -- the company has shipped full NDA cells. And then as we bring on South Korea and really get them hitting their stride, one of our CMs there is delivering to customers, including one of the customers that we talked about in the call and on Slide 3 of the deck. We need to get the other ones up to speed. Nanotech, as I mentioned, in the U.S., checks a full box on technology. We need to get them up to the delivery cadence that we want to get to. And a lot of that will occur with these suppliers. So progression on track. The DIU is pleased with where we are as evidenced by they're continuing to provide us some incremental funding based upon good work done to date. Eric Stine: That's great. And then for my follow-up, just on light electric vehicles, I know that obviously, UAS, drones, robotics, all of those other end markets, the growth profile is quite significant. But I'm just curious, I mean, you're now into the Chinese market. It's -- I mean, it's not even arguably, it is the best electric mobility market. Is there a scenario where light electric vehicles could match, could exceed the growth in some of these other end markets, which arguably right now might be more top of mind. Thomas Stepien: Yes. So it is a nice win, and it's a nice win as we commented in that region because it's super competitive. And there are other areas, right, India, Vietnam, right, a lot of 2-wheelers and 3-wheelers there, and they care about some of the same things. So we have aspirations of expanding our technology into those. Will it be dominant? I think at least for the next year or so, it will be second, maybe third place if some of the other segments that we show on Slide 5, if we get some of the traction that we aim to get, right? So today, LEDs are #2. We'd like to think that as some of the other ones come on, robotics, in particular, even some of the space activities that they would rival LEDs. They are very early today. So it will probably stay at #2 for the next year or so. Eric Stine: Okay. I appreciate that. I guess good problem to have if it's because some of the other end markets growth is that significant. So... Operator: Your next question comes from Chip Moore with ROTH. Alfred Moore: I wanted to go back to that importance of standardizing for the government customers. Just maybe talk a bit more about that process and then the cells you've called out, any sense of size of opportunities those specific cells could translate to? Thomas Stepien: Yes. So the cylindrical cells are standardized, as many of us know, so that flashlights and headlamps and night vision goggles all can be interchangeable. That does not exist with the very popular pouch cells. Pouch cells tend to have a little bit higher energy density, and they're very popular with drones. And that is exactly why the DIU funded us. And we're the only company, as we've talked about in the past, that was funded under this program last year in a very competitive situation. The goal is to make pouch cells in the U.S. to make them at our prototype line. Some of the funding that we received is to increase the capability and capacity about the prototype line in Fremont. Standardized has been talked about. And in the discussions during Q1 that got solidified with the incremental $3 million to our grant. It's all about making standard cells in the pouch format, and they are the size of the pouch cells. So again, a T bag is one of the smaller sized ones ranging to an iPhone size pouch cell. And it's about the same thickness, by the way, as an iPhone, so just so folks get a sense of what we're talking about. We are maybe the first, certainly among the first that are pushing standardized cells. We want to make those available so that, that interchangeability that we enjoy on the cylindrical side can be done. You don't want to have to worry about batteries for a lot of these components. And to get the friction out, that's a big part of what's happening in the defense land these days is just to make it easier to source components, batteries, cameras, motors. There are websites, Amazon-like websites for the military where they -- these components are available just to add some of the efficiencies that we all see on our daily lives to the military side of things. So we're all over that standardized pump sales certainly makes sense to us. We will deliver to that incremental funding, make these cells available. It's very much in line with our interest as a company and certainly the Department of Works interest for the reasons we mentioned. Alfred Moore: Very helpful, Tom. And maybe for my follow-up, I think in your closing remarks, you talked about mobility focused platforms and qualifications. Is that mostly LEDs to your point on the last question? Or should we think about broader mobility applications? Thomas Stepien: It's LEDs. It's also some of the robotics, right? I mentioned that we're going to some of the first conferences. It's certainly early days. We're getting smarter. We have some really good discussions going on. But look, anything that moves, and then we all know that we have that in our daily lives, should be able to benefit from higher energy density, which is our claim to fame. And sometimes it's also a better volumetric energy density. You don't have so much space. But if you can get more energy out of that space, out of that volume, then that should win. These are higher-performing cells. So we're at the high end of the market, and that's okay. So we're not -- we don't make sense today for large electric vehicles like we would drive. But for the light electric vehicles, that certainly makes sense for robotics, it makes sense. As we've said, when you pay per kilogram to get something up in space, if you can save some kilograms, but you have the same energy, that should be a win. That's how we think about these markets, and that's how we try to reference our advantage and then listen to customers and see, of course, if it resonates. Operator: Your next question comes from Ted Jackson with Northland Securities. Edward Jackson: Congrats on the quarter. So my first question is around the Fremont plant and the overhead cost with SiMaxx. I mean, is there a point where you just go to -- you do an asset impairment and write it down? And I mean, like how does that play out? You've got equipment in there that's very bespoke for the manufacturing of that product. That product is clearly fading out. I mean it's a some cost. It's not like it impacts cash flow. But at some point, is there a case to be made to where you either write down the assets that are in there? Or you mean like -- or just as you get rid of SiCore, I mean, SiMaxx that's my first question. Ricardo Rodriguez: Yes, that's a good question. The asset impairment actually happened in Q4 of last year. You may have seen our D&A went down pretty meaningfully from well over $1 million to only about $800,000. And so this was, in essence, just -- this is where accounting is really an art more than a science, but we literally allocated the cost of Fremont by square foot and what that square foot is used for now to drive the allocation. And we feel pretty good with where we landed here for Q1 and carrying that going forward until we start producing a little bit of SiCore in Fremont again late this year, early next year. Edward Jackson: And is there a road map to just get out of that product? Or you're just kind of tied to it because of the customer base that's already there? Ricardo Rodriguez: We'll definitely be out of it here in Q1. So the last $600,000 of revenue were delivered in Q1. Quite a bit of that was inventory that was produced in Q4. And so we should be out of the woods on SiMaxx. Thomas Stepien: Yes, we converted all of our customers from SiMaxx to SiCore. Edward Jackson: Okay. Okay. That's good news. My second question, on your battery pack partners, I know that that's a good way to leverage your business and grow revenue. I guess my question on that is, can you kind of walk us through maybe a time line and like maybe how many partners do you have? Maybe kind of what percentage of your revenue is coming from that and where it's come from? And how do you see those partners helping drive your forward revenue? Thomas Stepien: Yes. So some of our customers are vertically integrated, take our cells, build them into packs and some electronics to manage the battery to worry about, okay, is the battery full? Is it empty? What is the state of charge, et cetera. Other of our customers do that through pack partners that we have, who in turn receive ourselves. So they're an intermediary. There are about 40 different pack companies that we work with in any given quarter, about 6 to 10 of those are major volume pack providers, those that we have under a certain program. There's 3 or 4 on our website that we have worked with. We're formalizing that program so that there are standard gold, silver, bronze type of partners, where we share our road map with the pack partners. Those that we are close to will be in our booth at shows. We've had joint press releases with a couple of the pack partners that we work with closely. They are a multiplier, force multiplier for us because they often are asked by component companies, gosh, whose cells do you recommend? So they will listen to their customers and then say, well, look, if you want to optimize your energy density, there's really only one choice here. So they help and then add to our customer base. So we like that relationship. It allows us to focus on what we do really well, which is make these industry-leading cells. It allows them to add the level of customization. I want this connector, we have this battery management system. We need it in this size or shape. You'll often hear that you need to match voltages -- to the voltages of the systems. So they'll put 6 of our batteries in series and then put 2 of those groups in parallel in order to do that. They do all that customization. So they're great partners, and we're formalizing even stronger our relationship with them. Edward Jackson: Is it fair to say that as a percentage of your revenue, have they grown in terms of how they -- the percentage of revenue that's coming through them? And you're talking about them being a force multiplier and they're allowing you to, let's just say, reach a customer set that you might not be able to reach otherwise? Ricardo Rodriguez: Yes. For standard cell sizes, they're a key driver, and they -- and we do expect their portion of sales to increase on some specific cell sizes. Operator: Your next question comes from Amit Dayal with H.C. Wainwright. Amit Dayal: On the pouch cell performance, should we expect -- the pouch cell performance, should we expect this to match or even improve over the cylindrical format? Thomas Stepien: Yes. So because the pouch cells have less overhead, they don't have a metal can, you take a little bit of weight out and the gravimetric energy density tends to be higher. So if you look at the 450 watt hours per kilogram, those cells are pouch in format. The cylindricals tend to be 330 to 350. So a bit lower, again, because of some of the overheads. That's where the pouch lines up. And that's why the pouch are preferred for some of the high-end drones because you're really trying to eke out any weight that you can. If you can use a carbon fiber container to -- for the pack housing versus metal, a little bit more expensive, but it's lighter. Those choices, again, back to the last question about pack partners, those choices would be made with the pack partners. So that's super important. So if you're trying to max energy density, you would choose our pouch. Amit Dayal: Understood, Tom. And just as a follow-up to that, once the pouch cell is cemented and confirmed all the design, et cetera, is that when you get a little bit more aggressive about sort of building the pipeline for maybe the U.S. non-drone defense opportunity? Thomas Stepien: Yes. So that's where some of the standardization comes in. So standardized cells and then putting them into standard packs can really make a lot of sense. There's standard voltages in automotive, right? We all know 12 volts and then 24 volts and then even the data centers, 800 volts standards that are either here or emerging. The same thing is happening in drone land, where there are preferred voltages and components. And then if you have standardized cells, you can put them together into packs that meet those voltages, so you can be part of this ecosystem. Again, all that's focused on adding some of the efficiencies, taking out some of that friction on the engineering side, so you can get these iterative better drones available with using off-the-shelf, but in our case, premium products to maximize the missions that these crafts might be addressing. Amit Dayal: Great to see the agregation guys. Operator: Thank you. At this time, this concludes our question-and-answer session. If you have any additional questions, you may contact Amprius' Investor Relations team at ir@amprius.com. I'd now like to turn the call back over to Tom for his closing remarks. Thomas Stepien: I want to thank all of our shareholders, employees and partners for their continued support. At Amprius, we believe the next decade belongs to those who push the limits of what is possible. And that's exactly what we intend to do. Thank you for your time and attention this morning. Operator? Operator: Thank you for joining us today for Amprius Technologies First Quarter 2026 Earnings Conference Call. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the 2026 First Quarter Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Chief Transformation Officer, Adrian Zarate. Please go ahead. Adrian Zarate: Thank you, operator, and good morning, everyone. Welcome to today's call to discuss DIRTT's first quarter 2026 results. Joining me on the call today are Benjamin Urban, our Chief Executive Officer; and Fareeha Khan, our Chief Financial Officer. Today's call will include forward-looking statements within the meaning of applicable Canadian and United States securities laws. These statements are based on our current expectations that are not guarantees of future performance. Actual results may differ materially. We will also reference non-GAAP measures during this call. Reconciliations of those measures to GAAP can be found in our Form 10-Q for the quarter ended March 31, 2026, which was filed with the Securities and Exchange Commission or SEC on May 6 as well as in our supplemental materials. With that, I'll turn the call over to Fareeha to walk through our first quarter financial results. Fareeha Khan: Thank you, Adrian, and good morning, everyone. Revenue for the first quarter of 2026 was $42.4 million, an increase of 3% year-over-year, reflecting continued demand stability despite seasonality and ongoing macroeconomic uncertainty. Gross profit for the quarter was $13 million, representing a gross margin of 30.6% compared to 35.2% in the prior year period. Margin performance reflects higher aluminum prices, tariff rate headwinds and lower margins within installation-related work. During the quarter, we incurred approximately $2 million in tariff-related costs compared to $0.6 million of tariff mitigation costs in the prior year period. Tariffs represented approximately 4.7% of total revenue in the quarter. Total operating expenses were $16.3 million compared to $14.9 million in the first quarter of 2025. This increase was largely attributable to $2.4 million of reorganization expenses related to the continued deployment of our transformation initiatives, primarily workforce and organizational actions to optimize the cost structure. Excluding stock-based compensation and reorganization expenses, our core operating expenses reduced from $13.9 million in Q1 2025 to $13 million in Q1 2026. Net loss after tax for the quarter was $3.3 million compared to a net loss of $0.7 million in the prior year. The increase in net loss was primarily driven by lower gross profit and higher reorganization expenses, partially offset by lower core operating costs and favorable foreign exchange movements. Adjusted EBITDA for the first quarter was $1.4 million or 3.3% of revenue compared to $2.1 million or 5.1% of revenue in the prior year period. From a liquidity perspective, we ended the quarter with approximately $15 million of cash on hand, reflecting repayment of the January convertible debenture, capital expenditures of approximately $0.7 million and employee-related tax payments, partially offset by $6.9 million of net proceeds from the BDC financing and positive operating cash flow of $1.2 million during the quarter. Total liquidity at quarter end was $25.1 million, inclusive of $10 million availability under our RBC revolving credit facility, and we remain in compliance with all financial covenants. With that, I'll turn the call over to Benjamin for additional commentary on the business. Benjamin Urban: Thank you, Fareeha. While macroeconomic uncertainty and trade policy volatility persists, DIRTT continues to make meaningful progress executing its transformation strategy. The tariff response we initiated in early 2025 is now fully implemented and embedded into our operating model. What began as a defensive response has evolved into a structural advantage, providing manufacturing and sourcing flexibility on both sides of the border. From a commercial perspective, we continue to see improving coordination between partners and clients as project schedules become clear. Importantly, cancellations and losses remain de minimis, reinforcing our view that demand has largely been deferred rather than lost. These outcomes are increasingly repeatable across regions and verticals, reflecting execution discipline rather than isolated project timing. During the quarter and particularly in March, we saw this dynamic reflected in a number of project awards across government, health care, technology and professional services. The quarter included a major Canadian government project valued at over $8 million alongside additional enterprise and institutional wins in the United States including projects for Google in New York, Ohio State University Wexner Medical Center, Lucid Motors and MNP. While varying in size and scope, these projects share common decision drivers, customers prioritizing speed of execution, cost certainty and minimizing disruption within occupied spaces. Our 12-month forward pipeline stands at approximately $338 million, representing 16% growth year-over-year with particular strength in health care, government and education. Construction Services accounts for approximately $55 million of the pipeline and continues to convert at attractive rates. This performance continues to validate construction services as a complementary capability within our broader channel model, enhancing conversion without altering our partner-led strategy. These trends are supported by improvements in operational discipline, partner enablement and bid selectivity, all of which are key pillars of the new operating model we are implementing. As discussed in prior quarters, this model is designed to reduce complexity, unlock capacity across the enterprise and support structurally improved revenue growth and earnings quality over time. With respect to tariffs, we are actively evaluating the impact of recent developments, including the April 2026 U.S. tariff announcements and the recent Supreme Court ruling related to IEEPA at this stage, the financial impact and recoverability of any tariff refunds remain uncertain, and no recoveries have been recorded. With respect to the Falkbuilt litigation, proceedings remain ongoing. As previously disclosed, DIRTT is pursuing claims related to damages suffered in Canada, the United States and internationally, given the nature of the process, we are not in a position to comment further at this time and no amounts have been recorded in our financial statements. Looking ahead, we remain focused on disciplined execution with a growing pipeline, improving conversion dynamics and a streamlined operating model, we believe DIRTT is better positioned to translate demand into sustainable revenue growth and improving earnings quality over time. I'd like to thank the DIRTT team for their continued commitment to transformation and operational excellence. With that, Operator, please open the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Jeff Kowal. Unknown Analyst: Benjamin, I guess this is geared towards you. Construction services, you mentioned that about 16% of your 12-month pipeline now are in the construction services bucket. Could you give us a little bit more idea when you expect that could become a line reporting item, which I believe is 10% in the States? And maybe just a little bit more color around sort of the successes you're seeing in early days and some of the challenges you've noticed. Benjamin Urban: Yes, Jeff, thank you for that question. Just 1 clarification, the total pipeline of construction services at the moment is roughly $55 million. The total forward 12-month pipeline has increased by 16%, just for clarity. Yes, so as mentioned, we are seeing continued expansion there with construction services, really an outcome of our ability to continue to be efficient in executing is a critical component of the new operating model and the transformation that we're in the middle of. However, we do tend to have significantly more control over those projects, which helps to my comments about attractive conversion rates, that specific channel because of that ability to have greater clarity into it allows us that. As far as how we record I think we, at this point, haven't reached the point in which the total dollar amount of recognized revenue would allow us to actually account for it separately. So we're still seeing it be attractive growth model and channel for us. But at the moment, we haven't broken it out separately with regards to total revenue that's been brought through that channel. Unknown Analyst: Okay. Great. One more question for me. You maintained your guidance for the year, and you did mention that the first quarter is typically seasonally the weakest of the 4. If you could maybe give us a little bit of a historical perspective and how much weaker Q1 tends to be -- or sorry, the Q1 tends to be for you? And then maybe we can extrapolate to see if you're still on track. I mean, obviously, you're indicating you are, so maybe if you could just tell us a little bit more about that, I'd appreciate it. Benjamin Urban: Yes, sure, Jeff. You're accurate. Q1 tends to be our lightest quarter. Historically trending, our second half of the year tends to be heavier, hence the reason we have maintained guidance with regards to top line and then through the transformation we're in the middle of and the new operating model, we continue to see efficiency gains in EBITDA. Operator: I am showing no further questions at this time. I would now like to turn it over to the CEO, Benjamin Urban for closing remarks. Benjamin Urban: Thank you, everyone, for joining today and thank you for the questions, Jeff, and we look forward to our next quarterly earnings release. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning, ladies and gentlemen. My name is Vanessa, and I will be your operator today. Welcome to Knight Therapeutics First Quarter 2026 Results Conference Call. Before turning the call over to Samira Sakhia, President and CEO of Knight. Listeners are reminded that portions of today's discussion may, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by forward-looking statements. The company considers the assumptions on which these forward-looking statements are based to be reasonable at the time they were prepared, but cautions that these assumptions regarding future events, many of which are beyond the control of the company and its subsidiaries, may ultimately prove to be incorrect. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, events, except as required by law. We would also like to remind you that questions during today's call will be taken from analysts only. Should there be any further questions, please contact Knight's Investor Relations department via e-mail to ir@knighttx.com or via phone at (514) 484-4483. I would like to remind everyone that this call is being recorded today, May 7, 2026. I would now like to turn the meeting over to your host for today's call, Samira Sakhia. Please go ahead. Samira Sakhia: Thank you, Vanessa. Good morning, everyone, and welcome to Knight Therapeutics First Quarter 2026 Conference Call. I'm joined on today's call with Amal Khouri, our Chief Business Officer; and Arvind Utchanah, our Chief Financial Officer. I'm excited to announce that in the first quarter of 2026, we reported record revenues and record adjusted EBITDA. Our revenues were $148 million, and adjusted EBITDA was $28 million. In Q1 '26, revenues grew by $59.6 million or 68% compared to the same period last year. The increase is due to the incremental revenues from the Sumitomo and Paladin portfolios, the growth of our promoted products and purchasing patterns of certain customers. In addition to achieving record financial results, we further advanced our pipeline. We submitted Niktimvo for regulatory approval in Brazil and Minjuvi in Argentina and Mexico for follicular lymphoma. Furthermore, we obtained Brazilian regulatory approval for Minjuvi's second indication, follicular lymphoma. Beyond our regulatory progress, so far in 2026, we have already executed 4 launches, namely Minjuvi for follicular lymphoma in Brazil, Pemazyre in Argentina, our Akynzeo in Paraguay and Bapocil in Colombia. Subsequent to the quarter, as a result of certain manufacturing changes by our partner, we unfortunately had to make the decision to withdraw the Health Canada new drug submission for Qelbree. However, we do expect to resubmit Qelbree for approval at a later date. The resubmission is expected to include both the data required for the manufacturing changes as well as the additional information previously requested by Health Canada. On to the NCIB. During the quarter, we purchased 1.3 million common shares at an average purchase price of $6.22 for aggregate cash consideration of $8.2 million. Under the current NCIB, to date, we have purchased 2 million shares and can still purchase an additional 4.2 million shares until August 2026. I will now turn the call over to Arvind to provide an update on our financial results. Arvind Utchanah: Thank you, Samira. When speaking of our financial results, I will refer to certain non-IFRS measures, including adjusted EBITDA per share, adjusted gross margin and constant currency results. This quarter, I will refer to revenues as there is no material difference with adjusted revenues due to hyperinflation. Refer to our press release and MD&A and SEDAR filings for their definitions. Starting in 2026, we have redefined our product categories as follows: promoted, mature and discontinued. Within the promoted, we have the promoted launch pipeline products and promoted strategic products. The launch pipeline products are in the early stage of launch, typically within 5 years of commercial entry, while the strategic products were launched more than 5 years ago and are either close to or have reached their peak potential. Finally, the mature products require lower levels of promotional activity and have already reached their peak potential. For the first quarter of 2026, as Samira mentioned, we delivered record revenues of $148 million, an increase of $60 million or 69% compared to the same period last year. Of the $16 million of incremental revenues, the mature products from the Paladin and Sumitomo transaction contributed $17 million, the launch pipeline products, $13 million and the strategic products grew by $28 million. Of which Ambisome sales contributed an incremental $14 million. The growth in strategic products was driven by brands in our infectious disease and oncology portfolio, including Cresemba and Akynzeo. The growth in the launch pipeline products was driven by multiple launches in multiple countries over the past 2 years. This includes Minjuvi for DLBCL in Brazil, Mexico and Argentina. Minjuvi for follicular lymphoma in Brazil, Pemazyre in Brazil and Mexico, Bapocil in Colombia and Imvexxy, Bijuva, Jornay PM, Xcopri, Myfembree and Orgovyx in Canada. Now moving on to gross margin. The company achieved an adjusted gross margin of $70.6 million or 48% of revenues in the first quarter of 2026 compared to $40.9 million or 47% of revenues in the same period last year. The increase in the adjusted gross margin is explained by the growth in revenues. I will now turn to our operating expenses, excluding amortization. For the first quarter, our operating expenses were $43 million, an increase of $13 million or 44% compared to the same period last year. The increase in operating expenses was mainly driven by the expansion in structure and spend required to support our larger portfolio. Moving on to adjusted EBITDA. For the first quarter of 2026, we reported a record $28 million of adjusted EBITDA, an increase of $15.8 million or 130% compared to the same period last year. The increase was driven by higher adjusted gross margin, partly offset by higher operating expenses. Our adjusted EBITDA per share was $0.28, an increase of 133% compared to the same period last year. I will now cover our financial assets, which are valued at $95 million. In the first quarter, we recorded a net loss of $2.8 million, driven by the mark-to-market revaluations of our strategic fund investments and our equity investments. As a reminder, our funds continue to be a source of cash and has generated $47 million since 2020. Turning to our liquidity and cash flows. During the quarter, we generated cash -- operating cash inflows of $41 million, driven by our adjusted EBITDA and change in working capital. At the end of the first quarter, we held $127 million in cash and marketable securities and approximately $58 million in debt. Our net cash position continues to improve from $27 million at the end of 2025 to $69 million at the end of the first quarter of 2026. In fact, as of today, we have already repaid $40 million of the $60 million withdrawn from the revolving credit facility used to finance the Paladin transaction. At the end of Q1 '26, our debt to adjusted EBITDA leverage ratio was under 0.7x. I will now turn the call back to Samira. Samira Sakhia: Thank you, Arvind. Now on to our financial outlook for fiscal 2026. I would like to remind everyone this guidance is based on the assumption that there is no material adjustment due to hyperinflation accounting in Argentina. In addition, our guidance is based on a number of assumptions, which are described in our press release. Should any of these assumptions differ, the financial outlook and the actual results may vary materially. We are increasing our outlook for fiscal 2026 and expect to generate revenues between $510 million and $525 million and adjusted EBITDA of approximately 15% of revenues. The increase in our financial outlook is driven primarily by the better performance of our promoted products across multiple countries, including Canada, Mexico and Colombia as well as an improvement in forecasted LatAm currencies against the Canadian dollar. Our team has been extremely successful in building a profitable business by executing on our Pan-American ex U.S. strategy of in-licensing and acquiring multiple innovative and mature products for multiple territories, submitting and obtaining approvals for these products across multiple countries and successfully launching and growing them across all of our markets. Our results and cash flow reflect the contribution from the growth of our promoted products, including our 15 launches over the last 2 years as well as the incremental revenues from the cash flow generating mature products acquired last year. Over the last 12 months, we have generated over $500 million in revenues, which is double the size of our business from 5 years ago. We remain committed and well positioned to continue to execute on our strategy, bringing innovative products that make a difference in the lives of patients in Canada and Latin America while driving long-term shareholder value. Thank you for your support and confidence in the Knight team. This concludes our formal remarks. I would like to now open up the call for questions. Over to you, Vanessa. Operator: [Operator Instructions] Should there be any further questions, please contact Knight's Investor Relations department via e-mail to ir@knighttx.com or via phone at (514) 4844483. [Operator Instructions] And we have our first question from David Martin with Bloom Burton. David Martin: Congratulations on the quarter. With regards to the withdrawal of the NDS for Qelbree, can you provide more color? I'm wondering what it is that you ran into that you couldn't address Health Canada's questions. And you do say that you think you will submit it again in the future. What has to be done? And why do you think it can be done in the future if it can't be done now? Samira Sakhia: That's a great question. One of the things that we knew was that our partner was working through some manufacturing changes. We were planning that we could answer the questions, I mean address the manufacturing changes post launch given the time that we're at, that delay would -- that delay in submission approval launch because of the manufacturing changes would have actually delayed our launch. So it's better for us to withdraw the dossier, have all these manufacturing changes as well as the technical information that was previously requested, all done at the same time, have a dossier that we can submit and launch all in one shot. It does delay our launch altogether, like around a year, maybe 2, but then we have a substantial dossier, hopefully minimal questions that we can get approved and launched. David Martin: Okay. Got it. Moving to Ambisome. Year after year, you get this MOH contract. You've kept competition at bay. Could this be perpetual? What is it about Ambisome that generics can't make it to market? Samira Sakhia: So the issue, you have to recall, we started having the MOH contract a few years ago because another innovative branded competitor went on back order, and they have not been able to come back to the market. The reason we have this contract is because that competitor has not returned. The issue that we continue to monitor is that there are generics. There are several generics that are approved in the U.S. We do see generics in -- under review in Brazil at this point in time. They are not approved. So there is -- as they get approved, the likelihood is high to almost certain that we will not retain the contract. But until they're approved, MOH has no other source of amphotericin B other than this. David Martin: Is it really difficult to manufacture? Is that why your competition went on back order? And like I understand some have been approved generics in the U.S., but it's difficult -- they've had difficulty supplying that as well. Samira Sakhia: Yes. Actually, that's exactly the issue. Liposomal amphotericin B is very difficult to manufacture. That is why it has taken companies' generics a long time to be able to formulate. That's why they continue to have manufacturing issues, and that's why Ambisome has been able to retain such large sales. Operator: We have our next question from Michael Freeman with Raymond James. Michael Freeman: Congratulations on quite a quarter. I wonder, you described more than 15 launches that Knights benefited from over the last 2 years. Can you describe or quantify the number of launches you estimate happening in the next year, maybe 2 years? You described in your filings and in your deck, a $200 million peak revenue opportunity from your pipeline. I wonder if you could put some more numbers around this. Samira Sakhia: Sure. So in 2024, there were 3 launches. Last year, there was 10. Arvind had outlined the 4 launches that we've had so far this year. We expect 2026 to be approximately 10 launches. And if you look at our -- in our MD&A, we have a list of the pipeline kind of the estimated years of approval. But when you look at kind of, let's say, if we have for a certain product, let's take Minjuvi follicular, for example, we might give a range, but there's multiple launches when it comes to Minjuvi follicular because there's a launch in Brazil. There's a launch in Mexico. There's a launch in Argentina. We have -- we are considering it for some of the smaller territories. So every single time, there is an effort to launch, educate physicians, build the market. We look at a product like Akynzeo, which we launched in Paraguay. These are -- some of these smaller territories may not be big drivers. But every single time we have a launch, it's incremental revenues that we would not have otherwise. And like I said, they are $200 million. The ones that we have launched in '24 to '26 are at least $100 million of revenue. These products have on a -- like on a trailing 12-month basis have already generated $40 million of that $200 million peak that we are estimating. So we're already 20% of the way there. Michael Freeman: Okay. All right. I noticed night's balance sheet continues to strengthen. You're a more and more significant net cash position. I wonder how you're thinking about deployment of that capital. Of course, we noticed the NCIB activities, but how do you plan to use your cash? Samira Sakhia: So that's a great question. We are acquiring and in-licensing organization. I think this time last year, I was getting a lot of questions of you are putting debt on the balance sheet, you don't have a lot of cash, how are you going to execute acquisitions? We've always -- we had the borrowing capacity. Now not only do we have the borrowing capacity, but we have the cash to continue to execute on acquiring assets, in-licensing, submitting and launching products, and that's what we're going to continue to do. Michael Freeman: And I guess associated with that, I wonder if you or Amal could describe, I guess, your BD or acquisition pipeline in the near and medium term. Amal Khouri: This is Amal. Yes, the BD pipeline, I would say it's still normal course. So similar deal flow that we've been seeing in the last few years. So that continues. Of course, as you know, in terms of deals getting to that finish line and being announced, that's not something that's completely consistent. So there's ebbs and flows there. But in terms of the actual deal flow and pipeline, it remains very healthy. Michael Freeman: Just quickly, what would you describe as a target number of transactions per year that the company sets out to do if there is a target? Amal Khouri: There isn't really. We look to do deals that make sense with quality assets at good valuations. So this is really the target for us. We don't set a target of number of transactions per year because that really does not make sense for the business. The deal has to be a good deal. If you're looking to get a sense of what to expect, I think you can look back at what we've done to date. So in the last -- if I take out last year, we've been adding on average 3 products per year. Last year was much higher than that, as you know, with the 2 acquisitions of the 2 portfolios. But that aside, it's been a -- like excluding those 2 portfolios, it's been an average of 3 products per year. Operator: We have our next question from Scott McAuley with Paradigm Capital. Scott McAuley: Obviously, I think a lot of moving parts in the quarter with the new Paladin-Sumitomo portfolio, Ambisome and then kind of the organic growth of these launches. I don't know if you could maybe give a bit more color on how you see the organic growth kind of maybe year-over-year or however you want to quantify it versus those acquired products and how kind of you see the growth moving, obviously for this year, but into next year as well once that increase from the acquisitions kind of smooths over? Samira Sakhia: Sure. So one of the things that we outlined was in the quarter, the Paladin mature products contributed about $17 million. And that really ties in with what we said was the size of the business when we acquired it. And that's going to remain flattish to decline because as we had announced at the -- when we announced Q4, some of those -- there is older products, a couple of -- a few older products that are being returned, and that's about $7 million on an annual basis. If you look at our strategic products, even if you exclude the onetime MOH increase in there, they grew $14 million on a year-over-year basis. If you look at the pipeline launch products, that also is growing on a year-over-year basis. And that's really what we're trying -- that is what is our business, and that's what we're really trying to do. [indiscernible] to those -- the promoted brands, what we expect is the pipeline launch products are going to grow at a very high rate. The products that are in that strategic product bundle, that is going to be slower growth, but we're investing behind them because we know that we can retain and maybe grow -- continue to grow. We saw growth in Cresemba. We saw -- continue to see growth in Akynzeo and those products will continue to grow, but not at the rapid rate that the newly launched products are. Scott McAuley: That's helpful. And do you see the mature -- the products in the mature bucket, are those fairly stable? Or do you see some products falling off of that in the coming year or 2 kind of into the discontinued pile? Samira Sakhia: We're always looking at what's in the mature if it continues to make sense to distribute, have it manufactured the complexity. This bundle of products is, I'm going to say, flat to slightly declining in some years, maybe we can take price increases in some years, if we're having manufacturing issues or it's too complex, we may choose to discontinue. Scott McAuley: Absolutely. Makes sense. Maybe a bit on the operating expenses, obviously, increases with the rapid flurry of launches and bringing on those new portfolios. How do you see that rate kind of continuing to grow either in '26 and '27? And then maybe beyond that, where do you feel like you're getting into kind of equilibrium on -- with all these launches and the new product portfolios? Samira Sakhia: I think we're actually nearly there. Like one of the things that we said in our Q4 call is kind of the run rate of OpEx is what Q4 look like -- Q4 '25 look like for this year. We may see some increases. The biggest component of the increase really comes from infrastructure of field force, whether it's sales, market -- key account management or medical. In the majority of our countries now, especially with the acquisitions that we did in Canada, most of our countries are built out. The place where we are continuing to add resources as we add portfolio is Mexico. So we will see that going up, but that's not going to be -- when I look at the totality and the numbers, it's not going to be big swings like we had between like '24, '25 and this year. Scott McAuley: Definitely. No, that's helpful. And maybe just lastly on the improved 2026 revenue targets, which is always great. I don't know if you could quantify or some comments around the relative impact of the kind of currency improvements that we've seen even quite recently versus that kind of underlying growth of the portfolio. Samira Sakhia: So when I kind of think about in our forecast, how much is FX, it's really what we're seeing in the last few weeks of the quarter where the FX, especially in Brazil, seems to have improved. It's adding about $5 million to $10 million of that increase in the range. The rest is all coming from products and hopefully, that, which is what product revenues is what we have control over and hope to do better. Operator: And we have a question from David Martin with Bloom Burton. David Martin: I forgot to ask, are there any more MOH Ambisome orders expected for the rest of the year? Or is that all done now? Samira Sakhia: There is in Q2. The -- our initial estimate when we announced Q4 was that the -- that they would purchase about $32-ish million. It's between FX and the likelihood we are now estimating that that's $46 million. And normally, they order kind of over kind of rapidly. So we'll see the rest of it coming through in Q2. David Martin: Okay. And also, I don't know if you can put a number on this, but if these new launches are estimated to generate $200 million of peak, what's the offset over that period of revenue declines for products that you're currently selling that will be facing generic competition or manufacturing problems? Samira Sakhia: The -- so the ones manufacturing problems, those are kind of if and when they come. And they're really small products. If I look at the big products that have -- where we see branded generic competition, is Lenvima in Brazil, in a couple of years, Lenvima in Colombia. We -- as we've discussed just a few minutes ago, there is Ambisome branded generics under review in Brazil. But as we've seen branded generics in LatAm decline -- caused a decline of the brand at a much slower pace than we see in North America. So you lose market share, but it does take 3 to 5 years to really get to that 10% to 20% market share. And you're seeing like Lenvima is in our strategic promoted portfolio despite it having a generic in Brazil, that portfolio is still growing, right? And that's really how we're trying to address not just the potential declines, but really accelerating beyond those potential declines and add more products to our portfolio. Operator: Our next question is from Doug Miehm with RBC Capital Markets. Douglas Miehm: First question for me. Samira, you did talk about the last 5 years and how the company has grown quite dramatically from $250 million to over $500 million today. I'm just wondering if you could give us some thoughts on where the company could be in another 5 years. Are we thinking that you could double that number again to over $1 billion? Just curious. Samira Sakhia: I think that's a question for Amal. We are about continuing to grow. We are financially disciplined, and we're going to do what makes sense for the business, driving value, making sure that we're bringing products that make a difference and this is -- that's what we're doing all day, every day. That's what everyone in our team is doing all day, every day. Do we want to be a $1 billion company? Absolutely. Am I going to commit to that in the next 5 years? Not just yet. Douglas Miehm: Okay. That's great. A question for Amal. When you think about the competitive environment in both Canada and in South America, Mexico, et cetera, has there been any impact on the potential buyers of assets, whether they be companies or products given what's happening in the alt credit market? Or I guess what I'm asking is, have there been any changes in the competitive dynamic around those that are trying to in-license or buy these assets? Amal Khouri: Sure. We haven't seen any negative impact. So the -- if you look at assets with existing sales, the acquisition of these assets, the buyers in LatAm, particularly have been and continue to be privately held companies. These are family-run companies that have been around for years. And they -- of course, some of them have -- they go through kind of periods where some of them take on a lot of debt through big acquisitions. They kind of need to digest it over a couple of years and then they go back in. So you have kind of that up and down depending on the company. But overall, we really don't see kind of a sector impact per se. On the licensing side, as you know, the kind of the upfronts are not massive, like the big purchase prices are more on acquisitions of products with existing sales. So the sector remains competitive. And again, this is primarily -- I'm talking about LatAm across both, again, acquisitions of products with existing sales and in-licensing of assets. So we still see healthy competition, let's call it. Operator: [Operator Instructions] See there are no further questions. At this time, I will now turn the call back over to Samira Sakhia for closing remarks. Samira Sakhia: Thank you, Vanessa. Once again, thank you for your confidence in the Knight team and for joining our Q1 2026 conference call. Have a great morning. Operator: And thank you, ladies and gentlemen. This concludes today's conference call. We thank you for your participation. You may now disconnect.
Operator: Good day, everyone, and welcome to the Saga Communications First Quarter 2026 Conference Call and Earnings Release. [Operator Instructions] It is now my pleasure to hand the floor over to your host, Chris Forgy. Sir, the floor is yours. Christopher Forgy: Thank you, Matt, and thank you to everyone who has taken the time to join Saga's 2026 Q1 Earnings Call. We appreciate your continued support, your interest and your participation in Saga Communications, what we believe is the best media company on the planet. With that, I'm going to turn it over to Sam Bush, our Executive Vice President and Chief Financial Officer. Sam, the floor is yours for now until I take it back from you. Samuel D. Bush: Very good. Thank you, Chris. This call will contain forward-looking statements about our future performance and results of operations that involve the risks and uncertainties that are described in the Risk Factors section of our most recent Form 10-K. This call will also contain a discussion of certain non-GAAP financial measures. Reconciliation for all the non-GAAP financial measures to the most directly comparable GAAP measure are attached in the selected financial data tables. For the quarter ended March 31, 2026, net revenue decreased $1.3 million or 5.6% to $22.9 million compared to $24.2 million last year. Political was not a factor in the quarter as for the first quarter in 2025, gross political revenue was $271,000 compared to $275,000 in 2026. For 2026, we currently have $1.4 million in gross political revenue on our books compared to gross political revenue of $650,000 for the whole year in 2025 and $3.3 million for the year in 2024. Digital revenue was up $900,000 or 25.2% to $4.4 million for the first quarter of 2026 compared to $3.5 million for the same period last year. This growth was not enough to surpass the decline in our traditional advertising revenue, including national, local direct and local agency. Also, other income was down approximately $200,000. This was primarily due to the reduction in rental income we previously received for the tower sites we sold in the fourth quarter last year. Chris will be adding more color to the various revenue line items, both traditional and digital in his upcoming comments. Station operating expenses were approximately flat with the same quarter last year at $22 million. We do expect our station operating expense to increase 1.5% to 2.5% for the year when including the added expenses that we are taking on to build out the infrastructure related to our digital transformation. We continue to expect that our corporate, general and administrative expense to be approximately flat with last year at $12.3 million. As stated in our year-end filings, for the company closed on the sale of telecommunications towers and related properties on October 17, 2025, recognizing a gain of $11.6 million. The total proceeds, including both cash and noncash, were $15.1 million. The net cash proceeds from the sale after expenses was $9.8 million. This does not include the approximately $400,000 being held in an escrow account pending finalizing the landlord's consent to transfer of one final tower. We anticipate this transfer will take place in the second quarter of 2026. Due to the sale and our continued ability to operate as we historically have these tower sites we sold, we have a noncash expense recorded of approximately $50,000 in station operating expense in the first quarter. We will continue to have a noncash expense based on the accounting treatment required to record the noncash gain in each of our future quarters, which will be disclosed in our ongoing releases and filings. The company paid a quarterly dividend of $0.25 per share during the first quarter on March 20, 2026. The aggregate value of the quarterly dividend was approximately $1.6 million. The company also issued a press release this morning, simultaneous with our earnings release that Saga's Board of Directors declared a quarterly dividend of $0.25 per share on May 6, 2026, with a record date of May 22, 2026, and a payable date of June 12, 2026. With the most recent declared dividend, Saga will have paid over $145 million in dividends to shareholders since the first special dividend was paid in 2012. The company intends to continue to pay regular quarterly cash dividends in the future. The company's balance sheet reflects $30.4 million in cash and short-term investments as of March 31, 2025, (sic) [ 2026 ] and $27.8 million as of May 4, 2026. For the quarter ended March 31, 2026, the company recorded capital expenditures of $780,000 compared to $700,000 for the same period last year. The company expects to spend approximately $3.5 million on capital expenditures during 2026. We also continue to evaluate our nonproductive assets with the intent of monetizing those assets at a value that is higher than is recognized in Saga's stock price. This also allows us from a cash perspective to offset the cash spend on some, if not all, of the capital expenditures required to continue to operate our core business as well as invest in our digital transformation. As reported in the fourth quarter, we sold excess land at one of our Iowa tower sites for a little over $200,000. And at the end of this quarter, we sold our old studio site in Springfield, Mass, for approximately $500,000. We expect to be able to report more on this initiative with our second quarter earnings release. The second quarter is currently pacing down high single digits with digital up 10.2%. We continue to have a ways to go before the increases in digital revenue is larger than the decline in traditional broadcast revenue. To increase the pace of the transformation, we are continuing to move forward with a plan to add resources to build the digital infrastructure we need to process the interactive orders that the blended sales process is creating as well as to provide our local management teams in a number of markets that don't already have them with sales managers as well as digital campaign managers. This will allow our media advisers to spend more time calling on existing and potential clients to solicit new business as they will now have the assistance they need to help build the unique blended campaigns that are required to grow our digital business and mitigate the decline in radio ad spend. It also allows us to have the talent to monitor the performance of the blended campaigns, which will allow us to retain a higher percentage of the blended clients. The expense of this initiative will initially be more costly than the revenue it will bring, but it is a necessary expenditure to be competitive with other digital companies and to be better -- and to better serve our clients in meeting their advertising needs. In totality, this will increase our marketing expenses approximately $1.5 million for 2026. We have already hired most of the corporate digital staff and are in the process of continuing to find the right individuals at a market level. All said, we believe Saga is in a strong financial position to improve profitability as our digital initiative improves both local radio and digital revenue. And with that, Chris, I'll turn it back over to you. Christopher Forgy: Thank you, Sam. Constant, sustained, intensive training, teaching, coaching, inspiring and encouraging. These are the clearly stated behaviors that make up the prescription for success for broadcasters in the digital space. Saga has spent the better part of 2.5 years doing just that with our general managers, sales managers, media advisers, content creators in all of our 27 markets. And it has been challenging, to be honest. Recently, I spoke with 16 of our Saga general managers. That's about half of all of our Saga general managers in total. And during that discussion, I conducted a quick survey. I asked the question, how long have each of you been in the broadcast business? Each of the 16 leaders gave their answer, and I then tallied the totals and discovered that the leaders in just those 16 Saga markets had been in the business we love for a total of 594 years. 594 years of acquired skills, knowledge, expertise, intuition, instincts, acumen and other skills and abilities. Traditionally, radio professionals have been very successful and have made a lot of money for their organizations and for themselves over the years on just 5% to 7% of the total ad spend. Parenthetically, 5% to 7% has been radio share of the total advertising pie for some time and has now settled in at about 5%. And now with the digital age, there seems to be an element of fear to change or maybe a fear of loss on the part of broadcasters. But times have changed. Thus what Saga and other broadcasters have been aggressively doing is to expand the knowledge base. In Saga's case, expand the knowledge base in the 594 collective years of acquired skills, knowledge, expertise, intuition, instincts, acumen and finally, success. This, while at the same time, continuing to blunt the onslaught of a macro downdraft in the traditional advertising sector. That's a tall order, and we're progressing on getting it done. In essence, we have been remodeling a home while we're still living in the home. If any of you have ever done that, you know it's rather disruptive. And in this case, old habits die hard. And in the digital space, it can be confusing and alluring with all the new bright shiny options that exist. Thus, it is also critical for us as leaders and operators to avoid the urge to focus or try to focus on too much. As I have said on previous earnings calls, we chose this path of transformational change at a desire for growth and out of necessity. We believe and have seen evidence of it that a local digital advertising market that remains is ripe for disruption. Here's what we see. I've shared some of this with you before. There's an ongoing increase in digital advertising dollars and the rapid growth of digital budgets has outpaced the ability of the advertisers to use them effectively. There are frustrated buyers with unmet needs. The ineffective evergreen, as we call it, set it and forget it campaigns and empty promises create a lack of trust with what the advertiser is buying and with who they are buying it from. There are too many providers and too many conflicting solutions. Everybody's got a new and bright shiny answer. So buyers are confused. Thus our media advisers must be properly trained and equipped with the right resources so they can then provide the clarity and simplicity to help our customers be successful. And finally, many of the digital offerings out there focus too much on the products and not enough on the real journey the consumer goes on once they engage with a product or service. To be clear, Saga is a customer-first company, not a digital-first company. We are a customer first, not a digital-first company. Our blended process honors and respects and grows local radio and allows Saga's core business to do the magic it has always been known for. Radio gets the advertiser wanted and always, always leads to a search. Search gets the advertiser found and display gets the advertiser chosen. In concept, it's simple. Saga's blended digital process is easy to understand, easy to buy, easy to execute, easy to measure and ultimately easy to rebuy. So now it comes back to the feet of leadership. And it is our job to make enough of the right blended sales calls saying the right things to the right people with frequency. So to assist with these objectives, we've deployed a lead gen solution to help Saga's media advisers and media groups get wanted found and chosen. You noticed I said to help Saga's media advisers and media groups get wanted found and chosen. In essence, we are applying the blended strategy to our own enterprise. Practice what we've preached. And now after a couple of years of training, conversations we're having are much different than they ever were 2 years ago. Our leaders continue to put in the work and they are becoming experts. We believe they have learned and know more about consumer behavior and digital advertising than they ever even realize. The other day, one of our leaders said to me, it's more important to get it right than it is to be right, and we are beginning to get it right. And in the process of getting it right and in our quest to catch up with our broadcast brethren after being late to the digital party and attempting to forge a path no one has ever forged before successfully, we may have, may have made some of the training and coaching and inspiring and encouraging a bit too complicated and perhaps tried to focus on a little too much with those leaders with the 594-plus collective years of broadcast experience. These leaders who are then charged with teaching, coaching, inspiring and encouraging others in their organization to go out and tell the story to the consumers and to our customers so they can benefit from the story itself. So with us, clarity and simplicity also applies. It applies to us during our training process. So going forward, we've shifted slightly to not ignore or forego the traditional radio and radio advertising that has served so many in the Saga verse for so long and to ignore it just because it's not blended or doesn't include search and display. Every conversation, every interaction with an advertiser is another opportunity to have a blended conversation that could lead to a sale and success for our customer. We are and will continue to sell e-comm, online news, endorsements, promotions, events and create impeccable spec creative, be great storytellers who tell persuasive stories that allow the customer to see themselves in that story, be intense and curious listeners that help our customers solve problems and use those 594 years of experience gained by our leaders to accomplish this. Now all of that being said, at a time when traditional advertising is extremely challenging and some broadcasters are looking to divest partially or completely and cut expenses or perhaps hang on just long enough for deregulation to become a thing. Saga with the support of management and the Board of Directors continues to invest in the ongoing training and resources and people power necessary to acquire, retain and grow our revenue. And we continue to see green sprouts of success as we remodel the house that we're currently living in. And now speed of execution is what we need. When I got into the business, we called it wearing out your shoe leather. I don't think you call it that anymore. That's what we call it then. These are some of the green sprouts we're seeing. For example, Saga's digital-only blended revenue was up over $1 million, a 103% increase year-over-year Q1 2025 versus Q1 2026. Local direct revenue that was attached to a blended product, the blended products being search and display was up year-over-year Q1 2025 versus Q1 2026, 29%. The average blended local direct radio buy is 70% larger than the average non-blended local direct radio buy. The average total blended buy per client is 3x larger than the average non-blended local radio buy. Year-over-year Q1 2025 versus Q1 2026, we gained 158 blended accounts and lost 419 accounts. So significant attrition is real. Let me say that again, we gained 158 blended accounts and lost 419 non-blended accounts. Attrition is real. And revenue from blended and digital -- excuse me, revenue from blended digital and radio together in Q1 2026 was $3.6 million and was up $1.3 million over Q1 2025. If you do the math, that was up 59% year-over-year quarter-over-quarter. Unfortunately, as Sam mentioned, even with the lift in blended performance, which consists primarily of search and display, we did not yet offset the delta in overall performance for the 3 months ending 3/31/26. Saga finished down 6% in total gross revenue and down 5.6% in total net revenue. As forecasted, digital expenses over the same period increased $649,000 due to the addition of digital people, training, digital products, resources for several of our Saga markets. This investment in infrastructure and people will ultimately enable us to bring several outsourced products in-house to allow us to increase Saga's operating margins on many of the digital products we offer. And during this transition, however, there will be a brief overlap in time where we will be training in-house employees and continuing to use third-party providers and we'll be doing it simultaneously, training and then deploying. This, along with the increase in general digital expenses will not be for any means a long-term proposition. We need these short-term investments in order to compete in an extremely competitive and ever-changing digital marketplace. There will certainly be a ramp-up period for those -- for that revenue to catch up and surpass the expense lift. And we anticipate this crossover period to take place in the third and early fourth quarters of 2026. At that point, our plan is that the investments made will become accretive. As far as Saga's other terribly important revenue initiatives are concerned and ones that we've talked about on virtually every earnings call, for the quarter ending March 31, 2026, local e-commerce revenue was up 23.2%. And looking ahead, April e-commerce registered a record month of $347,000. And January through April, e-commerce is performing up 24% year-over-year for the 4-month period. And the 12-month trailing revenue on e-com platform is nearly $3 million. The vest of digital program was up 15% year-over-year for Q1 2025 (sic) [ 2026]. However, national streaming revenue during the period ending 3/31/26 was down 31.5%. This was due primarily to a change in third-party provider processes and a change in algorithms. Mobile streaming was up 116% and local streaming revenue was down 7%. Online news sites were also down for the quarter, 7.2%. Despite this decline in national streaming, local streaming and the online news, Saga experienced a large lift in overall digital revenue. All in, interactive digital revenue for the period ending 3/31/26, as Sam mentioned, was up 25.2%. More specifically, SEM and search was up 105% year-over-year quarter-over-quarter. Targeted display was up 120% year-over-year, quarter-over-quarter, and social media was up 108% year-over-year and quarter-over-quarter. So in closing, the reach and frequency and intrusive magic of radio, along with search and display, coupled with hundreds of years of experience from Saga's broadcasters, bring the best of all worlds together and engage and enable us to change with the times. It enables us to honor the past and guide the future. That's how we move from simply changing with the times to leading through them together. Thank you again for your time, your interest and support of Saga Communications, what we believe to be the best media company on the planet. Sam, are there any questions? Samuel D. Bush: Yes, Chris, we did get a few questions. I'll start with the first one. Are there efficiency initiatives or automation efforts underway to protect margins? Christopher Forgy: Do you mind if I take that one? Samuel D. Bush: No, absolutely. Christopher Forgy: Okay. We continue to bring digital offerings currently provided, as I mentioned, by third-party providers in-house. This ultimately decreases the cost and increases margins. We've also deployed AI in our on-air and online products and efforts, including our online news as well as other products and services that really are used to create operational efficiencies, and we'll continue to do that. Samuel D. Bush: Very good. Thank you, Chris. There's 2 questions that I'm going to kind of roll together, and I'll reiterate what I've already said. The first, and they're about political revenue. What are your expectations for political ad revenue this cycle compared to prior elections as well as how much of political revenue is already booked or visible at this stage? I'd already indicated that from a political standpoint that we currently have $1.4 million in gross political revenue on our books. Compared to last year, our total political revenue was $650,000 for the year in 2025. And in 2024, it was $3.3 million. So we are expecting to continue to see -- it's nice to see we already have the $1.4 million booked for the year, and we are expecting to see that pick up as we progress into what is more of the political spending time, and that's late third quarter and early fourth quarter as we go into the actual elections. Next question, Chris, was for you. What are the biggest risks to your business over the next 12 to 24 months? Christopher Forgy: Okay. So we mentioned it on the call -- on the earnings call just a moment ago. But clearly, it's speed of execution. Some of the risks that are out there that concern us, we control and others we don't, like, for example, the speed and intensity of the macro downdraft in the traditional advertising sector. But really more importantly, can our markets effectively execute what they've been taught and do it with speed, authority and frequency. That, to me, is the biggest risk over the next 12 to 24 months to Saga that I see currently. Samuel D. Bush: Very good. Thank you, Chris. What KPIs should investors focus on to measure the progress we make in our transformation -- digital transformation strategy? Christopher Forgy: If I was an investor, which I am, I would -- the KPIs I would use and the ones that we're encouraging our leaders and our trainers to use is we measure the lift in search, display and local direct because those are all the drivers that aside from local and local agency and national and all the others. But certainly, we always measure those. But in terms of transformational growth in the blended space, if the KPIs are search growth, display growth and local direct growth. Samuel D. Bush: Very good. And one final question, which I'll address. Do we anticipate further consolidation in the radio industry? And where does Saga fit? Now as we all know, a lot of eyes, including ours, are on the FCC, whether it is continued ownership limit waivers as we've seen recently or an overall change in ownership rules, our first priority will be to become stronger in the markets we already serve. We're not focused on expanding just to get bigger. In reality, only time will tell where Saga fits if there is further consolidation in the industry. And we obviously, as I said, are all like a lot of people watching the FCC and see what actions they take as we proceed through this year. And I think with that, Matt, we can turn it back over to you to wrap up. Operator: Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation. Samuel D. Bush: Thank you, Matt.