加载中...
共找到 37,639 条相关资讯
Operator: Hello, and welcome, everyone, joining today's Arcturus Therapeutics First Quarter 2026 Earnings Call. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions] It is now my pleasure to turn the meeting over to Neda Safaradev, Vice President, Head of Investor Relations, Public Relations and Marketing. Please go ahead. Neda Safarzadeh: Thank you, operator. Good afternoon, and welcome to Arcturus Therapeutics quarterly financial update and pipeline progress call. Today's call will be led by Joe Payne, our President and CEO; Dr. Alan Cohen, our Chief Medical Officer; and Dennis Mulroy, our Chief Financial Officer. Dr. Patrick Beculolo, our CSO and COO, will join them for the Q&A session. Before we begin, I would like to remind everyone that the statements made during this call regarding matters that are not historical facts are forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance. They involve known and unknown risks, uncertainties and assumptions that may cause actual results, performance and achievements to differ materially from those expressed or implied by the statements. Please see the forward-looking statement disclaimer on the company's press release issued earlier today as well as the Risk Factors section in our most recent Form 10-K and in subsequent filings with the SEC. In addition, any forward-looking statements represent our views only as of the date such statements are made. Arcturus specifically disclaims any obligation to update such statements. And with that, I will now turn the call over to Joe. Joseph Payne: Thank you, Neda. It's good to be with you again, everybody. The first quarter of 2026 was a period of solid execution for Arcturus as we continue to advance our rare disease pipeline and strengthen our leadership team. I'm very pleased to report that our CF program is now in new uncharted territory. Our 12-week Phase II study began enrollment in Q1. We are already well beyond one month of dosing. Continuous dosing beyond a month has never been successfully tolerated in the history of inhaled mRNA therapeutics, but this is a big deal. And why is that? Because Class I CF is a serious disease with serious unmet medical need, and we believe that the nested pulmonary congestion observed in Class I CF disease requires consistent chronic dosing that is reasonably well tolerated to be successful. There are specific reasons why Arcturus has been able to achieve tolerable dosing beyond one month. Firstly, our inhaled LUNAR particle technology includes key delivery lipids that are chemically different from all other technologies competing in this space. Secondly, our messenger RNA manufacturing process to remove undesired impurities is unique, proprietary and trade secreted. ARCT-032, this is our inhaled mRNA CF therapeutic candidate, continues to showcase these differences in its growing safety and tolerability profile. The CF community is aware of our safety and tolerability profile, which has contributed to the reason why we were able to initiate enrollment of our 12-week open-label Phase II study earlier than originally anticipated. This study is enrolling Class I CF participants and monitors lung function measures, including percent predicted FEV1 and lung clearance index or LCI. We believe there is increasing recognition across the field of both the significant unmet medical need in Class I CF and the importance of achieving a well-tolerated repeat dose therapeutic approach to enable durable clinical benefit. Our program is designed with these principles in mind, and we are encouraged by the opportunity to generate meaningful clinical data in a patient population that continues to have no effective treatment options. We look forward to collecting this clinical data, including lung function measures during and throughout this open-label Phase II study. Arcturus remains committed to advancing our inhaled mRNA therapy for people living with CF Class I mutations who continue to face significant unmet medical needs. Now moving on to our flagship liver program, ARCT-810. This is our mRNA therapeutic candidate to treat ornithine transcarbamylase or OTC deficiency. We met with the FDA to discuss the pediatric clinical development strategy for ARCT-810. Following this Type C meeting, we're pleased to receive clear regulatory direction on a path toward a pivotal pediatric study. In line with that direction, we are collecting additional exploratory data and look forward to further alignment with the FDA at the end of Phase II meeting planned for the second half of 2026. Beyond our clinical rare disease programs, our partner, Meiji in Japan is actively manufacturing KOSTAIVE. This is our self-amplifying mRNA COVID vaccine for the upcoming 2026, 2027 season using a 2-dose vial presentation. All commercial guidance for KOSTAIVE in Japan will be provided by Meiji. We also expanded our executive leadership team with the appointments of Dennis Mulroy as Chief Financial Officer; and Dr. Alan Cohen as Chief Medical Officer. I'm pleased that they are both on the call with us today, and we will get to hear from them shortly. Both bring extensive and relevant experience that will play important roles as we continue executing across clinical, regulatory and corporate priorities. Many of you will have the opportunity to meet with these gentlemen, and I encourage you to do so. Overall, we believe Arcturus is well positioned to advance our pipeline toward meaningful clinical and regulatory milestones for patients and for our shareholders. With that, I'll now turn the time over to our Chief Medical Officer, Dr. Cohen. Alan Cohen: Thank you, Joe, and good afternoon, everyone. From a clinical development perspective, the first quarter reflected meaningful progress across our key programs. Starting with cystic fibrosis. ARCT-032 is currently enrolling people with CF with Class I mutations in a larger and longer open-label Phase II study over a 12-week period. The study is designed to monitor safety, tolerability and assess evidence of early clinical benefit, including 2 pulmonary functional measures, including changes in percent predicted FEV1 and lung clearance index. We've intentionally designed this study to generate a more comprehensive understanding of safety and tolerability, along with early signs of clinical efficacy, which are critical to advancing inhaled messenger RNA therapies in the lung. We are also evaluating 2 validated quality of life outcome measures, along with changes in high-resolution CT imaging to support a comprehensive assessment of potential clinical effects. Taken together, these endpoints are intended to provide a robust data package to inform both the therapeutic potential and the feasibility of repeat dosing. Our goal is to establish not only early evidence of activity, but also the feasibility of repeated dosing, which is fundamental to unlocking durable benefit in this patient population. Turning to OTC deficiency. Our ARCT-810 program continues to broaden its development strategy to address the unmet medical needs of newborns and young children affected by the most severe forms of the disease. Following our recent Type C meeting, the FDA provided clear direction toward a pivotal pediatric development path. We are actively collecting additional exploratory data to help establish the optimal dose and therapeutic effect as we prepare for the end of Phase II meeting planned later this year. Across both programs, our focus remains on generating high-quality clinical and regulatory data to support thoughtful decision-making and efficient advancement through development. We believe this disciplined approach is particularly important in emerging modalities where careful characterization of safety, tolerability, delivery and clinical effect is essential to long-term success. I'm excited to be part of the Arcturus team, look forward to working closely with our investigators, regulatory partners and internal team members as we continue moving these important programs forward. With that, I'll now pass the call to Dennis. Dennis M. Mulroy: Thanks, Alan, and good afternoon, everybody. Our press release issued earlier today includes financial statements for the first quarter ending March 31, 2026, and provides a summary and analysis of our year-over-year performance. Please also reference our most recent Form 10-Q for more details on our financial performance. Cash, cash equivalents and restricted cash totaled $213.4 million on March 31, 2026, and $232.8 million on December 31, 2025. Year-over-year quarterly revenue decreased by $27.3 million. The decline was driven by reductions in revenue from our CSL collaboration as Arcturus refocuses on our rare disease clinical programs. Quarterly research and development expenses decreased year-over-year by $13.4 million, which was driven primarily by lower manufacturing costs related to LUNAR-COVID and BARDA as well as reduced clinical trial costs associated with the LUNAR-COVID program. Additional decreases were attributable to lower payroll and benefit costs associated with lower stock-based compensation expense and a reduction in headcount. Overall reductions were partially offset by higher manufacturing costs related to LUNAR-OTC. General and administrative expenses decreased year-over-year by $1.8 million due to reduced share-based compensation expense as well as payroll and benefits associated with reductions in headcount. Through continued execution and strategic refocusing on our existing rare disease clinical programs and therapeutic platform in the first quarter of 2026, Arcturus has maintained a cash runway extending beyond the second quarter of 2028. The company remains in a strong financial position and has cash runway needed to achieve multiple near-term value-creating milestones in both therapeutic programs. With that, I'll now pass the call back to Joe. Joseph Payne: Thanks, Dennis. Arcturus continues to make steady progress across our rare disease mRNA therapeutic programs while strengthening the foundation of the company. With enrollment now underway in our 12-week open-label Phase II study of ARCT-032 in cystic fibrosis and clear regulatory direction from the FDA on the pediatric development strategy for ARCT-810 in OTC deficiency, we remain focused on advancing toward important clinical and regulatory milestones throughout 2026. Supported by a strong balance sheet and an expanded experienced leadership team, we believe Arcturus is well positioned to execute on our priorities. So with that, let's turn the call over to the operator for questions. Operator: [Operator Instructions] And we'll take our first question from Seamus Fernandez with Guggenheim. Boran Wang: This is Evan Wang on for Seamus. Two for me, one on OTC deficiencies and one on cystic fibrosis. Just on -- first on OTC deficiency. Can you share specific FDA feedback on the glutamine and ureagenesis assay specifically? Curious also the discussion between infants and adults since I don't know if I saw you mentioned a path forward in the adult setting. And second, on cystic fibrosis, just curious, anything you can share in terms of patient enrollment and progress there? And what's the potential for a potential interim there? Joseph Payne: Thanks, Evan. I can turn the time over to Alan to address some of the FDA feedback questions pertaining to infants and adults and the biomarker question to him. And then I can -- we'll go to that point. I can address the CF question. Alan Cohen: Right. Thanks, Joe. So we've successfully, as you mentioned, completed the first 2 Type C meetings with the FDA. And it's clear that we have greater clarity now as to what we need moving forward. And as you mentioned, the utility of the biomarkers, most notably ammonia and glutamine in particular, have been historically highlighted and were identified as areas of greater focus and attention for us moving forward. So greater clarity on which biomarkers to use. Ureagenesis is still -- is a biomarker in development, and we're continuing to advance that. But it's -- our dependence upon it, I think, will depend on the additional data that we're currently in the process of generating. Joseph Payne: And then with respect to your CF questions and the cadence of enrollment, I think the cadence of enrollment is being determined in the upcoming weeks. We just started the study in the first quarter, but we'll be able to give a more accurate enrollment completion timing later this year. We do remind people that we enrolled approximately 13 subjects in 2025 over sequential 3 cohorts: first, second and third cohort. And that was limited to the United States. We are expanding enrollment not just in the U.S., but also outside the U.S. or abroad. Operator: Our next question comes from Lili Nsongo with Leerink Partners. Lili Nsongo: Maybe just a quick question regarding the OTC program. So could you tell us what is the type of exploratory data that the FDA is looking for and also whether it would require for you to initiate studies in the pediatric population? Joseph Payne: Go ahead, Alan. Alan Cohen: Sure. So great question, and thank you for asking. The first Type C meeting that we had, as you alluded to, focused exclusively on what will it take for us to be able to take the adult data that we're still in the process of generating in our current open Phase II study into pediatrics. The results of that meeting suggested that we have a clear path forward. We're continuing to collect additional enrollment data for the 0.3 and the 0.5 dosing groups. Our plan is to then have an end of Phase II meeting with the FDA. The intent there is to do the sort of the usual necessary tasks, which is to reaffirm and continue to show safety and tolerability. And of course, if you're going to go into young children and newborns, the goal would be to also show enough evidence of clinical efficacy to justify going into such a young vulnerable population. We have greater clarity now as a result of that meeting. We're in the process of completing that data set, and we should have sufficient data later this year to take that total data set, bring it forward to the FDA and continue our conversations and hopefully get into a pediatric study sometime in the months and years ahead. Operator: We will move next with Yanan Zhu with Wells Fargo. Unknown Analyst: This is Kwan on for Yanan. So our question is around cystic fibrosis. Since there is no placebo control for the 12-week study, can you talk about the variability of FEV1 and LCI? And how should we prepare to interpret the data without a placebo control? Joseph Payne: Yes, that's correct. There's no placebo arm in the present study. And maybe Alan can comment on the REACH study and placebo strategy going forward. With respect to variability of FEV, that's well understood. We are collecting 2 lung function parameters, FEV and LCI. And maybe Alan can comment on the value of doing that. Alan Cohen: Sure. Great question and an important question. As you know, the requirements for percent predicted FEV1 and spirometry is active performance characteristics and reproducibility with the person performing the test. The good news about cystic fibrosis patients is that they've been accustomed, unfortunately, to doing spirometry since they're in school. And since most of the adults that we're enrolling are well into their 20s and beyond, they have decades of experience performing spirometry almost daily. We have set in this Cohort 4 study parameters from screening and baseline to allow for a small variation from the 2 measures, but not an excessive amount so that there is enough consistency between screening and baseline that we feel confident that an individual is producing reproducible, reliable tests throughout the course of the study. That was something we didn't have in place before. I think it's necessary. I believe that it's going to mitigate any concerns that we may have moving forward. Now in terms of LCI, the challenge with LCI in adults is that there just simply has not been a very large natural history database of people with cystic fibrosis. The good news -- the good news is that the Cystic Fibrosis Foundation, recognizing the sensitivity of that tool, in particular for measuring changes in small airways, which is likely to be the place where early demonstration of clinical efficacy is most likely to be observed. They are currently completing a large prospective open-label study in exactly the same population that we're targeting for our Cohort 4 and subsequent studies. And that data should be shared later this year going into 2027 by the CF Foundation at the upcoming NACFC meeting. So we're looking forward to seeing that data starting to be presented, and they have assured all sponsors, including us that we will have access to that data moving forward. So we'll have a normative data set, which we hope to use as we bring forward the data we'll be generating on our study drug in the months and years ahead as well. Joseph Payne: The only thing I would add is that I just want to remind everyone on the call that the FDA has not defined a threshold of success for FEV or LCI, at least for our program. In the modulator space, they have. But for a new modality like inhaled mRNA for Class I CF, there's no minimum threshold that we must observe. Anything positive would be viewed seriously. And like what Alan mentioned, the REACH study will be very likely to be very helpful as well. Anyway thanks for the question. Operator: We will move next with Myles Minter with William Blair. Jake Batchelder: This is Jake on for Myles. One of your competitors recently discontinued its inhaled CFTR mRNA trial. We were just wondering if you've seen any of the manifestations that were described there and led to the discontinuation, and whether you've had any discussions with the CF Foundation or regulators regarding patient enrollment of this new cohort now that that trial has been discontinued. Joseph Payne: Yes. The short answer is no. There's significant differences between the technology that we use to deliver the RNA molecule then versus our competitors, and we touched that on in the script earlier on today's call. But I would like to also highlight that we have utilized no steroids as a co-treatment before, during or after the dosing period. And that's a point of differentiation, and there's reasons for that, that are safety and tolerability related. And also, we've been approved by regulators to -- for unsupervised dosing at home, and that's not been the case for some of the other companies in this field. And those are -- that's another point of differentiation. And the reason behind that, again, is all because we're using a different technology. It's a different chemistry, and it also includes a different manufacturing process to purify the mRNA molecule, which could be a contributor to remove the impurities that cause those undesired immunogenicities and immune responses. But anything else to add, Alan? Alan Cohen: No, I think Joe covered the majority of it. The only thing I would add is that it's worth pointing out that at the completion of our Cohort 3 study, which went up from 5 to 10 to 15 milligrams daily for 28 days, that we were given the ability to move forward with a longer study, allowing for either 10 or 15 milligrams daily in Cohort 4. So our safety monitoring committee saw nothing clinically worrisome and have allowed us to not only go up to 15 milligrams if we choose to daily, but we also have the freedom and ability to take those patients out to 12 weeks, which we are currently embarking on right now, initiating at a 10-milligram dose once daily. Operator: We will move next with Mayank Mamtani with B. Riley Securities. Mayank Mamtani: And good to hear 032 study is progressing ahead of plan. Did I hear that you've had certain patients move past the one-month exposure window? And just curious if like the Vertex study, there are any go/no-go decisions intra-study on duration of treatment because both studies were kind of comparable on time lines and how further along they were their mechanisms built in your study that informs continuation based primarily on tolerability reasons, but also obviously, efficacy reasons also. And then I have a follow-up. Joseph Payne: Yes, it's a good question. With respect to the first, we have initiated the 12-week study in the first quarter. So that means that we are well beyond a month of dosing already in the study. We are continuing to enroll at a pace that's going to be understood in the next -- in the coming weeks. But yes, we're well beyond that one-month study. With respect to intermediate go/no-go opportunities and decisions that are built into the protocol, I'll have Alan comment on that. Alan Cohen: Yes. I mean the good news about an open-label clinical trial is that we're going to be able to, in an active way, monitor patient progress and look for safety signals as well as early signs of efficacy. It's our impression that by the -- before the end of this calendar year, we should have enrolled and have sufficient enough data in hand that we will be able to speak a little bit more clearly to the future longevity of the program as well as the direction of the program moving forward. Mayank Mamtani: Understood. And then on the REACH data that you're looking to learn at NACFC, I was just curious on the LCI, what according to you sort of good looks like and what correlations that you're curious about? [Indiscernible] Joseph Payne: Yes, there's several reasons why we've included lung clearance index into this new protocol for the fourth cohort. The first, of course, is to add an additional measure of lung function that is respected, understood and can be a potential endpoint for us in the study. With respect to the correlation of LCI to other parameters, maybe you can comment on that. Alan Cohen: Yes. I mean the interesting thing about LCI is that I mentioned earlier and one of the questions that we got earlier was talking about the variability of the performance characteristics of spirometry. The nice thing about lung clearance index and why it was used almost exclusively in young children who can't perform spirometry is that it's a passive maneuver. It doesn't require active involvement of the patient itself to perform it. So it's actually very reproducible and highly reliable. So all you really have to do is form a seal around the mouthpiece and then the equipment does the rest. So right now, the only outstanding information we have is what the CF Foundation is generating right now with the REACH study, which is what's the normal rate of decline of lung clearance index within the population that we're studying. So we have a comparative group. So really, right now, it's not only a more sensitive measure. And by the way, it's also, as you may know, been an approvable endpoint for some of the modulators, in particular, in Europe and rest of world. So we know it's reliable. We know it's reproducible. It has really not been used in adults just simply because it wasn't perceived as necessary. But I think increasingly, it's being appreciated for the sensitive way with which it measures a more distinct, more peripheral, more acutely portion of the airway that may prove to be much more useful for purposes of a study like this in these patients moving forward. Joseph Payne: And LCI also has a correlation between mucus plug reduction and in so much that that's the encouraging data we saw in our second cohort that we've shared. We'd like to see that correlate with a lung function measure and lung clearance index has a nice correlation to these reductions of mucus plugs in other studies. Mayank Mamtani: Got it. And lastly, any insight on your plans for combining with a modulator or maybe nonresponder population? Is there anything you could do in the ongoing protocol? Joseph Payne: Did you understand the question? Alan Cohen: Yes, I think I did. And if I didn't, please correct me. I guess the question as I understood it was, obviously, the highest unmet medical need population are those with null mutations and those who are unable to tolerate or are unable to get access to modulators. That's obviously the patient population that we're focused on now. Is our therapeutic potentially beneficial to a broader population of patients who may be on modulators? Yes, the answer is yes. And that would obviously be the next place we'd want to go. But obviously, we're going to need to generate sufficient data to make that justifiable, and we look forward to hopefully getting that data in the years ahead. Operator: We will move next with Adam Walsh with ROTH Capital Partners. Adam Walsh: On the adult Type C meeting timing, when would we expect to hear about that outcome? Joseph Payne: Sure. We've shared previously that both of these Type C meetings would be completed in the first half of this year, and we're well on track for that. So the second would be sometime this quarter. That's the near term. It's on the near-term horizon, very soon. Adam Walsh: Wonderful. And then how is the team segmenting pediatric versus adolescent versus adult for OTC? And what is the realistic enrolled patient number for the pediatric pivotal given the targeted severity? Alan Cohen: Sure. Great questions. I'll take this one. This is Alan. The population that we believe has the highest unmet need are those who tend to be under the age of 6, so preschool age up to early school age. By the time, unfortunately, most of these kids with OTC deficiency who manifested in the birth period, by the time they get to school age, they're either unfortunately having a liver transplant or if they're unable to be stable enough for that, they die. So the segmentation for the pediatric population would almost exclusively be focused on that exact population, children in the first weeks and months of life up through probably age 6. Adam Walsh: Excellent. And then one more, if I may, just on 032 in CF. How is the team approaching interim versus full disclosure given the open-label design? I know this was touched upon on the last call, and you may not be advanced enough to comment on it. But will you be anticipating any disclosure on interim given the open-label study? Joseph Payne: Yes. The language we've used on this call today, Adam, is that you're right, it's an open-label study. It's already started. And we're expressing confidence on today's call that later this year, we should have sufficient enrollment and data to inform our next steps. So I think we're going to be in a really good place to understand where we are with this program later this year. Operator: We will move next with Whitney Ijem with Canaccord. Angela Qian: This is Angela Qian on for Whitney. Can you remind us what preclinical data you have of LUNAR-CF to penetrate the mucus? And any data around like endosomal escape or production of functional protein? And then can you also remind us what cells are you reaching within the lung? Joseph Payne: Sure, sure. So we have Pad here with us. He can comment on the fair data, et cetera. Padmanabh Chivukula: Yes. Well, first of all, we worked for many years with the CF Foundation to develop our preclinical package. And we've done quite a bit of work on looking at LNP stability in sputum. And then we've also done a lot of work preclinically in mouse roles and ferrets as well as nonhuman primates. And what we see is in the CF mouse model, for example, that we can get to various bronchial epithelial cells. We have a pretty broad distribution and some of this data was recently published with some of our collaborators. And I think that's available, and we can provide that to you. Joseph Payne: Did we address your question? Angela Qian: Great. Yes. If you could send that, that would be great. And then maybe a follow-up is on dosing. Currently, are you doing anything to address kind of the distribution of drug into the lower lobes? Like is there a way you can try to impact the distribution of drugs? Joseph Payne: Right now, our anticipation is we won't have to modify the position of the patient or anything like that to access different lobes or parts of the lung. So that's not our anticipation. But... Padmanabh Chivukula: I can also -- this is Pat again. We can also -- when we did our initial preclinical evaluation of the nebulizer that we were going to use, we've optimized the particle size of the nebulizer so that it does get distributed throughout the lung. Alan Cohen: Yes. And this is Alan. Just to add one more piece to that. I think your question is probably coming from the high-resolution CT data that we shared and generated in our last cohort, which showed a preponderance of effect mostly in the lower segments of the thoracic cage and within the lower segments of the lung. We know that ventilation perfusion and ventilation in general differs with aerosols in particular, in the lower and upper segments of the lung. One of the things that we're hoping to achieve if we're going now from a 4-week dosing strategy to 12-week strategy is a much more thorough application of our therapy throughout the lung, and we hope to see that manifest as the study goes beyond the 4-week period. So we think this is more so a byproduct of time and not necessarily dose. Operator: We will move next with Yigal Nochomovitz with Citigroup. Joohwan Kim: This is Joohwan Kim on for Yigal. Maybe 2 quick ones from us. Just to confirm, firstly, do you need to enroll more patients at the 0.3 or 0.4, 0.5 mg per kg dose for the exploratory data that needs to be generated? Or is that just from longer follow-up? Joseph Payne: The short answer is we just need to complete the scheduled study as dictated and communicated at the Type C meeting. So there's nothing too extraordinary. We just need to complete that data set and also analyze it and then present it in a way that they requested. It was just a reanalysis of the data that they wanted to appreciate. And we said that we'd provide that to them at the OP2 meeting. Joohwan Kim: Got you. And also on CF, I believe that you noted that you're planning on conducting the HRCT scans in the 12-week study. Can you provide additional detail on how frequently that assessment as well as LCI and FEV1 measurements might be conducted? And are you seeking to enroll a certain number of patients ex-U.S. Joseph Payne: Yes. With respect to high-res CT scan, it's before and after. We typically do not propose to take several of these high-res CT scans during a study. It's typically before and after. With respect to the other lung function measurements and the cadence of that throughout the 12-week study, maybe, Alan, you can comment on that, what you're comfortable sharing. Alan Cohen: Yes. We haven't really shared that kind of level of granularity. But I think it's appropriate to just consider that every time a patient comes back to a clinic to get evaluated and to get another scheduled amount of drug, that's a perfect time, particularly at a CF center to repeat testing in a controlled setting. We are not using home monitoring nor home spirometry or lung clearance index equipment in the household or in the home. So we want consistent measures being performed in an appropriate skilled center so that we can have reliable data. So we're collecting that data at every time point that the patient is coming back. So it's at a regular cadence over the course of 12 weeks. Joohwan Kim: Got it. And are you looking to enroll a certain number of patients ex-U.S.? Joseph Payne: Yes, for 20 subjects, up to 20 subjects is what we're -- is what's presently in the protocol. For CF -- for CF? Or were you asking about OTC? Joohwan Kim: No, I just want -- amongst those 20 patients, is there a specific number that you're looking to get ex-U.S. versus U.S.? Joseph Payne: Go ahead and comment on that. Alan Cohen: Yes. No, another great question. We added ex-U.S. sites in large part because there are jurisdictions in the world that happen to have higher preponderances of people with no mutations. And we're trying to take advantage of the fact that there are high unmet medical needs in parts of the world where the level of care, the nature of care and the clinical course of the disease is commensurate and consistent with what we observed here in the U.S., Canada and other parts of the world. So we haven't -- we haven't set a high or low bar in terms of the number of patients to be enrolled in the United States and outside of the United States. It's our anticipation that it's going to be perhaps an equal mix, but it really shouldn't matter at this point. Operator: We will move next with Thomas Shrader with BTIG. Unknown Analyst: This is Jenny on for Tom Schrader. I had a couple of questions on the OTC program. For OTC, you're now pursuing late onset adult and severe pediatric populations, which is a meaningful broadening. But could you help us understand how you're thinking about resource and capital allocation between these 2 tracks? Is there a scenario where the adult program generates registrational data first and helps derisk the pediatric program? Or do you view these as truly independent developmental paths that need to run in parallel? And as you think about your end of Phase II meeting in the second half of the year, could you walk us through your best case versus base case outcome and what that looks like from that interaction? Joseph Payne: Okay. A lot there, but I think Alan got it. But with respect to pediatric and adult regulatory paths, we can comment on that and then expectations for the EOP2 meeting go ahead. The path for what percentage of the budget is allocated or energies and resources to the pediatric path versus the adult path? Is there more prioritization to the pediatrics? Alan Cohen: Well, yes. So okay, understood. So rather than getting into granularity on the budgetary likelihood of expenditure, right now our pediatric program is predicated on the successful completion, sufficient end of Phase II data and a general agreement that we've generated sufficient safety, tolerability and clinical efficacy data to be able to then go into children. Our expectation and hope is that the pediatric opportunity and unmet medical need is the greatest and the one that we feel we need to be spending our greatest attention to once we're given the opportunity to do so. Our adult program is almost completed. So right now, we're just finishing up enrollment on a small number of patients to complete the GRID that Joe was just referring to a moment ago. It's 5 doses. And then once we complete 5 doses and have time to analyze the totality of that data and prepare for our end of Phase II meeting, our hope is that we're given the green light to move forward with a pediatric program, and that would be in large part of our focus moving forward. Operator: [Operator Instructions] We will move next with Yale Jen with Laidlaw & Company. Yale Jen: In terms of the pediatric OTC programs, you mentioned that most of those patients need transplantation as the treatment. I just wonder whether you're thinking the drug currently you're developing was mainly for a stop gap for those patients before they can ultimately get transplantation or this is potentially disease modifying the patients can be treated for a long time without the need for transplantation. Joseph Payne: Well, first to comment is that the OTC deficiency is definitely a pediatric-centric disease. That's usually when it's diagnosed. And there is a significant unmet need to prevent the undesired liver transplantation that occurs in these young children. So engaging them prior to the severity getting to that point is the timing we're talking about. But is there any other comments? Alan Cohen: Yes. No, I think your question is actually a really good one. Our hope and expectation would be that we're not only forestalling the need for a liver transplant, but we should hopefully be able to keep these children from requiring lung -- not lung liver transplants lifelong if we intervene and do so in as pronounced a way as we hope and expect to do as early as possible in the course of their disease. Operator: Thank you. And at this time, there are no further questions in queue. I will now turn the call back to Joe Payne for closing comments. Joseph Payne: Just thanks, everyone, for participating on the call. We appreciate everyone's time. Please don't hesitate to reach out to our team for any remaining questions. We will always get back to you as soon as we can. Thanks again. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good day, and welcome to the AvePoint, Inc. Q1 2026 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jamie Arestia, Investor Relations. Please go ahead. Jamie Arestia: Thank you, operator. Good afternoon, and welcome to AvePoint's First Quarter 2026 Earnings Call. With me on the call this afternoon is Dr. TJ Jiang, Chief Executive Officer; and Jim Caci, Chief Financial Officer. After preliminary remarks, we will open the call for a question-and-answer session. Please note that this call will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations. We encourage you to review the safe harbor statements contained in our press release for a more complete description. All material in the webcast is the sole property and copyright of AvePoint with all rights reserved. Please note this presentation describes certain non-GAAP measures, including non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income and non-GAAP operating margin, which are not measures prepared in accordance with U.S. GAAP. The non-GAAP measures are presented in this presentation as we believe they provide investors with a means of understanding how management evaluates the company's operating performance. These non-GAAP measures should not be considered in isolation from, as substitute for or superior to financial measures prepared in accordance with U.S. GAAP. A reconciliation of these measures to the most directly comparable GAAP financial measures is available in our first quarter 2026 earnings press release as well as our updated investor presentation and financial tables, all of which are available on our Investor Relations website. With that, let me turn the call over to TJ. Tianyi Jiang: Thank you, Jamie, and thank you to everyone joining us on the call today. Q1 was a strong start to the year. Our leadership at a critical intersection of data protection and security, combined with the growing demand for AI-ready solutions, allowed us to again exceed our guidance on both the top and bottom line. Q1 also marks our 12th straight quarter of double-digit growth in organic net new ARR, which we delivered while driving more than 730 basis points of GAAP operating margin expansion. Importantly, we're delivering strong results during a rapid shift in the market. It wasn't long ago that AI discussions with customers focused entirely on models and productivity gains. As AI is becoming deployed more widely and evolves from assistance to autonomous agents, data access increases exponentially and data governance becomes top of mind. Today, when I meet with customers and partners globally, the question is no longer what can AI do for my organization, but rather, can I trust, govern and operate AI safely and at scale. In short, the conversation has pivoted away from productivity and towards something far more important, enterprise trust in this new enormously powerful technology. This is where I would like to focus my time today, how organizations can achieve this level of confidence and why AvePoint is uniquely positioned to deliver on this demand. To answer this question, it's first important to understand the AI stack today, which starts with infrastructure, energy, chips, physical compute hardware and so on. These components are important, but it's also fair to say that they are table stakes today and are quickly becoming commoditized. The real center of gravity, not surprisingly, has shifted to data, the knowledge that powers AI and fuels the next 2 layers, AI models and agentic AI. For every organization, it's here where value is created, but it's also where risk multiplies because every AI system inherits and leverages what sits underneath it and weak data governance and poor data controls lead to bad decisions and security risks, in turn destroying trust. Ultimately, once trust is lost, AI doesn't scale. This is critical because as AI agents operate more autonomously across enterprise productivity apps, companies truly need a trust layer so that they can scale AI adoption without losing control of data security, privacy and compliance. It's equally critical to understand why it's different now and what exactly has changed for enterprises seeking to govern data. At a high level, the most commonly leveraged productivity tools today like Microsoft 365, Google Workspace, Salesforce and others were originally designed for human productivity and not autonomous AI execution. As a result, with the rapid emergence of AI tools that are processing more information at greater speeds and scale than ever before, data governance must also evolve. This is exactly where AvePoint comes in, and the customer demand for this trust is the real AI opportunity we see. It's why we're building the trust layer for AI, spanning data, governance, risk and operations so that organizations can deploy AI securely responsibly and with confidence. We believe that organizations can only trust AI when they prioritize 3 things: first, precisely control what AI can access; second, govern and audit every action AI takes and finally, recover instantly when something goes wrong. This trust layer must do all of these continuously, all while maintaining data lineage across both unstructured and structured data sources. The resulting contextual data is an enormous competitive advantage for AvePoint and truly distinguishes us from legacy point solutions and backup first vendors. This differentiation was also recently validated by Gartner, who specifically cited AvePoint's comprehensive set of capabilities and platform strategy as superior to native offerings like Microsoft's Agent 365. Let me bring this to life by discussing our integrated approach, along with some specific capabilities and recent enhancements to our platform. First, see. We offer unified real-time visibility across the entire data estate, including what AI agents touch and how access patterns change. New this quarter, organizations can now see across their entire agent stack, including Copilot Studio, Microsoft Foundry, SharePoint Agents and Gemini Enterprise, all within one screen in Agent Plus. Second, Govern. Our platform provides automated policy enforcement, compliance standards and access controls across every environment and workload, including AI agents acting as virtual employees. This quarter, we launched a new risk definition for AI agents, so organizations can better access more information about agent security and correct problems automatically. This is especially critical because unmanaged agents can lead to runaway costs and expose sensitive data without proper oversight. Lastly, recover. We ensure granular, automated recovery from any failure, whether caused by ransomware, human error or autonomous AI activity. The speed with which we can do this is unmatched as we can often recover several petabytes of data per hour. Lastly, we made significant investments into Google Cloud Protection this quarter and recently added multi-SaaS backup sources like Okta, Confluence, Jira, DocuSign, monday.com, GitHub and Smartsheet, adding to our growing library of protected data. This integrated approach, see, govern and recover is powerful because it transforms AI risk into a manageable variable and ensures that the trust layer is a foundation for AI-driven growth, and it is resonating across the market, firmly cementing AvePoint as a foundational infrastructure that enables safe AI deployment at scale. A great example of this is a U.S. pharmacy benefits manager that became a new AvePoint customer in Q1. They wanted to roll out Copilot but knew they faced data sprawl issues with little visibility and control over 500 terabytes of unclassified data, seeking a single vendor who could address multiple strategic use cases, they purchased our highest tier control bundle along with OPUS from our Resilience suite. Ultimately, choosing AvePoint because our automated governance, life cycle and access controls would enable them to deploy Copilot with confidence and streamline the regulatory audits they face on a regular basis. They also plan to use our modernization suite for future data consolidation efforts aimed at reducing their tech debt and retiring their on-prem footprint. The customer need to rapidly address multiple strategic use cases is extremely common today given the number of ecosystems and applications our customers are using and the ability of our platform to protect and govern data regardless of where it resides is a unique competitive advantage. This was the driver for a large transportation and logistics conglomerate, which initially engaged AvePoint during the pandemic to decommission an on-premises data center and migrate roughly 50 terabytes of file share data to Microsoft 365. This effort went beyond the basic migration. The customer needed to preserve permissions, retention policies and governance while modernizing their environment. AvePoint supported this transformation with capabilities spanning modernization, control and resilience, enabling a secure transition to the cloud with strong governance and operational oversight. As the customer's environment matured, the relationship expanded to include broader governance and data protection. In 2025, when the customer began planning a shift from Microsoft 365 to Google Workspace, AvePoint's multi-cloud capabilities became increasingly strategic. The platform helped prepare data for transition through classification, policy management, insights and cleanup, ultimately leading to a Q4 2025 award for data transformation services supporting the move. Rather than being displaced, AvePoint's role strengthened providing consistent governance and resilience across cloud environments. This foundation also supports the customers' AI readiness as they adopt Google Workspace and Gemini, ensuring data is trusted, controlled and recoverable. Lastly, the foundation enables real-time situation awareness for the customer, where our platform's advanced reasoning can identify and surface urgent logistics action items, such as a delayed shipment or an unread threat about critical rate change before it is too late. Looking ahead to a planned 2027 migration into the parent company's Google tenant, the engagement exemplifies AvePoint's land and expand strategy, evolving from monetization to a strategic platform for multi-cloud governance, resilience and AI-enabled collaboration. This need for integrated platform solutions that deliver rapid automated value against multiple strategic use cases is only growing, especially in the highly regulated industry that represents the majority of our business. For example, effective data governance in the healthcare industry is more than better visibility and oversight. It's about patient safety, regulatory compliance and operational resilience. One of our largest customer recently shared that bundling Agent POS within the broader governance capabilities of our control suite has provided them visibility into thousands of agents without having to make a separate business case related to their MC65 deployment. We're hearing similar feedback from partners. Our latest report conducted in partnership with Omdia, the leading global channel technology market research firm, revealed that nearly half of MSPs want a complete platform integrated with other core tools and 91% say that integrating data backup and disaster recovery delivers stronger data governance than offering them separately. We saw this many times in Q1 with existing customers who added to their AvePoint deployments, and we continue to believe that our nearly 30,000 customers still represent an enormous growth opportunity for us. For example, an Austrian luxury goods conglomerate that already own OPUS needed to ensure business continuity as well as tailored lengthier retention policies for their data in M365. With native capabilities not allowing for this level of customization, they purchased cloud backup from our Resilience suite in Q1, and we're now discussing the many strategic use cases that can be addressed with our control suite. Despite the noise across the software space for the last few quarters, our strategic priorities have not changed and our growing conviction in our 2029 goal of $1 billion in ARR remains as strong as ever. The relentless growth of data and the growing demand for platform solutions that enable AI deployment at scale will ensure that AvePoint remains a top priority for enterprises around the world, and we're excited for a strong 2026. Thank you again for joining us today. I'll now turn it over to Jim. James Caci: Thanks, TJ, and good afternoon, everyone. Thanks for joining us today. Our first quarter results were an excellent start to the year and a continuation of the healthy momentum and market demand with which we closed 2025. As I discussed last quarter, very few software companies have AvePoint's organic growth profile, scaling operating margins and GAAP profitability, material cash flow generation and healthy SaaS KPIs. Our Q1 results once again highlight these strengths and demonstrate our ability to consistently execute on our commitments to shareholders. Let's turn to the quarter. Total revenues in Q1 were $117.2 million, representing 26% growth year-over-year and above the high end of our guidance. On a constant currency basis, total revenues grew 20% year-over-year. SaaS revenues were $93.4 million, growing 35% year-over-year and representing 80% of total Q1 revenues, surpassing last quarter's record and exceeding our mix expectations. On a constant currency basis, SaaS revenues grew 29% year-over-year. Term license and support revenues declined 29% year-over-year and represented 8% of Q1 revenues compared to 12% a year ago. I would also point out that beginning this quarter, we are now including our legacy maintenance revenues in the term license and support revenue line item for all periods presented, given that maintenance is immaterial now to our total revenues. Lastly, services revenues grew 33% year-over-year to $14.5 million, representing 12% of Q1 revenues. As a result, 88% of our Q1 revenues were recurring, and on a constant currency basis, services revenues grew 27% year-over-year. Our healthy momentum is also evident when we look at revenue performance by regions. In North America, total revenue growth was 21% year-over-year, driven by SaaS revenue growth of 32%. In EMEA, total revenue growth was 30% year-over-year, driven by SaaS revenue growth of 39%. In APAC, total revenues grew 28% year-over-year, driven by SaaS revenue growth of 37% and services revenue growth of 46%. On a constant currency basis, EMEA SaaS revenues increased 26%, while total revenues increased 18%. For APAC, SaaS revenues increased 32% on a constant currency basis, while total revenues increased 22%. The same top line strength by region is evident when looking at ARR. In Q1, North America ARR grew 21%, EMEA ARR grew 32% and APAC ARR grew 27% as we ended the quarter with total ARR of $435.2 million. This represents year-over-year growth of 26% or 23% after adjusting for FX. As a result, net new ARR in Q1 was $18.4 million, representing growth of 17% year-over-year after excluding the $2.8 million of the ARR that was acquired in Q1 of last year. As TJ mentioned, this was our 12th straight quarter of double-digit growth in net new ARR. Lastly, as of the end of Q1, 58% of total ARR came through the channel compared to 55% a year ago. Last quarter, we called out our consistent success at the enterprise level, and this momentum continued in Q1. We ended the quarter with 863 customers with ARR of over $100,000, a year-over-year increase of 25%, an acceleration from last quarter's record. We are pleased that the growth rates for our larger customer cohorts were all higher than the 25% growth from our $100,000 cohort, demonstrating that we continue to meet the demands of the highly complex organizations looking for single platform vendors that can address multiple strategic use cases. Turning now to our customer retention rates. Adjusted for the impact of FX, our Q1 gross retention rate was 89%, a 1-point improvement from Q4, while our Q1 net retention rate of 110% was in line with Q4. Similar to prior quarters, our migration products again served as a 2-point headwind to GRR given their naturally lower retention rates. We would not be surprised to see this dynamic continue, especially given the recent elevated demand for migrations we called out last quarter. On a reported basis, Q1 GRR was 89% and NRR was 111%. Turning back to the income statement. Gross profit for Q1 was $86.1 million, representing a gross margin of 73.4% compared to 75% a year ago. The year-over-year gross margin decline is primarily the result of lower gross margins on our services revenue this year versus a year ago. Moving down the income statement. Operating expenses in Q1 totaled $65.6 million or 56% of revenues compared to $56.5 million or 61% of revenues a year ago. As a result, Q1 non-GAAP operating income was $20.5 million, representing a 17.5% operating margin as well as year-over-year expansion of 310 basis points. Importantly, our ongoing management of stock-based compensation, which was 6% of Q1 revenues, has driven an even stronger expansion of our GAAP operating margins, which were just under 11% in the quarter and expanded more than 730 basis points year-over-year. Taken together, these results demonstrate that our investment year is not a retreat from profitability and proves that we can fund our AI road map while simultaneously delivering meaningful leverage across the business. On a Rule of 40 basis, which for AvePoint is the sum of ARR growth and non-GAAP operating margin, we finished Q1 at the Rule of 43. Using the more traditional Rule of 40 components of revenue growth and free cash flow margin, we finished Q1 at the Rule of 51. Turning to the balance sheet and cash flow statement. We ended the quarter with $444 million in cash and cash equivalents. For Q1, operating cash flow was $24.3 million or a 21% margin, while free cash flow was $23 million or a 20% margin. This compares to operating cash flow of $500,000 and free cash flow of a negative $1 million a year ago. Last quarter, we discussed the acceleration of our share repurchases, reflecting our belief in the underlying strength of the business and commitment to driving shareholder value. This increased pace continued in Q1 as we repurchased 5.4 million shares for approximately $60.8 million. For reference, we spent approximately $50 million on share repurchases in all of 2025. Through the close of trading on Friday, we have bought another 1.8 million shares for approximately $17.7 million. Given the increased pace of our buying, our Board of Directors has authorized the replenishment of our existing share repurchase program back to $150 million. I'd like to make 2 additional points on our repurchases, which remain a key pillar of our capital allocation framework. First, they have minimized the dilutive effects that we see from the issuance of shares to employees. Second, we are generating meaningful cash flow even after accounting for repurchases. As our cumulative free cash flow after share buybacks over the last 3 full-years is approximately $78 million. Turning now to our guidance, where I want to provide some color. First, we are raising our full-year guidance for ARR, which reflects our momentum and healthy demand we see. Second, our updated full-year guidance for revenue and non-GAAP operating income only includes the Q1 outperformance relative to guidance as we account for the increased SaaS mix we now expect for the balance of the year and the impact it may have on reported revenues. The last point is around FX, where the global nature of our business exposes us to fluctuations in currency exchange rates and the currency headwind we saw in Q1 from the strengthening dollar has continued in Q2. The corresponding incremental FX headwinds we expect for the rest of the year are also reflected in our updated full-year guidance and more than offset the ARR raise and the Q1 outperformance. We have included a slide in our investor presentation that outlines this progression from our original guidance to today's updated outlook. As a result, for the second quarter, we expect total revenues of $120.3 million to $122.3 million or growth of 19% at the midpoint. On a constant currency basis, we expect revenue growth of 18% at the midpoint. We expect non-GAAP operating income of $18.7 million to $19.7 million. For the full-year, we now expect total ARR of $523.4 million to $529.4 million or growth of 26% at the midpoint. This includes a $0.5 million raise from our prior guidance, offset by an FX headwind of $2.2 million. On an FX-adjusted basis, we continue to expect total ARR growth of 26% at the midpoint. We now expect total revenues of $509.4 million to $515.4 million or growth of 22% at the midpoint. This includes the Q1 beat of $1.8 million, offset by an FX headwind of $2.9 million. On a constant currency basis, we expect revenue growth of 20% at the midpoint. Lastly, we now expect full-year non-GAAP operating income of $91.5 million to $94.5 million, which includes the Q1 beat of $700,000, offset by an FX headwind of $2.2 million. Finally, on a Rule of 40 basis, the midpoint of our updated full-year guidance is a 44%. In summary, we are proud of the team's strong start to the year. We are excited for a strong Q2 and 2026 as we are well positioned to capitalize on the enormous market opportunity we see. Thanks for joining us today. With that, we would be happy to take your questions. Operator? Operator: [Operator Instructions]. The first question comes from Joseph Gallo with Jefferies. Joseph Gallo: Can you just unpack the 1Q performance a little bit? Was the 23% constant currency ARR growth in line with your expectations? I assume so given you modestly raised the full-year, which is really impressive. Then just maybe just walk us through the confidence in that acceleration from 23% to 26% constant currency throughout the year. James Caci: Yes. Thanks, Joe. Short answer is right in line with our expectations coming off of just really providing that guidance in February at the end of February. No real surprise. Obviously, little FX impact, but pretty much right in line with what we expected. When we think about the full-year kind of accelerating from that 23% to 26%, one of the key things for us is that you may recall last year, we definitely had a lot of uncertainty, and it was a tough year for our U.S. public sector. Now obviously, our public sector is a global business, but we definitely saw some softness last year in our U.S. public sector, particularly in the federal space. What we're seeing this year, and we're already seeing in Q2 is some traction, some pickup. Our pipeline is growing. We see some nice growth rate that's going to propel really the second half of the year, particularly in public sector. That definitely is an impact and will gives us the confidence today to sit here and see that we have a pathway to that 26% growth. Joseph Gallo: Then just as a follow-up, TJ, you've been tremendously bullish on the potential of AI this quarter, last quarter, quarters before that. I think the last disclosure you gave was Control Suite was growing 18% year-over-year ARR in 4Q. Are we seeing a rebound in those growth rates? Or as investors, what metrics should we be monitoring that correlate with the positive AI message that you're articulating? Tianyi Jiang: That's a great question. First of all, AI is a tailwind for us as we play the infrastructure layer, we talked about the trust layer in the prepared remarks, above the energy, the chips and the data and right beneath the corporate fine-tuned training model and then, of course, AI and workflows. That's the space that we operate, and we're very comfortable in that space to do the end-to-end data curation, management, governance. It's really pervasive across our entire AOS platform. Now we did announce AgentPulse, that's driving a ton of interest and also actual results. Nearly half of our pipeline now is the control suite. It's really lifting up our overall significance around the end-to-end multi-cloud agent discovery, agent management, agent cost management as well as ultimately shutting down our rogue agents as well as recovering from damages potentially done by agents. Really, we see ourselves as the only end-to-end players in that space to help our customers gain confidence and trust into their enterprise AI deployments. Operator: The next question comes from Shrenik Kothari with Baird. Shrenik Kothari: TJ, you mentioned about the expanded protection into Okta, a bunch of Atlassian offerings, Cosmo CV, etc. Just how should we think about both the overall TAM expansion across the SaaS identity and developer estate as well as potential timing of how this opportunity plays out? Then I had a quick follow-up for Jim. Tianyi Jiang: Yes, that's a great question. Firstly, the reason we supported all these multisources is because that's what we see with our customers. Our customers are multi-cloud, and they also leverage different vendors for different aspects of their data repositories and enterprise needs. We actually see the demand very strong, especially you talk about timing, right? In Q1, when the height of the conflict in the Middle East, many of our MENA as well as so Middle East, North Africa as well as European customers are very, very keenly aware on the data resiliency aspect of it. We actually see tremendous demand in those markets. More demand, not less for resiliency and also into these new data sources. It's actually a very good positive movement for us in that regard as part of our overall platform to drive entire life cycle of resiliency. Shrenik Kothari: Just a quick follow-up, TD and Jim, feel chime like. If AI governance and you went into great detail, it's increasingly mapping to a lot of great outcomes, right, across your offerings, including lower storage, better audit readiness, also reducing agent spend. How do you think about the value capture? I know you have mentioned about potential outcome-based approach and packaging optimization. Where should this consumption or outcome-based pricing first become material? If you can give some anecdotes. Tianyi Jiang: Yes. We actually do more services now as well, as you saw in the Q1 pickup. That's really focused around AI modernization efforts. What our customers discover and our partners is that given our pedigree and our capabilities around day-to-day curation, management and governance, we actually help them lead to much faster, positive and confident AI deployment outcomes. The services component is part of that. It also allow us to stay very close to the customer to see where really the market is moving. Different geos have different characteristics, because we do cover the globe. We're very positive and confident in continuing that type of outcome as a service type of engagement to stay close to the customer. In terms of licensing, we follow the market makers. In the productivity side, whether it's Office Cloud or Google Workspace, it's very much the whole market is seat-based licensing. On the compute side, whether it's GCP, whether it's Azure, whether it's AWS, that's very much consumption-based. What we look at is IaaS, Infrastructure as a Service, PaaS, Platform as a Service and of course, very much all the agentic work that's very much running on the compute side. That's the consumption side. Of course, we layer in our service -- outcome as a service capabilities to help our customers modernize AI. I will also say we see the greatest demand from regulated industry because they fundamentally understand this problem set. Rest of the market is still taking time to reach that keen awareness of the need for proper end-to-end data management governance. The regulated industry are moving rather quickly, and we see the chunk of the larger deal engagement happening there. Yes, so that's -- we continue to see a tailwind. Operator: The next question comes from Erik Suppiger with B. Riley Securities. Erik Suppiger: As customers start adopting AI agents, is there a difference in the way that they prioritize securing primary data versus secondary data? Tianyi Jiang: I think I was just with a sizable customer yesterday. I think the priority of priorities is to guard against and make sure that they enterprises have a handle on now the shadow AI. Everyone -- many people, employees within the organization are doing AI by coding, standing up AI agents with whatever commercial off-the-shelf offering that are out there. That is something that everyone really focused on. First step is to audit and discover and, of course, bring those agentic processes under control. That's what we see. Also your question around data. Fundamentally, the AI enterprise deployment does ground on good data. Where we see these data silos that's happening and messy data, IoT data redundant as a trigger data, that does lead to inferior outcome when it comes to AI. We really focus around unstructured data. Really helping enterprises look at across their unstructured data repository, which is, again, 80% of all data out there, that's e-mails, that's chat, that's files, that's contracts. That's also the type of data that Gen AI is very good at in shifting through, ingest and be able to inference intelligence out of. It's also that corpus of data set that need to be better curated, better governed. From a risk and compliance perspective, enterprise have more confidence in that AI deployment. Operator: The next question comes from Todd Weller with Stephens. Todd Weller: Could you elaborate on the durability demand you're seeing in the resilience segment, kind of break down how much growth is coming from new customers versus expansion? Then also tie into that the bundling strategy and how that's influencing deal sizes and growth? Tianyi Jiang: Yes, I'll comment on the first part, and then I'll let Jim talk about the financial details. We see very robust growth in the resiliency side, especially as my earlier commentary in the EMEA territories, given the heightened awareness of resiliency when Azure -- when the hyperscaler data centers, in this case, AWS are taken offline, that increases the awareness of failover resiliency. Of course, almost every other day, we read about AI rogue agents going out there and destroying certain significant segment of enterprise infrastructure when it comes to data. That's also very top of mind for our customers. The demand for resiliency is very high. We have to caveat that it's part of our platform. We view ourselves as really the only vendor out there that does the end-to-end, not only the resiliency to recover a bit, but also obviously, the control, life cycle management, governance, curation of data, but also importantly, governance agents and raising awareness on the cost. The agent cost is actually another very big topic across our enterprise -- all customers because if you're not monitoring the agents, it will go true up as many tokens as you allow it to consume. Agent and token consumption, token optimization is now a very large topic. It's rolled into this whole AI governance topic as well. James Caci: Then maybe the other piece to that question about how much is coming from existing customers versus new customers. If you look in general across all our products, we're roughly 60-plus percent is coming from our existing -- or I would say, new ARR is coming from our existing customers, so about 60-plus percent with the balance coming from new customers. Obviously, that fluctuates from quarter-to-quarter. I would say in resilience, we're roughly in that same category, same range. Again, that does fluctuate from quarter-to-quarter, but I would use that as kind of like a baseline. Operator: The next question comes from Derrick Wood with TD Cowen. James Wood: TJ, I just wanted to touch on Microsoft starting to see some inflecting adoption of Copilot. They had 5 million seat adds last quarter. Could you give us a sense as to how you've been able to participate in this accelerated activity and if this is driving stronger pipelines? Or is demand kind of being brought more into the Azure AI studio type of environment? Tianyi Jiang: That's a great question. I think $5 million is still a very small fraction of the total deployment seats for MCC 5. We actually see far more what you referred to than the latter, the Copilot Studio deployment of AI for specific use cases. Same thing across Google space. Google Gemini, it's a very, very robust growth, especially in enterprise as well as now in U.S. public sector. We actually see across the spectrum of AI deployments and adoption. That's very exciting. That's very much a tailwind that we actually get involved in. It's more of the overall AI adoption and evolution rather than the specific Office Copilot deployment numbers that's driving our growth. James Wood: Jim, maybe one for you. You talked about SaaS mix shift this year versus maybe what you were originally thinking. Can you double-click on that and why it would be higher and what that means in terms of the impact to the on-prem business? James Caci: Sure. I'm glad you brought it up, Derrick. Yes, so we noticed that in Q1, definitely of the business that was closing, more of that was showing up as SaaS in terms of just the dynamics as opposed to us having to do revenue recognition as a term license. What that means in the short term is that you're recognizing less revenue upfront. If you remember in that term license scenario, you have a larger percentage recognized immediately and then a smaller percentage recognized ratably over the rest of the contract. Obviously, in the SaaS environment, it's ratable over the whole term. When that happens, when we see more of a shift or in our case, even from a budgeting point of view, we have to make an assumption as to what that split is going to be on new business. We were assuming a higher percentage of term, which would have resulted in more revenue in the short term. Now this is a good thing long term for us. We want to see more ratable revenue, makes it easier to predict, easier to forecast. In the short term, and even in our guidance for not only Q2, but Q3, we've kind of assumed that this new paradigm for at least what we saw in Q1 would be fairly consistent for the rest of the year. As a result, the revenue is not going to be what we expected it to be, which is why you see me not raising guidance. I would have liked to have been in a position to raise guidance for revenue, matching what we did with ARR. Because of this mix, I'm actually going to see less of that revenue anticipated growth. We've kind of left guidance the same because we're actually seeing, as TJ mentioned, some additional services revenue, which is nice, and it's above what we had budgeted. That's a little bit of an offset, but this mix shift definitely will result in less revenue coming from the products in the short term. Then obviously, long term, it all evens out. Operator: The next question comes from Kirk Materne with Evercore. Vinod Srinivasaraghavan: This is Vinod Srinivasaraghavan on for Kirk. Two questions for me. First, as you're kind of going -- undergoing that shift to a channel-first approach, can you give us a sense of how channel partner economics have evolved over time? How are you kind of balancing that with how you compensate your direct sales force? Tianyi Jiang: That's a great question. Channel, we do embrace channel-first strategy, especially in the medium to small customer segments. That's roughly now 50% of our overall recurrent business. Even in enterprise, now we're picking up regional SIs as channel partners, and we're looking at some even bigger sized SIs as go-to-market. Within the channel, there's also the managed service providers as a massive uplift for us, highly sticky segment as intermediary to get into SMB. We do have a comp neutral philosophy. Our sales orgs are encouraged and embrace our channel as a force multiplier. Overall, the economics of it continue to be fantastic because as we always cited, when we went public in July 2021, our cost of sales and marketing is 41% of our revenue. Latest quarter, it's just covered around 31%. All of that improvement, we credit majority of that is to our channel efficiency, and we'll continue to drive that channel efficiency because channels will allow us to scale. Importantly, we give much of the simpler service workloads the data migrations and those type of services to the channel. That would then generate service opportunities for the channel. In the MSP segment, we have our large channel partners citing that for every dollar that they spend on our software, they generate $5 of service opportunities for them to better help their customers. That's the incentive really for the channel is to drive additional revenue growth in terms of service revenue for our channel partners. Overall, the economic model is a nice flywheel. It's growing in all regions. We now see really nice uptick in LATAM. Of course, also in India and in Middle East, we're doing super well. All of that is very much channel-first, channel-led strategy. Vinod Srinivasaraghavan: Then just one last one for me. As you move to that hybrid seat and kind of outcome consumption-based pricing model, how do you expect that will impact NRR and kind of revenue predictability over the next like 1 to 2 years? Do you expect you have to change your guidance philosophy, maybe widen it over time as a result of that or no? Tianyi Jiang: We don't think so. The outcome-based services, it's really to do the AI modernization, help our customers to really be able to first get their data estate housing order and then help them implement a lot of these AI modernization initiatives. That's going super well. That's our way to stay close to the customer. We always have a portion of our business now roughly about 12% that's really focused on this top-tier enterprise customers, public sector in terms of that service capabilities and delivery. That has always been our IP generation engine. Today, it's our engine to stay very close to the customer to see where the market is going. The market is highly disruptive. We all know, right? In reality, no one really know what does the market look like 2 years, 3 years out. It's super important for product companies like us that really have a global footprint to have in every region that we operate in an advanced service capability. Now it's really outcome as a service delivery model to provide that premium service capabilities to stick close to the AI initiatives. That's how we continue to stay very agile and stay in the leading edge of the tech disruption. That doesn't actually impact -- it's only a leading edge, right? The overall 88% of the business is still very much a cloud business. It's a subscription business. Again, as I mentioned earlier, the market makers, the hyperscalers, they determine the paradigm of licensing, whether it's seat count-based or consumption-based. We see that model to be going to be the state of things for the time to come. We don't see that being very different, at least not in the medium term. Operator: The next question comes from Jeo Vandrick with Scotiabank. William Vandrick: TJ, did I hear you say that nearly half the pipeline is coming from the control suite today? Just wanted to clarify that that's right since I think that's about 1/4 of the business as of 4Q. Tianyi Jiang: That is correct. Last quarter, actually, well over 1/4 of new closed deals are control. Now 50% of the pipeline are created with Control. Governance of AI, governance of data, it's very, very much top of mind for customers. William Vandrick: Then maybe one for Jim. Can you talk a little bit about the investments you're making in 2026? Is sales and marketing the main focus for incremental investments just to capture the large market opportunity? How are you measuring ROI there? James Caci: Joe, yes, I think you're right, you're spot on. You can even see it in Q1, the step-up in our marketing spend, definitely been a key focus, both sales and marketing. As T.J. mentioned, obviously, we're getting really good leverage from the channel, but that doesn't mean that we're not continuing to invest in our direct teams as well because we are. We're actually able to do both. We're making nice investments there, both in people, technology and really looking to scale that group. Our goal is not to execute just for 2026, but to get to this goal of 2029. We're making investments really this year that are going to propel the business well beyond '26. We're doing that across the board and that some of the marketing initiatives that we're invested in as well, everything from the account-based programs that we have, all the way to some brand initiatives that we've taken on this year. Again, it's a big focus for us, again, focused on really delivering for 2029 and taking advantage of the market opportunity that you mentioned. We're doing that. In terms of ROI, obviously, some of these are more tangible than others, but we review these on a periodic basis to make sure that we're getting the expectations. Some of that translates to immediate results. Some of it is more other maybe softer metrics today that lead to those harder metrics later. Again, we're on top of it. We're making those investments. We believe they're required today to hit those goals in the long term. Operator: Next question comes from Stephen Bruno with Northland Capital Markets. Stephen Bruno: Jim, I'm wondering if you could go through what you -- your expectations for free cash flow for '26 is and what the cadence and sizing of repurchases and your overall capital allocation plan for the year is? James Caci: Yes. Thanks for the question. When we think about capital allocation, we've talked about this. We really think of it as 3 different pillars. Obviously, we want to invest in the business itself to make sure that our teams are well equipped, well staffed and can execute to the absolute maximum that they can. We want to first ensure that the business has the resources to do that. That's first and foremost. Second is we do want to look at opportunities for -- to supplement our internal growth with M&A activities. We have active discussions all year long with a number of target opportunities. M&A is a vital strategy for us. We've done small acquisitions in the past. We've talked about potentially doing larger acquisitions. That fits into our capital allocation strategy, and we're constantly looking at those deals, and making sure that we have proper capital allocated to be able to execute. Then the third is obviously the repurchases you mentioned. We've obviously, as we talked about earlier, stepped up our buying not only in Q4, but we continued that in Q1 and the beginning of Q2. Again, we have the ability, fortunately, with our strong balance sheet to be able to execute on a variety of these capital allocation strategies, not just one. That's been really good. We'll continue to do that. I think when we think about how much we're going to do in terms of repurchases, I get this question a lot. I think that's something we're continuously evaluating, and it's in the context of the other 2 pillars that I mentioned. If an M&A opportunity comes along or if we're looking at something, we may dial back repurchases, we may accelerate. We kind of look at it as flexible and taking advantage of the opportunities that present themselves to us. When we think about free cash flow, you noticed we obviously generated a lot of cash in Q1, and it's really very good, but there are a couple of factors that I just want to point out for our Q1 performance. It really comes down to 3 things. If you compare our generation this quarter to a year ago, pretty significant improvement and really dramatic. I think that's 3 factors. One, if you looked at our net income in Q1 of this year compared to last year, we've generated an extra $12 million of net income. The business is performing well. That's first and foremost. Then second, if you think of Q1 of '25, we called out that we had some special onetime payments, really tax-related payments in Q1 of '25 of about $7 million. Again, we didn't have those same payments in '26. We see some nice benefit from that. Then the third thing I would call out is that in '26, we received some customer payments in Q1 that in prior years would have been received in Q4. That was probably about $6 million. Again, taken all together, the biggest factor is the performance of the business has accelerated. We feel really good about the cash flow generation. When we think about the full-year, I think we're going to be in line with what we've done in the past, which is we're going to exceed our operating income in terms of cash flow generation. Right now, we're guiding to the low 90s in terms of non-GAAP operating income. I would expect us to be generating free cash flow north of $100 million for the year. Again, we don't specifically guide to it, but in terms of -- just in terms of a range and if you're thinking about modeling or anything else, I would say that's the area that I would be shooting. Operator: This does conclude the question-and-answer session. I would like to turn the conference back over to TJ Jiang for any closing comments. Tianyi Jiang: Thank you for joining us today. We're proud of our first quarter results and raised outlook for the year, which reflects the growing demand for secure, automated and AI-ready solutions. The increasing strategic importance of our platform and its enablement of AI-driven transformation for companies of all sizes and industries around the world ensures a durable competitive moat for AvePoint and only strengthens our conviction in the enormous market opportunity we see. We're excited for continued momentum in 2026 as we progress toward our $1 billion ARR target. Thank you again for joining us today, and we look forward to speaking with you more this quarter. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Operator: Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the BioLife Solutions Q1 2026 Shareholder and Analyst Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the call over to Troy Wichterman, Chief Financial Officer of BioLife Solutions. Troy Wichterman: Thank you, operator. Good afternoon, everyone, and thank you for joining the BioLife Solutions 2026 First Quarter Earnings Conference Call. On the call with me today is Roderick de Greef, CEO and Chairman of the Board. We will cover business highlights and financial performance for the quarter and reiterate our 2026 financial guidance. Earlier today, we issued a press release announcing our financial results and operational highlights for the first quarter of 2026, which is available at biolifesolutions.com. As a reminder, during this call, we will make forward-looking statements. These statements are subject to risks and uncertainties that can be found in our SEC filings. These statements speak only as of the date given, and we undertake no obligation to update them. We will also speak to non-GAAP or adjusted results. Reconciliations of GAAP to non-GAAP or adjusted financial metrics are included in the press release we issued this afternoon. Now I'd like to turn the call over to Roderick de Greef, Chairman and CEO of BioLife. Roderick de Greef: Thanks, Troy. Good afternoon, everyone, and thank you for joining us for BioLife's First Quarter 2026 Conference Call. We're off to a solid start to 2026 with first quarter revenue growth of 25% and adjusted EBITDA up approximately 15% versus the prior year. Performance in the quarter was driven by continued strength across our broader product portfolio, led by our biopreservation media or BPM franchise. We entered 2026 with a simplified business and heightened focus on high-margin recurring revenue, and our results this quarter demonstrate the operating leverage in our model as a result. At the same time, we're seeing continued momentum across the CGT landscape, driven by expansion into larger indications, encouraging data readouts, strategic M&A and an improving funding environment, all of which we believe will support long-term growth across our end markets and underpins sustained value creation for BioLife shareholders. Turning to the quarter's results. Total revenue reached $27.5 million, increasing 25% year-over-year and adjusted EBITDA of $6.2 million or 22% of revenue, up roughly 15% from the prior year. BPM remained the primary driver of revenue growth with our other cell processing tools also contributing to overall growth. BPM represents over 85% of total revenue and continues to benefit from broad adoption across both commercial therapies and clinical pipelines where we maintain a dominant market share. Our top 20 BPM customers represented approximately 80% of BPM revenue and demand forecast from these accounts provide good visibility into our business. Channel mix remained consistent with over 60% of BPM revenue generated through direct sales with the balance through third-party distributors. Roughly half of BPM revenue was generated from customers with approved commercial therapies, and this remains a key driver of growth and durability in our model. We highlight these metrics because they reflect the ongoing shift in our business toward later-stage programs and commercial products, which are more stable, less sensitive to funding dynamics and growing faster than the broader CGT market. Several of the therapies we support are already at or tracking toward blockbuster status with annual revenues exceeding $1 billion. As these therapies scale and expand into new geographies and additional potentially larger indications, we believe BioLife is well positioned to benefit from higher patient volumes and the recurring nature of these revenue streams. Gross margin and adjusted EBITDA as a percent of revenue declined year-over-year due to the previously discussed bag yield dynamics. This remains a key operational priority, and we are making steady progress in close collaboration with our key customers to address it and are confident that this is temporary in nature. Stepping back, our market position continues to strengthen. At the end of the quarter, our BPM products were embedded in 17 approved therapies with visibility into an additional 9 unique approvals, expanded indications and geographic expansions over the next 12 months. Across the broader pipeline, we estimate our solutions are utilized in more than 250 commercially sponsored CGT clinical trials in the U.S., exceeding a 70% market share with an even higher share in later-stage Phase III programs. Independent third-party analysis of U.S. commercially sponsored trials where our biopreservation media is not used, no other commercial alternatives were identified, suggesting that these trials are relying on internal homebrew formulations. Given our leading share among late-stage programs, we expect this pipeline will convert into future commercial revenue as therapies advance through the approval process, reinforcing our position as a critical spectrum component of the cell therapy workflow. Building on this foundation, our team is focused on expanding BioLife's role within the CGT workflow beyond biopreservation media. Our CellSeal Vials and hPL product lines are already utilized in 4 approved therapies and over 35 clinical programs, and that number continues to grow. This expanding footprint is supporting our cross-selling efforts with existing BPM-only customers evaluating additional components of our portfolio. Given the size of these organizations and the rigor of their validation processes, adoption cycles tend to be longer, reflecting a higher bar for change while reinforcing the stickiness of these relationships. That said, we're seeing encouraging early traction and each additional BioLife product that's integrated into a therapy has the potential to increase our revenue per dose by 2 to 3x relative to BPM alone. While still early, this represents a meaningful opportunity to enhance both growth and the overall financial profile of the business. From a capital allocation standpoint, we remain focused on the highest return opportunities to support long-term growth, both organically and through disciplined strategic initiatives. Alongside our cross-selling efforts, we are regularly evaluating adjacent areas that build on our core scientific and commercial strengths. This includes selective acquisitions, minority investments and strategic partnerships that broaden our platform and increase our participation across the CGT ecosystem. This is enabled by our balance sheet, which gives us the flexibility to pursue attractive opportunities with discipline while maintaining a high bar for financial profile and strategic fit. Turning to our 2026 outlook. We are affirming the guidance we introduced on our last call. We expect revenue of $112.5 million to $115 million for the year, representing growth of 17% to 20%. As in prior years, our guidance reflects the visibility we have today based on demand forecast from our key customers. We also expect continued operating and adjusted EBITDA margin expansion and anticipate generating full year GAAP net income for the first time in many years. Before handing it over, I'll briefly highlight a few favorable developments we're seeing across the cell therapy landscape. Field is diversifying beyond traditional oncology applications with increasing activity in large autoimmune indications. We're also seeing encouraging data emerging in allogeneic cell therapies that have the potential to unlock multibillion-dollar market opportunities as well as renewed interest in established autologous approaches such as CAR-T and TILs, expanding the market from its base in liquid tumors into solid tumor indications. At the same time, we're seeing meaningful strategic activity, including the recent nearly $8 billion acquisition of Arcellx by Gilead as well as continued investment in next-generation manufacturing capacity and automation to support scale. As these therapies evolve and care settings shift, whether into outpatient and community settings or toward off-the-shelf approaches, this is expected to support sustained demand for robust, high-quality and trusted cell processing tools, biopreservation media and packaging solutions, areas where BioLife is well positioned. Taken together, these dynamics reinforce our confidence in the long-term trajectory of the field and the attractiveness of the CGT end market. BioLife has exposure across these areas and is uniquely positioned to benefit as these trends translate into durable demand. With that, I'll hand the call over to Troy to provide an overview of our first quarter financial results. Troy? Troy Wichterman: Thank you, Rod. We reported Q1 revenue of $27.5 million, representing an increase of 25% year-over-year. The year-over-year increase was primarily related to increased sales of our biopreservation media products, driven by strong demand from customers with commercially approved therapies as well as strong revenue growth from the balance of our product portfolio. GAAP gross margin for Q1 2026 was 64% compared with 67% in Q1 2025. Adjusted gross margin for the first quarter was 64% compared with 68% in the prior year. The decrease in adjusted gross margin percentage compared with the prior year can primarily be attributed to a product mix shift towards bags, which carry lower gross margins than bottles as well as a previously discussed impact from manufacturing yields. We view the yield impact as transitory and a key operational priority throughout 2026. And as it is resolved, we expect a corresponding expansion in gross margin. GAAP operating expenses for Q1 2026 were $17.5 million versus $15.3 million in Q1 2025. The increase compared to the prior year can be attributed to a $1.2 million increase in R&D, primarily related to our PanTHERA acquisition in April 2025 and the opening of our Center of Excellence. In addition, we had a $0.9 million expense increase in stock-based comp acceleration related to severance, partially offset by a reduction of $0.8 million in acquisition costs. Adjusted operating expenses for Q1 2026 totaled $16.8 million compared with $13.8 million in the prior year. GAAP operating income for Q1 2026 was $27,000 versus an operating loss of $0.5 million in the prior year. The improvement was primarily due to increased revenue compared to the prior year and lower acquisition costs, partially offset by higher stock comp related to severance. Our adjusted operating income for the first quarter of 2026 was $1 million compared with $1.2 million in Q1 2025. Our GAAP net income was $1.2 million or $0.02 per share in Q1 compared to $0.3 million or $0.01 per share in the prior year. The increase in net income was primarily due to increased revenues compared to the prior year. Adjusted EBITDA for the first quarter of 2026 was $6.2 million or 22% of revenue compared with $5.4 million or 24% of revenue in the prior year. The primary driver of the change as a percentage of revenue in the current quarter was due to the impact of bag yields on our gross margin percentage as discussed earlier. Turning to our balance sheet. Our cash and marketable securities balance reported as of March 31, 2026, was $111.5 million compared with $120.2 million as of December 31, 2025. Taking into consideration our adjusted EBITDA of $6.2 million in Q1, cash usage was primarily driven by tax obligations for share withholdings vested in Q1 of $5.6 million, debt principal payments of $2.5 million and unfavorable working capital of $6.9 million, which includes an increase in AR of $5.1 million, primarily related to timing. The entirety of our $2.5 million SVB debt balance is considered short term. Our final payment on the SVB debt balance is due in June 2026. We will pay a $1.2 million loan maturity balloon payment due at the time of maturity. Turning to our 2026 financial guidance. We are reiterating our 2026 guidance disclosed during our fourth quarter earnings call. Total revenue is expected to be $112.5 million to $115 million, reflecting overall growth of 17% to 20%. The increase is primarily due to expected demand from our BPM customers with commercially approved therapies as well as increased demand for our other tools. We expect GAAP and adjusted gross margin for the full year to be in the mid-60s. We expect gross margins to benefit from favorable pricing, partially offset by product mix and the previously discussed impact from bag yields. We expect to achieve full year positive GAAP net income and expansion of adjusted EBITDA margin in 2026 compared to 2025. Finally, in terms of our share count, as of April 30, we had 48.9 million shares issued and outstanding and 50.3 million shares on a fully diluted basis. Now I'll turn the call back to the operator to open up for questions. Operator: [Operator Instructions] And our first question comes from Matt Stanton from Jefferies. Matthew Stanton: Maybe on the topic of the bags, could you just clarify, are you saying that the bags have lower margins than bottles, all else equal and that there's also the scrap issue tied to the bag, so kind of two issues on the bag in terms of mix? And then I would love to just get an update on the scrap side of the bag. I think before you talked about kind of a 90-day notice period. Maybe just help us in terms of getting that back to normal as we think about kind of the 22% adjusted EBITDA margins in 1Q and the walk up the rest of the year to kind of get to that year-over-year expansion that you reiterated again today. Roderick de Greef: Yes, Matt, let me take the second part of your question, and I'll have Troy deal with the first part. So with respect to where we are with our customers in order to solve this problem, we have been working with them over the last 60 days to provide them with several different alternatives to the existing bags, which are causing the problems. So we are at a point now where that customer notification will be going out shortly. There's a 90-day period for them to select effectively which option they'd like to utilize. And then we have to burn through the remaining bag inventory that we have. So we're on track for the same sort of timing as we had laid out in the last phone call we had. And we would expect to be able to see some flow-through of enhanced margin either Q4 or Q1 of '27, depending on how quickly we burn through the existing bag inventory. I'll let Troy answer the rest. Troy Wichterman: Yes. And Matt, on your question on bags versus bottles on gross margin. So as a percentage of revenue, bags do have a lower gross margin than bottles by quite a bit at this point in time because of that yield issue we've been talking about. Matthew Stanton: Okay. And then so once the yield issue is rectified, are the margins closer to the same as previous is that right? Troy Wichterman: Closer, correct. Matthew Stanton: Okay. Okay. And then maybe, Rod, you talked about a little bit just outside of biopreservation media, you talked a little bit about cross-selling there. I would love just some more color on the new product front. Obviously, you have the Cryo case. I think you've talked about maybe some other things coming out of the pipeline. You have PanTHERA here, would love kind of an update on that. Just anything as we think about the back half of '26 and '27 on the new product front and other things coming out besides biopreservation media. Roderick de Greef: Sure. You bet. With respect to the PanTHERA product, we're still on track for a Q4 launch of that. We've identified what the value proposition will be in addition to identifying the final molecule that we'll be going with. So that looks good. With respect to cross-selling the other products, that is a longer-term effort. It continues to move forward with respect to increased number of validations, et cetera. And I think that at the end of the day, when I look at the revenue growth, albeit from a smaller base, those other tools are growing at a faster rate actually than the biopreservation media is. So we're pleased with the momentum. Obviously, we'd like things to go faster, but there's a certain amount of inertia with respect to the validation process within these large companies. Operator: The next question comes from Brendan Smith from TD Cowen. Brendan Smith: Congrats on the quarter. Maybe just a quick one from us on a bit more sector level. I guess as you kind of look at state of biotech funding and kind of the broader strength you're seeing, are you potentially expecting any inflection orders over the coming months? I guess, just given that we're now kind of approaching almost 6 months of pretty solid funding recovery there. I guess, really, how big of a driver is that for BioLife realistically? And is this something that could jump up in Q3 or Q4? Or just kind of your view on the funnel looking like a more gradual ramp? Just kind of trying to understand cadence for guidance. Roderick de Greef: Yes. Thanks, Brendan. I think that as we've talked in the past, the biotech funding does not really impact us. To the extent that it does, it impacts us at very early-stage customers. There's a few exceptions to that. But in general, it affects earlier-stage customers that buy a very small amount of product through distributors from us, right? So the overall impact is not that meaningful. The bulk of the revenue, certainly the revenue growth is coming from well-capitalized firms. And when I look at the Phase III customers that we have that should be gaining approval over the next sort of 12 to 24 months, those are, by and large, also well capitalized. On top of that, though, to the extent there is an impact, I read the other day where overall biotech financings for '25 were about $11.1 billion. So it seems to me that, that issue has stabilized and now should not be a headwind at any level for us going forward. Operator: The next question comes from Paul Knight from KeyBanc. Paul Knight: Rod, we were at the BioLife booth at INTERPHEX, the CryoCase won one of the Best In Show awards. How is that going commercially? Roderick de Greef: Yes. We were pleased to receive the award for sure, Paul. I think it's good recognition that it truly was sort of a unique product that we put out. So again, we have well over 3 dozen validations going on, and I think that there's definite interest. But again, whenever you're dealing with something that changes in the manufacturing process, particularly of a final drug product, but even in late stage, it's a decision by committee, right? A lot of people are involved, and it takes a lot of time. But we're seeing some bright spots and are looking forward to being able to see some traction certainly towards the second half of the year, hopefully, with the type of announcement of a customer that people would recognize. Paul Knight: And then the other question, Rod, you mentioned earlier, autologous has kind of been the core of the market. But where are we with allogeneic cell therapy based on what customers are telling you? Roderick de Greef: Yes. I think we're still a couple of years out, but Allogene has published some decent data. I think they did a raise. So from a financial perspective, they're in a much more solid position. And I think there, although the overall BPM volumes per patient might be a little bit lower, the opportunity to address much larger patient populations is, in our estimation, going to far outweigh the reduced amount of volume per patient. But again, I think it's a good 2-plus years away from really having a revenue impact on BioLife. Paul Knight: And then lastly, you mentioned GAAP net income. Is that like targeting 4Q, Rod, or Troy? Roderick de Greef: No, it's for the full year per quarter, Paul. Operator: The next question comes from Mac Etoch from Stephens. Steven Etoch: Maybe following up on Paul's question. I think the share of homebrew has been pretty stable over the last couple of years, particularly in late-stage trials. As you think about cell and gene therapy expanding into these larger indications and the FDA focusing on more standardized platforms, do you see an opportunity to kind of capture more of that share moving forward? Roderick de Greef: Yes, I think so. As we're taking a cut of this data, Matt, on every 6-month basis. We go back and review the results of all the clinical trial work that has been done and refresh it. And the numbers are actually going up in our favor. So I think that at the end of the day, it's going to be very few folks who use a homebrew with a commercial product. As we've mentioned, we're in 900-plus trials worldwide, but the ones that really matter are the 250-plus that we're in that are commercially sponsored that are looking to achieve a commercial therapy. And I think that it's going to be increasingly difficult to justify whether it's from a cost perspective, a manufacturing process perspective, a logistics perspective, the FDA to use something other than the gold standard. Operator: The next question comes from Matt Hewitt from Craig-Hallum. Tollef Kohrman: This is Tollef Kohrman on for Matt Hewitt. Is there anything specific you want to call out on that increase in R&D expense? Roderick de Greef: Yes. I think it is directly related to bringing on the Center of Excellence, which provides us with the ability to do some serious scientific work. We have 4 or 5 scientists working at the center, all PhDs. We've never had that before in terms of a team of scientists that can actually do the R part in addition to the D part of R&D. So we're pretty pleased with that. So there's a cost associated with that as well as the cost of increasing the accelerating projects that we have internally, including the RCC, which will ultimately be the answer to the bag issue that we have. So that's a rigid container designed to carry our product from our factory to our customers in a rigid container that can be used in a closed system. So that's a product that we're definitely making an investment in as well as the consumable line associated with the CT-5. So that's where the money is going. It's really internal product development. Operator: The next question comes from Thomas Flaten from Lake Street Capital Markets. Thomas Flaten: Rod, you mentioned in your prepared comments that commercial BPM customers were about half the revenue. And I think on the last call, you said you could get that maybe up to 55%. Any update on that outlook? Or do you think 55% is still realistic? Or do you think you can push it beyond that? Roderick de Greef: I think in the near term, that's about the right number. The rate of growth of that group of customers versus, say, distribution or noncommercial is so significantly different that it's going to be a higher number in the outer years. But in this year, I think a target of 55% is pretty much where we're going to settle out. Operator: And our next question comes from Yi Chen from H.C. Wainwright. Katherine Degen: This is Katie on for Yi. Thinking about some of the deals you announced on prior calls with Pluristyx and Qkine with those two coming together and that announcement on May 1, does that integration kind of give you any meaningful wins for biopreservation media demand? Are you kind of expecting any pull-through from that deal? How are you kind of thinking about that? Roderick de Greef: are you speaking about the Qkine deal? Katherine Degen: Yes. Roderick de Greef: Yes. I think where the pull-through with our products comes into play is combining our CellSeal product line as a primary container for Qkine cytokine line. That's where we're going to see some incremental revenue from our products. The other way we'll generate revenue is obviously through the sale of their cytokines to our customer base. Katherine Degen: Yes. I guess my question is, are you expecting any synergy now that Pluristyx and Qkine have an agreement together? Roderick de Greef: You mean the Pluristyx and Qkine agreement? Katherine Degen: Yes, right. Roderick de Greef: No, no. I think -- yes, that's specific to Qkine providing some products that have -- that are relevant to their Organoid kit. So that really is outside of anything to do with BioLife per se. Katherine Degen: Okay. So you don't think they'll pull through any customer base from that? Roderick de Greef: Not that will directly impact our revenue in any way, no. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Rod de Greef for any closing remarks. Roderick de Greef: Thank you, Jason. In closing, 2026 is off to a strong start with solid top line growth. We remain focused on operational execution, including supporting our core BPM customers, expanding adoption across our broader portfolio and managing operations efficiently across our organization. We believe our position as a leading supplier of bioproduction products, together with exposure across the attractive and growing CGT end market leaves us well positioned for durable growth and long-term value creation. Thank you for your time today, and I look forward to seeing some of you at upcoming investor conferences. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: The host is recording this meeting. Line muted. Press pound pound one or hash hash one to speak. Kelsie Davenport: Good morning, and thank you for joining us as we discuss RGC Resources, Inc. 2026 second quarter results. I am Kelsie Davenport, director of finance of RGC Resources, Inc., and I am joined this morning by Paul W. Nester, president and CEO of RGC Resources, Inc.; Timothy J. Mulvaney, our VP, treasurer, and chief financial officer; and Tommy Oliver, senior vice president of regulatory and external affairs. To review a few administrative items, we have muted all lines and ask that all participants remain muted. The link to today's presentation is available on the Investor and Information page of our website at www.rgcresources.com. At the conclusion of the presentation and our remarks, we will take questions. Turning to slide one. This presentation contains forecasts and projections. Slide one has information about risks and uncertainties, including forward-looking statements that should be understood in the context of our public filings. Slide two contains our agenda. We will discuss operational and financial highlights for the second quarter and first six months of our 2026 fiscal year. We will then review our outlook for the rest of the 2026 fiscal year, with time allotted for questions at the end. I will now turn the presentation over to Tommy. Tommy Oliver: Well, thank you, Kelsie, and good morning, everyone. Turning now to operations on slide three. Main extensions and renewal activity for 2026 were steady. We installed 2.7 main miles, a similar total to the main miles installed in 2025. In addition, we connected 340 new services in 2026, which was close to the 359 connections from 2025, evidence that residential development continued across the region in the first half of the fiscal year. As shown on the right side of the slide, we renewed 1.5 miles of main and 190 services during the 2026 fiscal year. While the main miles renewed were down, in part due to weather, compared to the same period last year, the service renewals increased by almost 25%. Let us move to slide four, where we show our delivered gas volumes for the quarter. Despite an extreme cold spell in late January and early February, the quarter as a whole was warmer compared to the same quarter in the 2025 fiscal year. Total volumes were down 5% compared to 2025. Residential and commercial volumes were both down 5%, and heating degree days were down 2% compared to 2025. Let us move to slide five. The story of delivered gas volumes was a little different in the first six months of fiscal 2026. Despite the larger number of heating degree days, total volumes were down 3% compared to 2025, with the decline in industrial usage, primarily attributable to one customer, being the main reason. Unlike the quarter, heating degree days for the six months increased 3%, as the first six months of the fiscal year were colder than the prior year. Let us move to slide six, where we talk about CapEx. CapEx for 2026 compared to 2025. Total spending was 9.8 million dollars in the current year, down approximately 8% over the same period a year ago. Weather related to a winter storm in late January and early February affected our spending. We picked back up in March and will discuss plans for the remainder of the year later in the presentation. I am going to now turn it over to our CFO, Timothy J. Mulvaney, to review our financial results for the quarter. Tim? Timothy J. Mulvaney: Thank you, Tommy. Moving to slide seven, this shows both our second quarter and first half results for fiscal 2026. We had a robust quarter, with increased Roanoke Gas margins due to the rates that went into effect January 1 combined with higher earnings from our unconsolidated affiliate, MVP, and lower interest expense, which overcame higher expenses related to investment in our gas system and inflationary pressures that remain higher than the Fed’s 2% target. Net income of 8.7 million dollars, or $0.84 per diluted share, compared to net income in the same quarter a year ago of 7.4 million dollars, or $0.74 per diluted share, a 14% increase. The year-to-date results are also shown on slide eight. The strong Q2 results drove the six-month performance as well, as the first quarter did not have the benefit of the January rates. Net income was 13.6 million dollars in 2026, or $1.31 per diluted share, compared to $1.26 per diluted share in 2025, a 5.3% increase. A reminder about the seasonality of our industry: with recent ratemaking activity, much of our revenue is generated through volumetric factors, and accordingly, our performance in the back half of the year, when volumes are lower, inevitably results in fewer revenues and profits. Paul will discuss our outlook for the remainder of 2026 in a few moments. Moving forward to slide eight, our balance sheet remains strong. We do have a 15 million dollar note at Roanoke Gas that matures in August. It is included in our current maturities of long-term debt. We are deep in conversations with our lenders to refinance this note. We have long known that we would be unable to replicate the 2% rate that we have enjoyed. The discussions with lenders have been positive and should allow us to refinance this note at a rate consistent with our plans. We will have more to share on this in the near term. I will now pass the presentation to Paul W. Nester, our CEO. Paul? Paul W. Nester: Good morning, and thank you, Tim. We have a few topics that we would like to discuss concerning the second half of 2026. These are listed on slide nine. Before we get into the details of those, I do want to again thank our customers and employees for an outstanding winter performance. We discussed this a little bit on the first quarter call, when we were just coming out of winter storm Fern, but our system performed admirably during that period. Our employees performed admirably and safely, and so did our customers. Again, we had an outstanding winter heating season and are appreciative of our employees and customers. We are here to serve our customers. We did have a couple of challenges that arose in the second quarter. One of our top five customers by volume, and a long-time manufacturer in the Roanoke Valley—in fact, over 60 years—idled their operations in March. We really have great care and concern for the employees at that operation who lost their jobs in that process. Many had been there many years. As Tim said, it is a headwind in 2026. Again, they were a large gas customer. Tommy will talk about the ratemaking impacts of that event in just a few moments. Another challenge was described in our 10-Q, which we filed yesterday afternoon. We had some damage at our LNG peak shaving facility in the middle of the quarter. We have hired tank experts and other experts to help us assess the cause and makeup of this damage and to potentially design some solutions to remediate it. The outcome of that is that we do not expect to have use of our LNG peak shaving facility in the coming winter season. We have begun intense and thorough planning for that event and to provide service without the facility. As we disclosed in October, we are unable to estimate the costs associated with this event, and we are unable to estimate the investment required to possibly repair or, if needed, replace the tank. Tommy will also incorporate the ratemaking impacts of that into his comments. We will, of course, continue to update you in future communications and/or SEC filings as more facts about this become known. I am going to turn it over to Tommy to give us an update on our pending rate case. Tommy? Tommy Oliver: Thank you, Paul, and we are moving to slide 10 now. As we discussed in our most recent earnings call, Roanoke Gas filed an expedited rate case on December 2 seeking approximately 4.3 million dollars in incremental annual revenues, based on our current authorized return on equity of 9.9%. Interim rates became effective 01/01/2026, subject to refund. The SEC staff is in the process of their audit and is scheduled to file testimony in June. The hearing is scheduled for 07/15/2026, and we expect final resolution from the Commission by calendar year-end. For four months beginning in January, we were offsetting the new rates through credits on bills to return the tax credits to customers that were resolved with the IRS late in fiscal 2025 and had been included within our regulatory liabilities on the balance sheet. We concluded these refunds in April. As Paul mentioned just a few minutes ago, we had a large customer cease operations in the second quarter. We informed the SEC staff of this development, and we are optimistic that the SEC staff will incorporate the expected decline in usage over the coming year into their recommended revenue requirement when they file testimony in June. Regarding the damage that occurred to our LNG facility, we have alerted staff of this situation and have held discussions with staff regarding the establishment of a regulatory asset for these costs. So, Paul, I am going to turn it over to you. Thank you, Tommy. Paul W. Nester: I continue to be pleased with the work of Tommy and his team, and really our whole company, and our relationships with the State Corporation Commission, not only on the ratemaking side, but also in the safety aspect. So thank you for all that good work there. We are on slide 11. Our capital spending forecast remains at 22 million dollars for the fiscal year. We have rebalanced the mix of spending just slightly from what we presented at the end of the first quarter. Again, as more facts become known about our LNG facility, we will continue to be flexible to reposition certain investments as needed, or potentially add to this capital spending plan. On slide 12, with the strong second quarter that Tim reviewed, we have both narrowed and raised our 2026 earnings per share range. On the lower end, we are at $1.31, and on the higher end, we have moved it up to $1.37. I think Tim’s reminder about the seasonality is important. Obviously, the third and fourth quarters will not look like the first and second quarters from an earnings standpoint. We continue to see the same macroeconomic concerns that we have been talking about now for several quarters. Practical inflation remains above the 2% level that the Fed targets. We are constantly, throughout the organization, looking for ways to be more efficient and to save and manage expense. Interest rates—Tim talked about the refinancing of that note. Certainly, the global situation has caused the interest rate market to be volatile within a range, but still volatile. We are working with our debt partners almost on a daily basis to optimize that refinancing. The local economy, and we have said this as well for several years now, continues to be steady. The Google data center is moving forward. There have been a few other positive announcements recently across the Roanoke Valley. Our teams continue to work every day with economic development, contractors, and other folks that are facilitating this growth, and we do everything we can to support that. We will now open the call for questions. We would love to entertain any questions that you may have. Please dial 1 to unmute your line. Pound pound or hashtag hashtag 1 to unmute your line. We will wait just a few more moments in case anyone has a question. Hashtag hashtag 1 to unmute your line. Okay. Well, hearing no questions from the audience, this does conclude our remarks. Our team will be at the AGA Financial Forum in about ten days, and we hope to have the opportunity there to greet and visit with many of our investors and financing partners there. We wish the rest of you a safe and pleasant summer, and we look forward to speaking with you again in August to review our 2026 third quarter results. Thank you.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Owlet Q1 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Jay Gentzkow, Investor Relations. Jay, please go ahead. Jay Gentzkow: Good afternoon, everyone, and thank you for joining us. Earlier today, Owlet released financial results for the first quarter ended March 31, 2026. I'm pleased to be joined today by Kurt Workman, Owlet's President, CEO and Co-Founder; and Amanda Twede Crawford, Owlet's CFO. Before we begin, please note that our financial results press release and presentation slides referred to on this call are available under the Events and Presentations section of our Investor Relations website at investors.owletcare.com. This call is also being webcast live with a link at the same website. The webcast and accompanying slides will be available for replay for 12 months following this call. The content of today's call is the property of Owlet. It cannot be reproduced or transcribed without our prior consent. Before we begin today, I'd like to refer you to our safe harbor disclaimer on Slide 3 of the presentation. Today's discussion will contain forward-looking statements based on the company's current views and expectations as of today's date. These statements are only predictions and are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include, but are not limited to, those described in our most recent filings with the SEC and in the Risk Factors section of our annual report on Form 10-K as updated in the company's quarterly reports on Form 10-Q and other filings with the SEC. Please note that the company assumes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. With that, it's my pleasure to turn the call over to Kurt. Kurt Workman: Thanks, Jay. Good afternoon, everyone, and thank you for joining. Before we dive into the business results, I want to address a recent leadership transition and a renewed path forward for Owlet. On behalf of the Board and the entire Owlet team, I'd like to share our deep gratitude for Jonathan Harris. Jonathan was instrumental in navigating Owlet's breakthrough growth following FDA clearances. Owlet is in a better position as a result of his contributions, and we wish him well. As Owlet enters this next stage of our growth and evolution, I'm stepping back into the CEO role as announced in April. I'm back to build on the mission I started in a garage 12 years ago with a clear long-term mandate to lead Owlet through this next phase of scale and development in pediatric health. While our core mission hasn't changed, we are sharpening our focus on execution and concentrating resources on our highest value opportunities. I want to highlight 3 strategic priorities where we see the greatest opportunity to improve performance. First, we're prioritizing the Owlet360 subscription and telehealth opportunity more deliberately than we have in the past. With well over 0.5 million parents purchasing a new Owlet device every year, we already have an established user base to support subscription conversion. We believe the structure of the modern parenting journey creates a meaningful opportunity. Among parents, the average family grows to just over 2 children with siblings typically arriving within a few years of each other. Owlet is uniquely positioned to secure a 4-year subscription window. By extending high-value subscription features that span the child's first 2 years, we aim to increase engagement and retention over time, evolving the customer relationship from a onetime user into a 4-year subscriber. This evolution from a hardware-centric sales to a multiyear subscription model fundamentally shifts our growth trajectory, compounding our recurring subscriber base into the millions. Owlet is increasingly operating with a subscription-first approach across the business. That means the product road map, marketing and channel partnerships are aligned toward increasing subscription penetration across our entire customer base. We have 3 key Owlet360 subscription priorities to execute this year. Number one, launch new features and AI integrations for Dream Sock to enhance the subscription value proposition and support continued increases in our attach rate. Number two, launch compelling new camera subscription features that deliver value to hundreds of thousands of nightly active cam users. The Dream Sight subscription feature set is critical toward extending LTV as many families use their cameras throughout the toddler years. Number three, expand subscription access to our large and growing customer base outside of the U.S. Our objective is to establish Owlet360 subscription as a foundational value add for a family's first 2 years of parenthood. For families with a single child, this can significantly extend LTV. For those families that grow to a second child, it can extend the subscription life cycle to multiple years, supporting a longer-term high-margin subscription relationship. This evolution from a hardware-centric sale to a multiyear subscription model has the potential to fundamentally transform our business profile and strengthen Owlet's role as a long-term partner in the parenting journey. Owlet is building a generational opportunity on AI, anchored by what we believe is the most scaled pediatric health data set in the world. By combining our data moat, FDA-cleared hardware and trusted parent relationships, we believe we can deliver the kind of personalized proactive infant care that has never before been possible in the home and establish Owlet as the defining pediatric health platform of this AI era. Turning to our second strategic priority. We are sharpening focus on the high-value opportunities within our existing core markets, where we continue to see meaningful growth potential. In the geographies we're currently in, we still have large underpenetrated markets of just under 20 million children under 24 months of age. With market penetration sitting at just over 11% in the U.S. and low single digits in Europe, we believe there is substantial room for expansion within our existing footprint. We continue to see significant runway for growth in the U.S. with penetration rates approaching at or above 20% in key states like Utah, Nebraska, Wyoming and Kentucky. We view these markets as potential benchmarks for what we can accomplish nationwide and in Europe. We believe the business has the potential to scale toward over 1 million new customers annually over time. Combined with our efforts to extend LTV, we believe this can support a 4-year family subscription life cycle, a recurring subscriber base that can scale meaningfully over time. To capitalize on what we see as a significant opportunity ahead in our core markets, we are consolidating our focus and resources to capture the significant white space available in our current high-value geographies where we have established category leadership. As part of this targeted approach, we have deferred our planned entries into India, Hong Kong and Singapore for the current year and redirected investments to core markets with higher near-term return potential. This leads into our final strategic priority, a heightened focus on operational efficiency and financial discipline to drive profitable growth. While we continue to invest in operating expenses year-over-year, we've optimized our spending plans to support operating at a higher level of efficiency. Our goal is to drive meaningful operating leverage by prioritizing a disciplined strategy, where we align our cost structure to scale efficiently. Specifically, we're pausing new global clearances and delaying country launches that carry upfront regulatory app development quality and marketing costs. We've eliminated previously planned headcount additions through leveraging internal technology and AI-driven efficiencies, allowing us to grow efficiently with fewer resource constraints. We are deferring lower ROI projects outside of our core 0 to 24-month segment. This disciplined financial profile prioritizing growing profitability is intended to provide flexibility to reinvest strategically, which we believe will support our long-term growth and strengthen our market position. To fully align with these 3 priorities and a more focused profitable growth strategy, we are proactively updating our full year 2026 outlook. For the full year, we are adjusting our revenue guidance to a range of $118 million to $122 million, representing 12% to 15% year-over-year growth compared to our previous guidance of $126 million to $130 million. This revised range accounts for our deliberate decision to exit lower-margin, high-burden revenue streams in noncore geographies and new channels. Additionally, this outlook incorporates a more conservative view on sell-through for the remainder of the year. I will provide more specific color on these category trends in our consumer data in a few moments. By concentrating our resources only on high-impact priorities and eliminating the overhead associated with noncore channels, we've created a much more efficient engine. Consequently, we are raising full year 2026 adjusted EBITDA to be in the range of $7 million to $9 million or 250% to 350% growth year-over-year compared to our previous guidance of $3 million to $5 million. While this disciplined approach may result in lower near-term revenue, it is a purposeful trade-off designed to improve operating leverage and profitability. We believe this approach will provide greater flexibility to invest in our highest value opportunities and support stronger, more sustainable long-term growth. I'll now turn to our first quarter business update. I want to give more clarity on where we're gaining momentum and identify specific areas where we need to sharpen our execution. To align with the strategic priorities I just outlined, going forward, we will focus our quarterly updates on the following core growth drivers: First, driving adoption of Dream Sock and Duo in core global markets; and second, expanding the subscription platform with Owlet360 and Owlet OnCall. In the U.S., our Q1 domestic sell-through units for Sock and Duo grew 10.5% year-over-year, led by a 45% increase in Duo and a 3% increase in Dream Sock. One item of note, Owlet was the only brand in the category to grow during a period of general decline. Excluding Owlet, the baby monitoring category was down 19% in dollars versus prior year Q1, while Owlet dollars grew 11%. Q1 inherently has low promotional activity following the holidays. We believe customers are delaying purchases in anticipation of key promotional events like Mother's Day and Pride Day, which drive significant volumes at a lower selling price. We started Q2 optimizing marketing and retail placements to accelerate momentum and take share from our competitors. These efforts are already yielding results. Quarter-to-date in Q2, sell-through has increased to over 30% for both Duo and Dream Sock versus prior year. This performance validates our strategy and is a positive indicator for the rest of the year. However, we have not yet factored this Q2 performance into our full year outlook, preferring to see additional sell-through data before adjusting our projections. Brand health remains exceptional, evidenced by a Dream Sock NPS of 77 and a blended product NPS of 71 to [ Q1 ]. Also importantly, for our Dream Sight camera, customer service contact volumes have decreased by 74% versus our second-generation camera as Dream Sight is clearly removing friction points with our customers, including solving core setup and connectivity issues. Owlet products are maintaining their position as a registry priority. In Q1, year-over-year registry additions increased 31% for Dream Sock and 44% for Duo. Finally, momentum in our current global markets remains robust. In Q1, international revenue grew 22% year-over-year. Sell-through continues to show strength internationally, ending Q1 with 37% year-over-year growth. We're excited about the progress we're seeing in our current international markets. For example, the Czech Republic already has nearly 9% of all babies born using an Owlet. Other markets like the U.K., Germany, France and Australia are all on a similar trajectory for market penetration as the U.S. on a year-by-year basis. Given that more babies born in Europe than the U.S., our current growth opportunity in Europe is massive if we focus and continue to execute at a high level. Shifting to our second focus area, expansion of Owlet 360 and Owlet OnCall, our subscription engine is thriving. Having surpassed the 1-year mark since launch, we've validated the value proposition of our subscription model, scaling to over 115,000 paying subscribers in Q1. As a note, we'll begin reporting subscriber count at quarter end to align with the subscription revenue metric we will begin disclosing in our quarterly filings. The underlying subscriber momentum is translating into durable top line growth as monthly recurring revenue, or MRR, was $1 million at end Q1, highlighting the compounding value of our subscriber base. Furthermore, subscription achieved a 34% penetration rate for Dream Sock users in the U.S. in the first quarter. This high conversion rate validates our bundled value proposition and demonstrates that parents increasingly view Owlet 360's pediatric health insights as an important extension of Dream Sock. As discussed, we're prioritizing the launch of camera-specific Owlet 360 features to enhance the subscription value proposition and extend LTV across multiple children. In April, we launched Camera Extended Clips. The Extended Clips feature for Dream Sight enhances the user experience by offering AI-assisted event detection. While Owlet 360 subscribers gain expanded benefits like a 14-day cloud archive and longer 60-second recording. In addition, in the coming weeks, we are launching built-in white noise, a Dream Sight subscription feature that transforms the camera into a daily sleep essential, eliminating the need for extra hardware. By integrating the product into nightly sleep routines, we can foster consistent platform engagement and support long-term Owlet 360 subscription retention. Subscription is the cornerstone for our evolution into a data-driven pediatric health platform. The rapid adoption we've seen over the last year validates our decision to prioritize the growth and expansion of our recurring platform features. And finally, ending on Owlet's OnCall telehealth opportunity. We're excited to report that this week, Owlet OnCall telehealth is officially going live in our app for select participants. That means that for the first time, Owlet parents can communicate directly with the pediatrician in our app. We will begin scaling access to more and more users over the coming weeks and months to test and learn. As we further integrate our wellness data with professional pediatric access and oversight, we see an opportunity to provide deeper value to parents, potentially reduce health care costs and extend the customer relationship. Our telehealth launch this year is a pivotal step in this evolution, and we expect the insights gained from this initiative to inform our long-term platform expansion and future revenue opportunities. We believe that combining insights from our platform with access to pediatric consultation will provide greater value to parents, simplify access to care and lengthen the customer relationship. And we believe the learnings from this year's telehealth launch will fuel a significant new revenue stream for the business as we move into next year. I'll now turn the call over to Amanda to go over Q1 financial highlights. Amanda, take it away. Amanda Crawford: Thanks, Kurt. Turning to our first quarter 2026 financial performance on Slide 11. Unless noted otherwise, I will be comparing first quarter 2026 results to the first quarter of 2025. Q1 total revenue was $22.5 million, up 6.4% year-over-year, coming in above our Q1 guidance range of $20 million to $21 million. Q1 results reflect a onetime inventory rightsizing at a large retail partner where they reduced their weeks of supply from 8 to 10 weeks to 4 to 6 weeks, which negatively impacted sell-in revenue. This partner ended Q1 with approximately 5 weeks of inventory. The first quarter is consistently our seasonally lowest revenue quarter due to the lack of promotions, so a meaningful amount of revenue quickly dropping out created a short-term headwind. Subscription revenue grew sequentially for another quarter to a record of $2.7 million in Q1. Subscription gross margin also expanded to 67.4% in Q1. Q1 overall gross margin was 54.5%, above our Q1 guidance range of 50% to 52%. Overall, gross margin was up 80 basis points versus prior year, including a 480 basis point impact from the cost of tariffs. Total operating expenses for the first quarter were $17.7 million compared to $14 million in the prior period. This increase was primarily driven by higher compensation costs, including stock-based compensation. The rise in personnel expenses reflects full period impact of headcount additions made throughout 2025, supplemented by strategic new hires in the current quarter. Additionally, stock-based compensation increased due to expanded headcount and the timing of long-term incentive plan grants. As a percentage of revenue, Q1 operating expenses were 79% compared to 66% in Q1 2025. As Kurt referenced, we are committed to raising our level of operational efficiency and financial discipline for the balance of this year and beyond. Q1 operating loss was $5.5 million compared to $2.7 million in the same period last year. Net loss in the current quarter was $3.3 million. Q1 adjusted EBITDA was negative $1.5 million at the high end of our Q1 guidance range of negative $2.5 million to $1.5 million. Adjusted EBITDA was down versus prior year, primarily a result of tariff cost impacts. Turning to our balance sheet. Overall financial health remains strong. Cash and cash equivalents, excluding restricted cash as of quarter end March 31, 2026, were $35.5 million, in line with fourth quarter 2025. We had $3.9 million of undrawn availability on the line of credit at the end of Q1, increasing our total liquidity to $39.4 million as of March 31, 2026. The principal balance on our term loan was $6.3 million at the end of Q1 versus $7 million at the end of Q4. Turning to our guidance. Detailing what Kurt outlined for the full year 2026, we expect revenue in the range of $118 million to $122 million, representing growth of 12% to 15% over 2025. Revenue is expected to trend upward in Q2 following our historical seasonal patterns. We project Q3 to have a slight sequential decline versus Q2 before reaching an annual high in Q4. For the full year 2026, we expect gross margins in the range of 50% to 52%. The tariff situation remains dynamic. At this time, we're estimating a 15% tariff rate as a current baseline for the remainder of the year, down from the previous 19% and 20% attributed to Thailand and Vietnam, respectively. We continue to monitor the dynamic trade environment closely. And finally, we expect adjusted EBITDA in the range of $7 million to $9 million, representing growth of 250% to 350% over 2025 as we prioritize operational efficiency and profitable growth. With that, we will now take your questions. Operator: [Operator Instructions] Your first question comes from the line of Owen Rickert with Northland Capital. Owen Rickert: Gross margin expanded pretty healthy year-over-year despite those continued tariff headwinds. I guess, can you just discuss the operational improvements and mix benefits that helped offset those pressures? Amanda Crawford: Yes. Primarily, what impacted the quarter was a higher relative proportion of subscription revenue, which was at about 67% for the quarter. In addition, we did see favorable product mix in the current year of Sock versus camera in the prior year. Owen Rickert: And then secondly for me, OpEx did increase a bit year-over-year, largely tied to that G&A line. Just as you sharpen the focus on that operating efficiency, I think that was the third strategic focus. Where do you see the biggest opportunities to improve leverage going forward? Amanda Crawford: Yes, it's multifaceted when it comes to operating leverage. The first priority is we had in the previous guide, a pretty significant amount of headcount investment across the board. And as we looked at our plans and with how fast AI is changing and transforming, we just determined that we would not be adding as many headcount as initially planned, but we believe that we're going to be able to achieve more with less. So those have been removed from the plan. In addition, we are reprioritizing our focus. We have deprioritized entering new geographies, which come with upfront costs in regulatory, quality, engineering, marketing, it's a multidepartmental cost that we've taken out of the plan. And then finally, this year, we're prioritizing 0 to 24 months. So really what the core market that we are in and deferring any other projects that are outside of that scope. Kurt Workman: And I would just add that by focusing on these higher ROI initiatives that will provide longer -- higher long-term growth, it allows us to actually increase investments in those initiatives while decreasing the overall OpEx throughout the rest of the year. Owen Rickert: And then maybe lastly for me. How are you thinking about monetization for OnCall initially? Is the near-term focus more around engagement and retention within Owlet360? Or do you expect it to become more of a direct revenue contributor sooner rather than later? Kurt Workman: Yes. And it's very similar to kind of how we framed up subscription last year, where we didn't include it in our guide. We were really focused on testing and learning and improving the experience for the customer. That's the same focus for this year for us. This is a transformational opportunity where for the first time, our customers are going to be able to chat with the doctor inside of our app. That doctor is going to be able to use the Owlet data to empower parents at home to give care to their children without needing to go into the ER or the pediatrician in some instances. And so we're going to really leverage the opportunity this year to learn and to nail that model. And then we expect it to be a meaningful contributor in future years. Operator: [Operator Instructions] Your next question comes from the line of Jonna Kim with TD Cowen. Jungwon Kim: I would love to get additional color just around what changed in your latest guidance versus your prior guide on the top line. Would love to get just additional color there. And then what is assumed in your guidance in terms of the ramp in the subscription growth and that color will be helpful. And then just lastly, as you think about activating more opportunities in the U.S., does your marketing strategy change at all? How are you sort of envisioning your marketing strategy for the year? Kurt Workman: Yes. Thanks, Jonna. And keep me honest on making sure I answer all 3 of those questions as I go through this. Feel free to ask a follow-up if I don't cover it all. The 2026 revenue outlook is a reflection of our sharpened focus and strategy toward profitable growth. We've intentionally removed lower-margin, high-burden revenue kind of previously tied to the noncore geographies and some of the new channels, resulting in kind of that lower top line revenue. It also takes a more conservative outlook for the remainder of the year. I think when we look at the new guidance, it also raises our EBITDA outlook to $7 million to $9 million versus the prior year. It's a purposeful trade-off. And really, the goal is to focus on these bigger opportunities. If we can take our subscriber base to the millions, we can get to 1 million new customers per year, and we hold them for 2 years. This business is transformationally different. And so it's really reflecting of that focus and a little bit more conservative outlook on the remainder of the year. Jungwon Kim: And yes, any perspective on subscription growth, how you're thinking about that for the year? And then the marketing piece will be helpful. Kurt Workman: Yes. Yes. Thanks for following up. Look, when you bring your baby home for the first time, life stops. Like it's -- you're taking time off work. Everything is focused on -- for that first year on this new member of your family. It's the biggest change we go through in spending, in habits, in sleep. So it's no surprise to us that 360 is resonating. We beat all of our internal goals on 360. The fact that we're already close to 35% of our Dream Sock customer base in the U.S. is incredible, and we know that, that number can go much higher. And it's just not a normal kind of premium consumer app model. It's a critical health and sleep data set that empowers parents to better care for their children. So who wouldn't want that? The re-guide, we're still very optimistic on 360. It's growing well. We expect it to continue to grow well for the business. And it just makes life better for baby, better for parent. And we think AI is going to unlock massive growth here over the next few years. So we're very bullish on 360. It's why it's one of our primary focus areas for the next few years. Operator: [Operator Instructions] Your next question comes from the line of Ian Arnt with Lake Street Capital Markets. Ian Arnt: Filling in for Ben Haynor here. You noted on the last call that you would share some more cohort data going forward. And now that we're kind of just past a year here on the original cohort retention data, I was wondering if you could give us a sense of where annual retention is shaking out and kind of how that compares to your initial assumptions when you launched the service? Kurt Workman: Yes, that's a great question. So we're actually -- we're very optimistic on this. When you think about churn and retention, we've had meaningful improvement sequentially since we launched last year. The increase in value in the subscription, I think, has been a big part of that and also just the value in the device and the performance of the devices is increasing usage and retention has been fantastic. We're in -- from a churn perspective, we're in kind of that monthly single-digit range, which has improved sequentially. And having surpassed that 1-year mark, I would say that subscriptions exceeded our internal benchmarks. And we're going to drive continued efficiency there. Our goal is that parents use subscription across multiple years across multiple children. So this can become a 4-year LTV opportunity. Our whole product road map is designed to continue to reinforce that for the next several years, including telehealth. The highest rate of health care utilization is in the first years of life. Parents can now with contextualized data chat with the pediatrician in our app. That should unlock significant continued engagement past the first year, especially for stock users. Cam is another big unlock for us. Parents use cam for multiple years. They anchor it to the wall and it becomes part of that daily routine. So we're launching a bunch of new camera features as well. We expect that this will continue to go down, and we're really pleased with the performance so far. Ian Arnt: And then just one more for me. On the Q4 call, you guys mentioned 4 new hospital partnerships had engaged following the CHKD launch. Could you give us an update on where those stand and the timing of announcements and maybe what the average ramp looks like once hospitals go live in terms of monitors deployed per month? Kurt Workman: Yes. I think what I want to share is that BabySat was up meaningfully in Q1 over last year. It was nearly 100% in terms of revenue growth. Still a very small number for the business, but the hospital partnerships are growing. It takes a little bit more time to get into those partnerships. So we're going to let that continue to progress inside of the business. It creates incredible partnerships and brand opportunities. It helps us address the babies with the most vulnerable needs of our population, and we see it as a long-term big opportunity for Owlet. We'll proactively report out on it when it reaches the level of scale that kind of I think, makes sense for earnings calls, but we continue to see good progress in BabySat, and it's just a really important part of making sure we're addressing the entire population of children. Operator: There are no further questions at this time. We have reached the end of the Q&A session. I will now turn the call back to Kurt for closing remarks. Kurt Workman: Yes. Thank you. Thanks again, everyone, for joining us and for the continued support. I just want to state again that Owlet's generational AI opportunity is massive. We have a large, unique pediatric data set, and we're contextualizing that data right now. And that's why we're so focused on the Owlet 360 and telehealth opportunities. They alone represent massive growth potential, and we're excited about our current progress and the long-term opportunity for this platform. Look forward to updating you on this on coming calls. And I've just never been more confident in Owlet's path. I started this company in a garage. I have been with the company for 12 years, and this is the most exciting period for Owlet. So thank you for your continued support as we build the standard of at-home care for babies. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to PTC Therapeutics' First Quarter 2026 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. I would now like to turn the call over to Ellen Cavaleri, Head of Investor Relations. Please go ahead. Ellen Cavaleri: Good afternoon, and thank you for joining us to discuss PTC Therapeutics' First Quarter 2026 Corporate Update and Financial Results. I'm joined today by our Chief Executive Officer, Dr. Matthew Klein; our Chief Business Officer, Eric Pauwels; and our Chief Financial Officer, Pierre Gravier. Today's call will include forward-looking statements based on our current expectations. These statements are subject to certain risks and uncertainties, and actual results may differ materially. Please review the slide posted on our Investor Relations website in conjunction with the call, which contains information about our forward-looking statements and our most recent Quarterly Report on Form 10-Q and Annual Report on Form 10-K filed with the SEC, as well as our other SEC filings for a detailed description of applicable risks and uncertainties that could cause our actual performance and results to differ materially from those expressed or implied in these forward-looking statements. Additionally, we will disclose certain non-GAAP information during this call. Information regarding our use of GAAP to non-GAAP financial measures and reconciliation of GAAP to non-GAAP are available in today's earnings release. I will now pass the call over to our CEO, Dr. Matthew Klein. Matthew Klein: Thank you all for joining today. We are off to a terrific start to 2026. We had a record quarter of product revenue, led by the continued strong momentum of the Sephience launch as well as contributions from our mature products. First quarter total revenue was $273 million, including $226 million of product revenue. With this revenue performance, we are raising our 2026 full-year product revenue guidance to $750 million to $850 million, with expected total revenue of $1.08 billion to $1.18 billion. I'll begin by providing an update on the Sephience global launch. In the first quarter, the launch continued at a strong pace, with all signs indicating sustained growth and breadth of uptake. First quarter Sephience global revenue was $125 million, representing 36% quarter-over-quarter growth with U.S. revenue of $112 million. As of March 31, we had 1,244 commercial patients globally. And in the U.S., we surpassed the 1,500 patient start or mark in the quarter with a consistent cadence of prescription starts averaging 140 per month over the past few months. We see this robust cadence of U.S. starts continuing for the foreseeable future. In addition to the sustained momentum in the U.S., growth is accelerating internationally through both commercial access and paid early access programs. We had our first Sephience sale in Japan in late March, ahead of schedule and remain on plan to have commercial sales in up to 30 countries by year-end. I'm incredibly proud of the execution of our global teams. Within 9 months, we have gained marketing authorization in the U.S., Europe, Japan, Brazil and several other countries and are well positioned to serve the global addressable market of over 58,000 children and adults with PKU, making Sephience a blockbuster rare disease product. We continue to see broad adoption across age groups, disease severities and treatment histories, including treatment-naive patients and those who have not responded to existing therapies. We are also seeing rapid penetration into centers of excellence in the U.S., with now over 90% of centers having prescribed Sephience. Persistence remains strong, supported by high refill rates, underscoring the long-term commercial opportunity. Feedback from patients, their families and health care providers continues to be positive. We have seen social media reports of meaningful reductions in phenylalanine and the ability to liberalize diet and enjoy certain foods for the first time. We also continue to gather, present and publish real-world evidence on success of diet liberalization as well as effects on other aspects of disease, including mood and cognition. I'm also pleased to report that our manuscript describing Sephience's novel differentiated dual mechanism of action has been accepted for publication. This manuscript nicely details how the dual mechanism of action supports the ability of Sephience to provide greater benefit to those who have a response to BH4, as well as the potential for Sephience to deliver benefit to those individuals with more severe mutations not responsive to BH4, typically associated with classical PKU. Based on Sephience's highly differentiated efficacy and safety profile, the strong start to the launch as well as our ability to maintain momentum in the U.S. and accelerate growth globally, we remain confident in the $2 billion-plus global commercial opportunity for Sephience. Turning to the votoplam Huntington's disease program. Last week, we reported positive top line results from the 24-month interim analysis of the PIVOT-HD long-term extension study. At 24 months, votoplam demonstrated dose-dependent slowing of disease progression on cUHDRS with an average slowing of 52% relative to a matched natural history cohort at the 10-milligram dose level in participants with Stage 2 disease. In addition, the safety profile continues to be favorable across doses and disease stages. These data support that the significant dose-dependent HTT lowering observed in the 12-month PIVOT-HD study are manifesting in dose-dependent clinical benefit over long-term treatment. In addition, the interim study results give us increased confidence for the success of the now enrolling global Phase III INVEST-HD study funded and led by our partner, Novartis. INVEST-HD has a target enrollment of approximately 770 individuals with early symptomatic disease who will be randomized 3 to 2 to receive votoplam 10 milligrams or placebo. The study also includes an interim analysis. The PTC and Novartis teams are still reviewing the data from the Phase II long-term extension interim readout and will discuss potential plans to meet with regulatory authorities. For vatiquinone, we had a Type C meeting with FDA in April to discuss the design of a new trial to provide additional data to support NDA resubmission. Based both on written comments and meeting discussion, we are moving forward with an open-label study with a matched natural history control group from the robust FACOMS disease registry. The study will have a target enrollment of approximately 120 individuals with Friedreich's ataxia from age 7 to 21. The primary endpoint will be a change in mFARS from baseline to 24 months. We look forward to initiating this study within the next few months and believe the design of the study, along with our learnings from previous studies, significantly increases the probability of success. Turning to our earlier-stage pipeline. In the second quarter, we expect to initiate the Phase I study of PTC612, our oral NLRP3 inhibitor. While the majority of the study will be conducted in healthy volunteers, we will look to include a dosing cohort of individuals with elevated inflammatory biomarkers to enable an early assessment of PK/PD. As we have discussed, PTC612 benchmarks favorably to other NLRP3 inhibitors in terms of potency. We expect to develop PTC612 for inflammatory lung disorders, where there is overlap between the NLRP3 inflammasome and disease pathology. We also continue to make good progress on our other pipeline programs, including our wholly owned MSH3 oral splicing program for HD and DM1. The MSH3 program for HD could complement the HTT reduction approach of the votoplam program as well as be particularly suited to target the juvenile HD population. We are also making good progress on several programs from our Inflammation and Ferroptosis platform, including our Phase II-ready PTC844 DHODH program, ferroptosis Parkinson's disease program and NRF2 activator program. Overall, we're off to a great start in 2026. We look forward to the sustained momentum of the Sephience global launch over the course of 2026 and continued favorable developments in our R&D portfolio. Our strong cash position enables us to continue to support all current programs, as well as to look for accretive business development opportunities that can leverage the strength of our global rare disease commercial engine to accelerate short- and intermediate-term growth. I will now turn the call over to Eric to provide a commercial update, including more details on the Sephience launch. Eric? Eric Pauwels: Thanks, Matt. To start, we are very proud of our commercial team's performance as they continue to execute on the launch of Sephience with excellence. Our outstanding performance in the first quarter reached our highest level of product revenue in the history of the company and has laid the foundation for continued success in 2026. The global launch of Sephience continues to accelerate, driven by continued strong growth in the U.S. and growing contributions internationally. First quarter Sephience revenue was $125 million, including $112 million in the U.S. and $13 million internationally, representing 36% growth from the fourth quarter of 2025. We continue to see growth with new prescriptions in all PKU patient segments, irrespective of age and severity and are seeing the rapid adoption of Sephience as we expand our global footprint with our experienced teams. Since the initial launches in the U.S. and Germany last summer and as of March 31, 2026, our commercial operations have generated over 2,200 prescriptions worldwide. In the first quarter, we continue to see momentum in the U.S. in terms of new patient starts and low discontinuation rates. As Matt mentioned, uptake in the U.S. continues to be broad with over 90% of U.S. PKU centers of excellence prescribing Sephience. We are also seeing broad adoption across the full spectrum of disease severities, including classical patients. We continue to see new patients with various treatment histories, including treatment-naive adults, past treatment failures and patient switches. Refill rates remain strong and discontinuation rates remain low in the low double digits, reinforcing our confidence in the sustained launch momentum. U.S. payer dynamics for Sephience remain favorable. Most commercial and government provider policies are in place, covering over 2/3 of the U.S. population with limited restrictions and flexible criteria for reauthorization. The AMPLIFY head-to-head data demonstrating superior clinical benefits of Sephience versus BH4 continues to strengthen the value proposition with payers, further supporting broad access in the U.S. and ongoing pricing and reimbursement discussions in Europe. Our Sephience launch momentum continues to build globally with the launch in Japan, which has progressed ahead of plan. We had our first commercial patients and revenue recorded in Q1, which was earlier than expected, and we are very pleased with the positive feedback from Japanese health care providers and patients in the early stages of the launch. We also secured Sephience regulatory approval in Brazil, where our local team is fully engaged in creating awareness for access via named patient programs while we finalize pricing in the second half of the year. In Germany, we're seeing good progress, with centers of excellence accelerating new patient starts, including adults, while we finalize pricing and reimbursement this summer. In other European markets, health technology assessment dossiers are being actively reviewed with paid early access programs already in place, while pricing and negotiations advance in France, Italy, Spain and other key European markets. While the U.S. remains a key near-term growth driver, we expect international revenue to continue to ramp with commercial patients in up to 30 countries by year-end. Sephience represents a significant global commercial opportunity long term. Its differentiated efficacy and safety profile and dual mechanism of action support broad adoption and positions Sephience as a potential standard of care, which gives us confidence to achieve multi-billion peak revenue. Going forward, as the Sephience business grows and diversifies globally, the launch metrics we provide will include only global revenue and the number of active patients on Sephience treatment worldwide. We believe these metrics will best illustrate the long-term trajectory of Sephience growth. Now turning to our DMD franchise. We delivered solid first growth performance despite significant headwinds. Translarna revenue was driven by a large government purchase order in Brazil, and we continue to support nonsense mutation DMD patients on therapy across Europe. In the U.S., Emflaza generated $22 million in quarterly revenue despite multi-generic erosion, supported by strong brand loyalty and high-touch patient services. Our experienced global commercial team have successfully executed multiple rare disease product launches for over a decade. Looking ahead, we are confident in our ability to drive strong performance and continued growth in building Sephience into a blockbuster brand for PTC. With that, I will now turn the call over to Pierre for a financial update. Pierre? Pierre Gravier: Thank you, Eric. I will now share the financial highlights of our first quarter of 2026. Beginning with top line results, total product and royalty revenue for the first quarter was $273 million and total net product revenue across the commercial portfolio was $226 million compared to $153 million for the first quarter of 2025, representing 47% growth. First quarter 2026 product revenue includes Sephience net product revenue of $125 million and DMD franchise revenue of $81 million. Translarna net product revenue was $59 million, including a large one-time government purchase order. And Emflaza net product revenue was $22 million. For Evrysdi, Roche achieved first quarter global revenue of approximately USD 585 million, resulting in royalty revenue of $47 million. As a reminder, we continue to report Evrysdi royalty revenue in our financial statements. However, there are no cash proceeds to PTC. For the first quarter of 2026, non-GAAP R&D expense was $90 million, excluding $11 million in non-cash, stock-based compensation expense compared to $100 million for the first quarter of 2025, excluding $9 million in non-cash, stock-based compensation expense. Non-GAAP SG&A expense was $74 million for the first quarter of 2026, excluding $12 million in non-cash, stock-based compensation expense compared to $72 million for the first quarter of 2025, excluding $9 million in non-cash, stock-based compensation expense. Cash, cash equivalents and marketable securities totaled $1.89 billion as of March 31, 2026, compared to $1.95 billion as of December 31, 2025. Our strong financial position supports continued development of our commercial and R&D portfolios and preserves flexibility for strategic and disciplined business development to further enhance long-term growth. And I will now turn the call over to the operator for Q&A. Operator: [Operator Instructions] Our first question coming from the line of Kristen Kluska with Cantor Fitzgerald. Kristen Kluska: Congrats on the record quarter for the company. Now that you have a couple of quarters under your belt for Sephience, I was hoping you can give us a little bit more color and clarity about patterns that are emerging in the real world around making sure that patients and physicians are working conservatively in measuring Phe and slowly increasing the protein uptake and how that's been resonating in terms of compliance, long-term utilization and also how these patients that are staying on therapy, is it entirely driven by diet liberalization? Or are there in other instances, other factors that are playing a key role? Matthew Klein: Kristen, thanks for the questions. Look, I think we're incredibly excited about the continued launch momentum we're seeing. We think we're in a stage now of consistent growth in the U.S. of acceleration ex-U.S., which is what's going to make this such a valuable product for us. And as a global launch, this is exactly what we've been working for and exactly as we expected. In terms of dynamics now a couple of quarters in, in general, I think, again, we're seeing this consistent theme of breadth, breadth of uptake across all patient segments, including those naive patients who many thought were lost to follow-up. It was really just a matter of being able to offer them a safe and potentially effective therapy, full age range, babies up to, as we talked about octogenarians and broad uptake across centers of excellence in the U.S. as well as outside the U.S. In terms of folks staying on drug, it's a combination of factors. Of course, the ability for individuals on the drug to liberalize their diet and try foods for the first time, the things we're seeing all over social media are so incredibly impactful and so motivating not only for those individuals to stay on drug, but it's also continuing to increase the enthusiasm and desire of others to get on drug. I think that's really been an effective way in this launch that the demand keeps growing in the patient communities, which is great to see. We have, of course, worked very hard with the centers where, as you know, there's dietitians on staff. They're an important part of PKU management even when an individual is not on therapy. And so this idea of making sure that when someone gets on the drug that there's first evidence of Phe lowering and getting into that range where you can liberalize diet and then proceeding slowly so that we're set up for success. I'll also add, we're hearing a lot about other benefits that have been really important for patients. And what's really interesting about this is for a lot of the prescribers and the patients, it's not necessarily about a number. It's about being able to liberalize diet. And others are saying, I just feel better. I have improved anxiety, improved cognition, less brain fog. And that's really also some of the impactful things that clients has been able to do. And as Eric mentioned in his script and I did as well, these are things that we're codifying now in real-world evidence papers as well as presentations. We have a number of them coming up at the SSIEM in September, talking about all these different ways in which benefit is provided to patients and really supporting, again, not only persistent and in some cases, growing demand, but also adherence, which remains very high. Operator: And our next question coming from the line of Tazeen Ahmad with Bank of America. Tazeen Ahmad: I have a couple. So when you talk about the cadence of around 140 new start forms, you've been careful to make sure you say this is consistent. So, do you expect this trend to continue? Or do you think this could accelerate, especially in the U.S. over the course of the coming year? And then can you also comment on discontinuation? So, you've talked about that a little bit, but for patients who are discontinuing, what's the main reason? Matthew Klein: Tazeen, thanks for the questions. So in terms of the start forms, when we talk about the consistency of about 140 per month, that's going back to the later parts of 2025. As expected coming into the new year around the holidays, there was a bit of a decrease. It's completely expected with seasonal effects and all the things that everyone knows about. We had one of the strongest months in March actually. We're seeing that continued momentum into April. So, we think that the 140 probably represents a reasonable run rate for the foreseeable future, knowing that there'll probably be ups and downs and things, and just the typical dynamics one sees in a launch, essentially being early on. But we believe that's a very solid number, and we're excited about being able to have those starts added to already a very substantial base of patients, which are maintained on the drug, which, of course, is a key to driving the revenue opportunity over time. I'll make a brief comment about discontinuations and then turn it over to Eric for a bit more color on this. As he mentioned on the call, we're in low double digits at this point in the launch. We're starting to approach steady state. I think what's really encouraging is that we know that the earliest individuals put on Sephience were tended to be those not on a therapy, the more challenging patients, those therapy-naive adults. And so to be able to have this kind of adherence rate in the context of the most challenging patients coming on first is obviously incredibly encouraging for the strength and growth of the launch over time. Eric, do you want to provide a little more color on what we're seeing? Eric Pauwels: Yes. Thanks for the question. In fact, I think we're very pleased because in the very first phase of the launch, we would call that an accelerated phase. The vast majority of these patients were the ones who actually in the real world were failed or had poorly controlled based on previous treatments. What we're seeing right now is that even that hard-to-treat group has benefited really well, and we have low double-digit discontinuations. And in fact, the amount of discontinuations is even lower for clinical reasons in terms of efficacy or safety. Some of the reasons are obviously because maybe patients don't respond or safety reasons, but it's very low. The others are just patient choice. And that could be a variety of different reasons. But overall, when you think about the number of patients that have come in, we're building this very large base of patients. And as Matt said, it's an accelerated but a robust cadence. And as we build that, part of what we're going to do is sustain the momentum and continue to grow and maintain high refill rates and work very diligently on discontinuations and making sure they're very low. Operator: And our next question coming from the line of Ben Burnett with Wells Fargo. Benjamin Burnett: I wanted to ask about kind of what you're seeing in terms of average weight or average price. And as you kind of add Japan and some of these ex-U.S. territories to the mix, would you foresee any changes to kind of the long-term sort of average price estimate? Matthew Klein: Ben, look, we said at the beginning, we expected average weight to be around 45 kilos and our studies had shown that we'd be somewhere in the 45 to 50 range. And I think we're very much in that ballpark. And as you alluded to, the international dynamics play into that as well, right? We have some adults who came on. We said that the average age now is around 17 or so globally, but different rates of patients in different regions in different areas. We're seeing very young patients be put on first, especially in some of the early access programs where there's a preference to get infants on drug because there's a keen concern for the neuroprotective effects or the neurodevelopment protective effects that we see with the drug. And in an early access scheme, those are the kinds of things that could get someone on paid drug ahead of formal pricing and reimbursement. So, I'd say overall, we're still in the ballpark we thought we'd be in. We anticipate that for a while. But obviously, we'll continue to watch that dynamic as the launch plays out. Operator: Our next question coming from the line of Eliana Merle with Barclays. Eliana Merle: Just a follow-up question on how to think about the ex-U.S. opportunity and the near and long term for Sephience? I guess, specifically, how we should think about the pricing for Sephience and then how we should think about the cadence of ex-U.S. sales over the course of the year? Matthew Klein: Yes. Thanks, Ellie. And as we talked about, we've always been very intent on maintaining a rigid pricing corridor that went into our launch strategy. I'll let Eric detail that and talk a little bit about how we're seeing price globally and the cadence of contribution ex-U.S. Eric Pauwels: Yes. I think very importantly, the international business right now will be a very important future contributor to the revenues. However, the U.S. will still be the main driver at this point for this year. We know that each country that comes on incrementally up to 30 countries that we anticipate this year will be incrementally very important, but the U.S. is still our main driver this year. Japan, we got off to an early start. We're very pleased. And we're seeing a lot of the launch dynamics there. And we've been able to maintain pricing and reimbursement. We were able in Japan to lock that down in Q1 and finalize pricing, and it will be locked down for the next 10 years during orphan exclusivity. Currently, we have pricing in HTA assessments in dossiers in Europe and where the HTAs are being assessed and pricing and reimbursement discussions would be finalized towards the second half of this year and early parts of next year. I think it's safe to say that the U.S. will be, again, the near-term driver in terms of revenue and will continue to play a very important role. However, over time, each one of these countries will be adding incrementally revenue in patients, and that will be important for the long term. Operator: And our next question coming from the line of Brian Cheng with JPMorgan Chase. Lut Ming Cheng: Can you hear me? Matthew Klein: Yes. Lut Ming Cheng: Congrats on the quarter. Matt, you sounded very confident in the 140 patient start forms per month run rate continuing and you see growth accelerating in your prepared remarks. You mentioned over 90% of the centers have now prescribed Sephience. So, what is holding back the remaining 10% of the centers? Just curious if you can talk a little bit about the phenotype of the center of excellence that's holding out. Is it just a matter of reaching out to those doctors and increase the touch points? Or is there something else that we should also consider? Matthew Klein: Thanks, Brian. I'll start by saying that we are very bullish on the opportunity in the U.S. and globally, right? This is a true global launch, and we're at a point to be able to add, we believe, 140 starts per month on top of already a very strong base is why we believe we're going to reach the very promising revenue potential we think is out there for us. So, we're incredibly excited about that and everything we're seeing continues to support our confidence there. I'll let Eric talk about the center dynamics, but I'll also say that we're now sitting here after the second full quarter of a rare disease launch. The fact that we have prescriptions from over 90% of the centers for us is the headline. That's incredible progress, thanks to all the work our team did in market development and establishing relationships with the centers. And as you can imagine, these tend to be the larger centers where we are. But I'll let Eric talk about the dynamic. But I just want to emphasize that we're incredibly proud to have that degree of penetration at this early part of the launch. Eric? Eric Pauwels: Yes. This is a very strong penetration when you think about -- and the centers right now that are giving are obviously some of the ones that are in the large metropolitan areas. These are what I would call the Tier 1s who have already written many prescriptions and continue the breadth and depth of the prescriptions, particularly the new starts. But keep in mind, we're also -- these centers also have many patients on therapy. So, we're working not only to get new starts, but maintain many of these patients and get those refill rates high, make sure discontinuations are low. When we look at just the remaining 10% or so, which are just a small handful, these are typically what we see with any centers. They're late adopters. They're probably smaller centers. We call on all of them, by the way. And in many cases, they're just not staffed adequately and they're not really proactive as much with patients. So when we go and we look at where the bulk of our prescriptions are coming from, 90% in those big metropolitan centers. They're working very hard right now. They're very strong and robust cadence from those centers. Operator: Our next question coming from the line of Judah Frommer with Morgan Stanley. Judah Frommer: Congrats on the progress here. Two quick ones for us. I guess, first, just on the guidance update. Can you separate out that one-time Translarna order from the rest of the guidance raise? And then just on vatiquinone, any indication within that meeting or written feedback as to how prior data would be treated, specifically subcomponents of the mFARS? Or should we think about this as kind of starting from scratch in a late-stage trial? Matthew Klein: Judah, so on your first question, just looking at overall guidance, we came into the year and we said, look, there's a couple of things we know for sure. We are incredibly confident in the growth trajectory and strength of the Sephience launch, and we believe the vast majority of product revenue will come from Sephience. We also know that there's uncertainty in the mature products, specifically the DMD franchise. We have, in Translarna, business in Europe, which we're continuing to maintain without a license. So, that longevity is hard to predict. And we know that we're facing headwinds in some of the countries like Brazil, like Russia, where we get large purchase orders. On the Emflaza side, we're already seeing in Q1, we are down from Q4 last year. There's 10 generics in the market. And while there's been no major price drops, we do expect erosion to continue. So, we basically increased guidance based on the overall performance of the quarter. And as we go forward in the year and understand better the trajectory of the science and understand what we get from other government orders for Translarna as well as the Emflaza erosion, we'll then be in a situation to raise or narrow guidance whatever is appropriate based on the dynamics that we're seeing. On the Friedreich's ataxia side, look, I think we were excited to have gotten the suggestion from FDA itself that the additional data to support NDA resubmission could come from a natural history controlled study. Obviously, the safety profile of vatiquinone is very favorable and very well established. There's no need to have a placebo-controlled study to identify new safety signals. And the data from MOVE-FA do provide a signal of efficacy. So, this is really -- we view this as a way to get additional data that will support the already established data set of safety as well as signs of benefit, particularly in younger patients. Now, I'll say that the endpoint selection here is really a function of duration of the study. The natural history of FA in young individuals has been very well characterized now in a number of publications. And it's clear that over the shorter period of time, about 12, up to maybe 18 months that the upright stability subscale is likely the most sensitive component of the mFARS rating scale to capture progression and therefore, treatment benefit. We're now doing a 24-month study, and the literature clearly shows that as you get to 18 months out to 24 months, you start seeing other components of the mFARS scale capture progression and therefore, capable of capturing treatment effect. We actually saw this in MOVE-FA as well. Once we got to 18 months out to 24, we started seeing upper limb, lower limb start to contribute. So, this is really a question of choosing an endpoint that's most appropriate, yes, to our population, but also importantly, to the duration of the study of 24 months. Operator: And our next question coming from the line of Geoff Meacham with Citigroup. Jarwei Fang: This is Jarwei on for Jeff. Maybe just thinking about the OUS opportunity. Maybe a 2-parter. First, if you can help quantify or help paint the picture for how the early Japan launch pattern has looked? Have you guys seen a similar uptick pattern from the early days of the U.S. initial launch? And then also, I guess, as a follow-up to that, the second part. The U.S. launch has seen great success with using social media as a leverage to gain awareness among patients. And I guess, can we expect similar success in other geographies just given maybe there are different patient to physician dynamics versus stateside? And then third question, if I may, just real quick. Given vatiquinone's open-label study, the plans will be open label, I guess, how sensitive is mFARS to potential protocol deviations or data? Matthew Klein: Jarwei, thanks for the questions. Let me take the third one first, the second one second, then I'll turn it over to Eric to handle the second and the first. Okay. Third one, look, I think the -- I'll say in general, FDA has very well thought out guidance if you're going to use a natural history comparator group as a control arm. And I think we know that the agency has used the FACOMS, the FA registry before to support regulatory decision-making in public forum. They held that out as a model of a patient registry where you can get quality data because that very well characterizes and captures disease progression. Obviously, we had to set up the treatment portion of the study with vatiquinone to match a lot of the dynamics in the natural history registry, including timing of assessments and such. Obviously, again, in selecting natural history cohort from the registry, we're going to be sure to make sure that they do have the appropriate endpoint information at the key time points, clearly baseline, clearly 24 months and 12 months in the middle. So, these are all things that we are thinking of ahead of time. We've included in the protocol, the statistical analysis plan to make sure that this we can get as robust a comparison as possible. And again, I think we're afforded -- we have the luxury that the FA community has developed such a robust and rigorously collected and protocolized natural history registry for the key endpoints that are relevant for clinical trials. Your second question was about social media being so important in the U.S. and what's going on outside the U.S. Look, I think it's different use in different places. I think the important thing is that globally, there's well-aggregated communities that communicate with each other and there's global communities as well. So there's the flow of information not only in the U.S., what happens in the U.S., it goes outside the U.S. And social media is global. And then we also know that there's communities in other countries as well where there's sharing of information, whether that's on social media or other form. Let me turn it over to Eric to talk a little bit about the Japan dynamics and if he wants to add anything to the question about social media. Eric Pauwels: Our Japanese launch is really off to a really great start, again, ahead of schedule. And we believe that this will be an important and significant opportunity for us. Keep in mind that we actually did get approval in December, and we were promoting and profiling a lot of the centers there. But in Q1, we actually did finalize the pricing and reimbursement, which, as I mentioned, has been locked in now with no price decreases for the next 10 years due to orphan exclusivity and no referencing. So, that's incredibly important for us in terms of that sustained business. What we've seen in the early stages of the launch in Japan, and keep in mind, this is just early stages, is that there is some similarities to the U.S. There are patients who are seeking treatment that have failed or uncontrolled, but we are also pleasantly surprised that there are adults and naive patients that have come in. So, so far, we've seen a lot of the similar, what I would call, accelerated dynamics that we saw in the U.S., in Japan as well. Operator: And our next question coming from the line of Brian Abrahams with RBC Capital Markets. Kevin Meli: This is Kevin on for Brian. Maybe just on Sephience and payer dynamics there. I know you mentioned sort of increasing coverage there across commercial and government. Can you talk maybe a little bit about any -- the types of step edits that you're seeing or maybe you had anticipated at this point? And then just what percentage of prescriptions, if you can comment, are sort of currently facing prior authorization delays and maybe how you see that metric evolving from here? Matthew Klein: Thanks, Kevin, for the questions. Eric, do you want to take those payer dynamics and then any challenges in authorization? Eric Pauwels: Yes. Absolutely. I mean, payer dynamics have been as expected. Prior authorizations are typically in place based on the label. And so most, if not all payers are requiring, obviously, PKU assessment and understanding requirements that are within the label. These are very simple and easy to get through. And right now, we've seen the vast majority of commercial payers as well as government payers have already written their policies. And it's really been very favorable with very few limitations, including step edits, very few step edits. And of course, the vast majority of patients have already some kind of documented history, either they've been on Kuvan or Palynziq, or they have actually failed on any of those therapies. So, prior exposure is incredibly important for moving them through. Even it does require step edits, it's something that we can measure very quickly and sometimes days and in just a few weeks and provide that information to insurers. So right now, everything is going according to plan, and we see very few limitations. And in fact, our time from PSF to dispense has improved continuously because of those policies now being in place. In terms of answering your question about the split, we've historically said it's a little over 2/3, 1/3. It's holding very well. In fact, in the last quarter, we had a slight tick up towards more commercial. We anticipate around 65% to 35%, being 65% commercial payers right now that are being covered. Operator: And our next question coming from the line of Yifan Xu with Jefferies. Yifan Xu: This is Yifan for Faisal. Congratulations on the quarter. Can you maybe provide some additional color on the PKU patient split? And for the current quarter, like what percentage of revenue like contribution from mild to moderate patients and what percentage for from classic PKU patients? And for your $2 billion peak sales guidance, how is that split? Matthew Klein: So Yifan, in terms of the breakdown, we don't collect specifically whether you're classical, moderate or mild. What we have seen from the beginning and are continuing to see is up to 1/3 of the patients are treatment naive, and those tend to be the more classical patients who were never tried on other therapies that were not thought to provide benefit to classical patients. And then again, the remainder are between those who have tried and failed existing therapies or those who are switching from existing therapies. But I think we're seeing more tried and failed as we've heard from centers that at first, there's a priority to get those who are not currently on a therapy on to a therapy. I think the important part of this is the feedback we are receiving and what we're seeing, which is that the more severe patients, as we expected, they're benefiting from Sephience. We have a number of these patients, which are showing significant reductions in Phe, diet liberalization. And so what we're seeing is consistency of effect across moderate, classical, mild, which is really, really encouraging. And obviously, we're doing a lot of work with the mechanism of action paper to support why that's the case, the fact that there is this independent chaperone effect that provides benefit in the more severe mutations and obviously, as well getting the physicians to put together these real-world evidence studies that clearly document how these more severe patients and those therapy-naive patients, those that are thought to have lost follow-up are coming in and having important responses, including Phe reduction, including the ability to liberalize diet and then other benefits like we talked about in terms of cognition and anxiety and other things. Eric, do you want to talk a little bit how we're thinking about the -- we said $2 billion plus, multi-billion. Those are the words we're using. So, I wouldn't limit it just to $2 billion. But let Eric, do you want to talk a bit about how we think the splits can and contributions can play out? Eric Pauwels: I think the contributions are going to be consistent, with the U.S. being, again, the main driver longer term. So, we understand that the U.S. will play a very, very important role. However, we've always said that there are 58,000 addressable patients worldwide. That means that out of the 17,000 to 20,000 in the U.S., there's 2/3 of them that are available in many other markets. We'll continue to work very hard to ensure that there's a narrow pricing corridor, that access and reimbursement is available to as many of these countries. And as we bring these 30 countries -- up to 30 countries along, we're going to continue to add patients internationally as well as grow the business in the U.S. One of the most important things is getting new patients in, but also building the base and maintaining that base. That's what we do in rare disease. And it's important that we continue to not only add new patients and add new countries, but also maintain patients with all the services, education and program that we can and at the same time, minimize any kind of discontinuation and maximize adherence and compliance. So overall, that gives us the confidence that we can actually build this blockbuster brand in multiple countries, and it will be truly a global launch. Operator: And our next question coming from the line of Jacob Ormes with TD Cowen. Jacob Ormes: This is Jacob on for Joseph Thome at TD Cowen. I just wanted to ask, so regarding Sephience and time it takes for patients to get on drug, we're wondering if you had any insights on how that might differ based on geography? Matthew Klein: Jacob, thanks for the question. I don't think you mean geography being country-wide within the U.S. or outside the U.S. I'll just say, in general, in the U.S., we're continuing, as Eric said, to get folks on fairly quickly. Some take longer, some take shorter, but on average, we're still seeing very, very rapid throughput. Eric, do you want to talk a little bit about the global dynamics and in particular, why we say going forward, we're going to really focus on global patients given the complexities of the global dynamic? Eric Pauwels: Yes. And it's a good question given the fact that the complexity is now with multiple countries and everyone has their own unique systems for access. What we see in the U.S. is dispenses that can be just in a matter of a couple of weeks. And in some cases, just a few days depending on the insurance, the policy and the requirements. In Germany and Japan, likewise, it's just a few days because the products are either reimbursed and/or listed and available in the pharmacies. As we get to the complexities of named patient programs in Southern Europe or Latin America or Middle East and others, the times can be days, weeks or it can be months. And each country is unique and different. But the most important metric is the prescription because our teams are really behind working with health care providers and centers and patients to ensure those prescriptions turn into commercial therapy and move those as quickly as possible. So it's very hard to tell you that there's an average out there, but certainly, named patient programs can take sometimes weeks or months in timing. But in other cases, once pricing and reimbursement is finalized, you'll see a much more accelerated and rapid adoption. So, that's why we believe going back to those metrics of providing global revenue as well as the number of active patients will be an important metric to measuring our ability to get to that multibillion-dollar status. Operator: And our next question coming from the line of Luke Herrmann with Baird. Luke Herrmann: I had 2. First on Sephience. A follow-up on U.S. reimbursement. Is there any sort of bolus of patients who haven't been able to get reimbursed yet that you think can be in the future? And then secondly, on vatiquinone, on the open-label study, can you just walk us through how you're treating Skyclarys use here? And do patients need to wash out for how long? Any details there would be helpful. Matthew Klein: Luke, so let me take the second question first, and then I'll let Eric talk a little bit about the favorable payer dynamics that we're continuing to see. So on vatiquinone, one of the key things in this study was to make sure that if you're going to use a natural history comparator group that matches or that the treated patients would match the natural history, if you will. It has to match both ways. And given that there's not been an extensive experience with individuals on Skyclarys for a prolonged period of time, we can't allow concomitant use of Skyclarys as we've done in the open-label extension of MOVE-FA, for example. So, there are going to be some provisions in the protocol for those who've been on it for a short amount of time and have washed out of it, but we can't allow concomitant use or long-term priority use of Skyclarys because we have to make sure that the natural history data we're using can accurately capture any other concomitant therapies. And again, Skyclarys is relatively new. So the natural history data don't have that well captured. And again, this is just an example. It's a really good question and a really good example of all of the thought, planning and alignment with FDA that's needed if we're going to go ahead and prospectively identify a matched natural history cohort and use that to support the resubmission. Eric, do you want to talk a little bit about on the payer dynamics and questions about any areas we're seeing challenges? Eric Pauwels: Yes. In fact, there have been very few limitations. Things are going as planned with U.S. payers. In fact, I think what we're seeing right now is very few of these patients right now are being denied. If they are, they're not hard denials. It's to work through medical necessity. We do not have a bolus, or a very large number of patients that are either on patient assistance programs or bridge. And if we do, we work very carefully to ensure that we bridge them to commercial therapy in matters of days or weeks. So, there isn't a very significant number at all. There's a smaller number. And we've been very pleased so far that the time to dispense is becoming more and more efficient, and we're doing that. We're seeing scripts being filled in a matter of a couple of weeks or less. And reauthorizations have not been onerous at all. They've been basically reauthorizations for 6 to 12 months. And we see that medical assessment of the physician and the patient along with Phe and -- Phe lowering and diet liberalization are enough for that patient to continue to get therapy. So overall, I would say the simple answer is the vast majority of these patients are actually on treatment. Operator: Our next question coming from the line of Joseph Schwartz with Leerink Partners. Jenny Leigh Gonzalez-Armenta: This is Jenny on for Joe. Maybe just one on the longer-term PKU competitive setup with oral genotypes independent SLC approaches now in late-stage trials, how are you thinking about the parts of the PKU market where Sephience is most defensible long term? Is the differentiation around Phe lowering, diet liberalization or physician comfort with this BH4 pathway or something else? And relatedly, are there any patient segments where you think future oral competition could expand the treated pool rather than directly compete with Sephience? Matthew Klein: Yes. Thanks, Jenny. While we acknowledge there's other therapies in late-stage development for adults, the Phase III study being done in adults, look, we don't -- we're not worried about a significant threat here. We have a significant first-mover advantage. We're very well penetrated into the market. And the general view in the marketplace, i.e., amongst the prescribers is they would be looking for something to add on to Sephience and not replace Sephience. And of course, in PKU, this is already a community where they're used to cocktail approaches. Their whole life is about supplements and mixing and matching different things. So the idea of being able to add something on to Sephience to potentially even get even better benefit, whether that could be complete diet liberalization, Phe lowering -- additional Phe lowering in more severe cases. So, again, I think the view here is very much as it being complementary. Of course, if there are segments of patients, the small numbers who have tried Sephience and have not had the success with it in terms of efficacy. We know it doesn't work for every patient. Clearly, we see those folks getting tried on the other kidney-directed drugs. But I think this is why when we talk about what we've been able to do in the launch, the penetration we have, this is becoming first-line therapy and standard of care. And anything that comes later would obviously be added on top of it or would be for those who aren't being served by Sephience. Operator: And our next question coming from the line of Paul Choi with Goldman Sachs. Kyuwon Choi: I wanted to also follow up on vatiquinone. And Matt, I was wondering if you could comment on since the MOVE-FA study and the commercial availability of Skyclarys, any changes in understanding of what the natural history in FA looks like versus when the other studies were run previously? And then secondly, just on the cash balance, Matt, I guess, as you think about sort of the catalyst and data cards that have yet to -- won't turn over for a bit in terms of your late-stage pipeline, I guess, sort of what's the rate-limiting factor for additional business development here? Matthew Klein: Thanks, Paul, for the questions. First, on vatiquinone, I think what's so interesting about FA natural history and the natural history registry, it's been incredibly well characterized and it's incredibly consistent. So if you look over time at the number of publications that have been done using the FACOMS registry, the rate of progression has been fairly consistent, 2 to 2.5 points a year on the mFARS. The components that contribute to that are -- as we talked earlier, are a function of age and a function of time. So even with approved therapy, that natural history has remained pretty consistent. And again, I think in the discussions with FDA regarding the use of FACOMS as a natural history comparator, it's that consistency over time. It's that robust data. It's the large number of patients and the completeness of that registry that have, I think, given them comfort that we can further substantiate efficacy with vatiquinone using this type of study design. In terms of the cash balance, look, we've talked a lot about this. We're incredibly excited for having gotten the company into this position where we've been able to launch Sephience, which is clearly a foundational product for our growth. The launch is going very much as we hoped and anticipated, and we still expect very strong growth and for this to be a multibillion-dollar product. As you alluded to with FA now with what we view as a trial with a high probability of success coming later in the decade and of course, the PIVOT-HD data really derisking the Phase III trial that Novartis is now -- has up and running for Huntington's disease that does have an interim analysis. These are 2 really attractive potential commercial revenue contributors later in the decade. There is an opportunity, and we have capital. And I think really what it comes down to is finding the right fit for us, something that we could bring in to set and leverage our existing commercial infrastructure and still remain in a strong financial position. So, I'd say the limiting factor is really identifying something that fits what we want to do in terms of the right size and something that we think we can set in. We're incredibly excited about our R&D portfolio. As we outlined in the research -- in the R&D Day, we have a lot of exciting things coming. We're finally getting -- I think we're leveraging all the learnings we've made in splicing, and that's a truly highly differentiated mRNA therapy platform that we're now just really learning to apply and get therapies forward. So again, I think as we look at things now, I think the company is in an incredibly strong position. We have a number of opportunities, and we have the luxury to be able to find the right thing to set in to ensure that we're continuing to grow our top line in the short, intermediate and long term. Operator: And I'm showing no further questions in the queue at this time. I will now turn the call back over to the CEO, Dr. Matthew Klein, for any closing remarks. Matthew Klein: Thank you all for joining the call this afternoon. Look, as I just stated in response to Paul, we're incredibly excited where the company is now. We work very hard to build PTC, to be in this position with a very strong launch for Sephience, a global opportunity that we're well positioned to take advantage of. And I'm incredibly proud of the team's performance, and we're positioned now to continue to grow in the U.S., accelerate growth outside of the U.S. and realize that multi-billion-dollar opportunity as well as all the advances in the R&D platform and the cash position, as Paul alluded to, which gives us the ability to continue to drive value in both the short and intermediate term. So, thank you all again for joining the call. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Crinetics Pharmaceuticals First Quarter 2026 Financial Results. [Operator Instructions] I will now hand the conference over to Gayathri Diwakar, Head of Investor Relations. Gayathri, please go ahead. Gayathri Diwakar: Thank you, operator. Good afternoon, everyone, and thank you for joining us to discuss the first quarter 2026 results. Today on the call, we have Dr. Scott Struthers, Founder and Chief Executive Officer; Isabel Kalofonos, Chief Commercial Officer; Dr. Alan Krasner, Chief Endocrinologist; and Tobin Schilke, Chief Financial Officer. Please note, there is a slide deck for today's presentation, which is in the Events and Presentations section of the Investors page on the Crinetics website. In addition, a press release was issued earlier today and is also available on the corporate website. Slide 2. As a reminder, we'll be making forward-looking statements, and I invite you to learn more about the risks and uncertainties associated with these statements as disclosed in our SEC filings. Such forward-looking statements are not a guarantee of performance, and the company's actual results could differ materially from those stated or implied in such statements due to risks and uncertainties associated with the company's business. In particular, today, we will be reviewing launch progress to date, our commercialization plans, future performance and other data about the acromegaly market, which are all necessarily subject to a high degree of uncertainty and risk. These forward-looking statements are qualified in their entirety by the cautionary statements contained in today's news release, the company's other news releases and Crinetics' SEC filings, including its annual report on Form 10-K and quarterly reports on Form 10-Q. In addition, this call will include certain non-GAAP financial measures. A presentation of the most directly comparable GAAP financial measures and reconciliations thereto are included in today's news release accessible from the Investor Relations section of our website. I would also like to specify that the content of this conference call contains time-sensitive information that's accurate only as of this live broadcast. Crinetics takes no obligation to review or update any forward-looking statements to reflect events or circumstances after the date of this conference call. With that, I'll hand the call over to Scott. R. Struthers: Thanks, Gayathri. Thank you for joining us on today's call. Moving on to Slide 4. This has been another strong quarter of executing our plan to make Crinetics the premier endocrine company. Crinetics is committed to translating the complexities of cutting-edge endocrinology into real value for patients. And with the launch of Palsonify, we are delivering on that commitment every day. We've made great strides in building the business by consistently adding patients every week to the pool that will be helped by Palsonify for many years to come. The consistent positive feedback we continue to receive from both patients and HCPs is especially gratifying. We have also meaningfully advanced our deep clinical stage pipeline with 4 major trials running and recruiting nicely. These represent blockbuster opportunities across several areas. And we continue to grow the pipeline with multiple compounds and IND-enabling activities with more to come from our ongoing discovery efforts. We have built a company that has proven it can discover, develop and deliver its own novel therapeutics, and we are well capitalized to continue to execute this growth strategy and drive value creation. I'm very proud of our team's strong execution across all dimensions of the company's first launch. This collective effort has translated into 232 additional patient enrollments and $10.3 million in net product revenue for the quarter. And we are making strong progress with access, including continually driving higher conversion from enrollment forms to patients starting Palsonify and growing reimbursement as coverage on formularies expand. We expect low discontinuation rates based on our clinical studies. Therefore, the number of patients on Palsonify should continue to compound. We continue to see momentum build on all fronts in the second quarter. While it's early days, we are confident in our growth trajectory. Palsonify sets a new standard of care for the treatment of acromegaly and is on track to become the most prescribed brand. Over the last few weeks, we've continued to advance Palsonify globally, including the European Commission approval of our MAA, the JNDA submission in Japan by our partners at SKK and our MAA submission in Brazil. These milestones underscore the strength of Palsonify's clinical data and the significant unmet need amongst patients around the world. As we expand internationally, we are taking a disciplined market-by-market approach, prioritizing geographies with clear regulatory and reimbursement pathways and pacing investment in line with an increasingly dynamic global pricing and access environment. All in all, it's clear that Palsonify is positioned to become the leading acromegaly treatment, and Crinetics has an exceptionally equipped team to bring it to the patients in need. With our early commercial success, continued clinical execution and a robust balance sheet to support the advancement of our innovative pipeline, Crinetics is well positioned to generate value for all stakeholders in both the near and long-term. I'll now turn the call over to Isabel to discuss the Palsonify launch in more detail. Isabel? Isabel Kalofonos: Thank you, Scott. Turning to Slide 6. The Palsonify launch continues to build on its strong momentum. I'm incredibly proud of our team. Their execution has led to a strong demand across all patient segments, expanding the breadth and depth of prescribing activity and solid reimbursement coverage. Palsonify establishing itself as a new standard of care in acromegaly, addressing a clear need for an effective, safe and convenient treatment to control the disease. Moving to Slide 7, starting with patients. As Scott mentioned, in the first quarter alone, we secured 232 new patient enrollment forms. This performance reflects strong execution in the field and demonstrates that we are expanding beyond early adopters and clinical trial transitions to reach the broader acromegaly population. As expected at this stage of launch, the majority of new enrollments continue to come from patients switching from existing therapies. We are seeing meaningful breadth and switching behavior with patients coming from all acromegaly therapies, including lanreotide, octreotide, cabergoline, oral nucleotide and combination regimens. We are very pleased to see that Palsonify is performing consistently across this diverse patient base with physicians and patients experiencing its benefits regardless of prior therapy. Importantly, both controlled and uncontrolled patients have switched to Palsonify, reinforcing its versatility across different clinical profiles. We are also encouraged by the expansion within treatment-naive patients. From the fourth quarter in 2025 to the first quarter in 2026, treatment-naive patients increased from 5% to 15% of total enrollments. We believe this is a positive signal of growing physician confidence and over time, we expect sustained growth in the share of naive patients. Providers are increasingly viewing Palsonify as a reliable solution across a broad range of patient profiles. As previously discussed, our strategy remains focused on driving adoption among both treatment-naive and switching patients, while expanding the overall market. Palsonify's differentiated profile, including rapid onset of action in as little as 2 to 4 weeks, sustained symptom and IGF-1 control and convenient once-daily oral dosing positions it well to address key limitations of existing therapies. We are already seeing early signs of this potential. Approximately 15% of first quarter prescriptions came from patients reinitiating therapy after discontinuing prior treatment, which is an encouraging indicator of Palsonify's ability to expand the treatment population over time. Our patient strategy continues to focus on empowering the patient voice and ensuring early and seamless access to treatment as described on Slide 8. This includes rapid initiation through our Quick Start program and comprehensive health support. We also support patients with a robust suite of services designed to meet patients' needs throughout their treatment journey, including education delivered by our endocrine nurse educators and engagement through our patient ambassador program. Our ambassador program connects with patients through multiple digital and social channels as well as live patient ambassador programs. The patient stories being shared reflect a diverse range of experiences on Palsonify, including individuals who were previously uncontrolled on existing therapies and who have achieved meaningful IGF-1 reduction along with clinically important symptom improvement. We believe this will motivate patients to more proactively manage their acromegaly and to initiate informed conversations with their physicians about Palsonify. Via CrinetiCARE , we are providing comprehensive support to help navigate insurance coverage and minimize friction in the prescribing process. Together, these efforts reinforce our commitment to supporting patients, amplifying their voices and helping them take a more active role in their care. Turning to Slide 9. I'm very pleased with our marketing and field execution. We continue to expand our prescriber base. As of March 31, there were 263 unique prescribers, up from over 125 at the end of 2023. This represents an important and expanding foundation for future growth. At large treatment centers, we are seeing top prescribers begin with a gradual number of patients with highly positive responses. In many cases, broader adoption is currently limited not by interest, but by appointment availability, which reinforces our confidence in underlying demand. Consistent with the prior quarters, enrollments remain evenly split between academic and community settings, reflecting broad relevance across practice types. Awareness of Palsonify continues to build, supported by targeted media reach, a strong presence at major congresses and a growing body of scientific publications. This includes a recently published indirect treatment comparison demonstrating Palsonify's value relative to other therapies as well as 2 oral sessions at the American Association of Clinical Endocrinology, including a late breaker that presented the first 6 real-world cases highlighting Palsonify's efficacy in both treatment-naive and uncontrolled patients. Our commercial execution continues to support educational programs and peer-to-peer engagement. Overall, we are very pleased with the positive experience prescribers have with Palsonify, which reinforces our confidence in continued adoption and growth. From an access standpoint, approximately 70% of patients on therapy at the end of first quarter were reimbursed a meaningful improvement from last quarter, and patients have continued to transition from quicker start to reimbursed product. Over time, we expect nearly all patients to have coverage for Palsonify, and we will continue to provide quicker start when needed to ensure initiation of therapy as soon as possible. We are also seeing most prior authorizations approved for 12 months and aligned with the label, reflecting payer confidence in both the clinical profile and durability of benefit. Turning to Slide 10. Payers appreciate Palsonify's unprecedented safety and efficacy, which continues to be reinforced with new research and publications. As I mentioned it, we recently published in the Journal of Clinical Endocrinology and Metabolism, a comparison of PATHFNDR-1 results against other approved acromegaly therapies. The analysis showed placebo-adjusted IGF-1 normalization of 79.7% with paltusotine, more than double what has been reported for both subcutaneous or oral ocreutide. This efficacy data, coupled with Palsonify's fast of action and symptom control are resonating strongly with payers. We continue to have highly productive discussions with top payers across the country, including regional and self-insured employer groups, supported by compelling clinical presentations that are resonating clearly. These conversations are translating into results. We are achieving formulary wins earlier than the typical decision time frame, reinforcing the strength of Palsonify's value proposition. Moving to Slide 11. Importantly, we have now achieved over 60% coverage and remain on track to exceed our 75% coverage goal by the end of third quarter of 2026. Our national account directors will continue to meet with payers in the next quarter to continue to accelerate coverage. We have delivered this progress with improved speed to therapy and continued operational efficiencies across prior authorization and appeals. Collectively, this reinforces that payers recognize the meaningful clinical benefit of Palsonify and the value of keeping people living with acromegaly in sustained biochemical and symptom control. Overall, our experienced commercial team is executing extremely well. The value proposition is clearly resonating with all stakeholders, and we are encouraged by the trajectory of the launch as we continue to expand access and improve outcomes for patients. I will now hand the call to Alan to discuss the pipeline. Alan Krasner: Thanks, Isabel. As we launch Palsonify, we continue to advance our deep homegrown pipeline. This pipeline continues in the Palsonify tradition of using novel and meticulously designed small molecules to interact with therapeutic endocrine receptors to improve the health and lives of our patients. Like Palsonify, we work to create truly new and needed treatments, which are easy to use for the patients and for their health care providers. As a clinical endocrinologist, I have long been frustrated by what I call no better option inertia, and the history of acromegaly care is a great example of this. For decades, we have been telling our acromegaly patients treated on depot injections that their blood tests look okay. Therefore, they are okay. Even if the patient wasn't feeling okay, there was very little we could do about it anyway. We knew that there were a lot of unsolved problems, not the least of which was unstable control of acromegaly symptoms even when blood test results suggested normal or close to normal IGF-1 levels. That's where Palsonify came in. It was long past time to break the inertia and create a better option, one that for the first time was approved with a rigorous demonstration of IGF-1 normalization and symptom control. And the patients don't have to wait a long time to achieve these goals. Palsonify for acromegaly is only the first candidate on this pipeline slide and the potential patient impact across our pipeline is enormous. Atumelnant is another great example of a Crinetics pipeline candidate. It has a novel mechanism of action that has already resulted in unprecedented biomarker and clinical responses in short-term Phase II studies. The Phase III COLMCAH adult and Phase II/III BALANCECAH pediatric studies are actively enrolling with a great deal of patient and investigator interest. We are also excited to begin enrollment into the Phase II/III equilibrium ADCS study in the near future. Additionally, we will report interim data from our Phase II CAH open-label extension later in the year. When I look at Slide 13, I see a lot of scientific creativity addressing long-standing inertia in clinic and plenty of opportunities for significantly better therapies to address many endocrine and endocrine oncologic disease states. We don't settle for the status quo at Crinetics. We don't do inertia. I'd like now to update you on our activities at major medical conferences. I recently returned from the American Association for Clinical Endocrinology meeting where Palsonify data were featured in 2 well-received oral presentations. As Isabel mentioned, one of these was the first description of real-world experience using Palsonify presented by a prescribing physician. There is no better way for practicing health care providers to learn about a new product than discussing with each other personal observations of how patients do with the treatment. We have heard many powerful anecdotes from patients and these real-world results are very consistent with what we are hearing. Diligence study and follow-up does not stop just because a product is approved. The Annual Endocrine Society Meeting is coming up in June, and there will be several Crinetics data communications, 3 of which are oral presentations. One of these oral presentations will summarize results of up to 2 years of long-term safety and efficacy data from the Phase III PATHFNDER-OLE studies. Another oral presentation will detail final results from the Phase II TuCAN study results for eptumelimib in the treatment of adult congenital adrenal hyperplasia, or CAH. And the third, we will present new dosing data from the ongoing single-center study evaluating Aomelimet in patients with ACTH-dependent Cushing's syndrome. With the great potential across the Crinetics pipeline, I expect we will be presenting at these and other meetings for many years to come. With that, I will hand the call to Tobin for a financial update. Tobin Schilke: Thank you, Alan. Turning to Slide 16. Our financial results for the first quarter 2026 demonstrate a balance of disciplined execution and strategic investment as we advance the development of our pipeline and commercial launch of Palsonify. In the first quarter, we recognized $10.7 million in total revenue, consisting of $10.3 million in net product revenue from Palsonify and $0.4 million from our licensing agreement with our Japanese partner, SKK. Cost of product revenue in the first quarter was $0.2 million. Prior to Palsonify's approval last September, manufacturing costs were expensed through R&D as 0 cost inventory. If we were to include the cost of products sold that was previously expensed as 0 cost inventory, the cost of product revenue would have increased by less than $0.1 million. To date, we have only distributed 0 cost inventory and expect to continue to do so for the near term. Our research and development expenses for the first quarter were $100.1 million compared to $85.1 million in the fourth quarter. The increase compared to the fourth quarter is primarily due to the ramp-up of ongoing Phase III trials as well as the initiation of the Phase II/III pediatric study of adamelimab in CAH. Selling, general and administrative expenses were generally steady at $50.8 million for the first quarter compared to $53.7 million in the fourth quarter. The fluctuation compared to the fourth quarter reflects timing variability of commercial investment. We ended the quarter with $1.3 billion in cash, cash equivalents and investment. As of April 23, 2026, we had approximately 105.4 million shares of common stock outstanding. On a fully diluted basis, we had 123.5 million shares outstanding. This includes our outstanding options, unvested restricted stock units and shares expected to be purchased under our employee stock purchase plan. Moving to Slide 17. We are maintaining our guidance for GAAP and non-GAAP operating expenses in 2026. We expect GAAP operating expenses to be between $600 million and $650 million. We expect our non-GAAP operating expenses, which exclude cost of product revenue, stock-based compensation, depreciation and amortization to be between $480 million and $520 million. Based on our current operating plans and cash position, we project that our existing cash and investments will be sufficient to fund our operations into 2030. This provides us with significant runway to execute on the commercialization of Palsonify, pivotal readouts for ongoing clinical trials in carcinoid syndrome, adult CAH, pediatric CAH and Cushing's and continued advancement of our early pipeline, including proof of concept for 9682. I'll now turn the call back to Scott for some closing remarks. R. Struthers: Thank you, Tobin. Turning to Slide 19. Palsonify sets a new standard for the medical treatment of acromegaly. I'm very pleased with the progress we have made on the launch. We are optimistic that the trajectory ahead of us will make it the most prescribed treatment for these patients. As we approach the halfway point of 2026, Crinetics is in a unique position of strength with fully integrated capabilities, a deep pipeline and robust balance sheet. We are nicely advancing this innovative portfolio of clinical programs and the site activations and enrollment trends in all studies are positive. I look forward to sharing meaningful data from these programs as they mature. Beyond our late-stage trials, we are continually innovating on our early-stage programs and moving them forward towards the clinic as well as beginning new discovery efforts. We've also taken a new step for the company in establishing a collaboration with Dr. John Kopchick at Ohio University for the discovery of oral non-peptide growth hormone antagonist. Dr. Kopchick is a leading innovator in the field and discovered pegvisimod, the only commercially available growth hormone antagonist. We look forward to working with him to potentially create a new oral add-on therapy. As you've seen today, we are not just executing a launch. We're building a premier endocrinology company. With Palsonify setting a new standard of care in acromegaly and ongoing Phase III studies for carcinoid syndrome, atumelnant advancing toward 2 important indications, 9682 exploring the potential of an entirely new platform, a discovery engine that keeps replenishing what comes next and a uniquely experienced team to carry it forward, we are well on our way to transforming the lives of people living with serious endocrine diseases and creating lasting value for all stakeholders in the near and long term. Thank you for listening, and we look forward to your questions. Operator: [Operator Instructions] Our first question comes from the line of Joe Schwartz with Leerink Partners. Joseph Schwartz: I have one on atumelnant and one on 9682. First, we noticed that you've added a balanced CAH update for '26. What will that entail? Can you give us a sense of the quantum of data you'll report and what you hope to demonstrate there? And then second, where are you now in terms of enrolling the BRAVIS 2 study dosing cohorts? And when do you think we might get our first taste of data out of that program? Also, at what point do you make the investment decision to expand the range of tumors you might target? R. Struthers: Thanks for both questions, Joe. Let's see, taking them in order. How about -- let's talk about the BALANCE pediatric study. So, a reminder, this is a cohort-based study starting first in 12- to 18-year-olds looking at doses and confirming the translation of our expected doses in pediatrics from the adults. And there's 2 cohorts there that are mandated and then a possible third cohort. We're not changing our guidance. We hadn't said it wasn't coming this year. We're just reminding folks it may come this year. And especially if we don't need that third optional cohort, we will have data on the 12- to 18-year-olds as we begin going down the age groups. In terms of 9682, we are in the dose escalation phase, marching up the doses. We don't think it's prudent to give guidance as to when that may or may not come about. But the enrollment and enthusiasm in both that and all the CAH programs and the Cushing's program and the carcinoid syndrome program are very high. And so 9682 will make the decisions on the additional cohorts as we get to an effective or a tolerated dose. But we've already set out some key cohorts we're going to be expanding in the expansion phase. Operator: Your next question comes from Gavin Clark-Gartner from Evercore. Gavin Clark-Gartner: Great to see the progress. For Palsonify, I just wanted to confirm, for the cumulative enrollment that pie chart you showed the 15% of naive patients, that's cumulative since launch, right? What was the percent of naive patients that came in specifically in the first quarter? R. Struthers: Thanks, Gavin. Let me hand that over to Isabel, but we are pleased with the overall execution across all dimensions of this launch. And I've got a lot of questions over the years, where do you think the primary group is going to be? And I think the answer I've given is everybody. Our source of business is every single group. And in addition to those naive, the folks who are coming back to care represents an early victory on our planned Phase II of the launch when we start focusing more heavily on. But maybe, Isabel, you want to comment a little bit more about the naive population. Isabel Kalofonos: Just to clarify the 15% is specific to first quarter. And our market research showed that basically, the messages on PATHFNDR-2 are resonating really well with the community. We're helping shift long-standing perceptions. We are successfully reframing or as a true first-line option rather than a second-line alternative. The efficacy story is landing really well. And as Alan mentioned it, 3 of the 6 patients highlighted at the AAC poster were naive patients who have remarkable results. So, we see this group really expanding in the future, and we expect to be actually dominating in this group. R. Struthers: Yes. And just to add on to that, remember, this comes back to our overall strategy of laying the groundwork, getting people experience and then starting not just to focus on switching market, but growing the market and bringing people back to the care that they need, that they gave up on because of the problems associated with the current level of care like Alan was talking about. The inertia is not something that we want to do. We're not going to -- we need to move past that. Gavin Clark-Gartner: That's super helpful. Super quick follow-up. What's the scope of the CAH data that's coming at end of this year? R. Struthers: Well, I think you'll just have to wait and see for the abstracts, but it's a beautiful molecule, and we very much like it. Operator: Your next question comes from the line of Yasmeen Rahimi with Piper Sandler. Unknown Analyst: This is Liam on for Yasmeen Rahimi. Congrats on another outstanding quarter. Just looking forward at the Palsonify launch, could you provide some color on how you think 2Q will compare to 1Q? And how do you really see starting forms evolving over the next 4 quarters? Or I guess like what would be considered a steady-state starting form number? R. Struthers: I'll let Toby take that one. Tobin Schilke: Thanks, Liam. When you step back and zoom out, as Scott mentioned, we've accomplished a lot in the first quarter. You've seen the growth of the naive patients is the first question answered, the penetration into the discontinued patients and sort of just the depth and breadth from payer coverage and the increasing number of accounts that we penetrated over time. However, there's always puts and takes. So, for instance, we had the momentum in the fourth quarter of 2025, where we had some patients who had joined and became enrolled from the OLE and some kind of early adopters and a handful of hand raisers there. So that it's really tricky to kind of forecast where we're going to be. However, we like the momentum that we're building, and we're really confident in our trajectory. R. Struthers: And I think something that has been very nice to see is just how well the team across all the dimensions of the company, whether it's sales or medical affairs or even the back office stuff. It's all working very smoothly. The engine is coming, and we're building momentum. Operator: Your next question comes from the line of Max Skor with Morgan Stanley. Maxwell Skor: So, regarding Palsonify, with 70% reimbursed, what's the form to paid conversion rate? And how should we think about timing for the remaining 30%? R. Struthers: Well, first, let me complement the market access team. 70% at this early point in the launch is really superb for a molecule in the rare disease space like this. But do you want to comment a little bit more on some of the dynamics as well? Isabel Kalofonos: Yes. Thank you for the question. As Scott pointed out, we're very pleased that 70% of the total systems and the patients are getting reimbursed, and we are working through moving those quicker starts into reimbursed patients. That's moving at a good pace. I'm not going to mention the specific metric, but we're expecting all of them will eventually be converted to reimbursed drug. Operator: Your next question comes from the line of Jon Wolleben with Citizens. Jonathan Wolleben: Just one for me on Palsonify. When we think about the unique prescriber base, do you have a sense of how many acromegaly patients those prescribers have under their care? Just looking for some commentary about kind of the deepening of the prescribers as well as the broadening over time. R. Struthers: Yes. Thanks. And as we've said in the overall strategy the last couple of times, we're trying to get a broad set of experience so that we can then begin to expand the market and get people in and focus then on depth. And I think we're succeeding on both aspects of that. We're getting a broad set of prescribers at the top pituitary centers and out in the community, and those are starting to show depth in some of those prescribers and some are just new to the drug. Maybe you want to add a little bit to that. Isabel Kalofonos: We are very pleased with the results. I mentioned earlier in the call, 50% of the prescriptions are coming from community and 50% are coming from PTC. But the 50% from community are coming from 70% of our total prescriber base. That's really promising because it means we are expanding the market, building a broad base of prescribers that are having really positive experience and are starting to put the second, third and fourth patient on drug. Answering your question on how many patients those doctors represent today, approximately 1,400 patients. Operator: Our next question comes from the line of Jessica Fye with JPMorgan. Jessica Fye: Just curious, as you enroll the registrational atumelnant trials, do you anticipate being able to provide the Street with commentary on the ongoing safety profile, maybe based on like blinded safety data as it accrues? R. Struthers: Thanks, Jess, and welcome back. Yes, let me just say that every day, we're accruing patients every week. And the safety profile continues to be what we've always communicated it to be, which is very, very favorable. But maybe I should let Alan give a more physician-oriented answer to that. Alan Krasner: Yes, I mean, all trials, especially major Phase III, Phase II/III trials are carefully monitored for safety. Sometimes the efficacy results, of course, are blinded. But there are always medical monitors following both safety and efficacy as well as external data monitoring committees. In general, when the trial -- when these trials continue, that means the risk-benefit profile has been analyzed and it has been found to be safe to go forward. I don't know that we would come back to make public announcements, but you can be sure that this is -- when the trials continue, things are going along as expected. R. Struthers: And maybe just to be absolutely clear, with continued experience, we see continued good safety profile with nothing that has changed our mind or perspectives on that whatsoever. And as we add more patients, anything in the past that might have been concern to some, not so much us, continues to be diluted by more and more experience, both in the adult ongoing Phase III in the rapidly recruiting pediatric study where everybody is super sensitive to safety, of course, and in the ongoing OLE experience. So that experience base grows every day, and we continue to be pleased with the profile of atumelnant, both on a safety and efficacy point of view. Operator: Your next question comes from the line of Dennis Ding with Jefferies. Yuchen Ding: Congrats on a strong first quarter. I have one on Palsonify. So, it seems like each doctor so far is prescribing it to 1, maybe 2 patients. What's the feedback from them who have used it so far? And what's preventing them from prescribing Palsonify to more patients? Is it just confidence in getting these scripts approved? Or maybe penetration is just gated by the timing of patient visits? R. Struthers: Thanks, Dennis. Let me correct your premise. It is not true that they've only prescribed to 1 or 2 patients. It depends on how many patients they have and how often they're able to see them. But we have some who routinely are switching patients or adding to new patients. And just as we've said since the beginning, the major challenge is just getting that darn appointment. But we're hearing tons of positive feedback in an anecdotal sense that we're now starting to publish as evidence. We're getting good coverage, good reimbursement and everything is moving along just as we expect. So, nothing is getting in the way other than a little bit of time and a little bit of finding those darn appointments. Yuchen Ding: Got it. And if I can have a follow-up. For your preclinical oral TFHR antagonist, how do you think about this approach going after the receptor versus going after the autoantibodies? I mean one might say that completely hitting the receptor might get patients to go into a hypothyroid state that might require a Levo supplementation. So curious how you're thinking about that. R. Struthers: Yes. So just like our other programs, we're really going after the core target of the disease. And it's super specific to go after the receptor. And remember, there's this whole other branch that are going things downstream of the receptor like the anti-IGF antibodies. But at its core, what we've shown in a preclinical setting is a great degree of specificity, ability to achieve dose response. And if necessary, we could take add-back approaches like levothyroxine, which almost every endocrinologist is familiar with. Alan, maybe you want to elaborate on how we're thinking about developing this drug. Alan Krasner: Yes. No, I mean, I agree with Scott. It is the fundamental driver of the disease states in multiple organ systems is via -- it's mediated by the TSH receptor. So that's where we really want to target the therapy. The autoantibodies in Graves disease are very -- they come and go. The wax and wane with time. It's unpredictable as to when antibodies are even there versus how much antibody is there and what form of antibodies are there. These are polyclonal antibodies that are very heterogeneous. So even measuring them in a laboratory isn't necessarily predictive of clinical things. So, it's very hard to react to autoantibodies and chase them, especially in the disease state, which the natural history is for these things to kind of appear and disappear. I think targeting the TSH receptor is much more reliable and I hope will prove to be much more effective and long-term solution for patients. Operator: Your next question comes from the line of Kate Delloruso with LifeSci. Katherine Kaiser-Dellorusso: Congrats on all the progress this quarter. Just a quick one on Palsonify. I know it's early days, but I was wondering if you had any insights on real-world compliance or adherence thus far that might be captured your patient resources like the CrinetiCARE platform. R. Struthers: Yes. Thanks, Kate. Just a reminder, we've had great compliance and persistence throughout the clinical trials, open-label extensions, and that trend continues as we go into the real-world setting. But maybe you want to comment, Isabel? Isabel Kalofonos: We are very pleased with the positive experience that patients are having on Palsonify. You see a fast set of action in 2 to 4 weeks. You see symptom control and IGF-1 control. And that has led to the patients to continue on therapy. So, the patients that started in fourth quarter are on therapy today. We see a very positive trend on adherence and compliance. R. Struthers: And if I just extrapolate from these anecdotes we're hearing about how patients feel better. The converse of that is when you stop, you know what good is like and you are reminded what bad is like again. So, as we think about these enrollment forms each quarter and the natural history of acromegaly, it's important to remember that this is a lifelong disease, and we've developed a lifelong treatment. And so each quarter, we're adding hundreds of people who I think we can help not just through providing a good drug, but providing the whole ecosystem through CrinetiCARE and our other services to help them manage their health care, help them get to reimburse for their drug and help them stay on the care that they need. Operator: Your next question comes from the line of Alex Thompson with Stifel. Alexander Thompson: I guess when might you be in a position to give us some more clarity around time lines for the paltusotine carcinoid Phase III and the AML adult study? I guess asked another way, both of those trials have primary completion dates for 2027 on clinicaltrials.gov at this point. Is it possible we see data next year? Or are we going to have to wait until 2028? R. Struthers: Well, look, as I said earlier, Alex, it's not prudent to comment on time lines at an early stage of a trial like this. And you have to throw an estimate on clinicaltrials.gov. But we've done a whole bunch of different things as we've grown the company to help ensure that we can maximally recruit our studies. And these go from things like internalizing our U.S. clinical operations. So those are relationships at sites where we've had studies before and now it's with our own Crinetics staff who have low turnover and stay as a relationship for the duration of the study. And those people are also then, of course, the likely prescribers of the drug. And so, we've seen an acceleration in site activations. We've also put in various structures to help make sure that the sites are screening effectively. We've been very pleased in the CAH study that almost every site as soon as it's activated, starts screening immediately. And you don't always see that in these types of clinical trials, but it's great evidence about the enthusiasm of the investigator and the patient community. And similar in carcinoid syndrome, remember what a tough, tough disease this is and what really solid data we showed in the Phase II program. We recently had an investigators meeting there. And again, a ton of enthusiasm and a very positive response. So, we are working hard to make sure we can bring in these time lines at the fastest possible pace, and we've built the company to do that. So it's -- we had a discovery engine, I think most people recognize. The development engine, there's a lot of stuff behind the scenes that most people forget about, but it's complex and it's really running well. And now we've built the commercial engine and the commercial engine is coming, too. Operator: Your next question comes from the line of Tyler Van Buren with TD Cowen. Nicholas Lorusso: This is Nick on for Tyler. Congrats on the progress and on the quarter. Can you discuss what proportion of revenue came from new patients this quarter compared to patients rolling over from last quarter? And also, what was the overall growth of the patient enrollment forms month-over-month in Q1 and as you moved into Q2? R. Struthers: I'll let Toby take that. Tobin Schilke: Yes. I don't think we were going to comment on the revenue from new patients versus carryover patients. But when you step back, I think that as we look at this data and sort of the growth that we've had in enrollments, we're feeling very good about the trajectory of things. The team, like as Scott and Isabel mentioned, are building the relationships and they're doing it in a very steady fashion. And we're quite pleased with the progress and just the response to Palsonify in the field. Operator: Your next question comes from the line of Douglas Tsao with H.C. Wainwright & Co. Douglas Tsao: Congrats on the progress. I'm just curious if you could provide a little bit more on the 15% of patients who are returning to therapy. I'm just curious if you have a sense of were they in the system still and routinely seeing a clinician but chose not to be receiving sort of injectable therapy and were very quick to come on as soon as Palsonify was available? Or were these patients who somehow heard about the drug and then decided to sort of reenter sort of treatment? R. Struthers: Yes. Thanks, Doug. Again, let me give some credit to the team. They've been piloting some of the programs they're planning on deploying more widely to do exactly this and bringing these patients back to care. And so, some of it is from that and some of it is spontaneous. But maybe you want to comment a little bit, Isabel. Isabel Kalofonos: Well, we are really pleased because we are bringing back to patients that have given up on their treatment, even though they have a chronic disease where symptoms continue to advance. So, these patients that have discontinued therapy remain in the system. They were primarily discontinued due to the burden of the treatment and the fact that those treatments don't deliver, right? You continue to have symptoms at the end of the cycle, you have painful injections and after what you just give up. So, for us, it's great. None of them has discontinued for more than 2 years, some of them just a few months ago. And we have reengaged them. And that reengagement takes our media programs, our participation on the program and also some specific tools where we are working to identify them with the practice. So, these are very early outcomes in a group that has given up, but it's very encouraging for us because it means that we can expand the market. Douglas Tsao: That's really helpful. And just maybe on the switch patients, I'm curious, do they generally just come in -- I mean, how many visits to see the doctor do they need? Are they generally coming in, talking about the clinicians saying, yes, I would like to do this and they sort of get the ball rolling with the patient start form -- or do some patients need a couple of visits to sort of go through an education process? R. Struthers: Yes. So, there's a little bit of a mix. But before we hand this to Isabel, let me just tell you one anecdote I heard recently -- I had recently firsthand where I was talking to a couple of HCP friends of mine, and they were telling me about a couple of different patients that had come in and asked for Palsonify. And their initial reaction was, well, this is a -- you're on a second-line therapy. I'm not sure a first-line therapy will be what you need. And yet it worked anyway much to their surprise. And so, everybody was happy with that, and that story is propagating as well. But you want to comment, Isabel? Isabel Kalofonos: Yes. When it comes to the switching patients, I will first comment that we are very pleased that they are coming from all kinds of previous therapies, octreotide, lanreotide, combination therapy, cabvergolin, Mycapssa. So, we are taking share from pretty much all those switches. And the beauty of Palsonify is that it's performing really well across the board. So that shows the versatility of our drug and that confirms the efficacy and the benefit also having a once-daily therapy. When it comes to how long it takes to convince patients, it's like everything in life. Some patients are more ready to do that change because they are having the symptoms, because they feel uncontrolled because they hear about the convenience of our treatment, all of that makes them ready to switch. Other patients want to hear from other patients. That's why we have our Embassor program to hear stories. Other patients want to have a second opinion with the doctor. But that's what we are seeing across the board as patients have interest in learning more and many patients are joining our Embassor events. Douglas Tsao: That's really helpful. And Scott, can I just ask a quick follow-up in terms of your anecdote. I mean just given their reaction, I mean, does that suggest that even very well-educated clinicians with Palsonify don't necessarily have a full appreciation of the data and the strengthness of it because just given the PATHFNDR results, I mean, I don't think anybody should be surprised that the drug would work or that it wouldn't be applicable to everybody with acromegaly. R. Struthers: Yes. No, it's not that it wouldn't be applicable to everybody. It's just that we're seeing kind of even more than we expected in the real-world setting than what we saw in the PATHFNDR studies. Because remember, we -- the PATHFNDR had 2 parts of the spectrum, 2 ends. The patients who are untreated at all in PATHFNDR-2 and the patients who are very well controlled on the injectable depots. But what was missing was all those patients in the middle who aren't that well controlled, who might be on combination therapy, and we only had a small amount of data on that from Phase II. And so, what we're learning in the real-world setting is that even if you're on a combination therapy, some patients are getting better on Palsonify. Even if you're on something like pasarreotide, which is a mixed receptor that people advance to after they fail on lanreotide and which has a variety of different problems associated with it, even those patients are getting switched and doing well. So I think we're all just a little bit surprised at how well this has done in the real-world setting, which is why it's so critical that we capture the real-world evidence and start to get that out there, not just through word of mouth, which is already happening, but through publications and formal presentations of evidence. Operator: Your next question comes from the line of Richard Law with Goldman Sachs. Jin Law: Congrats on the results and progress so far. Two questions for me. The first is we saw sales from other products from many other companies impacted by the severity of weather in Q1. Was there any seasonal effect that impeded Palsonify sales in moment form in Q1? And do you believe there's a pent-up demand as a result in Q2? And then I have a follow-up on eimelimab. R. Struthers: Look, we're very pleased with just the overall consistent launch and the way the team is performing, and I couldn't be happier. I think we've got enough time for the eimelimab question. Jin Law: Yes. I think just kind of following up to what you said earlier about safety monitoring, something like that. Can you discuss like what data sets that you can -- that you believe can help derisk the safety profile related to ahead of that Phase III CAH study? And then I think in the ongoing trials, you mentioned that you guys do monitor the safety or the data monitoring will monitor safety. Is there -- if there's a lower grade like liver tox signal, would that get reported to you? Like what level and what quantity of level of that signal gets communicated to you guys? R. Struthers: I'll let Alan answer the technical part of that. But in my view, there's not really anything to derisk anymore. We're at a normal Phase III, and it's moving forward in a very nice fashion. Alan, maybe you want to give people some comfort with the specificity of the rigor that goes into our overall safety monitoring, including the Phase III. Alan Krasner: Yes. So, all clinical trials, including Phase III clinical trials contain within it extensive safety monitoring, which generally includes regular visits with health care professionals for physical examinations as well as a battery of routine safety blood tests, EKGs and other important things, too, that are generally -- that are routine for clinical trials. All these safety data are very carefully monitored by well-trained professionals all the time. The all the safety data is available in real time to the medical monitors in particular. And this is followed very carefully. And as I said earlier, generally, when a trial is continuing, that means all the safety checks are as expected. And I feel very confident in our compounds and in our trials, including the ongoing trials. Yes. R. Struthers: And maybe to even put a finer point on it. You really think that IRBs around the world would let us start dosing 12-year-olds or soon even younger if they had any question about the safety or risk benefit of this drug. I don't think they would, especially as we get into kids. Operator: Our next question comes from the line of Catherine Novack with Jones. Catherine Novack: Just one on Palsonify in Europe. Can you give me your thoughts on potential pricing dynamics here and when you expect to see revenue from individual countries and which countries may be first? R. Struthers: Yes. Thank you. Look, we're focused on executing on the U.S. launch. And I'm really pleased that we've received the approval in the EU. We've submitted in Brazil. We've submitted in Japan. And all of this is building options for us around the world and I think showing the strength of the drug with the receptions we're getting from these global regulators. But like everybody else in pharma and biotech, we're monitoring rapidly how all the pricing and access situations are evolving. And we're navigating this uncertainty in a very disciplined market-by-market approach. We'll be prioritizing geographies with clear regulatory and reimbursement pathways. And also importantly, we're pacing the investment in these international activities, again, to preserve the option value without overcommitting too much capital. And just to be clear, we're not preparing for revenue from international operations this year, but we will be prepared for early launch in 2027. Operator: Your next question comes from the line of Brian Skorney with Baird. Brian Skorney: Congrats on the quarter. I also wanted to get some thoughts maybe on the ex-U.S. launch you mentioned sort of thinking about prioritizing where reimbursement may be favorable given sort of the IRA dynamics. But how do you think about where there might be higher value areas through either genetic clustering or just diagnostic clustering being a driver of demand? Like I think in Northern Ireland, there's a genetic cluster of the R304 mutation, maybe Brazil seems to have better diagnostic infrastructure than other areas. So, are there any areas that you kind of point to where the pool of identified patients may be particularly meaningful? R. Struthers: Yes. So, first, there's not really a genetic clustering to acromegaly, except as you say, in the Irish giants, which is one of a relatively small population where there is a genetic component to the acromegaly. So the distribution of incidents is pretty much global, but some health care systems are better at identifying patients and/or keeping them under care. But we need to balance that against also the reimbursement landscape and the regulatory certainty in those regions. So, all those things we're taking into account, but it's a little too early to comment in detail on the specificity of our international plans. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Greetings, and welcome to the INmune Bio's 2026 First Quarter Earnings Call. As a reminder, this conference is being recorded. A transcript will follow within 24 hours of this conference call. At this time, it is my pleasure to introduce Mr. Daniel Carlson, Head of Investor Relations of INmune Bio. Daniel Carlson: Thank you, operator, and good afternoon, everyone. We thank you for joining us for the call for INmune Bio's 2026 First Quarter Financial Results. Presenting on today's call are David Moss, CEO and Co-Founder of INmune Bio; Dr. Mark Lowdell, Chief Scientific Officer and Co-Founder of INmune Bio; and Cory Ellspermann, INmune Bio's CFO. Before we begin, I remind everyone that except for statements of historical fact, the statements made by management and responses to questions on this conference call are forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that can cause actual results to differ materially from those such as forward-looking statements. Please see the forward-looking statements disclaimer on the company's earnings press release as well as risk factors in the company's SEC filings, including our most recent quarterly filings with the SEC. There is no assurance of any specific outcome. Undue reliance should not be placed on forward-looking statements, which speak only as of the date they are made as the facts and circumstances underlying these forward-looking statements may change. Except as required by law, INmune Bio disclaims any obligation to update these forward-looking statements to reflect future information, events or circumstances. Now my pleasure to turn the call over to INmune Bio's CEO, David Moss. David Moss: Thank you, Daniel, and good afternoon, everyone. For our first quarter 2026 earnings call, today, I'll review key takeaways and provide an update on our platform programs. Following my review of recent developments at INmune Bio, I will pass the microphone to Dr. Lowdell, INmune Bio's CSO and inventor of CORDStrom, who will provide an update on our CORDStrom MSC platform and particularly our RDEB program. Next, Cory Ellspermann will provide our financial results, after which I'll conclude our prepared remarks. We entered 2026 with clear priorities and strong momentum across our platforms. Most importantly, our CORDStrom platform remains on track, and we are now approaching a key milestone with our regulatory filings. Based on the progress of our analyses, manufacturing readiness and regulatory preparation, we expect to file for approval beginning in the near term, and we remain confident in the time line that we previously outlined. CORDStrom represents a potential first systemic therapy for RDEB, and we believe the data continue to support both its clinical benefits and its broader platform potential. Execution against this filing is our top priority. Turning to XPro. While CJ is not speaking today, I want to emphasize that we continue to make meaningful progress. We are advancing additional imaging analysis from the MINDFuL study, including MRI data focused on myelin preservation and structural integrity. These data sets are important as they further characterize XPro's potential as a disease-modifying therapy. At the same time, we're exploring potential rare disease trials for XPro and potential partners as we define the path forward, including regulatory alignment late-stage development strategies. Naturally, we'll update the markets as these milestones develop. Overall, we believe we're well positioned across both platforms as we move through a catalyst-rich period for the company and a marked change potentially for the company as we get closer to commercialization. With that, I'll turn the call over to Mark Lowdell to provide more details on CORDStrom. Mark? Mark Lowdell: Thank you, David, and thank you to everyone that's joined the call. As David said, since our last earnings call, we've moved forward significantly in bringing CORDStrom to market, and it is our central aim. First, we submitted the pediatric investigation plan known as a PIP to the U.K. medicines regulator in February, and we were approved for rapid assessment and receiving their response on the 9th of April. No substantial issues were raised, and we anticipate submitting our final response in the next few days. The approval of the PIP is an essential step to complete prior to submission of the marketing authorization application in the U.K. and then to the EMA for Europe. We've started the first of the 3 process validation manufacturing runs on time and the remaining 2 are scheduled to meet our MAA submission deadline. Most significantly, we've concluded negotiations with the Anthony Nolan U.K. Cord Blood Bank this month to ensure secure supply of umbilical cords and allow testing by U.S. laboratories to meet the requirements laid down by the FDA in our Type B meeting last year. This agreement was signed yesterday and is the final step in getting the UCMSC isolation part of manufacturing process validated, ready for commercial manufacture. Facilitating our ability to manufacture consistent batches of CORDStrom, we're pleased to announce that we recently signed an amended material transfer agreement with Anthony Nolan. This expanded strategic collaboration secures the long-term reliable supply of these high-quality umbilical cord tissues from their world-class cord blood bank to further our CORDStrom platform. Having a consistent supply is essential for us, not only for regulatory authorities, but also to enhance our ability to take the CORDStrom platform forward into other disease indications. The marketing authorization application submission requires completion of a very significant body of documents in 5 sections. These are now well underway. And as part of the product definition section, we've had to determine the formal names for CORDStrom as applied to RDEB to show it's different to other formulations targeting other diseases in the future. The active ingredient was named by the World Health Organization as pobistrocel, and we've chosen a commercial drug name of Ebstracel for the formulation to be used in recessive dystrophic EB. In 2 weeks' time, we will meet with the MHRA for further advice about the marketing authorization submission filing in the U.K. and then start to finalize those documents. Some minor regulatory delays have meant that we expect to submit to the MHRA in early Q3, and we've contracted a U.K. company, TMC Pharma, with expertise in rare disease submissions to run the EMA and the FDA submissions in parallel to meet the end of the year deadline that we described before to you. Finally, I had the great privilege to speak at the Cure EB Annual General Meeting in London last month, which is one of the largest EB charities in the U.K. I presented our data and our plan was overwhelmed by the response from patients and carers who attended. They're desperate for us to get Ebstracel to the market and to open the next phase of the clinical trial in the U.K. We're doing our utmost to deliver on our promises to them and to you to get into commercial manufacturing and supply in 2027. I'll hand over to Cory now for an update of the current financials. Cory? Cory Ellspermann: Thank you, Mark. At this time, I'll provide a brief overview of our financial results. Net loss attributable to common stockholders for the quarter ended March 31, 2026, was approximately $5.4 million compared with approximately $9.7 million for the comparable period in 2025. Research and development expenses totaled approximately $3.6 million for the quarter ended March 31, 2026, compared with approximately $7.6 million for the comparable period in 2025. General and administrative expenses were approximately $2.2 million for the quarter ended March 31, 2026, compared with approximately $2.3 million for the comparable period in 2025. And at March 31, 2026, the company had cash and cash equivalents of approximately $21.4 million. Based on our current operating plan, we believe our cash is sufficient to fund our operations through Q1 of 2027. And as of May 7, 2026, the company had approximately 26.6 million shares of common stock outstanding. And now I'll hand the call back to David. David Moss: Thank you, Cory. To close, our focus is straightforward. We're executing towards regulatory filings for CORDStrom, which we believe represents a major inflection point for the company. At the same time, we're continuing to build the case for XPro through additional imaging data, exploring the future rare disease trials and ongoing partnership discussions aimed at advancing the program efficiently. We believe these efforts position INmune Bio for a significant year ahead with multiple opportunities to create value for both patients and shareholders. Due to travel schedules, we'll not be taking questions, and this concludes our prepared remarks. If you have further questions, please reach out to the contacts at the end of our press releases, Dan Carlson or myself via those phone numbers or e-mails. Thank you for joining us today. Operator: And thank you, ladies and gentlemen. This concludes today's conference call. We thank you for your participation, and you may now disconnect.
Operator: Good afternoon, and welcome to Sezzle's First Quarter 2026 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Charles Youakim, CEO and Executive Chairman of Sezzle. Please go ahead. Charles Youakim: Thank you, and good afternoon, and welcome to Sezzle's First Quarter 2026 Earnings Call. I'm Charles Youakim, CEO and Executive Chairman of Sezzle. I'm joined today by our CFO, Lee Brading, and my Co-Founder and Company President, Paul Paradis. In conjunction with this conference call, we filed our earnings announcement with the SEC and posted it along with our earnings presentation on our investor website at sezzle.com. To retrieve the documents, please go to the Investor Relations section of the website. Please be advised of the cautionary note on forward-looking statements and the reconciliation of GAAP to non-GAAP measures included in the presentation, which also covers our statements on today's call. Before diving into the quarter, I want to start by touching on the big picture for 2026. We believe it is going to be an exciting year for Sezzle. 2025 was about enhancing our current consumer ecosystem. We improved the app experience, expanded engagement features, leaned back into higher-value consumers and continue to give our users more reasons to come back to Sezzle. But in 2026, we are pushing that strategy further. We are moving beyond being a product consumers think about only at checkout. Our ambition is to serve our consumers more broadly in their everyday lives and in the way they manage everyday spending. That means continuing to build around payments, but also expanding into areas like deposit accounts, card products, enhanced lending options, our recently launched Sezzle Mobile plan and more. The goal is simple: to create more value for the consumer, create more reasons to engage with Sezzle and over time, make Sezzle a critical part of our consumers' daily lives. The strategy is working. In the first quarter, we delivered strong growth, strong profitability and improved engagement across the platform, and we are raising our full year guidance as a result. We are still very early in what Sezzle can become for the value-focused consumer. With that, let's dive in. The first quarter followed a similar and important pattern to the first quarter of last year. Better-than-expected credit performance helped drive strong margins and bottom line results. The strength in repayment trends also gave confidence to approve more volume while staying disciplined on risk, helping drive GMV that nearly matched the fourth quarter holiday period. We also saw the benefits of the investments we made throughout 2025 to create a more engaging product ecosystem. Average quarterly purchase frequency increased by a full purchase across the consumer base, reaching 7.1x in the quarter compared to 6.1x in the first quarter of last year. That's a meaningful increase, and it tells us our consumers are coming back to Sezzle more often and finding more ways to use us. Those factors helped drive the results you see on Slide 3. GMV grew 37.3% year-over-year. Total revenue grew 29.2%, and our gross margins reached 74% of total revenue. We also generated $51.3 million of net income, representing a 37.9% profit margin and $71.1 million of adjusted EBITDA, representing a 52.5% adjusted EBITDA margin. Given the strength of the first quarter and the growing engagement we're seeing across the platform, we are increasing our full year 2026 guidance across the board. We are raising total revenue growth guidance from 25% to 30% to a new range of 30% to 35% -- we are also increasing adjusted net income guidance by $10 million to $180 million and raising adjusted EPS guidance to $5.10 from $4.70 with some benefit from repurchase activity in the first quarter. We will provide more detail on guidance later in the call, but overall, this reflects our confidence in the momentum of the business. A key factor in the recent growth of our business has been the payoff of our reinvestment and refocus on our subscribers, our highest LTV users on the platform, which you'll see depicted on Slide 4. Our investment continued to pay off in the first quarter with total subscribers increasing by 44,000 to 714,000. The overall total mods sequential decrease is due to the decrease in monthly on-demand users, a drop which reflects the seasonality of our platform from the busy holiday shopping period to the lower activity we see in the quarter after, along with the deemphasis or a renewed focus on our subscribers. Turning to Slide 5. Much of that subscriber momentum traces back to the continued investment we are making in marketing. Since we began leaning harder into this effort in late 2024, we have tested a number of campaigns, funnels and pathways to reach new consumers. Like most things at Sezzle, there is a trial and error along the way, but I think it's clear that we are starting to catch our stride in finding the most effective ways to win subscribers and drive greater engagement across the consumer base. The best part is that we have been able to push spending higher while still maintaining attractive returns. Marketing spend increased again in the first quarter, but we continue to see a payback period of less than 6 months. That gives us the confidence to keep investing where we are seeing performance. To be clear, the goal is not just to acquire any user at any cost. The goal is to acquire and retain consumers with the highest lifetime values. The ones who transact more frequently demonstrate stronger loyalty and give us more opportunities to create value over time. In practice, that means subscribers, repeat users and consumers who engage across multiple parts of the Sezzle ecosystem. The Earn tab is a great example of how our product and marketing strategies reinforce each other. Since launching in June 2025, the Earn tab has generated 4.8 million visits. And consumers show a 55% increase in BNPL conversion within 30 days after their first Earn tab activity. This is exactly the type of engagement loop we want to build. That brings us to Slide 6. Pay-in-4 has been the foundation of the business, but consumers are asking for more, more utility and more ways to use Sezzle beyond a single checkout moment. In the first quarter and shortly after quarter end, we made progress on several fronts. We expanded short-term installment optionality with Pay-in-5, launched an enhanced long-term lending capability across the entire BNPL product suite, introduced the virtual card in Canada with select integrated merchants and launched the Sezzle Mobile plan on AT&T's network with an unlimited wireless plan starting at $29.99 for Sezzle Anywhere members. Each of these products has slightly different use cases. but the strategic theme is the same, expand what a Sezzle relationship can do for the consumer. Turning to the next slide. AI continues to be a major focus across Sezzle. We are not treating AI as a side project or a small productivity experiment. We are embedding it into how we build products, support consumers, analyze data and operate the business. On the consumer side, we recently launched our AI support chatbot, and it's already resolving approximately 60% to 70% of the chats without escalation. That improves speed for the consumer while allowing our support organization to handle greater volume with the same disciplined cost structure. We are also testing our AI shopping assistant, which is driving stronger click-to-order conversion and helping consumers find the right products with less friction. Internally, we are using AI everywhere in the company to improve efficiencies and automation. We're using it to help analyze chargebacks, improve business intelligence, increase support quality, improve access to company data and speed up engineering workflows. Taken together, these efforts do three things: improve the consumer experience, increase output across the company and scale the business while keeping expense growth well below revenue growth. All of this points to a broader vision, which the next slide lays out. Sezzle started with Pay-in-4, but we are no longer just a Pay-in-4 company. We are building an all-in-one services platform for the value-focused consumer. The strategic goal is to make Sezzle more useful in more moments. The more value we provide, the more reasons consumers have to come back. That drives engagement, supports retention and strengthens the consumer relationship over time. We still have a lot ahead of us, including products like bank accounts and greater post-purchase split capabilities among other ideations. And overall, the real test of the strategy is engagement. If the product ecosystem is working, we should see consumers using Sezzle more often across more merchants and across more use cases. That's exactly what we saw in the first quarter, as seen on Slides 9 and 10. In the first 2 boxes, mods and quarterly purchase frequency prove out the ROI across products and marketing. Even the sequential increase in quarterly purchase frequency seen on Slide 10, jumped to a whole new level, reaching a half purchase more than our busiest quarter of the year. To me, all of these metrics you see on Slides 9 and 10 are a clear sign that we are moving in the right direction. We are still early, but the flywheel is getting stronger. And with that, I'll turn it over to Lee. Lee Brading: Thanks, Charlie, and good evening to everyone joining us. I will start on Slide 11. But before getting into the details, I want to highlight the seasonality in our business. From a revenue yield standpoint, which is simply total revenue divided by GMV, Q1 is typically the peak of the fiscal year as some payments from Q4's holiday season spill over into Q1. The quarter is also typically the best performing quarter in terms of our provision for credit losses as a percentage of GMV because our consumers generally benefit from tax refunds at the start of the year, thus leading to better loss rates in Q1. As a result, Q1 is usually the best quarter in terms of margins. While we would love to just annualize a unit economic margin of 74%, we can't. And if you look back to last year's results, you will recognize that dynamic. Even though we had a tough year-over-year comp this quarter, you can see the strong momentum in our business as we reached all-time highs in adjusted EBITDA margin and total revenue less transaction-related costs as a percentage of total revenue. As noted earlier by Charlie, our marketing spend more than doubled year-over-year in the quarter. Nonetheless, we were able to leverage non-transaction-related operating expenses by 30 basis points year-over-year. Top line growth and leveraging our nontransaction-related OpEx, combined with strong unit economics resulted in net income outpacing total revenue for the quarter. For those playing the Rule of 40 game at home, which we measure as revenue growth plus EBITDA margin, we exceeded a score of 80 in Q1. On Slide 12, you can see the strong momentum in our business as Q1 GMV of $1.1 billion nearly surpassed Q4's holiday season GMV of $1.2 billion. Sequentially, our revenue yield rose to 12.2% from 11.2% due to seasonality, which I addressed in my earlier remarks. Year-over-year, however, revenue yield declined 80 basis points due to the mix in merchant and virtual card activity, plus a reduction in the number of consumer fees charged. Slides 13 through 15 dive into our unit economics, which are powering our bottom line results. As a reminder, transaction-related cost is a non-GAAP measure that combines transaction expense, provision for credit losses and net interest expense. You might hear us refer to gross margin and net transaction margin, which is total revenue less transaction-related costs. Let's jump to Slide 14 and review the 3 cost components of transaction-related costs. Each of the 3 components had a favorable year-over-year move. Transaction expense consisting mostly of payment processing costs continues to experience the benefits of us driving consumer adoption toward lower-cost payment channels such as ACH. Meanwhile, our provision for credit losses fell year-over-year because of the better-than-expected performance in the current year's portfolio as well as prior year vintages. Further, we are not seeing any unusual strains on the consumer. And as noted earlier, seasonally, this is our best quarter for provisioning for credit losses. But the story is not simply about consumers doing better than expected. Our team continues to enhance their toolkit and decisioning. Our underwriting team is exploring new data sources, accelerating model iterations and utilizing new machine learning techniques and collections. All of these add up to improvements as we scrutinize every lever of our underwriting inputs. Lastly, net interest expense remained low at 0.3% of GMV. There is further room for improvement here as we move forward with refinancing our current credit facility, which matures next April. Slides 13 and 14 demonstrate our hyper focus on unit economics and its components. It is evident how it all comes together on Slide 15. We continue to find ways to improve our economic model and not sacrifice growth. We recognize the importance of profitability as it allows us to pursue strategic initiatives that will further propel the business. As we have stated in the past, our goal is to drive our business and profitability with revenue less transaction-related costs in the 55% to 65% range. Our hyper focus on cost does not stop at the unit economic line. It extends to our nontransaction-related operating expenses, too, as shown on Slide 16. Even as we more than doubled marketing spend year-over-year, we continue to generate operating leverage across the business, particularly in personnel costs. While our team has grown, we have scaled thoughtfully and remain disciplined in where we add resources. Looking ahead, we expect to continue leveraging our operating expense base while still investing in the areas that are delivering attractive returns. We did incur minor costs related to our corporate strategic projects during the quarter. Our antitrust suit is currently ongoing and something we cannot elaborate further on. We are making progress on the banking charter process and have moved beyond the discovery phase as we are now actively hiring executives and nonexecutive directors. We anticipate submitting our application mid-2026. We recognize this process is long and not guaranteed, but we believe it is an important strategic opportunity to pursue. Sezzle's significant momentum is evident in our bottom line results shown on Slide 17. Driven by a healthy unit economic story and leveraging our nontransaction-related OpEx, net income outpaced our top line growth. For the quarter, GAAP net income reached $51.3 million, representing a 37.9% profit margin. Adjusted net income was $50 million, and adjusted EBITDA was $71.1 million, a 52.5% margin. Each of these reflects an all-time high for Sezzle. Our liquidity remains strong as shown on Slide 18, as we ended the quarter with $147.4 million in cash, including $26.9 million in restricted cash. In addition, we had $69 million in availability under our line of credit. Working capital did build relative to previous quarters due to the launch of Pay-in-5 in January. But as noted, we have plenty of liquidity. The strength of our liquidity and cash flow generation is further exemplified by us repurchasing $24.8 million worth of common stock during the quarter, which will be disclosed in our 10-Q that will be available tomorrow. On Slide 19, we update our guidance. We are raising our guidance across the board. We now expect revenue growth of 30% to 35%, adjusted net income of $180 million and adjusted net income per share of $5.10. Before passing the call over to the operator for Q&A, I want to remind investors of a few items. First, we target total revenue less transaction-related cost margin of 55% to 65%. And within this margin calculation, we target a provision for credit losses in the 2.5% to 3% of GMV range. Second, we expect to continue to leverage our nontransaction-related OpEx as we anticipate growth in the top line to outpace our spending. Third, do not forget about the seasonality in our business that I discussed earlier in the call. And last, this guidance does not reflect any projections for new products currently in development. With that, I would like to turn the call over to the operator for Q&A. Operator: [Operator Instructions] The first question comes from Mike Grondahl with Northland. Mike Grondahl: Congrats on the strong quarter and progress. I'm looking at Slide 6. Pay-in-5, virtual card in Canada, the mobile plan and enhanced long-term lending. Charlie, if you had to project out a year or guess, what do you think is going to be the most important out of those four? Or could you kind of rank them? Charles Youakim: Yes, I would say Pay-in-5. I mean, just because it's already proven to have results for us. I know it's -- I know many of the people on the call are not our target customer. But our target customer, Middle America, value-seeking consumers, we surveyed, we asked and even though Pay-in-5 seems to just that incremental change over paying 4, there was a big demand among our consumer base for that incremental change, and we've seen it in the implementation. So the other product, virtual card in Canada, it's not quite fully launched. Our goal with that virtual card in Canada product is to get that to truly anywhere. You can see in the subscript, it's closed end at the moment. As soon as that goes live, I would say that also has some pretty serious potential, but it's also in Canada, which is 10% of our volume. So it's going to help us, but it's 10% of the potential volume. And then several mobile plans, enhanced long-term lending, they're just really early. Mobile plan not really designed to drive revenue, gross margin, more designed to increase retention, deliver value to consumers. So financially not going to be delivering massive numbers, I think, at any point for investors to look at. And then enhanced long-term lending, that's always been more of a nice sidecar for us as a product. We've had that in our history. We're just making it better. And it's also never been a massive driver in and results in terms of financial results at least. But a product consumers do like, yes. Mike Grondahl: Got it. And then maybe just a question on marketing. What channels or where are you getting sort of the best returns there? And then what's kind of your outlook on marketing spend the rest of the year? Charles Youakim: Well, marketing spend, we still have the Timberwolves. We've got that deal going here another year. And by the way, go Timberwolves. I really hope they beat the first tonight, planning on it, but we want to see them in the championship. But yes, we've got the Timberwolves sponsorship going. But that's more of like brand awareness type of play. The actual channels that deliver the results for us are advertising channels, and it's really the usual suspects, web ads, social media ads, in-app ad networks. We're pushing more into connected TV, basically like the YouTubes of the world, connecting those ads. And basically just testing across the board, where we see better results, we just keep on pumping a little bit more. And that's -- if you look at our results, you can basically see like just -- we keep on feathering on the marketing spend as the results keep on playing out. Mike Grondahl: Yes, that's fair. That chart is helpful... Lee Brading: And Mike, I'll just add a little more color too on that marketing spend. Just if you look from a year-over-year in absolute terms, Mike, it's definitely up. But if you think about it also looking as a percent of our revenue, it's fairly reasonable and actually slightly lower than where it was if you look at Q2 last year. So we do have the ability to leverage that spend. Operator: The next question comes from Kyle Peterson with Needham. Kyle Peterson: Really nice results. I wanted to start out on the credit costs. I appreciate the commentary and reminders of the seasonality. But I guess just looking at it, the losses as a percentage of GMV were still better than expected and down year-on-year. So I guess like how should we think about some of the puts and takes and what your expectations are of getting back to that 2.5% to 3.5% range, especially as like Pay-in-5 and some of these other products scale. I just want to see like what's conservative versus mix and if there's some potential upside to that number? Charles Youakim: Kyle, I'll let Lee follow up. Lee, if you think I missed anything here. But part of the thing to consider when we look at our quarterly results is part of the result is actually reconciliation of the -- because it's a provision. It's reconciliation of the prior quarter. So every quarter that we post is an estimation of what the loans for that quarter will be in terms of their estimated loss rates. And so we basically had some, you call overestimation in prior quarter that leaks in or underestimations. In this case, we had overestimation leaks in the first quarter, affecting that a little bit to the downside. So always I think take that with -- I think trend lines on the provision are a really good idea because of the fact that we have to estimate. And it usually is two quarters' worth. And then once we got first quarter posted, it's basically washed out fourth quarter estimations. But that's always something to consider. Also, we have seasonality. But I think we're still spot. The plan is still to see 2.5% to 3% for the provision for the year. Part of that is because we're expanding our marketing spend. Marketing spend increases new users, new users have higher provisions. I would say Pay-in-5, one of the trade-offs with Pay-in-5 is that it does just logically have a slightly higher provision inherent to the idea. But the way we've designed the product mix, we think we account for that in terms of like a matching principle on potentially the fees that are collected from some of the failures. So it almost like financially plays out as a wash, but where it doesn't play out as a wash is it could potentially increase provision a bit. So I think we're comfortable with what we projected. Every time we provision, it's actual provision and actual pure estimation. But again, estimations are almost 100% guaranteed be incorrect one way or the other. I don't know, Lee, anything to add? Lee Brading: I'll just reemphasize what you said. I think, yes, Q1 is -- I don't want to say an anomaly, but it is the easier or tougher comp, I guess, so to speak, from a standpoint of collections and the provision standpoint. So I get where you guys on the outside looking in, looking at the challenge going wow, such a great quarter. We'd love to annualize this. But as the year progresses, we get a little more aggressive, too, from the new, as Charlie mentioned, bringing in new users. And not to mention that Pay-in-5 is just getting started, and we would expect to have probably initially a little higher loss rates on that as well. So I think our -- we're very comfortable with our 2.5% to 3%. Kyle Peterson: Okay. Great. That's really helpful color. And then as a follow-up, I wanted to ask about the partnership you guys have announced with Pagaya. I guess from the sounds of it, I guess, is this kind of a way that you guys can get into some more longer-term lending? And how will this partnership scale and be funded? Like are you guys contributing anything there? And I guess, if not, like what's your kind of path to monetization as that scales? Lee Brading: Yes, good question. In terms of monetization, it's really just a take rate on the like an MDR. We're not sharing in the risk on that product, although we're trying to help Pagaya with their results as much as possible because they're a partner of ours. But it's really just like a skin off the volume that goes through that, that comes to us for running the product through our platform. And then for the consumer value, I would say it's primarily to help the company win merchant deals. That's primarily why we've got the product in there because there are a number of merchants that have average order values that span a larger range than our core products, core sweet spot, which is like more $100, maybe $80 to $200 for a sweet spot. And when a merchant has AOVs that rise above that, like a general merchandiser they want to see that you have the capability to help them on some bigger ticket items. So by having this partnership, it helps our sales team win some more of those merchant deals. But then our plans are also mix this into some of our D2C products as well. And that's more about just providing as much value as we can to our consumer through our product mix. We like staying in the shorter-term products, which is why we've always partnered on longer-term products. We like the nature of our product and the terms, et cetera, just all the financial metrics around it. We're very comfortable with it. And we think give that longer-term product to people that specialize in it and Pagaya is one of those partners. Operator: The next question comes from Hal Goetsch with B. Riley Securities. Harold Goetsch: Could you give us some color on any middle market merchants, enterprise customers? Are you generally just seeing broad new merchants coming from subscribers who are taking their virtual cards and their anywhere subscriptions to many, many more merchants. Could you give us any color on that? Charles Youakim: Yes, we're seeing basically a continued trend on the -- I mean, our business is becoming more and more and more direct-to-consumer, more and more and more open loop. Just I think that's where the trend is in our entire industry, which I think actually mimics things -- none of us probably old enough to know the actuals of what happened in the credit card industry. But basically, from my understanding of reading back to the credit card industry days, a lot of things started closed loop and then they moved to open loop. I think the BNPL space is going to do the same thing. It's going to -- we all started closed loop fully realizing customers love the product so much they want to use it everywhere, which leads to open loop. And so I think what we're seeing is our consumers using us in more and more just general purpose locations like more shopping with grocery, more shopping with general merchandisers. We're seeing more and more and more of that, which matches that ideology or the want to use the product in more places. But our sales team is still out there, and we have new products, we have new services, new features that helps them land more enterprise merchants because we're not -- it's probably take 5 years to 10 years for this transition to open loop to completely play out. In the meantime, we can still deliver a lot of value to merchants on the spot. And I think if you look at the credit card industry, it's always -- there's always been some sort of closed-loop aspect. You still have private label products out there with the credit card ecosystems. So I think we'll continue to have the sales channel on merchant. We've got on-demand now, which we can offer merchants that have thinner margins, the ability to pass on some of the fees to the consumer. That's helping us win some more deals. We've got the Pagaya launch that just occurred. That's going to help the sales team win more deals. And so I think we're going to have this as a part of our ecosystem and one that generates even more returns for us. So it's an area of the business we're going to keep on growing. That's probably not going to be growing as fast as the D2C because we're just seeing incredible growth on that right now. Lee Brading: I would add too, Charlie, that we view merchants primarily as a customer acquisition channel. As we've pushed more into marketing channels, as Charlie just mentioned on this call, social advertising, app store advertising, merchants are a great channel for us to acquire new customers in. And that's why we're going to continue selling into those merchants, but it's becoming a less important part of our overall business. Harold Goetsch: Terrific. And on the marketing and advertising, nice commitment to spending growth year-over-year and sequentially from Q1 of last year and Q4. Would you expect the level of dollar spending to move incrementally higher from here or flattish quarter-over-quarter? What are your thoughts on the spending commitment in marketing this year? Lee Brading: I think we expect it to continue to rise quarter-on-quarter because the team is finding more and more places to place ads and our mandate to them or our guidance to them is if you can find places to get the return we're looking for, we want you to place the ads. So their job is to go out hunting for more and more places to place the ads where they can get the return. And if they can do it, we're telling them to do it. Harold Goetsch: Excellent. And last question for me. Can you just give us your thoughts on the macro? We've had -- you sort of a value-focused customer. You've had a pretty good amount of narrative in the news about affordability over the last 6 months and now this gas price spike. And I just want to get your thoughts on what you're seeing real time in the business. Lee Brading: Yes. In terms of our customer base, I think that we're -- people have asked us about like macro trends, are you guys seeing anything? I don't -- the only thing we've ever seen in our history that I can call out in our numbers where I really have seen something is COVID, both the spike down disclosures and the spike up once people got stimulus checks. Outside of that, we really don't pick up anything. And it seems like our customers are perfectly healthy to us when we look at the numbers. We're not seeing anything now. So I know people have brought that concern about like gas prices that really hits mid- to low-income consumers more. But maybe the mid- to low-income consumer just works a bit more, which is natural. Like if you're realizing your pinch a little bit, you've got to go out there and work a little bit more. I don't know, I'm just postulating. I just we're just not seeing anything. Operator: The next question comes from Rayna Kumar with Oppenheimer. Anthony Cyganovich: This is Anthony Cyganovich filling in for Rayna. I was just curious if you could just talk about some of the drivers of what you think might be accelerating revenue from the kind of 29% that you reported in the first quarter to that 30% to 35% range that you gave. Are you including any kind of uplift from Sezzle Mobile or Pay-in-5 this year? Charles Youakim: Well, Pay-in-5 is included now because it's part of our existing product mix. Sezzle Mobile long term just launched. So that's not anything we're projecting at this point. I think we are seeing some really nice momentum in subscriber growth. you've seen -- as we reported, on-demand down quarter-over-quarter. Some of that is -- I would say a lot of that is holiday, but some of that is also our renewed emphasis on subscribers. And we really like to focus on subscribers. We think it builds a rolling snowball, which helps us. So I think that probably is the primary reason behind it. I don't know, Lee, anything else to add to that? Lee Brading: Yes. No, I think that's spot on. The only other thing I would add is just a little bit of the choppiness maybe or seasonality with our revenue yield when you look at versus GMV. I think if you look -- like this quarter was a tougher comp. I think next quarter, we'll have an easier comp from a revenue yield standpoint. And then I think you'll see a smoothing out or a more consistent from Q3, Q4, similar to Q1. But in the first half of last year, we had some movement within our revenue side. And that's, you saw that spike last year, and we were down a little bit this year, but I think you'll get the smoothing out as we go through the quarters. Anthony Cyganovich: That's helpful. And I guess as a follow-up, I'm just looking at Slide 8. There's a lot of new products that are on your road map here. I mean, can you help us think about kind of a time line for you to become this kind of all-in-one services platform? And then secondarily, like are you utilizing AI at all to help you develop any of these financial tools to kind of gain a little bit more operating leverage in your business? Charles Youakim: Yes. I mean I think based on the list of items we see here, this is probably all these items completed, launched and scaling by the end of 2027, the ones we have outlined here. But I don't know if we ever will say the end is there in terms of innovation. We've always believed that we want to keep on innovating. But I think we'll have a really nice platform by the end of 2027 in terms of like much more fully featured in terms of offerings to the consumer. We'll definitely have the deposit accounts in place by then. Secured credit card, I could see potentially in that time period, but we'll see how things play out. Every time we announce products and product road map, we always have new conversations. So that's I'm hesitant that I'd say probably because there might be things that come up in the meantime that we think are more important for the consumer. But I think over the next couple of years, I think we'll -- end of 2027, we'll have a really nice product mix. And it's really interesting, your question on AI, definitely. I mean we have had some products thus far where the vast majority of the product development has been AI-driven. I remember our product team in their internal calls calling out this product thus far has been 100% developed with the assistance of AI from the visualization, the screen, the flows, the plan flows to the code, upwards of 80% of our code is now being developed by AI was reviewed by our team. It's incredible. And our goal, the way we view it internally is we're asking our team to be more productive. I know we see out there in the market. I think it's -- some people talk about using AI to cost cut. I think it's just such a half-glass empty way to look at things. I think our view is AI makes you a superpowered person, use it, use it to increase our product development instead of launching one product this quarter, let's launch three, speed up, allow us to be a team that looks like 4,000 instead of 500 that we have with us. So that's our -- that's the way we utilize it. We're injecting it everywhere. We're basically mandating it everywhere. If you're a leader in the company that doesn't want to embrace AI, you're probably not going to be in the company much longer. But that's not an issue. We already have the embrace it. So I'm just saying like that's how much we believe in it. We believe it's a necessary product that you have to use. Operator: The next question comes from Ryan Tomasello with KBW. Ryan Tomasello: In terms of the product pipeline, I think you previously alluded to a cash advance product that's in the works. I was hoping you can give us an update on how that rollout was progressing. Anything you can share on engagement pricing and also on the underwriting? And particularly on the latter with underwriting, Charlie, curious if you envision an opportunity to push more into direct cash flow linked underwriting to support that rollout and if that could eventually support the broader kind of BNPL core credit product as well. Charles Youakim: Yes. We're testing a lot of different variations of our cash flow management product. And we've seen great engagement. which is nice. We definitely can tell the customer likes the product. Because of the regulatory environment we're in, we're very cautious about how we launch the product as well. So the current plan is to have the product more mimic what we do with BNPL. So it would be like almost a Pay-in-4, pay and 5 to yourself, kind of a cash flow product, probably limited to subscribers only is the idea as a tool or another benefit for those subscribers. And we think it will be favorably viewed by the consumer base because of the pricing to that product. So it'd probably be like one of the more lower-cost cash management tools available to a consumer, albeit they have to be one of our subscribers, but that's the whole point. We want to create more and more tooling that provides more and more value to get consumers into the subscription ecosystem and keep them there. And that's what we've seen from some of our testing. We've done some small-scale testing. It increases engagement. It increases retention, increases happiness. So it's one of those products that we -- and we plan to launch here in the next few months. So probably the next 3 months, we'll have that product out in the market in a more serious way. Ryan Tomasello: Great. And then sticking on the product pipeline topic with the checking product. Can you just talk about the timing there and how you envision going to market with the product? Any carrots that you might offer to help drive uptake? And then just elaborating on like the marketing investment that might be needed to support awareness and adoption? Charles Youakim: Yes. We -- that's another product coming in the next few months as well, definitely by end of third quarter, it would be our estimation. But in terms of like the actual like planned pitch around the product and the plan integrations, nothing yet really concrete to speak of at this time. But we just -- the whole point is we want Sezzle to be the one-stop shop for the consumer. And we'll try to figure out give and takes or customer, you give us X, we'll give you Y kind of arrangements. We think that that's the way we kind of like to mix our value to the customer. It provide this value to the customer if they join up for X, Y or Z. So we don't have those nailed down, but we'll try to figure out some way to build it into the fold and create a compelling reason for consumers to join it. And by doing so, I think we're seeing deposit accounts or thinking deposit accounts are a great way to increase retention. Operator: The next question comes from Huang Lin with TD Cowen. Hoang Nguyen: Congratulations on the quarter. I want to ask on the revenue less transaction cost margin since you guys have been doing so well in that over the past couple of years, and it looks like it just keeps going up. If I look at 1Q this year, I think it's up like 4 points versus last year. So I mean, can you talk about -- is this -- is there something that is making your margin, I guess, structurally higher year-over-year? And maybe can you talk about some of the levers that you can continue to pull to further improve on the margin? Charles Youakim: Yes. I'll answer some of that and pass off to Lee for more detail. But some of these things on the COGS side, they're just helped by scale. So transaction expense, as we have more scale, we get better payment processing rates. We're also, in some ways, incentivizing consumers to move over to ACH in some ways versus card processing. So that's been helping our transaction expense, but scale always helps there. Net interest expense, as we get scale, we have lower cost of financing available to us. We're also packing on cash. We're a cash-generative business. So we don't have to actually borrow as much from our line of credit, which also reduces the net interest expense. So we've had some of that benefit. Provision, there are probably a bit of a scale benefit there as well. The more -- we find repeat customers have better loss rates. So as you scale up, we have more repeat customers generally. Of course, I always think it's like a good problem if we can scale growth of users in a big way. So that one, if we hit some of our goals, it might go the other direction if we are able to break through some finding that helps us scale users even faster. But generally, steady state, that also goes down because of our repeat user engagement. And then on the top side, I think the fact that you have subscription products as a driver, that tends to create a rolling benefit for the company on the top line. So I think that's probably why you're seeing that. But as Lee mentioned a couple of times, I just also want to reiterate for listeners that the 74% gross margin that we basically posted here in the first quarter, don't annualize it. We want to make sure investors know the fourth quarter, first quarter, there are some seasonal elements to that. And I'll just explain it again because I think I want to make sure people understand it. The seasonal elements are mainly on the revenue side, but a little bit on the cost side with provision. As volume slows, the way we recognize costs -- that's the best way to say it. The way we recognize costs we do it through provision. So provision, we estimate right away in the quarter what the provision will be. So if you have a quarter like fourth quarter where volumes typically higher steady state because of holidays, we're taking all the costs and putting them into that fourth quarter. But the revenues or the -- what will be likely revenues are recognized on the payments, which come into the first quarter. So you have a typically higher volume quarter, fourth quarter due to the seasonality of payments rolling in, where the revenue is recognized into the first quarter. So we get more revenue coming into the first quarter from the fourth quarter on a lower volume seasonally adjusted. We almost topped our fourth quarter volume, which speaks to the growth of the company, but we still have lower volume in the first quarter than we did the fourth quarter. So you'll have a generally higher revenue take rate in the first quarter as well. So we want to -- that which increases your gross margin in the quarter. So we want to make sure people keep that into consideration as they're looking at what happened this quarter. I don't know, Lee, anything else to add? Lee Brading: Yes. I'd just emphasize that we generally talked about being a 55% to 65% area from a gross margin or revenue less transaction-related costs. And we've definitely been trending on the higher end of that, the 60% to 65%, I would say. And I think Charlie hit on it, but just to emphasize kind of the three key areas, as you know, on the transaction side or processing side, we have seen a move to more ACH, and we've been able to emphasize that. So that's obviously going to help us there. Also interest expense, I do expect us to get -- as I mentioned in my comments, on the line of credit side, you get some improvements there as we progress through this year as we refinance our facility. So that's to come, but I expect that to happen. And then on the provision, it's a little bit of a wildcard, but we -- that can be a big swing factor as you saw the year-over-year improvement there this quarter, which also drove that outperformance if you look on a year-over-year basis. We aren't necessarily booking in that same kind of outperformance going forward, but that's something else to be aware of. Hoang Nguyen: Got it. And maybe if I can throw one more in on the bank charter, I think, I mean, one of the benefits is that it could help you guys launch more products as you guys currently cannot launch with the bank partners. So can you talk about the kind of products that your own bank charter would allow you guys to launch that you currently may not be able to do so with your bank partner? Charles Youakim: Not necessarily. You can actually -- in today's environment with banking and service partnerships, you can pretty much launch every type of product out in the financial services world. The main reasons for the bank partnership, I would say, more defense from a regulatory perspective. We just think that it basically solidifies what we're doing. And there are some regulators out there and some states that are chopping away at the bank partnership model sadly because it's a great model, but we're well aware of it. And so getting to the ILC or to becoming a bank helps you basically push further away from that potential of that becoming an issue. And then it does move a variable cost stream to a fixed cost stream because you basically have your fixed cost of your own bank and your staff versus the arrangement we have with WebBank currently, where it's more of a variable, a cost percentage of our volume. So over time, as our volumes grow, you move to a fixed cost structure, you're going to save. So it's more savings, more regulatory defensibility. Maybe there is some like benefit on the product side. Maybe you can launch things faster because your bank is more hyper focused on what you're doing. So when you're talking to your regulator, you don't have 19 other partners like banking-as-a-service partners and have to talk to the regulator about all of them. You just talk to the regulator about what you're doing. So I can see it being faster potentially, but not necessarily limiting on what you can build. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Charles Youakim for any closing remarks. Charles Youakim: Thank you, operator. I'd like to leave with something Charlie Munger said that stuck with me. He said, "I think you can try to make your money in this world by selling other people things that are good for them. And I think that's a fair description of what we're doing at Sezzle. We're a company that thinks about this all the time. We believe our core products are much safer and less costly than existing financial products. We also go out of our way to find ways to help our consumers save money. We're helping our customers, and that feels good. The growth, the margins and the cash generation we walked through today are the downstream effects of getting that right. Customers who improve their financial lives come back. They refer their friends, and they graduate up the platform through Sezzle Up. That's the flywheel. And it not only spins with the alignment and it only spins with the alignment if with the consumer is real. We've got a long way to go and the environment around us is dynamic, and we're going to keep on earning our place one consumer at a time. Finally, a big thank you to the team for another quarter of disciplined execution, and thank you to our shareholders for the trust you continue to place in us. We'll talk to you next quarter. Thanks. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to Xometry's Quarter 1 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Shawn Milne, Vice President of Investor Relations. Shawn, go ahead. Shawn Milne: Good morning, and thank you for joining us on Xometry's Q1 2026 Earnings Call. Joining me are Randy Altschuler, our Chief Executive Officer; Sanjeev Singh Sahni, our President; and James Miln, our Chief Financial Officer. During today's call, we will review our financial results for the first quarter of 2026 and discuss our guidance for the second quarter and full year 2026. During today's call, we will make forward-looking statements, including statements related to the expected performance of our business, future financial results, strategy, long-term growth and overall future prospects. Such statements may be identified by terms such as believe, expect, intend and may. These statements are subject to risks and uncertainties, which could cause them to differ materially from actual results. Information concerning those risks is available in our earnings press release distributed before the market opened today and in our filings with the U.S. Securities and Exchange Commission, including our Form 10-Q for the quarter ended March 31, 2026. We caution you not to place undue reliance on forward statements or undertake no duty or obligation to update any forward-looking statements as a result of new information, future events or changes in our expectations. We'd also like to point out that on today's call, we will report GAAP and non-GAAP results. We use these non-GAAP financial measures internally for financial and operating decision-making purposes and as a means to evaluate period-to-period comparisons. Non-GAAP financial measures are presented in addition to and not as a substitute or superior to measures of financial performance prepared in accordance with U.S. GAAP. To see the reconciliation of the non-GAAP measures, please refer to our earnings press release distributed today and our investor presentation, both of which are available on the Investors section of our website at investors.xometry.com. A replay of today's call will also be posted on our website. With that, I'd like to turn the call over to Randy. Randolph Altschuler: Thanks, Shawn. Good morning, and thank you for joining our Q1 2026 earnings call. Our accelerating growth and record Q1 results demonstrate the success of our AI-native marketplace in the massive, complex and highly fragmented custom manufacturing market. The record performance we are reporting today reflects the investments and changes we've been making in our product, technology and go-to-market strategies. Q1 was a record quarter for Xometry across many fronts, including revenue, gross profit and adjusted EBITDA. Q1 revenue growth accelerated, increasing 36% year-over-year, a 600 basis point acceleration from Q4, driven by 40% Marketplace growth through our expanding networks of buyers and suppliers and increasing wallet share. Alongside strong enterprise growth, we are seeing improving broad-based strength across the marketplace driven by our product initiatives. Q1 net adds were strong and we grew active buyers 20% year-over-year. We expect continued strong growth ahead as we further tap into this largely off-line market. Q1 adjusted EBITDA increased to $10.5 million, an improvement of $10.4 million year-over-year as we deliver expanding margins on top of accelerated growth. In addition to our record financial results, today, we announced a strategic partnership with Siemens, the world's leading industrial software company, who is embedding Xometry's AI capabilities natively into Siemens Xcelerator and investing $50 million in Xometry Class A common stock to back that conviction. By natively integrating Xometry's marketplace capabilities directly into Siemens integrated design to manufacturing software ecosystem, including the Siemens Design Center, this partnership puts Xometry's manufacturability, pricing and sourcing intelligence in front of Siemens' global customer base at the moment design decisions are made. Through this embedded experience, engineers will receive real-time feedback on design feasibility, manufacturing options, pricing and lead times directly within their existing design workflow. They can also seamlessly place and track orders through to delivery. The result is a continuous digital thread from design decision to delivered part. Xometry is uniquely equipped to power this partnership with over a decade of proprietary transactional data, real-world manufacturer feedback and closed-loop production outcomes across our global supplier network. These serve as the foundation of our manufacturability, pricing and sourcing intelligence, and they are what makes this experience possible at scale. In addition to the Siemens Design Center integration, the partnership will include the integration of Thomas, Xometry's North American industrial sourcing network with Siemens Supplyframe to bring deep design to sourcing intelligence for both electronic and mechanical components to completely source the bill of materials for Siemens customers. As Xometry's enterprise installed base deepens with more accounts embedding us into their core engineering and procurement workflows, the Siemens partnership extends that intelligence upstream into the design environment itself, helping teams move from digital intent to physical production with fewer handoffs and greater transparency. And this also accelerates the expansion of Xometry's installed base in the process. Together, this strategic partnership will accelerate our collective penetration of the massive, highly fragmented custom manufacturing market with Siemens global platform extending Xometry's reach across all commercial markets. Our teams are actively working on the integration road map, and we look forward to sharing milestones as the partnership develops. We're thrilled to be working with Siemens to further strengthen the design digital thread. For those new to our story, Xometry has operated as an AI-native marketplace since its inception with data science, machine learning and core AI models integrated into operations. Xometry's core AI models, which manage the custom orders to part manufacturing journey are trained on proprietary transactional data. Xometry's proprietary pricing and sourcing models are embedded directly within live marketplace transactions, integrating digital quoting, supplier selection, production performance and delivery outcomes into a closed-loop learning system. Each completed order strengthens future predictions, increasing accuracy, speed and reliability across the network. By embedding design to fulfillment intelligence directly into engineers' workflows, Xometry reduces information asymmetry in manufacturing procurement and is transforming what has historically been a fragmented manual coordination problem into a scalable competitive advantage ground in both digital intelligence and physical world execution. Our strong Q1 financial results marked 3 consecutive quarters of accelerating revenue growth and 4 quarters of increasing EBITDA margins. At the same time, we've invested in and strengthened our platforms to deliver robust secular growth and expanding profitability in the coming years. We're off to a strong start in Q2, and we expect robust growth to continue in 2026, which James will discuss later in the call. I will now turn it over to our President and incoming CEO, Sanjeev Singh Sahni, to discuss some of the initiatives that are driving our strong growth and increasing profitability. Sanjeev Sahni: Thanks, Randy, and good morning. The strong Q1 results we are reporting today are direct evidence that the product-led strategy formulated last year is working. This quarter validates our strategic thesis and marks the clear acceleration of our path to a new trajectory. We are defining the e-commerce playbook in custom manufacturing and raising the experience bar for buyers and suppliers everywhere. Our teams are beginning to inflect the growth curve and build a path to this new trajectory. Today, I will focus on sharing some developments from our strategic elements focused on our proprietary and core AI models, e-commerce marketplace experience and expansive supplier network. Our new strategic partnership with Siemens is very exciting as it will help us serve ever more engineers and transform their buying journeys. The Siemens partnership is a strong external proof point that our core AI models are becoming the infrastructure for how the industrial world designs and sources parts. In Q1, we made significant progress on proprietary core AI models. Our proprietary intelligence is crucial for creating value across the entire marketplace. Our strategy over the past year has been to establish our core AI models as the differentiators. They are the reason why Xometry continues to take significant market share. Our models are laser-focused on improving pricing, speed and selection for both buyers and suppliers. The ability to translate a decade plus of proprietary data into immediate operating leverage and long-term Marketplace growth is what underpins our confidence in accelerating the move to the next S-curve of growth. First, we launched a new enterprise machine lead time model that represents a significant expansion of Xometry's predictive intelligence capabilities. The new lead time model represents a significant expansion of Xometry's predictive intelligence capabilities, leading to a superior prediction accuracy for custom model parts. Enabled by the scale of performance data from the global supplier network, the model enhances operational throughput by driving a reduction in standard lead time offerings and expanding rapid delivery to facilitate 1-day lead times across a growing catalog of materials and geometries. Our updated model leverages a training data set 4x larger than its predecessor and now integrates critical factors like specialized certifications, new materials and advanced finishing options. Enterprise customers are not experimenting with us anymore. They are expanding. Second, we shaped several new journeys on our e-commerce marketplace experience. Our customer and supplier online journeys are rapidly defining the e-commerce playbook in custom manufacturing. One of our core beliefs and something I feel strongly about is that the B2B buying experience in manufacturing should be every bit as good as what people experience in their personal lives on Amazon, Wayfair, or Alibaba. The days of clunky B2B procurement software, multistep checkout processes and waiting for days for an e-mail code are simply over. What we are seeing is a generational shift in who is making manufacturing purchasing decisions. The engineers, procurement buyers and supply chain lead roles are now full of dynamic digitally native individuals. They expect the same frictionless journey at work that they have in their personal lives. And when they find that Xometry can deliver to that, they become Xometry champions inside their organizations. That's true whether they are at a Fortune 500 company or a high-growth start-up. With our focus on improving the customer journeys on the platform, we introduced 2 features. First, we launched the Name Your Part feature, which enables customers to match their internal name conventions to what they have on Xometry, creating a unified part and SKU-like structure on our platform. This is an important feature that is already reducing buyer friction and substantially simplifying the reordering process. We can see in recent activity in Teamspace, the name your Part feature is gaining traction as Xometry becomes increasingly part of customers' bill of materials. Second, we enriched our pricing models to include greater personalization of customer pricing. We enhanced the dynamic pricing logic that powers the pricing intelligence layer of our Instant Quoting Engine. We see this drive higher conversions, balance margin outcomes and drive higher overall growth while enabling better outcome for our customers. In Q1, we continued to improve our injection molding offering in the U.S., adding 6 new materials and 3 additional finishes to give buyers greater choice and selection, increasing instant coding of injection molding parts by over 15%. Xometry's proprietary AI-powered platform manages the full cycle of injection molding needs from instant quoting to delivery and reordering in one of the largest custom manufacturing markets in the U.S. The platform enables a spectrum of injection molding options from prototype and low-volume bridge tooling to high-volume multi-cavity production tooling in approximately 50 different materials, colors and finishes. Finally, we are ever more focused on expanding our global supplier network and improving supplier experience. Our global supply network of approximately 5,000 suppliers is a significant strategic advantage, giving buyers unmatched speed, capacity and resilience, allowing for immediate scaling and offering sourcing flexibility across 50 countries on 4 continents. We continue to add more suppliers with higher levels of specialized certifications to support the growing needs of customers in specific industries. In 2025, demand for certified manufacturing surged with jobs requiring certifications increasing 35% on our platform. For our suppliers, we continue on improving their experience through new technology and tools in Workcenter, including the recent release of on-platform communications. By centralizing job-related communications directly within Workcenter, we are shifting more engagement online, improving visibility and further reducing friction for our suppliers. Insights we draw from suppliers' interactions on our platform give us significant sourcing insights to drive margin outcomes. This quarter confirms our strategic path and the power of our AI-driven flywheel. As I prepare to take on the CEO role in July, I'm very excited about the trajectory ahead. And I look forward to leading Xometry through its next product-led growth curve that we have already embarked on. I will now turn the call over to James, for a more detailed review of Q1 and our business outlook. James Miln: Thanks, Sanjeev, and good morning, everyone. Our results for Q1 underscore the continued scaling and increasing efficiency of our marketplace, driving both accelerated growth and expanding profitability. Revenue growth increased for the third quarter in a row, and Marketplace gross profit dollars saw even faster growth, exceeding 50% year-over-year. This accelerating top line was paired with yet another quarter of improved adjusted EBITDA profit margins. These achievements demonstrate that our Marketplace is becoming the essential infrastructure for a predominantly offline and fragmented industry. Q1 revenue grew 36% year-over-year to $205 million, a 600 basis point sequential acceleration from Q4. Q1 Marketplace revenue was $191 million and services revenue was $13.8 million. Q1 Marketplace revenue increased 40% year-over-year, a 700 basis point acceleration from Q4, driven by strong execution, expansion of buyer and supplier networks as we continue to capture significant market share. Q1 active buyers increased 20% year-over-year to 85,581 with a net addition of 3,760 active buyers, the highest number of net adds in 9 quarters. Strong Q1 net additions were driven by our product-led growth strategy and efficient corporate marketing initiatives. Q1 Marketplace revenue per active buyer increased a robust 17% year-over-year, primarily due to increasing wallet share. We view accounts with at least $50,000 spend at the top of the enterprise funnel. In Q1, the number of accounts with last 12-month spend of at least $50,000 on our platform increased 21% year-over-year to 1,864 with a strong net adds of 104. Enterprise investments continue to show strong returns. Our enterprise strategy focuses on our largest accounts, which we believe each have $10 million plus in potential annual account revenue. Services revenue was roughly flat quarter-over-quarter as we stabilize the core advertising business. We are focused on improving engagement and monetization on the platform, which remains a leader in industrial sourcing, supplier selection and digital marketing solutions. Q1 gross profit was $78.5 million, an increase of 39% year-over-year. Q1 gross margin for Marketplace was 34.7%, an increase of 290 basis points year-over-year. Q1 Marketplace gross profit dollars increased a robust 53% year-over-year. We are focused on driving Marketplace gross profit dollar growth through the combination of top line growth and gross margin expansion. Our commitment to strong discipline and rigor in capital and resource allocation across all teams while continuing to invest in growth initiatives is reflected in our Q1 operating costs. Total non-GAAP operating expenses for Q1 were $68.2 million, a 21% increase year-over-year, a rate significantly lower than our revenue growth. In Q1, sales and marketing decreased 110 basis points year-over-year to 14.2% of revenue. This reflects improving enterprise sales execution and disciplined advertising spend. Marketplace advertising spend was a record low 3.9% of Marketplace revenue, down 60 basis points year-over-year as we delivered accelerating growth and expanding profitability. In Q1, operations and support decreased 70 basis points year-over-year to 8.2% of revenue. We are focused on driving increasing automation with AI across operations and support. Q1 adjusted EBITDA was $10.5 million compared with $0.1 million in Q1 2025. Q1 adjusted EBITDA improved $10.4 million year-over-year, driven by strong growth in revenue, gross profit and operating efficiencies. Alongside accelerating revenue growth, we delivered expanded adjusted EBITDA margin of 5.1% compared with 4.4% in Q4 2025. Q1 U.S. segment adjusted EBITDA was $13.3 million, a $10.3 million improvement year-over-year. Q1 U.S. segment adjusted EBITDA margin was 7.7% compared to 2.4% a year ago, driven by expanding gross profit and strong operating expense leverage. Our International segment adjusted EBITDA loss was $2.8 million in Q1 2026 or 8% of revenue, a 400 basis point improvement from a loss of 12% in Q1 2025. We expect continued improvement in International segment operating leverage in 2026. At the end of the first quarter, cash and cash equivalents and marketable securities were $224 million. We generated $14.6 million in operating cash flow and $4.8 million in free cash flow in Q1 2026, driven by strong operating leverage and working capital efficiency. In the first quarter, we invested $10.6 million in cash CapEx, almost entirely software-related, reflecting our technology investments in the platform and accelerating product rollouts. We are focused on improving cash flow conversion given our asset-light model and limited capital spending. Our disciplined execution has led to strong revenue and gross profit growth in our AI-native marketplace, coupled with significant operating leverage and increased operating cash flow generation. We are focused on strategically balancing future investment with a relentless pursuit of operating leverage, given the vast market opportunity and our low penetration rates. As we rapidly approach a $1 billion run rate, we have a clear trajectory for improving adjusted EBITDA margins while sustaining our investment in growth. Now moving on to guidance. We are raising our outlook for the year. For the second quarter, we expect revenue in the range of $214 million to $216 million or 32% to 33% growth year-over-year. We expect Q2 Marketplace growth to be approximately 35% to 36% year-over-year, driven by ongoing momentum from our growth initiatives. We expect Q2 services revenue to be largely flat quarter-over-quarter as we continue to work through the transition of the recently launched Thomas ad serving platform and search upgrades. In Q2, we expect adjusted EBITDA of $11 million to $12 million compared to $3.9 million in Q2 2025. For the full year 2026, we are raising our revenue growth outlook to at least 27% to 28% from 21%, driven by approximately 30% Marketplace growth. We expect 2026 Marketplace gross margins to be higher than 2025 as each quarter of growth and technological advancement incrementally fuels margin performance. For 2026, we expect services approximately flat year-over-year with modest growth in the second half of the year as we expect that revenue in the second half begins to increase quarter-over-quarter. For the full year 2026, we expect incremental adjusted EBITDA margins of at least 20%. Before we open it up for questions, I want to recognize our team. The results we've discussed today reflect their execution, and I'm equally excited for what those results make possible going forward. We have real momentum, a large market in front of us and a team that has demonstrated it can deliver. That combination gives us genuine confidence in what's ahead. With that, operator, can you please open up the call for questions? Operator: Our first question comes from Cory Carpenter of JPMorgan. Cory Carpenter: I wanted to ask about the Siemens partnership, in particular, maybe for some of us more on the Internet side, less familiar. Could you just help us frame how meaningful is this for you? Kind of what exposure does this get you that you did not have before? And then how should we expect it to layer in some of the KPIs like active buyers in the coming quarters? Randolph Altschuler: This is Randy, and thanks for joining. And I'll jump in and maybe our President and incoming CEO, Sanjeev, will join as well. So we think, this is a big deal. I mean, Siemens is the leading industrial software company globally. It has millions of users. As you know, we have 85,000 active buyers. So their user base dwarfs ours, and we are embedding directly into their PLM and CAD software. So right where we want to capture the engineers and the procurement people, that is Siemens business. This will extend our reach into -- globally, it will extend our reach into all different sectors across different industries. So it could be a very big deal for us. I think from a KPI perspective, just as I alluded to, with millions of users, it could really boost up significantly our active buyer count. So lots of good things. And it also can improve our profitability as you can think we're capturing these -- these are Siemens customers. Logically, our sales and marketing spend will be dramatically less here as we're getting them here natively into their software. Sanjeev Sahni: Just to add on to that, I think, Cory, the way to think about this opportunity is that we are truly integrating directly into the Siemens software as a native embedded solution deployed within their SaaS and on-prem premises environments, which means real-time data connectivity to the engineer who is designing their product and being able to price it right there in their flow. So without having to break their flow, they would be able to get pricing on parts from Xometry, which would be a very, very big improvement to the user experience and their ability to move from price to placing the order very seamlessly, something that does not exist today at all. Operator: Our next question comes from Brian Drab of William Blair. Brian Drab: Randy, congratulations and congrats to the whole team, but well, what an accomplishment. I wanted to just follow up on the Siemens question. So first of all, can you talk about how that business is going to be structured in terms of margins for you? I know you just said it's going to require less selling and marketing. But Siemens is obviously kind of acting sort of like a distributor, you're using their platform, and they're going to take some value. But the sales through that platform, you're saying should be accretive to overall EBITDA margin. Is that right? Randolph Altschuler: So Brian, we're going to monetize. We're going to -- the gross margins that those should be very similar, Brian, to what we see today. We'll also be recognizing revenue similar to what we're seeing today. And as we said, we'll have less OpEx associated with it. So we think from an incremental margins from this revenue should be more profitable. Brian Drab: In terms of recent performance in the first quarter, have you seen or can you talk about in any more detail, strength relatively across different end markets like aerospace, space defense, I imagine, continues to be very strong, or is it just broad-based? And then are you seeing any benefit to your business from the disruption to the global supply chains related to the war et cetera. Randolph Altschuler: Yes, absolutely. So I think, first of all, like we really saw growth across all of our industries, Brian. It was very broad-based, which is very exciting for us across many different customer segments. And I think we -- certainly, the macro has been improving. The ISM data, manufacturing data has been improving. But in general, we just continue to gain more and more market share, and that's been a big driver of our growth. I think when you think about all the disruptions that have happened now for years since COVID, I think it just underscores to buyers the need for resilient supply chains, the need for digital supply chain flexibility, and that's what Xometry is. It enables people instantly to source from different regions, make changes. We strongly believe this is the future of manufacturing supply chains and we're the leader in it. And so I think that's just helping us gain more and more adoption by users and more and more market share. James Miln: I was just going to build on that. I mean, what Randy was saying, you saw accelerated net adds on the buyers, accelerated net adds on our accounts over 50,000, continued success on the enterprise front as well as continued success on the product-led strategy. So creating a broad-based offering and building out broad-based momentum. Brian Drab: Can I ask just one more quick one? So there was, I think, some anxiety on the call last time with the report because of the succession of Sanjeev coming in. Randy, you said very clearly, I'm not really going anywhere. I'm going to be working on some significant partnerships. Now that's materialized. We know exactly what you're talking about in terms of a partnership. My question is, are there -- you used the term partnerships, plural. Is this a sign of potential further -- is this indication of like other partnerships that we could see down the road? Randolph Altschuler: Yes. I mean, absolutely. Look, first, we're building a very special partnership with Siemens, a very unique one. So we're excited and grateful for that. But we're certainly hopeful that there'll be other partnerships, Brian, to say, down the road. And I'm excited to focus my time on those and assist Sanjeev here, who's been crucial to building this partnership as well as our execution. As James said, this is really about our product. I mean, Siemens is excited about our product, integrating our product. This just validates our product-led growth strategy that Sanjeev, since he joined us last year has been leading and where we go in the future. But certainly, more good stuff to come and hopefully more partnerships, but love the unique one that we built, special one that we built with Siemens. James Miln: Yes. And I think it really validates the custom manufacturing TAM that we see, $275 billion. These are the sorts of relationships that we want as the infrastructure, as the platform for custom manufacturing to be able to accelerate our growth and continue to execute really well on the product, improve that and get in front of more buyers and more suppliers. Operator: Our next question comes from Andrew Boone of Citizens Bank. Andrew Boone: Can we double-click on active buyer? It was the strongest net adds in 2 years. Can you help us understand that outperformance? And then how should we think about that going forward? And then as we think about AI just in terms of a bigger picture view as a tool that you guys are now inserting across the business. Can you talk about this very specifically within the Instant Quote engine? What is that unlocked in terms of accuracy or any other benefits you guys want to highlight as we think about the evolution of what Instant Quote can be? Randolph Altschuler: Yes. I'll start with the active buyers and then hand over to Sanjeev to talk about the AI integration and what that means. So look, I think -- and I appreciate, Andrew, pointing out, this is the biggest add that we've had for 2 years. I think you can expect to see more exciting numbers from the add perspective as we continue to further develop our technology platform to be more personalization as we extend the reach through our product and through our marketing, we're getting broader adoption. Partnerships certainly like the one, the unique one we're building with Siemens here will accelerate that. And I think the other great thing is not only did we have record net adds the last 2 years, but we grew the spend per buyer as well. I think that grew 17% year-over-year. So that's also an indication not only we're getting more buyers, but our share of wallet is increasing. And that's -- we think there's opportunity to continue to grow that share even as we grow that number of active buyers. Sanjeev Sahni: Yes. I would also say, Andrew, Shawn -- you can see in the slide in the deck that we grew the active buyer number was strong. At the same time, the ad spend as a percent of Marketplace revenue declined 50 basis points year-over-year. Shawn Milne: Andrew, to your question on AI and what we're continuing to do there and how we're embedding the Instant Quoting Engine. As you can see, I think part of our focus with the product-led growth has been to double down on the predictive intelligence capabilities that our proprietary AI model brings to us. I mentioned on the call that over the last several cycles, we've been focused on improving and expanding the model itself. Our updated model leverages the training data set, which is now 4x larger than its predecessor and even integrates new factors that actually help us price better, be more specific to new materials, even have advanced finishing options, which we continue to see more and more of as a need from our customers. Truly, I think this is most exciting for our enterprise customers whose needs are super expansive, but also to make sure that they now can come to us with a trust that we'll be able to deliver irrespective of the need. Operator: Our next question comes from Greg Palm of Craig-Hallum. Greg Palm: Yes, I'd like to offer my congratulations on basically all the above as well. I wanted to maybe go back to the Siemens announcement. I don't know if you can give us just a little bit of background on sort of kind of how that came about mostly from their end. I'm also a little bit confused and it looks like a great deal for you, but what's kind of in it for them? And I mean, as I think about them and their global sort of installed base and exposure, I mean, do you think this could be a good really helpful catalyst to accelerate growth internationally? Randolph Altschuler: Yes. So look, I think we're building something very special with Siemens, and I think that's going to give their users a very unique opportunity to access our data to improve their intelligence in terms of pricing and sourcing. It's being built natively within the Siemens system. So it is very special and unique. And I think that will be a huge value add for the Siemens users. I think as you said, it obviously, Greg, is great for us and they do have a massive user installed base, obviously much, much larger than ours, and it is truly global. And as we've talked about and as you can see in the press release, this is a global rollout that we expect. So this should help us not only here in the United States, but across all of our regions. So very exciting. Sanjeev Sahni: Greg, to your question specifically on how it helps them. This is Sanjeev. Very specifically, if you think about it, this actually embeds the entire Xometry experience within the Siemens platform, which means that the Siemens user actually never has to leave the Siemens platform to actually price the part and then track the journey of the part being manufactured and delivered to them, which is going to be very unique and puts them also in a very different category compared to any of the other competitors that they face off on a daily basis in the spaces of CAD and PLM. Now being able to make sure that their engineers and the users have a very unique journey, we think is a true differentiator for them as well. Greg Palm: I guess I'm looking or thinking about the full year guide, in light of what's going on in the macro, given the Siemens partnership. I mean, the full year guide based on what you've done in Q1 and the guide Q2, I mean, implies not just a pretty big deceleration in Marketplace growth in the second half but implies a major deceleration in net adds. It implies no growth in revenue per buyer. So I guess I'm just asking in light of all of that, maybe it's just conservatism. There's still a lot of year left, but just wanted to get your quick thoughts on that as well. Randolph Altschuler: Yes. Let me just -- first of all, our guide doesn't include anything about Siemens at all. So let's just -- that is not baked into our numbers. And as that partnership develops, we'll certainly update and if that impacts or when it impacts our numbers, we'll certainly share that. I think just to level set here, we did raise our guidance in Q2 or implied guidance pretty significantly here the 32% to 33% growth. And our guidance also -- and that includes -- that 35% to 36% Marketplace growth in Q2. Our guidance also implies higher growth in the second half of the year, higher than the guidance that we just gave about 1.5 months ago. And I just want to say that the trends remain strong. We have started Q2 very strong. And so as things continue, we will continue to update as we've done all along. But so far, the trends remain strong. And again, we've raised our guidance not only for Q2, but for the second half of the year as well. James Miln: Just build, Greg, I think we're really excited. I mean, I think now at 27% to 28% for the full year, that's an acceleration from 2025 growth of 26%. So another year of Marketplace growth of 30%, which is what we did last year. We're excited about the trends we see, very excited about this relationship with Siemens. I'll just note as well that there's a couple of slides in the earnings presentation on Siemens. So you can reference those as well as you're digging in here. And I think the strength in the product road map, the strength in enterprise, what that does is says in terms of the opportunity ahead of us, the TAM that we have to penetrate, we still feel very early. There's a lot of opportunity ahead. But when it comes to guidance, it's still early in the year, and we'll update you as we go through. Randolph Altschuler: Yes. I mean, just to be clear, we're not seeing anything that would imply deceleration, but we're being smart here. Greg Palm: Yes, makes sense. We'll be looking forward to those updated guidance metrics throughout the year. Operator: Our next question comes from Troy Jensen of Cantor Fitzgerald. Troy Jensen: First off, congrats on the great results. I guess I also want to dive in a little bit on Siemens. I think you hit on it a little bit, but just to confirm, there's no exclusivity associated with this and you guys would be able to do similar stuff with like an Autodesk and SolidWorks? Randolph Altschuler: Yes. We're building something -- thanks for joining us. So we're building something special and unique and proprietary with Siemens. So that relationship is. But we will continue to work with other companies, other beyond companies and others. But I just want to say what we've done with Siemens is very unique and special to them. Troy Jensen: The $50 million investment, was that something that happened after the quarter closed? Or can you just touch on it a little bit more? James Miln: Yes, that's after the quarter closed. So it will be -- you'll see it in the Q as a subsequent event. Troy Jensen: James, just maybe one for you, if I could throw it in quick. What revenue level do you think you need to reach like an EBITDA breakeven for your international business? James Miln: Yes. I mean, I think we're there overall globally. I don't think -- we're not going to guide to that on a segment basis. We're really pleased with the progress we're making. As you know as well, we were free cash flow positive in the quarter and we're getting close to the level which we mentioned last quarter in terms of where we think that that's sustainable at $225 million a quarter in revenue. I think we're really excited about the growth opportunity in international and seeing the margin continue to improve. So we think those losses will continue to improve as the year goes on. Operator: I am showing no further questions at this time. I would now -- I would like to thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Welcome to BCP Investment Corporation’s First Quarter Ended March 31, 2026 Earnings Conference Call. An earnings press release was distributed yesterday, May 7, after market close. A copy of the release, along with an earnings presentation, is available on the company’s website at www.bcpinvestmentcorporation.com in the investor relations section and should be reviewed in conjunction with the company’s Form 10-Q filed yesterday with the SEC. As a reminder, this conference call is being recorded for replay purposes. Please note that today’s conference call may contain forward-looking statements, which are not guarantees of future performance or results, including those described in the company’s filings with the SEC. BCP Investment Corporation assumes no obligation to update any such forward-looking statements unless required by law. Speaking on today’s call will be Ted Goldthorpe, Chief Executive Officer, President and Director of BCP Investment Corporation, Brandon Satoren, Chief Financial Officer, and Patrick Schafer, Chief Investment Officer. With that, I would now like to turn the call over to Ted Goldthorpe, Chief Executive Officer of BCP Investment Corporation. Please go ahead, Ted. Ted Goldthorpe: Good morning. Welcome to our first quarter 2026 earnings call. I am joined today by our Chief Financial Officer, Brandon Satoren, and our Chief Investment Officer, Patrick Schafer. Following my opening remarks on the company’s performance and activities during the first quarter, Patrick will provide commentary on our investment portfolio and our markets, and Brandon will discuss our operating results and financial condition in greater detail. 2025 was an important year of execution for us, and we entered 2026 on stronger footing. The key strategic and shareholder-focused actions we outlined in connection with the Logan Ridge merger are now largely in place, including our rebranding, tender offer, share repurchase program, and transition to monthly dividends while preserving flexibility for quarterly supplemental distributions. We also executed liability management actions that diversified our funding base and extended our maturity profile. Taken together, these actions have improved our financial flexibility, reduced near-term refinancing risk, and better positioned the company to support a more consistent shareholder return framework and long-term value creation. During the quarter, we continued to execute against our plan and delivered growth in both total investment income and core investment income relative to the prior quarter and 2025. We generated net investment income of $6.9 million, or $0.55 per share, which exceeded our base distribution, and our share repurchase activity in 2026 was accretive to NAV by $0.07 per share. We also saw improvement in underlying credit performance, with nonaccruals declining to 6.2% of the portfolio at amortized cost from 7.1% in the prior quarter, and the number of portfolio companies on nonaccrual declining to nine from 10. Reflecting that earnings profile, our Board declared a supplemental cash distribution of $0.03 per share for the second quarter, bringing total second quarter distributions to $0.30 per share. In addition, our Board approved a third quarter 2026 base distribution of $0.27 per share, payable in monthly installments of $0.09 per share in July, August, and September. With our monthly dividend structure now in place, and the first monthly distribution paid in April, we believe this framework provides shareholders with a more regular cadence of cash distributions while maintaining flexibility to declare supplemental distributions when supported by earnings. We also continued to enhance our capital structure through proactive liability management. During the first quarter, we issued $50 million of 7% notes due 2029, and in April, used a portion of the proceeds to redeem $40 million of the LRFC 5.25% notes due 2026. These actions further diversified our funding base, extended our maturity profile, and enhanced our financial flexibility. Turning to net asset value, net asset value declined during the quarter, driven primarily by unrealized markdowns on our portfolio. Approximately 40% of the quarter’s unrealized markdowns were attributable to investments classified as software in our consolidated schedule of investments, and approximately 70% when including software- or AI-exposed names. Furthermore, 70% of these markdowns are from portfolio investments without at least one publicly quoted security, which negatively impacted the valuation of all securities in the capital structure. We believe the majority of these markdowns reflect sector-specific valuation pressure and broader mid-market dislocation rather than fundamental credit deterioration. Importantly, underlying credit performance remained relatively stable, as most of our software exposure is in mission-critical, vertically specialized businesses that we believe are well positioned to weather the current AI-driven uncertainty. Despite continued macroeconomic uncertainty and volatility in portions of the software market, we remain disciplined in our deployment across the lower middle market, prioritizing credit quality, strong documentation, and downside protection. We continue to see more attractive opportunities in smaller and more complex transactions. Structure and selectivity are critical, and we are actively managing and repositioning the portfolio in response to evolving market conditions. Competition remains more pronounced in larger and more commoditized transactions, which reinforces our focus on selectivity over volume. As we look ahead, we remain focused on active portfolio management, disciplined underwriting, and prudent capital allocation, with the goal of driving long-term value for shareholders. As noted last quarter, we have begun to see increased M&A activity and expect to capitalize on opportunities in our pipeline throughout the remainder of 2026. With that, I will turn the call over to Patrick Schafer, our Chief Investment Officer, for a review of our investment activity. Patrick Schafer: Thanks, Ted. Before getting into the specifics of the quarter, I would like to make a few comments on our core market as a whole. Deal activity has remained fairly active and orderly over the course of 2026, despite public headlines around private credit, software, and AI. Excluding the software sector, the M&A markets and private credit markets remain wide open for business, and we continue to see attractive opportunities in both our sponsor and non-sponsor segments. With respect to software, we do continue to see certain high-quality software businesses being acquired and financed with minor lender concessions relative to 2025 transactions. Regardless of industry, we continue to focus on our core markets of $15 million to $50 million of EBITDA in industries or business models where we have an edge, and ideally non-sponsored or non-traditionally sponsored transactions where competition is lower and we have the ability to drive pricing and structure. During 2026, our investment activity remained measured and selective. We completed two new portfolio investments and one follow-on investment during the period. At the same time, we experienced a higher level of repayments and sales, which we believe is consistent with a more active realization environment and the increased M&A activity that Ted and I mentioned earlier. As a result, originations for the quarter were $13.3 million, and repayments and sales were $28.3 million, resulting in net repayments and sales of approximately $15 million. Turning to Slide 11 of our presentation, the overall yield on par of new investments during the quarter was 10.7%. This compares to a 12.8% weighted average annualized yield excluding income from nonaccruals and collateralized loan obligations as of 03/31/2026. Given the limited number of transactions completed during the quarter, we view the yield on new investments in the context of the specific mix of deals executed rather than as a broader indicator of the opportunity set. Our focus remains on credit quality, structure, and overall risk-adjusted return. Our investment portfolio as of 03/31/2026 remained highly diversified. We ended the quarter with a debt investment portfolio, excluding our investments in CLO funds, equities, and joint ventures, spread across 72 different portfolio companies and 33 different industries, with an average par balance of $3.3 million per investment. Turning to Slide 11, we saw improvement in our nonaccrual profile during the quarter, reflecting improved underlying credit performance. At the end of the quarter, we had 12 investments on nonaccrual status attributable to nine portfolio companies, representing [inaudible] of the portfolio at fair value and cost, respectively. This compares to 13 investments attributable to 10 portfolio companies on nonaccrual status as of 12/31/2025, representing [inaudible] of the portfolio at fair value and cost, respectively. On Slide 12, excluding our nonaccrual investments, we had an aggregate debt investment portfolio of $371.8 million at fair value, representing a blended price of 90.3% of par value, and 81.3% of that portfolio was comprised of first lien loans at par value. Assuming par recovery, our 03/31/2026 fair values imply approximately $40.1 million of incremental NAV value, or a 20.8% increase to NAV. Applying an illustrative 10% default rate and 70% recovery rate, the debt portfolio would imply approximately $2.24 per share of NAV, or a 14.4% increase, as it rotates. I will now turn the call over to Brandon to further discuss our financial results for the period. Brandon Satoren: Thanks, Patrick. For the quarter ended 03/31/2026, the company generated $17.6 million in investment income, an increase of $100 thousand as compared to $17.5 million reported for the quarter ended 12/31/2025. For the same period, expenses were $10.7 million, a $600 thousand increase as compared to $10.1 million reported for the prior quarter. The increase in expenses was primarily due to the increase in incentive fees driven by higher investment income in the current quarter as well as elevated general and administrative expenses. Accordingly, our net investment income for 2026 was $6.9 million, or $0.55 per share, which constitutes a decrease of $500 thousand, or $0.02 per share, from $7.4 million, or $0.57 per share, reported for the prior quarter. Core net investment income for the first quarter was $4.1 million, or $0.33 per share, compared to $4.1 million, or $0.32 per share, for 2025. As of 03/31/2026, our net asset value, or NAV, totaled $193 million, a decrease of $16.2 million, or 7.7%, from the prior quarter NAV of $209.2 million. On a per share basis, NAV was $15.60 as of 03/31/2026, representing a $1.08 decrease, or 6.5%, as compared to the prior quarter’s NAV per share of $16.68. As Ted noted, the decline in NAV during the quarter was primarily driven by unrealized depreciation on the portfolio. While those markdowns were meaningful, they were largely concentrated in the software and software-exposed portfolio and were driven by broader, indiscriminate market volatility in the sector. Management does not believe the majority of these markdowns reflect deterioration in underlying credit performance or fundamentals of such companies. As of 03/31/2026, our gross and net leverage ratios were 1.8x and 1.5x, respectively, compared to 1.5x and 1.4x in the prior quarter. The quarter-over-quarter increase primarily reflected the timing of our March issuance of $50 million of 7.5% notes due 2029 ahead of the April 27 partial redemption of the LRFC 2026 notes for $40 million, which temporarily elevated quarter-end borrowings. Excluding the $40 million of 2026 notes we called in March and repaid in April, our gross and net leverage ratios were 1.6x and 1.5x, respectively. Importantly, this financing transaction largely de-risked our remaining 2026 maturities, further staggered our maturity ladder, diversified our funding base, and provided additional financial flexibility. Specifically, we ended the quarter with $342.2 million of borrowings outstanding at a weighted average interest rate of 6.9%, when excluding the April $40 million partial redemption of the LRFC 2026 notes, compared to $312 million of borrowings outstanding at a weighted average contractual interest rate of 6.7% in the prior quarter. We also finished the quarter with $69.8 million of available borrowing capacity under our senior secured revolving credit facilities, subject to borrowing base restrictions. With that, I will turn the call back over to Ted. Ahead of questions, I would like to reemphasize our commitment to our shareholders. Our focus remains on active portfolio management, disciplined underwriting, and diligent capital management, with the goal of delivering sustainable long-term value creation for our shareholders. Thank you once again to all of our shareholders, employees, and partners for your ongoing support. This concludes our prepared remarks, and I will turn the call over for any questions. Operator: We will now open the call for questions. Thank you. If you would like to withdraw your question, press 1 again. Your first question comes from the line of Erik Zwick with Lucid Capital Markets. Please go ahead. Erik Zwick: Thank you. Good morning. I wanted to start with a question on the unrealized depreciation. You mentioned if you include software-exposed, about 70% of the unrealized depreciation was driven by software and software-exposed. Could you talk a little bit more in-depth about which particular inputs to your valuation models drove the valuation change? And if you look at what public equity markets have done in April and early May, we have seen a rebound there. If that were to stay that way, might you potentially see a little bit of unwinding of that depreciation you experienced in 1Q? Patrick Schafer: Hey, Erik, can you hear us? Okay, sorry, we were having some issues with our phone here. I can take the question a couple of different ways. As an example, one of the names within that unrealized bucket is a healthcare data analytics business. It is a third-party valuation that is done on it, but one of the inputs—because we own some amount of the overall exposure that we have in the company—is an equity security. The third-party valuation firm looked at comps in the space, and the comp set they use is healthcare IT-type comparables. Between December 31 and March 31, the multiples for that sector and for the comp set declined, and the multiple compressed by about three-quarters of a turn, which drove some of the unrealized. So to your point, assuming some of that rebounds by the time we get to June 30, you would expect some of that to return. I would say the biggest impact broadly within both software and software-exposed is really where there is a public security in the capital structure. We either own a first lien that is quoted and so we mark to market—obviously, the BSL market has been very challenged for software in the quarter through March, and a lot of that movement is price on that security. Another example would be if we have a second lien non-quoted or a private security, and there is a first lien in the capital structure that is quoted, generally our valuation firms use a relative value approach when valuing the rest of the capital structure. So the markdown in the first lien, even though it is a quoted mark, also has an impact and pushes out our discount rate applied to other securities in the capital structure. Erik Zwick: Great, that is helpful. Thanks, Patrick. And then you noted a couple of the funding changes you made with some of the redemptions and the new issues. Could you refresh me on your targeted leverage range at this point, and if there are any other levers you have to pull to reach that target if you are not there today? Patrick Schafer: Our target range remains 1.25x to 1.4x leverage on a net basis. We are at the high end of that, but as you saw in Q1, it is still a pretty ordinary-course M&A environment. We would expect some natural delevering as a couple of deals that we know are in the process of being refinanced roll off, and we are comfortable getting taken out of those names and do not want to continue on with those portfolio companies as that naturally rotates in Q2. We do not think there are any real levers we need to pull on the liability side; it is just going to be the natural portfolio journey. Brandon Satoren: That is right. I would just add, Erik, it obviously spiked a little bit at quarter end as a result of the broader market volatility and some of the unrealized depreciation we had to take because of the software exposure. Erik Zwick: Yes, understood. Last one: I think it was Ted in your comments who mentioned some optimism around the pipeline. Could you talk a bit on two points: what you are seeing in terms of spreads today for new opportunities relative to the existing portfolio yield, and from an industry and sector perspective, if there are any particular areas of opportunity that you feel are more attractive today? Ted Goldthorpe: Good question. We are, as a firm, very focused on sector specialization, but I would not say there is any broad theme. I would say the market definitely slowed in the last couple of weeks given some of the volatility, and we are seeing spreads wider in middle market credit. We have probably had about 50 basis points of spread widening. That is not what you are seeing in the liquid markets—it is the opposite—high yield is tighter today than where it was pre-Iran. The bar for new investments has gone up in private credit, and people are thinking about capital optimization. We are optimistic that spreads will either go wider or stay relatively where they are. Erik Zwick: Thanks for taking my questions today. Ted Goldthorpe: Thanks. Operator: Your next question comes from the line of Christopher Nolan with Ladenburg Thalmann. Please go ahead. Christopher Nolan: Hey, guys. On the software exposure—that is the BDC’s second-largest industry exposure—I note that fair value is now 75% of cost for that sector versus 82% last quarter. If you are using outside valuation firms for this, does this simply reflect M&A events happening in software where people are trying to run for the exits on M&A? Ted Goldthorpe: The way I describe the software situation is there is a huge dichotomy for where private credit players are valued versus where private equity is valued. If you look at where private equity is carrying certain of these assets, it implies a very low—speaking purely valuation-wise—it shows a very big buffer in terms of downside protection. I would probably estimate a lot of valuations will have to come down. The reason you are seeing a dichotomy across private credit players and software in valuations is what Patrick mentioned earlier. The liquid markets have been very punitive on software, and a lot of it has to do with risk around LME and things that do not really come into play in a private credit situation. We had certain securities that are illiquid that we originated, but they happen to have a security in the capital structure that is liquid. When that happens, you see a huge dichotomy in valuations between capital structures that are 100% private versus those that have a little bit of liquid securities in them. Fundamentally, our software portfolio is performing very well—revenues are up, they are generating cash. I am not saying there are not going to be issues. The biggest problems we see are two things. One is access to credit—who is going to refinance all this stuff? Most people have come out and are trying to reduce software exposure. And number two is no exits. It is going to be a very difficult exit environment for these companies, and it will probably reduce the velocity of our book in that sector. I do not see a big wave of software sales over the next 12 months. Christopher Nolan: If this is a potential—and I highlight potential—stress point in private credit, what does that mean for the private equity sector in general? Because if private credit gets a cold, private equity is getting pneumonia. Ted Goldthorpe: Yeah. Yeah. Alright. Catch up with you later. Thanks. Operator: There are no further questions at this time. I will now turn the call back over to Ted Goldthorpe for any closing comments. Ted Goldthorpe: Thank you all for attending our call. As always, please feel free to reach out to us with any questions, which we are happy to discuss. We look forward to speaking to you again in August when we announce our second quarter 2026 results. Thank you so much, and have a great weekend. Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining, and you may now disconnect.
Operator: Greetings. At this time, I would like to welcome everyone to the Barings BDC, Inc. Conference Call for the quarter ended March 31, 2026. All participants are in a listen-only mode. A question and answer session will follow the company's formal remarks. Today's call is being recorded and a replay will be available approximately two hours after the conclusion of the call on the company's website at barings.com under the Investor Relations section. At this time, I would like to turn the call over to Albert Pearley, Head of Investor Relations for Barings BDC. Please note that this call may contain forward-looking statements. Albert Pearley: These include statements regarding the company's goals, beliefs, strategies, future operating results and cash flows. Although the company believes these statements are reasonable, actual results could differ materially from those projected in forward-looking statements. These statements are based on various underlying assumptions and are subject to numerous uncertainties and risks, including those disclosed under the sections titled Risk Factors and Forward-Looking Statements in the company's quarterly report on Form 10-Q for the quarter ended 03/31/2026, as filed with the Securities and Exchange Commission. Barings BDC, Inc. undertakes no obligation to update or revise any forward-looking statements unless required by law. I will now turn the call over to Tom McDonald, Chief Executive of Barings BDC, Inc. Tom McDonald: Thanks, Albert, and good morning, everyone. On the call today, I am joined by Barings BDC, Inc.'s President, Matthew Freund, Chief Financial Officer, Elizabeth A. Murray, Barings Head of Global Private Finance and BBDC Portfolio Manager, Bryan D. High. Before turning to the quarter, I will offer a brief perspective as we move through 2026 following the leadership transition earlier this year. I assumed the role of CEO on January 1. With nearly 30 years in the credit business across multiple cycles, my background is in fundamental credit underwriting, portfolio management, and leading leveraged credit platforms. That experience reinforces my conviction in the durability of BBDC's investment process and the importance of rigorous underwriting discipline as dispersion across credit markets becomes more pronounced. Indeed, we saw evidence of that dispersion in the past quarter and we believe it will be a clear differentiator for BBDC going forward. Our best-in-class direct origination platform focused on the core middle market is a key factor behind this differentiation. Our sourcing strength, conservative deal structures, and strong alignment with shareholders remain central to BBDC's ability to generate attractive risk-adjusted returns through the cycle. Our strategy, process, and philosophy remain firmly intact. My focus is on execution, optimization of asset-level yields, and enhancing returns on equity without compromising credit quality. Now turning to the quarter. Despite an onslaught of negative headlines in the private credit sector during the first quarter, BBDC delivered solid net investment income and maintained good credit performance, particularly within the Barings-originated portion of our portfolio. Net deployment in Q1 was slightly negative. We originated $109 million of investments against $126 million of repayments for net repayments of roughly $17 million. As a result, our total portfolio size and leverage remained essentially unchanged quarter over quarter. Our portfolio remains highly diversified and defensively positioned, and we continue to benefit from a benign credit environment. Our focus on the top of the capital structure, senior secured investments, and core middle market issuers—who tend to have lower leverage and stronger risk-adjusted returns—served us well. In addition, our emphasis on defensive, non-cyclical sectors and Barings' global footprint provides a level of stability to our portfolio across all market environments. We believe this combination of senior secured lending, a core middle market focus, defensive non-cyclical sectors, and global origination offers our investors strong relative value and meaningful differentiation within the broader BDC landscape. Overall, BBDC's portfolio performed largely as designed this quarter. Our diversified issuer base and disciplined credit approach have built an all-weather portfolio that we expect to hold up well through various macro conditions which, as Matthew will touch on in a moment, we view as broadly favorable at present. We are, however, beginning to see increased dispersion in performance across the BDC space, underscoring the importance of our disciplined credit selection and proactive credit management. Turning to our results, net asset value per share was $11.02 as of March 31, 2026, slightly lower than $11.09 at year-end 2025. This modest decline was primarily driven by the write-down in a legacy MVC asset. The core Barings portfolio continued to perform well. Net investment income for the first quarter was $0.25 per share compared to $0.27 per share in 2025. Digging a bit deeper into the portfolio, we continue to actively maximize the value of legacy holdings acquired from MVC Capital and Sierra. During the first quarter, we continued the rotation out of the Sierra portfolio, exiting approximately $19 million of legacy positions on a combined basis between directly owned assets and assets held in the Sierra JV. As Elizabeth A. Murray will comment on shortly, the benefits of active portfolio rotation are coming into sharper focus. Today, BBDC shareholders are benefiting from a nearly fully repositioned portfolio that can selectively deploy capital into the most attractive middle market opportunities across the Barings platform. Turning to the earnings power of the portfolio, the weighted average yield on debt and other income-producing securities at fair value was 10.1%. With the stabilization of base rates and spreads in private credit, we believe that portfolio yields are supportive of recent dividend declarations. Our Board declared a second quarter dividend of $0.26 per share, consistent with the prior quarter. On an annualized basis, the dividend level equates to a 9.4% yield on our net asset value of $11.02. As Matthew will discuss momentarily, we believe Barings BDC, Inc. is well positioned to navigate current market volatility and to deliver consistent risk-adjusted returns for our shareholders in the quarters ahead. I will now turn the call over to Matthew. Matthew Freund: Thanks, Tom. As you mentioned, there has been no shortage of headlines during the past few months related to the trends in private credit. These headlines have brought attention to the asset class, reflecting a mixed understanding of private credit—both what it is and how it is positioned in underlying investor portfolios. We believe that we are currently in a period of time where the news rhetoric has become a greater source of attention than fundamental performance. Rapid adoption of private credit within the retail wealth channel has turbocharged the broader industry. In a post-COVID world, sometimes referred to as the golden age of private credit, investors readily embraced the returns of private credit with good reason. That dynamic drove substantial fundraising, increased competition, and in many cases, tightening spreads and looser structures. We are now seeing a shift. Retail flows into non-traded vehicles have become more volatile due to heightened investor caution, and institutional allocators are pacing commitments more deliberately, reducing the incremental capital entering the space. From our perspective, this is a healthy development. A slower pace of capital formation should translate into reduced competitive pressures on new originations and upward pressure on spreads. We are already seeing early signs of this in the market. While base rates remain elevated, all-in yields have held firm and underlying credit conditions have remained largely stable. For disciplined lenders like BBDC, this is beginning to look like a more attractive deployment environment. Looking ahead, as we mentioned on our prior call and as Tom alluded to, we expect 2026 to usher in a period of manager dispersion. During periods of abundant liquidity and benign credit conditions, returns across the BDC sector can compress. When defaults are low, liquidity is plentiful, and refinancing is readily available, underwriting can be masked. In that environment, beta often overwhelms alpha. We believe that period is ending. Portfolio decisions made over recent years will drive divergent outcomes ahead. Managers who chased higher leverage, looser documentation, or cyclical sectors are now more exposed, while those who have maintained discipline—focusing on resilient business models, conservative capital structures, and robust creditor protections—are better positioned to weather volatility. One topical example of a trend within our ecosystem was the increasing frequency of annual recurring revenue loans in some BDC portfolios, which are highly correlated with software issuance. Notably, BBDC does not have any loans to issuers structured on recurring revenue. We took a conservative stance in avoiding such transactions, even if it meant occasionally ceding deals to other lenders. Our public filings use a broad industry classification that does not isolate software as a standalone category. However, by our analysis, roughly 13% of our holdings are primarily software-related. This figure compares to approximately 14% in the prior quarter. Importantly, this is an underweight allocation relative to most private credit portfolios and industry benchmarks, where software represents roughly 20% of assets in our sector. The software companies we do finance are typically vertically integrated providers with robust cash flows, diversified customer bases, and significant equity cushions. We are focused on the potential AI disruption within the software sector, but believe these risks will likely take several quarters, if not years, to play out. In the meantime, our cautious approach leaves Barings BDC, Inc. well positioned should turbulence persist in the sector. Turning to the macroeconomic backdrop, the current opportunities within private credit appear more compelling than they have in recent quarters. That said, we remain vigilant to broader macro risks. Barings' private credit strategies deliberately avoid investing in highly cyclical sectors among oil and gas, metals and mining, and construction. While our issuers are not immune to volatility within the energy markets, nor the possibility of economic contraction, we feel that our defensive portfolio is well positioned against an uncertain economic backdrop. Meanwhile, the path of monetary policy remains uncertain. While there is ongoing debate around the timing and magnitude of potential rate cuts, base rates remain elevated relative to the past decade. This fact pattern continues to support strong current income for our predominantly floating rate portfolio. We believe this environment creates a compelling case to be invested in Barings BDC, Inc. It offers attractive distribution yields on a defensive portfolio. Consistent with our messaging from the prior quarter, our outlook for M&A opportunities in the coming 12 months remains cautious. We see significant interest in early-stage activity, but the conversion rates to closed transactions remain low industrywide. In comparison to our large market peers, BBDC issuers do not have the ability to access credit markets to effect the refinancing of their facilities; they simply lack the scale. As a result, we are retaining some of our strongest issuers when EV multiples do not meet sell-side expectations. Turning to an overview of our current portfolio, 75% consists of secured investments with approximately 70% of investments constituting first lien securities, both unchanged from the prior quarter. Interest coverage within the portfolio remained strong, with weighted average coverage this quarter of 2.6 times, above industry averages and slightly improved from the preceding quarter. We believe strong interest coverage demonstrates the merits of our approach—focusing on leading companies in defensive sectors and thoroughly underwriting their ability to weather a range of economic outcomes. The portfolio remains highly diversified, with the top two positions within the portfolio, Eclipse Business Capital and Rocade Holdings, being strategic platform investments. Turning to the portfolio quality, risk ratings exhibited stability during the quarter, as our issuers exhibiting the most stress, classified as risk ratings four and five, were 6% on a combined basis, down slightly from 7% on a combined basis in the immediately preceding quarter. Non-accruals remain modest and are below industry levels. Excluding assets covered by the Sierra CSA, which protects us from legacy Sierra portfolio losses, non-accruals at fair market value amounted to only 0.6% of the portfolio, versus 0.2% in the prior quarter. On an inclusive basis, non-accruals were roughly 1% of the portfolio at fair value and 2% at cost, which is among the lowest in our industry. During the quarter, three investments were placed on non-accrual—EMI, TerriBear, and a junior capital position in Eurofence. Our team remains proactive in managing credit and we remain confident in the credit quality of the underlying portfolio. We expect BBDC's differentiated reach and scale, coupled with its core focus on the middle market and unmatched alignment with shareholders, to continue driving positive outcomes in the quarters and years to come. As previously noted, BBDC is a through-the-cycle portfolio designed to withstand a variety of economic environments. I will now turn the call over to Elizabeth. Elizabeth A. Murray: Thanks, Matt. As both Tom and Matt highlighted, BBDC delivered solid first quarter results in a dynamic market environment, achieving stable earnings and advancing our balance sheet strength. I will now walk through our financial results and key balance sheet metrics for 2026. NAV per share stood at $11.02 as of March 31, down modestly from $11.09 at year-end 2025. This 0.6% sequential decrease of NAV was primarily driven by net realized losses on a few portfolio exits, partially offset by net unrealized appreciation on investments, the Sierra CSA, and foreign currency. Net investment income for the first quarter was $0.25 per share. This compares to $0.27 per share in 2025 and $0.25 per share in the first quarter of last year. The decline in NII largely reflects slightly lower interest income due to a small dip in our weighted average portfolio yield, fewer calendar days in the quarter, and the absence of non-recurring fee income we benefited from in Q4, such as one-time prepayment and amendment fees. On the expense side, we saw a lower incentive fee accrual this quarter. Our base management fee was stable and interest expense declined approximately 10%, reflecting lower average debt outstanding. Net investment income per share of $0.25 fell just short of our $0.26 quarterly dividend, under-earning by $0.01. We had anticipated this possibility given the exceptional over-earning in recent quarters and the slightly lower portfolio income this quarter. Importantly, we maintain substantial spillover income of approximately $0.79 per share, providing us a cushion to support dividend income. In line with our commitment to consistent shareholder returns, the Board declared a quarterly dividend of $0.26 per share for 2026, unchanged from prior levels. This dividend represents a yield of roughly 9.4% on our current NAV of $11.02 per share. We will continue to manage our payout prudently. As we look ahead, we recognize that a higher-for-longer interest rate environment has bolstered our earnings over the past year, but if base rates begin to decline, we may see some natural compression in earnings and dividend coverage. Rest assured, we intend to carefully evaluate the dividend on an ongoing basis to ensure it remains appropriately aligned with our sustainable net income. Our spillover income and our industry-leading 8.25% incentive fee hurdle provide us with flexibility to maintain stable dividends even if short-term earnings fluctuate. Shifting to realized and unrealized gains and losses, we recorded net realized losses of $10.8 million in the quarter. These losses, approximately $0.08 per share, were primarily driven by a few discrete events, including the exit of our loans to Dexter Rec and the sales of five CLO investments in the legacy Sierra portfolio, as well as the restructuring of our debt investment in Transportation Insight during Q1. These realized losses were partially offset by a gain on the sale of our equity stake in Ocelot following the portfolio company’s exit during the quarter. It is important to note that the impact of these losses on NAV was largely muted by prior-period unrealized depreciation. In other words, we had already marked down these investments in previous quarters, so a significant portion of the realized loss was effectively a reclassification from unrealized to realized and did not materially reduce our current NAV. Our portfolio experienced a net unrealized appreciation of $4.9 million this quarter, or roughly $0.05 per share of NAV accretion. Key cost valuation movements included further increases in the fair value of our Sierra CSA, which I will detail in a moment, as well as gains on select performing investments in the portfolio such as Sky Vault and Security Holdings. This appreciation helped offset unrealized write-downs on a few challenged positions, including legacy MVC Auto and our debt investment in EMI. Overall, realized and unrealized results for the quarter amounted to an approximately $5.9 million decrease in net assets, which drives the slight dip in NAV I mentioned earlier. Our Sierra CSA continues to serve its intended purpose of insulating our NAV from the wind-down of the acquired Sierra portfolio. The valuation of the Sierra CSA increased by approximately $5.3 million from $60.5 million in the fourth quarter to $65.8 million as of March 31. This increase reflects continued paydowns and asset sales within the remaining Sierra portfolio—which is now down to only seven issuers with a total fair value of approximately $18 million, versus 12 issuers and $32 million at year-end—as well as updated assumptions around an accelerated termination timeline for the CSA. In fact, the Sierra joint venture exited its remaining investments and returned $16.4 million of capital to us during the first quarter. We are optimistic about terminating the CSA in the near term, which should eliminate structural complexity in our balance sheet and provide approximately $65 million for redeployment into income-producing assets. Our balance sheet remains conservatively positioned. We ended the first quarter with a net leverage ratio—defined as regulatory leverage net of unrestricted cash and net unsettled transactions—of 1.17x at quarter end, which is squarely within our target range of 0.9x to 1.25x. The net leverage of 1.17x ticked up only slightly from 1.15x at year-end. We continue to prudently manage our capital structure, which remains predominantly comprised of long-term unsecured debt. As of quarter end, roughly 80% of our outstanding debt was in unsecured notes—among the highest proportions of unsecured funding in the BDC industry—which provides significant flexibility in managing our liabilities. We ended Q1 with ample liquidity: about $95 million of cash and foreign currency on hand and over $530 million of available borrowing capacity on our $825 million credit facility. In total, we had well over $600 million of dry powder at quarter end for our financing needs and future investment opportunities. We remain an active and opportunistic participant in the investment-grade debt markets, giving us confidence in our ability to address future financing needs while preserving our balanced funding profile. Lastly, a quick note on capital allocation. As Tom mentioned, we remain focused on delivering value to our shareholders through both stable dividends and repurchases. During Q1, due to a company blackout period, we did not repurchase any shares. However, our Board authorized a new 30 million share repurchase program for 2026, reflecting our commitment to opportunistically buy back shares when trading at a meaningful discount to NAV. We intend to employ this buyback program as appropriate going forward, subject to market conditions and other considerations. In summary, Barings BDC, Inc.'s first quarter demonstrated the resilience of our earnings and the benefit of our disciplined approach. While we plan to carefully manage through potential interest rate normalization and credit headwinds, our diversified portfolio of senior secured investments, robust liquidity, and conservative balance sheet leave us well positioned to continue delivering attractive risk-adjusted returns to our shareholders. I will now turn the call back to the operator for questions and answers. Operator: We will now open the call for questions. Our first question today is coming from Finian Patrick O’Shea with Wells Fargo Securities. Your line is now live. Analyst (Finian Patrick O’Shea, Wells Fargo Securities): Hey, everyone. Good morning. Thanks. Question on the new non-accruals—just a few smaller names, but previously they were marked at, you know, in the low 90s. I am not sure if that applies to the European one, given the currency input. But can you talk about the sort of big picture, the why? Is it a tariff, inflation, commodities? And if this is sort of a concerning trend in that regard? Matthew Freund: Yes. Good morning, Fin. This is Matt. So the three adds to that list this quarter came in concert with removing some. With respect to the European position, that actually was carrying a fair market value of zero last quarter, so the consequence to the portfolio is immaterial. With respect to the two U.S. platforms, I would describe those events as being continued challenges in the portfolio. They do both have some element of export/import exposure, but that is not really the reason that catalyzed the move to non-accrual. Both are just operating in slightly more challenged end markets at the current moment, and after some negotiations with other members of the investor base—both on the debt and the equity side—we made the decision that it would likely be prudent to move those assets to non-accrual. In the case of one of them, we actually are in process of restructuring it and expect that to be a relatively short-lived presence with respect to the non-accrual designation. But, of course, time will tell. Analyst (Finian Patrick O’Shea, Wells Fargo Securities): Okay. That is helpful. And then, Elizabeth, you talked a bit about the CSA. I do not know that I caught all of that. So just to tease that out—to the extent you may settle the newer one early as you all did with the last one, is that something near term, just a matter of doing the paperwork? Or are there a certain amount of exits on the runway before we might see a, you know, conclusion of the other CSA? Elizabeth A. Murray: I would say that we are optimistic that the termination will happen earlier rather than later and likely at some point this year. Analyst (Finian Patrick O’Shea, Wells Fargo Securities): Great. Thanks. That is all for me. Elizabeth A. Murray: Thanks, Fin. Operator: There are no further questions at this time. I would like to turn the floor back over for any further or closing comments. Tom McDonald: Thank you, operator, and thank you to all who participated today. I look forward to deepening our engagement with investors and advancing our strategic priorities with the full BDC leadership team. BBDC is strongly positioned for the future and we remain focused on delivering consistent value for shareholders. Thank you. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
Operator: Thank you for your continued patience. Your meeting will begin shortly. Star zero and a member of our team will be happy to help you. Please standby, your meeting is about to begin. Welcome to the Post Holdings, Inc. Second Quarter 2026 Earnings Conference Call and Webcast. At this time, participants have been placed on a listen only mode. Lastly, if you should require operator assistance, please press 0. I would now like to turn the call over to Daniel O'Rourke, Investor Relations for Post Holdings, Inc. Good morning. Thank you for joining us today for Post Holdings, Inc.'s second quarter fiscal 2026 earnings question and answer session. Daniel O'Rourke: I am joined this morning by Robert V. Vitale, our Chairman and CEO, Nicolas Catoggio, our COO, and Matthew J. Mainer, our CFO and Treasurer. This call is being recorded, and an audio replay will be available on our website at postholdings.com. During today's call, we may make forward looking statements that are subject to risks and uncertainties that should be carefully considered by investors, as actual results could differ materially from these statements. These forward looking statements are current as of the date of this call, and management undertakes no obligation to update these statements. The press release and written management remarks that support today's call are posted on our website in the Investors section. This call will discuss certain non GAAP measures. For a reconciliation of these non GAAP measures to the nearest GAAP measure, see our press release issued yesterday and posted on our website. We hope you had a chance to review our management remarks. The key highlights are that our diversified portfolio delivered strong performance in Q2 and adjusted EBITDA above expectations. However, given new headwinds from the conflict in the Middle East, we maintained our previous adjusted EBITDA guidance. Meanwhile, we continued aggressive share repurchases, and fiscal year to date, we have reduced our share count by 15%. Finally, our strong cash flow, liquidity, and credit metrics continue to afford us significant flexibility for opportunistic capital allocation. With that, I will briefly turn the call over to Matt. Matthew J. Mainer: Thanks, Daniel. Setting aside the business performance, I am sure you all saw our announcement yesterday on our CEO succession plans. First of all, on behalf of our whole team, congratulations to Nicolas. Really well deserved. You have done a fantastic job leading PCB. We are confident that will translate to more of the same as you transition into leading Post Holdings, Inc. To Rob, we have all learned from the best and truly appreciate your leadership over the past twelve years. As much as Rob is respected by so many on this phone call, it is even more so within the walls of our company. With that, I will turn the call over to the operator for Q&A. Operator: The floor is now open for questions. Again, thank you. Our first question comes from Andrew Lazar with Barclays. Your line is now open. Andrew Lazar: Great. Thanks so much. Rob, congratulations to you on a terrific run as CEO, and glad you are staying on as Chairman, and I can say, as I think many other packaged food names would benefit mightily from taking a page from your operating and capital allocation playbook. And Nicolas, congratulations to you on being named CEO. Maybe to start, just a question on pricing for the industry and Post Holdings, Inc. I realize there is still quite a bit of uncertainty, but should the industry face another round of more significant inflation, do you think pricing could be one of the levers used this time around given consumers have been pushing back on price points where they are today? Some are actually lowering prices with less than stellar results thus far. I am curious on your view on that and how does Post Holdings, Inc. sort of think about that? Robert V. Vitale: Thanks, Andrew. Nicolas Catoggio: What I would say is it depends on where inflation falls. If it is in the low single digits, I think we will see more of CPGs trying to absorb that within their P&L, and that could be in the form of maybe lowering promotional intensity. If it is more than that, we will probably see more targeted pricing. Andrew Lazar: And then maybe just on pet food. Trying to get a sense of what our expectations should be going forward in pet, because I think this current quarter is when the restage really happens in earnest in the marketplace. How do you think about turning a brand around in a subcategory of dry dog food that is struggling a bit right now relative to some other parts of pet? Nicolas Catoggio: Yes. Let me frame pet in three big buckets. One is a bit out of our control: the category has been slower than what we anticipated, especially dry dog food. Sixty percent of our portfolio is dry dog food. As we shared in our remarks, that was 4% down in pounds. So that is about 20% of our problem tied to the category. The rest you can think about half and half in two buckets. One is what we shared on 9Lives. We raised prices on a third of the brand that is more functional. As we raised prices, we saw higher elasticities than what we anticipated, and we lost distribution in a couple of retailers. That, in our mind, is fairly straightforward. If you remember less than a year ago, we were having the same conversation about Grape-Nuts when we raised prices. Remember that these brands have lower margins, and that is why we do what we do and we focus on profit. We raised prices on Grape-Nuts, we saw the same elasticities, we fixed that with rollbacks in the short term, and now we have fixed it with price pack architecture, and that brand in one of our larger retailers is growing at 40% in pounds now. So we see that as the same playbook. We tried price points, elasticity was a bit higher, we can solve it in the short term with rollbacks, and then longer term, call it a couple of quarters from now, we should fix it with price architecture. So it is fairly straightforward. And then the third bucket is Nutrish. We are in early stages of the relaunch, and that will take probably the entire Q3 to fully hit the market. It is happening, it is flowing in, but it is still, especially in the food channel, taking a bit longer to be fully reflected on shelf. That one, if you remember, is a full relaunch: new positioning, new packaging, and new price points. We feel encouraged about where it has been fully relaunched. In one of our largest retailers, we are already seeing sequential improvement week after week, and the last week of April, we already saw the brand flat to last year in a category that is again declining. So that is a positive, but it is still early on and we probably need a couple more months. By Q4, we should start seeing the carryover showing at least flat to slight growth versus a year ago. That is how we think about that. Andrew Lazar: Great. Thanks so much for the color. Congratulations again. Nicolas Catoggio: Thanks so much. Operator: Thank you. Our next question comes from Matthew Edward Smith with Stifel. Your line is now open. Matthew Edward Smith: Hi, good morning. You had another strong EBITDA and cash flow performance in the quarter, and the guidance reiteration referenced caution around new cost pressure and uncertainty. Are there specific areas of the business where you are seeing these higher costs, and are you seeing an impact from a more cautious consumer? Is the uncertainty more focused on the cost side? Matthew J. Mainer: I think directly we are seeing the cost impacts, Matt, really around fuel charges and surcharges. We have some coverage or hedges in place, but this is exposure beyond those coverages. Given the dramatic increase in diesel, that flows through across the company, especially in North America. So that is really the key driver. Nicolas Catoggio: Thanks, Matt. Matthew Edward Smith: Just a follow-up. The cash flow performance has been strong and supported the share repurchases to date while holding leverage flat. You called out the strong liquidity position Post Holdings, Inc. maintained. How would you characterize the M&A environment? Are you seeing an increase in asset availability? Do you think seller expectations are reasonable? And has there been an impact to deal flow from Middle East disruption and uncertainty? Thank you. Matthew J. Mainer: Yes. I think it continues to be a bit more of the same. You certainly have some assets, some private investments, that have not come to market yet, and I think that is a nod to where public multiples are and where a clearing price might be. So there are still some potential transactions sitting on the sidelines. That aside, we continue to see some of our larger competitors talk about maybe separating portions of their portfolio. We have seen it happen already in a couple of cases in the last year. I think those are larger, more transformational transactions. We look at everything, but that is something we would evaluate. Then I think it is a bit of a barbell: you have the smaller tuck-ins that are available that are, for us, more synergistic and obviously easier to digest. But the backdrop for us is really where our share price is trading and the implied multiple. Again, we laid that out in the prepared remarks, and that is really our benchmark, our comparison. It continues to be a high bar, but we continue to look at all that is out there. Matthew Edward Smith: Appreciate it, Matt. I will pass it on. Operator: Thank you. Our next question comes from David Sterling Palmer with Evercore ISI. Your line is now open. David Sterling Palmer: Thanks, and congratulations on your career so far, Rob, and all the value creation. And back to you, Nicolas. Nicolas Catoggio: Thank you. David Sterling Palmer: I want to ask a first question on foodservice profitability. Clearly, there was a moment of a lot of trade-in to higher-margin value-add. Prices were higher and egg prices have come down, and it has been a darn good profitability run here. I am wondering how you are thinking about profitability evolution going forward, maybe rising to sort of a mid-cycle profitability from here as you see some of your accounts doing better lately. In other words, I am trying to figure out if $125 million a quarter is really going to be the right run rate into fiscal 2027 or if you see upside to that. And I have a follow-up. Nicolas Catoggio: We still see that as the run rate. Again, in the quarter there were many puts and takes between lapping HBI supply constraints and pricing and cost in excess of pricing last year. But our supply and demand remain balanced. While we do not provide guidance segment by segment, we see us going back to our run rate. David Sterling Palmer: Got it. And then similar to the previous question on Pet, I just want to get a sense on cereal of your confidence in getting what I think would be your goal of a low-single-digit decline rate just to really have that pull its own weight. Cereal has been rough. What is the confidence in getting to that, and what is the outlook there? Thank you. Nicolas Catoggio: Let me start with the category. As we shared in the remarks, it has been better compared to where we were a year ago. For the quarter, the category was down 3% in pounds, and if you look at April, it is 2.5% down. So it is improving. It is still not where it was pre-pandemic, but it is getting there. For our portfolio, you have seen some of the data; we are extremely pleased with where we are. Q2 was another quarter where we were still working through the transition assortment, especially in the food channel, to be better prepared or have higher return on promotional spend. Because of that, our promotional spend was down a bit versus prior year, and still we were the only large player that held flat dollar market share year over year. So we feel really good about our portfolio, and we feel good about the improvement in the category. David Sterling Palmer: Thank you. Operator: Thank you. Our next question comes from Thomas Palmer with JPMorgan. Your line is now open. Thomas Palmer: Good morning. I would like to echo my congratulations to both of you and appreciate all the help, Rob, as I have ramped on Post Holdings, Inc. I wanted to follow up on David's question on the foodservice business and some of the egg dynamics. Obviously, in the quarter, falling egg prices seemed to be a tailwind for earnings, especially based on some of the disclosures about input costs. But I did want to ask about the prospect of either lowering prices in your view here, or whether you are seeing any shift by customers, given how cheap whole eggs are, to shifting in the direction of the more labor-intensive side of starting with whole eggs instead of buying prepared egg products. I want to make sure that neither of those is something we should be looking out for. Thanks. Nicolas Catoggio: Sure. On the potential switching, that is obviously a risk we evaluate. But honestly, given the value proposition, what we find—especially in the larger operators—is once they switch to our value-added products, they are able to take that labor out of their system, and they see the benefits of consistency, food safety, and other attributes of the products. It is quite sticky. I would say that maybe the risk is around some of the smaller independent operators, which is a much smaller component of our business, where they have a little more flexibility in the back of the house to make that switch. But, again, by and large, the majority of the portfolio sees that change as quite sticky. Thomas Palmer: Okay. Thanks for that. And I wanted to ask on Weetabix. On the license commentary and how reported sales were a bit worse than underlying consumption trends for the broader business, how big is the license impact that we should be thinking about, and to what extent is 2Q reflective of the full magnitude we should be thinking about in the quarters that follow? Robert V. Vitale: Sure. That was related to the OREO licensing agreement that we had, and I believe we have another quarter before we fully lap that going away. In terms of volume, looking out to the balance of the year, we would expect better year-over-year performance as we lap that in the second half. As a reminder, we have seen the category come back to more flat, which is historically the right spot for what we have seen out of cereal in the UK. Weetabix—the yellow box product in particular—has strong momentum and continues to outperform. As we lap the OREO license going away as we get into Q3, we expect to see better performance overall out of our portfolio with that. Operator: Thank you. Our next question comes from Scott Michael Marks with Jefferies. Your line is now open. Scott Michael Marks: Hey, good morning. Thanks for taking our questions, and again, congrats to Nicolas and Rob. I wanted to touch on Weetabix off the back of Tom's question, more on the profitability side. Obviously, margins are still significantly below what they had been. Can you help us understand the path back toward that 30% level and how we should be thinking about opportunities within that business? Matthew J. Mainer: Sure. Scott, first a reminder: UFit continues to grow nicely within the portfolio. It is a co-manufacturing business, but as it grows, EBITDA margins compress, which is fine because we are still growing profit dollars. In terms of sequential improvement from where we are now, we executed some network optimization at the March quarter-end and closed a facility on the private label side, given our RTE acquisition a couple of years ago. That was part of the plan. We were able to execute it, and that will lead to better profitability in the second half. So, as you look at EBITDA margins, expect noticeable sequential improvements in Q3 and Q4 relative to the first half. Scott Michael Marks: Okay. Appreciate the thoughts there. Shifting over to Refrigerated Retail, very strong volume performance in the quarter. I know you called out a little bit of Easter timing benefit. Can you help us understand the magnitude of benefit there and how we should be thinking about run rate for that business in the back half? Matthew J. Mainer: Sure. We saw a pretty significant lift in dinner sides for the business—12% growth. The biggest driver certainly was Easter, and historically when Easter falls, it is a big lift. I would say that is the majority of the year-over-year movement, given Easter was in Q3 last year and in Q2 this year. The other contributor was the new private label products we rolled out at the beginning of the fiscal year. Those continue to do well. Arguably, they probably had a little Easter momentum behind them as well, but those are really the two drivers. Easter will fall away, but we will be lapping the private label introductions until we get through the end of the year. Nicolas Catoggio: Scott, I would add that there was some underlying volume growth for our branded portfolio. Of the 12%, call it roughly a third underlying volume growth, a third private label, and a third Easter timing, give or take. Scott Michael Marks: Okay. Appreciate it. Thanks. I will pass it on. Operator: Our next question comes from Marc J. Torrente with Wells Fargo Securities. Your line is now open. Marc J. Torrente: Hey, good morning, and thank you for the questions. Rob and Nicolas, congratulations as well. First, on the incremental cost impact from energy that you are expecting, has that started to flow through the P&L yet? Is it more of a ramping dynamic to the back half? And when would you decide to take pricing action if needed, and how quickly could that provide some offset? Matthew J. Mainer: Sure. We certainly are seeing the impacts as we got to the end of Q2 and into the beginning of Q3. It is pretty consistent, depending on the level of hedges we have in place, through the balance of the year. You can think of it as a steady run rate assuming the war extends to the end of the fiscal year, which is our base assumption. Nicolas Catoggio: On pricing, it is business by business, but for the most part, right now we are assuming we will absorb that through the P&L this fiscal year. We will probably then consider pricing, but it depends on where inflation falls. Right now we are seeing it in fuel and a little bit impacting packaging. If things get worse, we will have to think about pricing, and it is probably going to be in the new fiscal year. It is way too early to say. Marc J. Torrente: Understood. Thank you. And then maybe an update on the performance of the APAP Nuisance holding in the business. What was the contribution in the quarter since this was the first quarter of just having the ongoing business? And how is the integration and synergy capture progressing? Thanks. Nicolas Catoggio: The underlying business performance is in line with the deal model, so we are pleased. Some puts and takes—some slightly better, some slightly worse—but for the most part, in line with the deal model. The integration is going extremely well. Synergies are a bit ahead of the plan, and we should be hitting run-rate towards the end of this fiscal year as we anticipated. We feel really good about the combination. The team stayed focused with no distractions, the business is performing, and we are probably overdelivering on the synergies. Marc J. Torrente: Thank you. Operator: Thank you. Our next question comes from John Joseph Baumgartner with Mizuho Securities. Your line is now open. John Joseph Baumgartner: First off, to Rob, really fun ride the past decade and many thanks for all your insights and interactions over the years. It was a great learning experience. Thank you, and all the best in your future endeavors. Nicolas, congrats on the opportunity as well. First, relating to the ready-to-drink protein shakes: you understand this category very well, and you made the capital commitment to the manufacturing facility. I am curious about your perspectives on the sustainability of category growth and your participation as a manufacturer, given the influx of new brands coming in. How do you think about the competitive environment through a manufacturer’s lens? And second, given the de-rating of public equities in RTD—and maybe private assets as well—do you think about reengaging RTD as a brand owner again? Presumably, it is growth accretive and free cash accretive, and you would get synergies from repatriating the volume with a vertical operator. How do you think about your position in that category now and going forward? Robert V. Vitale: Yes. I think we have to be careful about questions that we answer from the perspective of BellRing. It is entirely appropriate to answer questions from a manufacturer’s perspective but not as a brand owner. I will let Matt talk about the manufacturing side. Matthew J. Mainer: In terms of the shake business, we continue to see opportunities to grow with BellRing. We are a key supplier of theirs. We have gotten our house in better order in terms of volume on the shake side, so we are feeling better about that business. We have talked about some higher costs we are trying to work through in terms of higher-than-anticipated costs around the manufacturing process—some of the costs we are absorbing. But on the volume side, we are seeing better performance, and there is certainly demand for the volume that we are pulling through on the BellRing side. John Joseph Baumgartner: Thanks for that. And then my follow-up: we are seeing some pockets of the industry where foodservice brands are making nice inroads in retail grocery and making that channel crossover—soup, french fries, mashed potatoes. You have the presence of Bob Evans already. Given how tough volume growth is for a lot of traditional retail brands, how do you think about leveraging the manufacturing assets to maybe expand Bob Evans into new categories or license other foodservice brands to enter additional categories within your meals orientation? Have you considered that as a means of growth, leveraging your assets? Nicolas Catoggio: I think you said it right. That is a lot of what the Bob Evans business is—it leverages a lot of the Michael Foods assets. Expanding to other categories is something our teams assess all the time, and it depends on where they see the ability to win in a category. I would highlight that the Bob Evans business is essentially that model: it leverages the Michael Foods assets. Operator: Thank you. We will go next to Carla Casella with JPMorgan. Your line is now open. Carla Casella: Hi, thanks for taking the question. You talked a bit about private brand today, and it raises the question: how much of your business today is private brand, and in which category are you the highest as a percentage of the segment? Is there more opportunity there, and is that a margin opportunity as well? Nicolas Catoggio: Post Consumer Brands is where we have the largest private label business and the highest as a percentage of total business—around 20% of the business. In terms of our position, we have a very strong position in cereal, granola, and peanut butter. We are a smaller player in private label pet; we have more of a premium private label presence in pet. In terms of opportunities, we see opportunities in all of those categories. In general, in all categories we play in, we consider how to leverage the branded and private label portfolio. Carla Casella: It sounds like you are growing more on the Refrigerated side. Is there any private label in Europe? Nicolas Catoggio: There is with Weetabix, yes, and that has been the case for years now. We are growing faster in Refrigerated because we made the decision to reengage with private label in that category—going from essentially nothing—so we see it as an ongoing opportunity. For now, it is targeted on fewer retailers, but there is opportunity there as well. Carla Casella: Is the opportunity similar to where you are in brands? Do you see those categories get to 20% private brand? Nicolas Catoggio: It is difficult to say. We never set a target like that. In the UK, it is higher than 20%. Matthew J. Mainer: Weetabix, from a category standpoint, operates where private label is much larger in the UK than the US—obviously a much smaller market overall—but our shares are in line with the category in terms of branded versus private label. Private label is north of 40% for us over there. We feel really good about having alternative price points, just like we do at Post Consumer Brands. We think that gives us a competitive advantage and inroads with retailers both on the branded side and with that private label presence. Carla Casella: Okay. And can I ask one quick finance question? You have done a lot with share buybacks and a bunch of refinancing lately. How much cash should we model that you need to keep on the books just to run the business? Matthew J. Mainer: We generally think about $150 million of cash on the balance sheet for working capital purposes. Given our Weetabix offices as well as international operations, that is about the right level of cash needed for daily operations. Carla Casella: Okay. Great. Thank you so much. Operator: Thank you. This does conclude today’s question and answer session, as well as Post Holdings, Inc.'s second quarter 2026 Earnings Conference Call and Webcast. Please disconnect your line at this time. Have a wonderful day.
Operator: Good day, and welcome to the PAA and PAGP First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question, you will need to press star 11 on your touch tone telephone. Please note this call is being recorded. I would now like to turn the call over to Blake Michael Fernandez, Vice President of Investor Relations. Please go ahead. Blake Michael Fernandez: Thank you, Michelle. Good morning, and welcome to Plains GP Holdings, L.P. First Quarter 2026 Earnings Call. Today's slide presentation is posted on the Investor Relations website under the News and Events section at ir.plains.com. An audio replay will also be available following today's call. A condensed consolidating balance sheet for PAGP and other reference materials are in the appendix. Today's call will be hosted by Willie Chiang, Chairman, CEO and President, and Al Swanson, Executive Vice President and CFO, along with other members of our management team. With that, I will turn the call over to Willie. Willie Chiang: Thank you, Blake. Good morning, everyone, and thank you for joining us. This morning, we reported first quarter adjusted EBITDA attributable to Plains GP Holdings, L.P. of $730 million. Al will cover the details on our results in his portion of the call. Let me start with the macro environment, which has changed significantly since our last call. Recent geopolitical events have reiterated the importance of reliable, secure, and responsibly produced energy. The closure of the Strait of Hormuz has significantly disrupted global shipping channels and Middle East supply, contributing to stronger commodity prices over the past couple of months. In response, excess floating storage has been drawn down, and strategic petroleum reserves are being released globally. While this helps balance the market deficit on a short-term basis, we are seeing a more constructive oil market developing on a longer-term basis. We expect this destocking environment to continue over the next number of months and ultimately drive a restocking phenomenon longer term as countries replenish depleted strategic petroleum reserves globally. Postwar, we would not be surprised to see several countries restock their SPRs above prewar levels, essentially creating an additional layer of demand into the future, which should support prices and incent producer activity. On the supply side, OPEC production capacity postwar remains uncertain, but we suspect spare capacity will be tighter based on a slower recovery of shut-in production and infrastructure damage during the war. We believe the conflict shifts the focus towards more geopolitically stable regions to ensure security of supply. Against this backdrop, North America, including the Permian, remains well positioned to play a critical role in meeting global demand. As this occurs, the value of existing infrastructure in the ground should continue to increase over time. For these reasons, we believe Plains GP Holdings, L.P. is well positioned for both the near-term volatility and longer-term macro environment. Based on these market dynamics and the growth trajectory that we see for our business, we have increased our initial 2026 EBITDA guidance. As highlighted on slide four, we are increasing the midpoint of our full-year 2026 adjusted EBITDA guidance by $130 million to $2.88 billion. The NGL segment EBITDA is now expected to be $170 million this year, following first quarter outperformance of $45 million and the updated divestiture timing now in May 2026. Our trajectory of growth this year is underpinned by three key drivers: the sale of our NGL assets, Cactus III synergy capture and streamlining. The growth of our EBITDA is paced with the execution of these initiatives and is enhanced by capturing optimization opportunities that have been substantially secured over the next three quarters. We are also seeing increased producer interest in both Canada and the United States for additional connections to our system. The combination of all these factors will ramp up through the year and position us well into the future. Our premier crude oil footprint continues to support stable fee-based cash flows in a variety of macro backdrops. As global markets turn to North America for long-term energy supply, we are well positioned across key producing basins and downstream markets to drive multiyear growth. We remain committed to our efficient growth strategy, generating significant free cash flow, optimizing our assets, maintaining a flexible balance sheet, and continuing to return cash to unitholders via our disciplined capital allocation framework. With that, I will turn the call over to Al to cover our quarterly performance and other financial matters. Al Swanson: Thanks, Willie. Slides five and six contain adjusted EBITDA walks that provide additional details on our performance. For the first quarter, we reported crude oil segment adjusted EBITDA of $582 million, which was broadly in line with our internal estimate and includes a full-quarter contribution from the Cactus III acquisition, offset by a number of one-off items, including winter weather impact in the Permian, system maintenance, and timing of minimum volume commitments. Moving to the NGL segment, we reported adjusted EBITDA of $145 million, reflecting a stronger-than-expected contribution from higher straddle production and improving frac spreads in March. A summary of 2026 guidance and key assumptions are on slide seven. Growth capital remains $350 million while maintenance capital was increased to $185 million reflecting ownership of the NGL assets into May. Regarding the $130 million increase in EBITDA guidance, key drivers are outlined in the waterfall on slide eight. The NGL segment increased by $70 million, driven by outperformance in the first quarter along with the ownership of NGL assets into May. The oil segment was increased by $60 million, driven by captured optimization opportunities, FERC tariff escalators, increased spot tariff volumes, and increased West Coast volumes. To the extent that the elevated commodity environment persists into the second half of the year, we would expect to capture incremental opportunities. For 2026 guidance, we continue to assume Permian crude oil production to be relatively flat year over year. While we have yet to see a meaningful shift in U.S. producer behavior, any increase in activity would likely benefit 2027 and beyond. We expect an improving back end of the crude oil curve and removal of natural gas takeaway constraints as new egress projects start up later this year to drive incremental activity throughout the year. Illustrated on slide nine, we remain committed to generating significant free cash flow and returning capital to unitholders while maintaining financial flexibility. For 2026, we expect to generate approximately $1.85 billion of adjusted free cash flow excluding changes in assets and liabilities, and excluding sales proceeds from the NGL divestiture. Our pro forma leverage at the end of the first quarter was 4.1x, reflecting the Cactus III acquisition. First quarter leverage pro forma for the NGL sale would decrease to approximately 3.5x, and we would expect leverage to migrate towards the low end of our target range of 3.25x to 3.75x by the end of the year. We expect net proceeds from the NGL sale to be approximately $3.3 billion, which is approximately $100 million higher than our prior estimate. Our acquisition of Cactus III last year has mitigated the tax liability of the unitholders resulting from the NGL divestiture. As a result, we no longer expect to pay a special distribution following the closing of the NGL sale. Before handing it back to Willie, I would note that both current and deferred taxes are elevated on the statement of operations this quarter because of the restructuring activities associated with the NGL sale. There was no cash tax impact in the quarter, as payment of the related taxes will be made in conjunction with closing or in future periods. With that, I will turn the call back to Willie. Willie Chiang: Thanks, Al. In the midst of volatile energy markets, we remain steadfast and focused on our three initiatives for 2026: closing the NGL sale, driving synergies on Cactus III, and advancing our streamlining initiatives. Our efficient growth strategy has positioned us well to execute through a range of market environments, generating durable cash flow and creating long-term value. Importantly, the improving oil macro environment is starting to present additional organic investment opportunities with strong returns. We continue to evaluate both organic and inorganic opportunities in a disciplined manner. Capital investments help underpin long-term EBITDA growth, but they must meet our return thresholds and provide visibility into future return of capital to unitholders. Our transition to a pure-play crude midstream company, coupled with the acquisition of Cactus III, is proving timely, as tensions in the Middle East position North America as a key source of global energy supply into the future. Before I turn the call over to Blake, I would like to make a brief comment about our pending transaction with Keyera. In terms of timing, as reported by both Keyera and Plains GP Holdings, L.P. in separate releases earlier this week, we are targeting to close the transaction this month. While it is unfortunate that the Competition Bureau has chosen to challenge the transaction, their lawsuit does not prevent the parties from closing the transaction, which both Plains GP Holdings, L.P. and Keyera are committing to do. I realize you may have some additional questions, but I hope you understand it would be inappropriate for us to comment any further on this matter, so we would appreciate it if you would refrain from asking questions regarding the transaction. Blake, I am now going to turn it over to you to lead us through Q&A. Blake Michael Fernandez: Thanks, Willie. As we enter the Q&A session, please limit yourself to two questions. This will allow us to address as many questions as possible from participants in our available time this morning. With that, Michelle, we are ready for questions. Operator: Thank you. If your question has been answered and you would like to remove yourself from the queue, please press 11 again. Our first question comes from Brandon B. Bingham with Scotiabank. Your line is open. Brandon B. Bingham: Thanks. Good morning, everybody. Just wanted to ask on the new guide. If I look at your sensitivity and the new crude price expectations, it would imply that, at least on price movements alone, the crude contribution should probably be higher than what is currently shown. Could you just walk us through what is baked into the new guide and maybe the embedded outlook in there? And, in light of some of the commentary in your prepared remarks about a more constructive longer-term market and the macro environment as it stands today, how are you thinking about the potential for the EPIC expansion at this point? Al Swanson: Sure, Brandon. Yes, our original guidance for the year assumed a $60 to $65 environment for 2026, call it a $62 average. We came into the year highly hedged at roughly those levels. The $85 environment that we are talking about for the future is roughly the strip from June through December when we looked at it. So there would be some benefit based on crude prices on our PLA, but we had hedged quite a bit before entering the year. That sensitivity we give is just a raw sensitivity; in order to make it more meaningful, we would have had to have disclosed the hedge position at the beginning of the year, which we have not historically done. So what I would say is that the first quarter performance and the nine months of our guide are very minimally impacted by actual PLA pricing. Jeremy L. Goebel: Brandon, good morning. We are excited about the opportunities around our entire long-haul portfolio and are having constructive dialogue with existing customers and new customers looking for secure supply from the United States. That results in some spot activity, but longer term, the expectation is to contract at higher rates than before with potentially new counterparties. That would apply to recontracting the existing pipeline capacity and expansions as well. We are looking at all of the above and hope to have updates in the coming quarters on how that looks. Operator: Our next question comes from Gabriel Philip Moreen with Mizuho. Your line is open. Gabriel Philip Moreen: Hey, good morning, everyone. Maybe I will just ask the Permian macro question, Willie, in terms of your best outlook. I think previous years you had talked about roughly 200,000 barrels a day year-over-year growth. Best venture at this point—do you think that goes significantly higher from here, 400,000, 500,000 in 2027? I am just curious what your latest thoughts are there. And then, can you talk about the sustainability of some of the marketing opportunities you are currently seeing—spreads, the value of dock space, whether you are debating terming some of those out at higher prices—and how the steepness of the curve and backwardation are impacting your storage? Willie Chiang: Gabe, the U.S. producers have remained very disciplined as far as capital allocation, and they are looking at the back end of the curve to see where it goes. WTI is roughly $70, and our view is when you start getting into $75 and above, increased activity happens. There are also some other short-term operating constraints limiting production a bit. The Permian has some natural gas takeaway constraints. There are new lines being built and being commissioned as early as later this year, so the thought is that alleviates itself. Our assumption for the Permian this year was flat, and if there is some upside, obviously, we benefit from it. We are not giving a formal guide, but we would expect growth going forward and probably some momentum of volumes behind that which is going to increase production here, maybe with a little bit of a flush later this year. So I think it really depends on the back end of the curve, but the systems are ready to go. Jeremy L. Goebel: Gabe, without getting into specific strategies—time, location, quality spreads and volatility—we benefit from all of those because we have the assets, the supply position, and the trading function to capture those opportunities. While it is hard to forecast those, when they arrive we can take advantage by, for example, selling a barrel now and buying it back later by emptying a tank, or capturing differences in grades between Canada and the United States and across Gulf Coast grades. We are excited about those opportunities. What we have put in the forecast has been substantially captured. It is a very volatile time period; we have only been in this 60 to 70 days, so it is hard to forecast that to continue. But if it continues, we would expect to capture more opportunities going forward. We also estimate there is close to 200,000 to 300,000 barrels per day of oil behind pipe in the Permian Basin. That flush production is substantial, and a lot of that is in the more constrained areas of the Delaware Basin, where we have a broader footprint, including New Mexico and other places. If you look at the Waha spread, flat price in Waha has been largely negative since last September; that is what is accumulating all of this behind pipe. As gas prices recover, productive capacity is already there to add. As you add more, that puts more pressure on potentially long-haul spreads and the ability to term up contracts at greater rates. We are seeing more demand from new customers, and we are seeing potentially flushed production. Those should all help convert short-term opportunities into longer-term opportunities. Willie Chiang: If you look at our numbers, long haul has increased and the margins on that have also improved. I think we are moving to a more structurally full-pipe situation as we go forward, which should be constructive for us. Operator: Our next question comes from Manav Gupta with UBS. Manav Gupta: Good morning. I just wanted to focus a little bit on the weather impact. I think it was about $49 million quarter over quarter. I am trying to understand the timing of minimum volume commitments. Is there a possibility some of this can be reversed in 2Q—some of what you lost in the current quarter comes back into the second quarter? And if you could also talk about the very strong NGL segment in the first quarter versus the last quarter—some of the drivers that helped you deliver much stronger earnings in that segment quarter over quarter? Al Swanson: Yes, Manav. Those are two different things. First, with regard to weather, weather is just production shut in for a period. You cannot make that back, but the flush production does come back. With regard to the timing of MVCs, that is continuous in our process. If you look at some of the earnings calls from others about their dock performance or other things in the first quarter, freight was really expensive and margins did not have people moving, so long-haul volumes were down across the industry. But that has completely reversed in timing, so you would absolutely expect that to be recovered. It is just a question of those MVCs accrued versus when they are paid. All the pipelines are full again, and the MVCs are being reversed. If you are referring to slide five, there are a bunch of one-time events in that negative $49 million that will not occur again as we go forward. Jeremy L. Goebel: On the NGL segment, higher border flows than expected drove stronger results. You had very full storage in Canada and continued production, which required volumes to be exported. Those were exported through our Empress asset, so higher border flows led to more straddle production, and that would all be unhedged and impact results. We also saw higher frac spreads toward the end of the first quarter. Those two factors continued into the second quarter, which is reflected in the increase in guidance for the NGL business through closing. Operator: Our next question comes from Michael Jacob Blum with Wells Fargo. Michael Jacob Blum: Thanks. Good morning, everyone. My question is on the guidance for the crude segment. It sounds like most of the increase is optimization that you have already locked in, and then maybe the rest is PLA. Is that right? And if prices stay elevated for the balance of the year, would there be upside to the crude segment guide, or is that already baked into the numbers? Willie Chiang: Michael, great question. Our assumptions are that the numbers in there are what we have captured that roll off through the year that we will actualize on optimization efforts. You are correct. If we have a stronger macro environment and higher prices, there definitely is upside. Michael Jacob Blum: Great. Thank you. Operator: Our next question comes from Jeremy Tonet with JPMorgan Securities. Your line is open. Jeremy Tonet: Hi. Good morning. What are you seeing locally, ear to the ground, as far as producer activity—rigs being picked up by the independents or larger drillers—and what would need to be seen across the strip to gain the comfort to do that? How do you think production could uptick here, and what do you see? And how do you think that impacts basis over time and what it could mean for future egress expansion? Jeremy L. Goebel: Jeremy, good morning. Since this started, you have already seen about 15 rigs added back, and we would expect some to continue. But as Willie mentioned, there is a bit of a throttle right now: you cannot add more natural gas to the system and flaring is not allowed. Productive capacity is there; rigs being added now would impact 2027. There is a bit of confusion in the market in that the products market and the physical crude market are substantially tighter than the financial markets would indicate, which means the back end of the curve has to come up. It is very difficult, even if you opened the Strait of Hormuz tomorrow, to get everything back in order the way it was. It will take a while for shipping to start; you have to empty tanks before you start back up production. Products markets are empty in some places. There is real dislocation that will take time. Some integrators have stated it is roughly three days to get back up for every day it is down, so it is potential for months to get out of this even if it were resolved today. Producers likely need more assurance on the back end of the curve before bringing rigs on. Service companies have stacked equipment; it takes capital and commitments to bring that back in. The longer this goes, the more likely that will occur, but the current dislocation on the back end of the curve is causing some hesitancy, and that prolongs the problem. On basis and egress, it is constructive for basis—more production and more demand on the water. Specifically to the Corpus market and some of the efficient docks on the water, you are seeing higher pricing relative to the screen. On a prolonged basis, that suggests new buyers coming to America and vessels re-pointed to the United States for a while. You are seeing that on the NGL side; you will see it on LNG and on crude. More buyers and more demand are generally constructive for spreads, and we would expect to match either our supply or our customers with that and hopefully offer service at a higher rate. Willie Chiang: On Cactus III, we have expansion capacity. As we have always said, we will pace that with market demand and commercial contracts. As we have gotten to know the project and assessed it, we have the ability to do that in a phased approach. It is fairly flexible for us to get additional volumes; it is not a binary big expansion. There are ways to do it in phases which should match customer demand. Generally speaking, in a higher price environment, there are more opportunities because there is a pull on the whole system. In that kind of market, market and optimization opportunities become more prevalent versus a lower price environment where less is moving and there are fewer opportunities. Operator: Our next question comes from Analyst with Goldman Sachs. Your line is open. Analyst: Hi, good morning. Thank you so much for the time. First, could you comment on the progress of your cost reduction initiatives? Are these on track with expectations at this point, and is there any potential for upside capture here? When should we expect Plains GP Holdings, L.P. to realize more significant efficiencies through the year? And then shifting to capital allocation—with debt reduction as a near-term focus, particularly following the pending NGL sale—when do we expect a shift from debt paydown to a larger focus on potential buybacks or preferred paydowns? Christopher R. Chandler: Good morning. We are on track to capture the efficiencies—$50 million by 2026 and an additional $50 million in 2027. We have already made a number of changes, some unrelated to the NGL transaction and some in anticipation of the NGL transaction. We feel confident in the number. There is always upside; we are always looking for additional opportunities and we will certainly pursue any that we find. We are not prepared at this time to change the $100 million target we have through 2027, but we are on track and things are going well. Al Swanson: On capital allocation, with the proceeds from NGL, we anticipate paying down a little over $3 billion of debt, which would be the term loan, the outstanding CP we have, and a $750 million note that matures later this year. Post that, we expect to be right at the midpoint of our leverage range, about 3.5x, and expect that to migrate down toward the low end, which will put us back where we were for several years prior to the EPIC acquisition—leverage toward the low end of our range. Our capital allocation priorities remain: maintaining distribution growth; funding investments, whether organic or M&A-related; taking out preferreds should leverage remain at or below the bottom end of the range; and opportunistic share repurchases. So once we get through the NGL sale and deploy the proceeds, we return to the framework we have been operating under for the last several years. Operator: Thank you. I am showing no further questions at this time. I would like to turn the call back over to Willie Chiang, President, CEO and Chairman, for closing remarks. Willie Chiang: Michelle, thanks. We appreciate everyone’s support and attention, and we look forward to seeing you on the roads. Stay safe. Thank you very much. Operator: Thank you for your participation. You may now disconnect. Everyone, have a great day.
Operator: Good day, everyone. And welcome to the Global Partners LP First Quarter 2026 Financial Results Conference Call. Today's call is being recorded. With us from Global Partners LP are President and Chief Executive Officer, Eric S. Slifka; Chief Financial Officer, Gregory B. Hanson; Chief Operating Officer, Mark Romaine; and Chief Legal Officer, Kristen Seabrook. At this time, I would like to turn the call over to Kristen Seabrook for opening remarks. Please go ahead. Kristen Seabrook: Good morning, everyone, and thank you for joining us. Today's call will include forward-looking statements within the meaning of federal securities laws, including projections and expectations concerning the future financial and operational performance of Global Partners LP. No assurances can be given that these projections will be attained or that these expectations will be met. Our assumptions and future performance are subject to a wide range of business risks, uncertainties, and factors, including supply and demand, that could cause actual results to differ materially, as described in our filings with the Securities and Exchange Commission. Global Partners LP undertakes no obligation to revise or update any forward-looking statements. Eric S. Slifka: Reflect the conditions in front of us. That flexibility remains a core strength of Global Partners LP. Whether markets are volatile or more stable, our focus is the same: disciplined execution, prudent capital allocation, and maintaining a strong balance sheet to support long-term value creation for our unitholders. Turning briefly to our distribution, last month our board approved a quarterly cash distribution of $76.50 per common unit, or $3.06 on an annualized basis. This marks our eighteenth consecutive quarterly increase, supported by healthy coverage and the cash-generating capacity of our business. The distribution will be paid on May 15, 2026 to unitholders of record as of May 11, 2026. I will now turn the call over to Gregory B. Hanson for the financial review. Gregory B. Hanson: Thank you, Eric, and good morning, everyone. As we review the numbers, unless otherwise noted, all comparisons will be with 2025. Income in 2026 was $70.1 million versus $18.7 million. EBITDA was $142.1 million in the first quarter versus $91.9 million in 2025. Adjusted EBITDA was $140.4 million in 2026 compared with $91.3 million. Distributable cash flow was $96.4 million in 2026 compared with $45.7 million, and adjusted DCF was $96.8 million versus $46.5 million. We maintained healthy distribution coverage at quarter-end of 1.96x, or 1.9x after including distributions to our preferred unitholders. Moving to our segment details, GDSO segment product margin increased $11.4 million in the quarter to $199.3 million. Product margin from gasoline distribution increased $10.9 million to $136.7 million, primarily reflecting higher fuel margins year-over-year. On a cents-per-gallon basis, fuel margin increased by 6¢ to 41¢ in Q1 2026 from 35¢ in Q1 2025. Sundries and rental income increased $0.5 million to $62.6 million in 2026. Station operations product margin includes convenience store and prepared food sales. At quarter-end, our GDSO portfolio of fueling stations and C-stores consisted of 1,513 sites, exclusive of the 68 sites under our Spring Partners retail joint venture. Turning to our wholesale segment, first-quarter product margin increased $60.5 million to $154.1 million. Product margin from gasoline and gasoline blendstocks increased $44.1 million to $101.2 million, and product margin from distillates and other oils increased $16.4 million to $52.9 million. Increases in our wholesale segment product margin are primarily due to more favorable market conditions in gasoline and residual oil. We are pleased with the performance of the wholesale segment, which delivered strong results amid heightened commodity price volatility during the quarter. We do expect the current steep backwardation in the forward product pricing curve to increase the cost of carrying our hedged inventory in future periods, and we remain focused on disciplined inventory management. In our commercial segment, product margin increased $4.6 million to $11.7 million, primarily due to more favorable market conditions. Operating expenses increased $2.5 million in the first quarter to $129.2 million, reflecting expenses associated with our GDSO and terminal operations. SG&A increased $25.6 million to $99.3 million, primarily reflecting higher performance-based incentive compensation expense. We expect SG&A expenses to normalize in the remaining 2026. Interest expense was $35.5 million compared with $36.0 million in the same period of 2025. CapEx in the first quarter was $31.9 million, consisting of maintenance CapEx of $10.0 million and expansion CapEx of $21.9 million, primarily related to investments in our gasoline station business. For full-year 2026, we expect maintenance CapEx in the range of $60 million to $70 million and expansion CapEx, excluding acquisitions, in the range of $75 million to $85 million. Our current CapEx estimates depend in part on the timing of project completions, the availability of equipment and labor, weather, and any unforeseen events or opportunities that require additional maintenance or investment. Our balance sheet remains strong at March 31, 2026, with leverage, as defined in our credit agreement as funded debt to EBITDA, at 3.1x and ample excess capacity in our credit facilities. As of March 31, 2026, we had $408.3 million of borrowings outstanding on our working capital revolver and $103.5 million outstanding on our revolving credit facility. On our IR calendar this month, we will be participating in the Twenty-Third Annual Energy and Infrastructure CEO and Investor Conference. For those of you participating, we look forward to seeing you. I will now turn the call back to Eric for his closing comments. Eric S. Slifka: Thank you, Greg. We delivered an exceptional quarter, and the entire Global Partners LP team executed at a high level across all segments. We also recognize that a portion of these results reflect market conditions shaped by the ongoing conflict, which continues to drive volatility across global energy markets. We are managing the remainder of the year with the same discipline that drove this quarter while planning for a range of scenarios as the conflict evolves. We will now open the call for questions. Operator, please open the line for Q&A. Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Selman Akyol with Stifel. Please proceed with your question. Selman Akyol: Thank you. First of all, congratulations on very nice results. That was very impressive. Let me ask you this: are you seeing any changes in customer patterns? Any signs of demand destruction at all given the higher fuel prices yet? Eric S. Slifka: I mean nothing noticeable in the quarter in March. You know, obviously, one thing we track is average fill-ups and average gallons per fill-up, and we have seen some decline in that through March and April. But overall, the consumer continues to be pretty healthy. I do think, obviously, that higher gasoline prices will impact the share of wallet going forward. So it is something we continue to lean in on—promotions and loyalty in our C-store—to drive customers into our stores. But, depending on how long this prolonged period goes on, it could have a further impact on potential demand at the pump. Selman Akyol: Got it. And then, nice uptick year-over-year in your fuel gallon CPG. How is that going given the volatility? I am really thinking, in March you had one month of the volatility, but you have seen certainly more of that as we have gone into the second quarter. I am just wondering how CPG is holding up. Eric S. Slifka: Yeah, Selman, it is Eric. Margins continue to show the same historic resiliency that they have, and if there is a decline in volume, historically margins have expanded. So I think that is going to hold true, and I think that is what we are seeing now. Generally, too, there is a lot of price volatility in the market, and some days product prices are moving 15, 20, 30¢. To me, that volatility represents an opportunity. The amount of price changes that we are making—somebody quoted me internally here—we have made the same amount of price changes already that we typically make in a year. Selman Akyol: Wow. That is in the tens of thousands. That is quite a stat. Thank you for sharing that. So, in this environment, how do you think about acquisitions? Are they easier, or would you rather pause and see how things shake out? Is there anything that is changing there? Are you seeing sellers’ expectations come in at all? Eric S. Slifka: We continue to look at everything that is out there. I would say the landscape is as competitive as it has ever been, but we are trying to be involved in every process that is out there, and it will be interesting to see what gets done or what gets sold. It is interesting—it is based more on cash flow, but multiples are still strong. It is competitive. Selman Akyol: Gotcha. You referenced the higher carrying cost for inventories in wholesale, but in general, are there any thoughts of carrying lower inventories given the carrying costs, or is that just the cost of doing business, and since you are not having a problem getting any product you will keep inventories robust? Mark Romaine: Yeah, hey, Selman, good morning. That is actually something that we have done historically. It is part of our playbook, and it highlights the value of the storage capacity that we have, as we can tailor our inventory levels based on market conditions. As you might expect, when markets get extremely backwardated, we are able to reduce inventories down significantly during that run-up, capture additional margin, and then mitigate some of the risk associated with holding inventory. So we are at a point now where we have drawn down inventories in this environment and will continue to manage them tightly. On the flip side, if a market is in contango, obviously we are building inventory. That is a key risk mitigation lever that we are able to pull and really tailor to the market conditions of the current environment. Selman Akyol: Got it. Thank you for that. Let me just ask you one macro question. We are getting ready to go into the driving season—summer peak demand. The U.S. has been selling down, and our exports are pretty robust. Do you think there is supply tightness out there as we get into the summer? Any thoughts on what that is going to look like this summer with everything going on? Mark Romaine: Yeah, it is Mark again, Selman. I think, if you look at inventories—and we just had this conversation yesterday—they are pretty low. We have a lot of exports leaving the Gulf, maybe some leaving New York. Imports for gasoline into the PADD 1 have been very light. The U.S. has been drawing inventories pretty aggressively over the last, call it, six to eight weeks. So we are at a pretty low level heading into a key driving season. Some of it will depend on how long the current situation goes on, but even if the conflict is resolved tomorrow, there has been a lot of damage done worldwide to production, and inventories are at a pretty low level across the board. It will be interesting to see how that plays out. I do not think an end to the war is going to solve the problem immediately. The system is going to take time to normalize—worldwide—but we are specifically focused on PADD 1 and to a lesser degree PADD 3. I think you are going to have some lasting impact, and we will see how it plays out. There is some underlying fundamental strength in the market that I think we are going to see play out through at least the end of the year. Eric S. Slifka: Selman, it is Eric. I want to add one other thing. It will be interesting to see how countries position themselves vis-à-vis inventory and storage for moments like this, and whether countries look at storing crude or products in caverns or throughout the country to make sure that they have product on hand, and how that plays out into price. Even if everything came back, it is not going to be the same as it was before; it will be different. If countries decide they want to build secure inventory that they can use in a market like this, that is going to put pressure on supply because it will show up as increased demand. Selman Akyol: We have already seen comments coming out of Australia for that. Alright. Well, guys, again, very nice quarter, and I will leave it there. Thank you for your time. Operator: Thank you. I will now turn the call back to Eric S. Slifka for closing comments. Eric S. Slifka: Thank you for joining us this morning. We look forward to keeping you updated on our progress. Thanks, everyone. Operator: Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to Innospec Inc.'s first quarter 2026 earnings release and conference call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, please press star-1-1 on your telephone keypad. You will not hear an automated message advising your hand is raised. To withdraw a question, please press star-1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, David Jones. Please go ahead, sir. David Jones: Thank you. Welcome to Innospec Inc.'s first quarter earnings call. I am David Jones, Innospec Inc.'s General Counsel and Chief Compliance Officer. The earnings release for the quarter and this presentation are posted on the company's website. During this call, we will make forward-looking statements, which are predictions about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ from the anticipated results implied by such forward-looking statements. These risks and uncertainties are detailed in Innospec Inc.'s 10-Ks, 10-Qs, and other filings with the SEC. Please see the SEC site and Innospec Inc.'s site for these and related documents. In today's presentation, we have also included non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measure is contained in the earnings release. Non-GAAP financial measures should not be considered as a substitute for, or superior to, those prepared in accordance with GAAP. They are included to aid investor understanding of the company's performance in addition to the impact that these items and events had on financial results. With me today are Patrick Williams, President and Chief Executive Officer, and Ian Cleminson, Executive Vice President and Chief Financial Officer. With that, I will turn it over to you, Patrick. Patrick Williams: Thank you, David, and welcome, everyone, to Innospec Inc.'s first quarter 2026 conference call. Before discussing the results, I want to recognize the focus and determination being demonstrated by our employees around the world, and especially those in the Middle East. Volatile environments like this bring a unique set of challenges and opportunities. We are seeing increased chances to deliver innovative solutions and security of supply to all our customers, and we continue to execute on these initiatives. This was a mixed quarter for Innospec Inc., with continued strong results in Fuel Specialties partially offsetting the impacts of the January 2026 U.S. winter storm, which affected Performance Chemicals and Oilfield Services. Performance Chemicals sales were broadly flat with last year, but margins and operating income were significantly impacted by the shutdown of our North Carolina plants due to the U.S. winter storm. We are continuing to prioritize plant repairs in order to meet customer requirements. Additionally, and without slowing the pace of these critical plant repairs, we have elected to pull forward multiple plant optimization projects which will drive long-term benefits. In parallel, we continue to execute on a range of top-line and margin opportunities identified in the business which we expect to drive sequential growth in the second quarter. Fuel Specialties had another strong quarter with sales growth and margins that remained at the upper end of our target range. The business has continued to deliver consistent strong results through a range of economic cycles. With a diverse pipeline and a number of non-fuel opportunities across all regions, we expect a continued strong performance in this business. Oilfield Services operating income and margins improved on the prior year, but sequential results were impacted by the U.S. winter storm. While the Middle East conflict may delay some activity in the region, it is also creating new opportunities that we are aggressively pursuing. In parallel, we remain focused on driving incremental growth from our recent DRA expansion and other opportunities in our Completions and Production segments. We are cautiously optimistic that this combination will deliver sequential operating improvement in the second quarter and leave us well-positioned for further improvement in 2026. Now I will turn the call over to Ian Cleminson, who will review our financial results in more detail. Then I will return with some concluding comments. After that, Ian and I will take your questions. Ian? Ian Cleminson: Thanks, Patrick. Turning to slide seven in the presentation, the company's total revenues for the first quarter were 453.2 million dollars, a 3% increase from 440.8 million dollars a year ago. Overall gross margin decreased by 1.1 percentage points from last year to 27.3%. Adjusted EBITDA for the quarter was 43.7 million dollars compared to 54 million dollars last year. Net income attributable to Innospec Inc. for the quarter was 30.4 million dollars compared to 32.8 million dollars a year ago. Our GAAP earnings per share were 1.22 dollars, including special items, the net effect of which increased our first quarter earnings by 0.17 dollars per share. A year ago, we reported GAAP earnings per share of 1.31 dollars, which included a negative impact from special items of 0.11 dollars per share. Excluding special items in both years, our adjusted EPS for the quarter was 1.05 dollars compared to 1.42 dollars a year ago. Turning to slide eight. Revenues in Performance Chemicals for the first quarter were 169.4 million dollars, up 1% from last year's 168.4 million dollars. Volume reductions of 9% were offset by a positive price/mix of 1% and a favorable currency impact of 9%. Gross margins of 16.8% decreased 4.2 percentage points compared to 21% in the same quarter in 2025 due to the impact of the U.S. winter storm at the start of the quarter. Operating income of 10.7 million dollars decreased 46% from 19.8 million dollars last year. Moving on to slide nine. Revenues in Fuel Specialties for the first quarter were 181.6 million dollars, up 7% from the 170.3 million dollars reported a year ago. A 10% increase in volumes and a favorable currency impact of 6% were offset by a negative price/mix of 9%. Fuel Specialties gross margins of 35.4% were broadly flat with the same quarter last year. Operating income of 37.8 million dollars was up 2% from 36.9 million dollars a year ago. Moving on to slide 10. Revenues in Oilfield Services for the quarter were 102.2 million dollars, flat with the first quarter last year. Gross margins of 30.1% increased 1.7 percentage points from last year's 28.4% on an improved sales mix. Operating income of 5.6 million dollars increased 37% from 4.1 million dollars a year ago. Turning to slide 11. Corporate costs for the quarter were 22.3 million dollars compared with 17.7 million dollars a year ago, driven by higher legacy costs of closed operations, higher legal and compliance expenses, and additional amortization for our ERP system. The effective tax rate for the quarter was 22.8% compared to 25.7% a year ago. Moving on to slide 12. Cash generated from operating activities was 17.6 million dollars before capital expenditures of 8.6 million dollars. In the first quarter, we bought back 90 thousand shares at a cost of 6.2 million dollars. As of March 31, Innospec Inc. had 289.1 million dollars in cash and cash equivalents and no debt. I will now turn it back over to Patrick for some final comments. Patrick Williams: Thanks, Ian. With our diversified global supply chain and manufacturing footprint, we believe that we are well-positioned to manage the direct impacts of near-term geopolitical disruptions. We are monitoring closely the potential for further raw material inflation and supply disruption as the Middle East conflict extends. During this period, we remain focused on our continued commitment to security of supply and innovative solutions for our customers. We will continue to implement improvements across all our businesses that will position us for growth and margin expansion as market conditions recover. Our short-term expectation is for sequential operating income growth in Performance Chemicals and Oilfield Services and steady performance in Fuel Specialties. Our strong debt-free balance sheet continues to allow for significant flexibility in the current environment to preserve further dividend growth, buybacks, organic investment, and M&A. Cash generation was again positive this quarter, and our net cash position held at over 289 million dollars after repurchasing 90 thousand shares at a cost of 6.2 million dollars. In addition, this quarter, our Board approved a further 10% increase in our semiannual dividend to 0.92 dollars per share, which together with the newly announced 75 million dollars buyback further enhances shareholder returns. We will now open the call for questions. Operator: Thank you. To withdraw a question, please press star-1-1 again. We will now take our first question, which comes from the line of Mike Harrison from Seaport Research Partners. Your line is open. Please ask your question. Michael Harrison: Good morning, and thanks for taking my questions. I wanted to start with the Performance Chemicals business. How much of the 9% volume decline was related to the weather or outage impact, and what are you seeing in terms of underlying market dynamics given consumer sentiment remains a little weak? Should we see volumes start to recover in the second quarter, or is that more of a second-half dynamic? And as a follow-up, can you walk us through the repairs and upgrades or optimizations that you are making at the High Point and Salisbury plants in North Carolina, what is happening at each plant, the timeline to get fully back up and running, and the potential benefits of the optimizations? Patrick Williams: Yes, Michael, I will go in reverse. You should start seeing improvement in the second half of the year. It is not orders that are the issue—our order pattern is very strong right now. The issue is the plants and the effect from the winter storm that we had late in the season. It is about getting product manufactured and out the door. You will probably see a similar, maybe a little better, quarter in Q2 with a significantly better increase in Q3. On the repairs and upgrades, priority number one was to get the plants up and running so we could meet most of the orders we have in place today, and we have achieved the majority of that. Along the way, we decided to start optimizing to improve yields, efficiencies, and automation. But the critical part was getting product to customers. As we move through that stage, we are moving into the automation and other optimization projects. It is a process and takes time—you have frozen pipes, replacements of pipes and boilers, and timelines on everything. When plants go down, as you fix one thing, another thing can pop up. It is a little frustrating, but we are seeing light at the end of the tunnel. The order pattern remains extremely strong. Priority number two is making sure we do not have these problems again, and then improving efficiency, yield, and quality, which should come in the latter part of the year. Michael Harrison: Thank you. And then on the Middle East conflict and raw materials, I am a bit concerned about Fuel Specialties given the pass-through mechanism and lag. What are you anticipating in terms of margin pressure, and with pricing negative in the quarter, should we assume price/mix turns positive in the second quarter or not until the second half? Ian Cleminson: Fuel Specialties has operated through many different economic cycles. We have seen serious spikes in raw material costs and crude derivatives. You are correct that we have a pass-through mechanism for most of our business, and it does have a time lag. Our expectation is that we will see some gross margin compression in the second quarter; that is not unexpected. Depending on how long this continues, we may be chasing some of those price increases for a quarter or two. If prices stabilize or drop, we will see the benefits in due course. Demand is really good, and the business is operating at the top end of where we expect it to be. With the seasonal impact in Q2 and some timing on gross margins, we expect operating income to be a little lighter than Q1, potentially a little tighter as well. Patrick Williams: We have managed through these cycles extremely well. The key watch item is demand destruction from high crude, jet, diesel, and gasoline prices. We are not seeing it yet. Typically, you might see slight demand destruction, but the margin profile stays steady. This business tends to march along, and we remain confident Fuel Specialties will continue on this path. Michael Harrison: Understood. Lastly, tying it together: you mentioned a sequential decline in Fuel Specialties and sequential growth in Performance Chemicals and Oilfield Services. Net-net, is Q2 earnings similar to Q1 or a little lower? Ian Cleminson: You called it right. We are expecting a small drop-off in fuels compared to Q1, seasonally driven, a small sequential increase in Performance Chemicals, and the same in Oilfield. Net-net, EPS should be very similar to Q1, maybe a penny or two higher. We do need to see the impacts of the war coming through, but that is how we see it today. Patrick Williams: On Oilfield, where there is chaos there are opportunities. The DRA expansion is creating a lot of opportunities, which should help Oilfield in Q2 and Q3. With higher crude prices, and even if prices come down, we feel better positioned than in the past. Expect a little improvement in Q2 and bigger improvements in Q3 and Q4. Operator: Thank you. We will take our next question from John Tanwanteng from C Securities. Your line is open. Jonathan Tanwanteng: Good morning, and thank you for taking my questions. You mentioned more opportunities in Oilfield even with delays and expansions in the Middle East. Are those net positive opportunities for the full year versus what you thought two or three months ago? Patrick Williams: It is definitely net positive. We are seeing positions for our product lines with specific customers in the Middle East and potentially in Argentina, Venezuela, and Mexico where there is heavy crude. We think these are potentially long-term opportunities. There is opportunity in chaos, and our technology has provided us a lot of it. For example, we are looking at helping the East-West pipeline with DRA. Once the straits open up, you should see fracking pick up again, which will help our business. We are also seeing bids tied to heavy crude. We believe we are positioned properly with great technology, and now it is about execution. That is why we expect sequential improvement over Q1 in Oilfield throughout the rest of the year. Jonathan Tanwanteng: Are you seeing any DRA opportunities pushed out of this year due to delays and the conflict? And any update on your prior large Latin American client—do higher prices spur action sooner? Patrick Williams: On DRA, we are seeing more opportunities. The plant expansion we put together is pretty much going to be maxed out in Q2 and Q4. On Latin America, specifically Mexico, there is activity, and with their heavy crude and Gulf Coast refinery needs, activity is increasing. Until Pemex decides how to fix paying vendors, there will be a lag, but we are seeing increased activity. It will never be the magnitude we had before, but we hope to see something coming out of there. We also see opportunities in Venezuela that we will pursue. Jonathan Tanwanteng: Lastly on capital allocation: you bought back a lot of shares and authorized a new 75 million dollars buyback. Previously you talked about increased M&A opportunities this year. Has that changed, and can you do both with your cash flow and cash balance? Patrick Williams: We can do both. We tapped the brakes a little until we get Performance Chemicals righted, and we are starting to see light at the end of that tunnel. We expect a similar quarter in Q2 as in Q1, then the bigger improvements we anticipated in Q3 and Q4. Once we see that turnaround in actual numbers, you will see us aggressively going after M&A. We have not stopped looking; we just have not found the right thing yet. Ideally, the right deal shows up in Q3 when we see those numbers improve. Jonathan Tanwanteng: Is a deal dependent on the facility being fixed, or is that just a target? Patrick Williams: It is a target. Ian Cleminson: You are welcome. Operator: Thank you. We will take our next question from David Silva from Freedom Capital Markets. Your line is open. David Silva: Good morning, and thank you. I would like to drill down on Fuel Specialties. According to my records, both revenues and especially operating income were at or near all-time highs, and three of the last four quarters have been exceptionally strong historically. With 10% volume growth this quarter and the overall trend, it looks like share gains or new products may be making an impact. Can you comment on what is moving more positively than historical trends would indicate? Patrick Williams: Good question. Some of it has been market improvements, volume gains, and price/mix. We have also started to grow business in adjacent markets outside of fuels—polyethylene, polypropylene, and others—so we have moved into other segments that are offshoots of Fuel Specialties, with nice margins. The team has a solid strategy and is executing well. As you know, that business is extremely steady; I know it well, having run it before becoming CEO. We have a good product pipeline, and that is why we feel confident we can continue to grow or sustain performance this year and beyond. It is a little bit of everything, which is what you want to see—not one factor driving all of the positive results. Remember there is usually a seasonal drop-off in the second quarter, but the sequential improvement has been very impressive. David Silva: As a follow-up, diesel markets have been rattled on cost and availability, and some airlines are having trouble operating in the current environment. Diesel and jet are important to Fuel Specialties—what has been your strategy to continue performing well despite these disruptions? Patrick Williams: Diversification of the portfolio. Within specialties, we treat marine bunker, jet, gasoline, and diesel, and we have expanded into adjacent markets outside of core fuels and heavy fuels. Creativity in the organization and diversification of the portfolio help us sustain performance. We are watching demand destruction closely—it has not hit us yet. The consumer remains strong and usage is strong, but we are monitoring. Diversification has always helped us overcome chaotic markets. David Silva: One bigger picture question: disruptions in the Persian Gulf and elsewhere seem to create greater opportunities, especially in Oilfield. From a resourcing standpoint, what do you need to do to take advantage of greater interest in U.S. petroleum and product exports? Do you have spare capacity now, or do you need to increase investments in capacity or talent? Patrick Williams: We are properly positioned. Security of supply is top of mind for everyone, and we are well-positioned there. In chaotic times like this, innovation is on the forefront—developing technologies that are sustainable long term even if raw materials or sources shift. Those are things we are consistently bringing to market. When market dynamics change, innovation and security of supply are critical, and that will be our focus now and for sustainability when things return to normal, if and when they do. Operator: Thank you. There are no further questions for today. I would now like to hand the conference back to Patrick Williams for any closing remarks. Patrick Williams: Thank you all for joining us today, and thanks to all our shareholders, customers, and Innospec Inc. employees for your interest and support. If you have any further questions about Innospec Inc. or matters discussed today, please give us a call. We look forward to meeting with you again to discuss the second quarter 2026 results in August. Have a great day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Have a nice day.
Operator: Good morning, and welcome to the PennantPark Floating Rate Capital Ltd.'s Second Fiscal Quarter 2026 Earnings Conference Call. Today's conference is being recorded. At this time, all participants have been placed in a listen-only mode. The call will be open for a question-and-answer session following the speakers' remarks. Simply press star 1 on your telephone keypad. If you would like to withdraw your question, press star 2 on your telephone keypad. It is now my pleasure to turn the call over to Art Penn, chairman and chief executive officer of PennantPark Floating Rate Capital Ltd. Mr. Penn, you may begin your conference. Art Penn: Thank you, and good morning, everyone. Welcome to PennantPark Floating Rate Capital Ltd.'s second fiscal quarter 2026 earnings conference call. I am joined today by Jose Briones, Senior Partner at PennantPark. Richard Allorto, our CFO, was unable to be with us today due to a prior commitment. Jose, please start off by disclosing some general conference call information and include a discussion about forward-looking statements. Jose Briones: Thank you, Art. I would like to remind everyone that today's call is being recorded and is the property of PennantPark Floating Rate Capital Ltd. Any unauthorized broadcast of this call in any form is strictly prohibited. An audio replay of the call will be available on our website. I would also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Our remarks today may include forward-looking statements and projections. Please refer to our most recent SEC filings for important factors that could cause actual results to differ materially from these projections. We do not undertake to update our forward-looking statements unless required by law. To obtain copies of the latest SEC filings, please visit our website, pennantpark.com, or call us at (212) 905-1000. At this time, I would like to turn the call back to our chairman and chief executive officer, Art Penn. Art Penn: Thanks, Jose. I will begin with an overview of our second quarter results, including our dividend adjustment and an outlook for net investment income. I will then discuss the current market environment and how we believe we are positioned going forward. Jose will follow up with a detailed review of our financial results after which we will open up the call for questions. We are pleased with the continued strong performance and quality of our portfolio in what remains a challenging market environment. The risk-reward profile of the core middle market remains meaningfully more attractive than that of the upper market. NAV was flat quarter-over-quarter. Median portfolio company leverage remains moderate, at 4.6x. Last twelve months, PIK interest is only 2.2% of total interest and nonaccruals are less than 1% of the portfolio. We do not have material software exposure. The substantial growth of the PSSL 2 JV this past quarter provides a solid base and positions us for growth in NII over time as the JV ramps. Let me now walk through our quarterly results. For the quarter ended March 31, core net investment income was $0.27 per share. During the quarter, we continued to scale our new joint venture PSSL 2, investing $148 million in new and existing investments. At quarter end, the portfolio totaled $340 million. We are encouraged by the pace of deployment and remain focused on methodically scaling PSSL 2 to over $1 billion of assets consistent with our existing joint venture. Based upon the current market environment, we expect this ramp to occur over the next 12 to 18 months while maintaining our disciplined underwriting standards. In light of the current market dynamics, in consultation with our board, we are updating our dividend framework to better align with net investment income. Beginning with the July dividend, we will set a base monthly dividend at $0.08 per share, a level we believe is well supported by current earnings. In addition, we will introduce a variable supplemental dividend equal to 50% of the excess NII above the base dividend. The supplement will be declared and paid monthly along with the base dividend. Let me now turn to the broader market environment. M&A activity has increased over the last six to nine months. Although overall conditions remain uneven, private equity sponsors remain active, and we are seeing a growing pipeline of attractive opportunities across both new originations and add-on investments. However, activity levels remain below the unusually strong levels observed in 2024 as the market transitions toward a more normalized backdrop. We expect increased transaction activity to drive repayments across the portfolio, including opportunities to monetize equity co-investments and redeploy capital into income-generating investments. Notably, we expect a meaningful realization from our equity co-investment in Echelon this quarter. Echelon is a leading defense technology company sponsored by Sagewind Capital, our long-term sponsor relationship. Echelon announced that it has agreed to be acquired by Shield AI, another cutting-edge defense technology company. Upon closing, we expect our $3.2 million equity co-investment to generate approximately $47 million in total proceeds. Proceeds will consist of $40 million of cash and $7 million of value in Shield AI stock. This represents nearly a 15x multiple on invested capital and demonstrates the value of our equity co-investment program. Given the current geopolitical environment and the Echelon news, it is important to highlight approximately 20% of our portfolio is exposed to government services and defense. In the core middle market, pricing for high-quality first lien term loans remains attractive, typically ranging from SOFR plus 500 to 550 basis points with leverage of approximately 4.5x EBITDA. Importantly, these structures continue to include meaningful covenant protections in contrast to the covenant-lite structures prevalent in the upper middle market. We believe that the current environment favors lenders with strong private equity sponsor relationships and disciplined underwriting, areas where we have a clear competitive advantage. During the quarter, we invested $295 million at a weighted average yield of 9.3%, including $117 million invested in six new platform portfolio companies, with a median debt-to-EBITDA ratio of 3.0x, interest coverage of 3.4x, and a loan-to-value of only 44%. Our portfolio remains conservatively positioned. PIK income represents just 2.5% of total interest income, among the lowest levels in the industry. Median leverage was 4.6x. Median interest coverage was 2.0x, and median loan-to-value was 44%. We ended the quarter with three nonaccrual investments, representing just 0.8% of the portfolio at cost and 0.5% at market value. These results reflect the rigor of our underwriting process and the discipline of our investment approach. Turning to software exposure, which has been an area of recent market focus, our exposure remains limited at approximately 4.3% of the portfolio and is structured consistently with our core middle market strategy. These investments are primarily cash-pay, covenant-protected loans with moderate leverage and shorter durations. Importantly, they are concentrated in mission-critical enterprise software serving regulated industries such as defense, healthcare, and financial institutions. We believe this represents a meaningful point of differentiation relative to our peers. We continue to believe that our focus on the core middle market provides us with attractive investment opportunities where we provide important strategic capital to our borrowers. Core middle market companies, those typically with $10 million to $50 million of EBITDA, operate below the threshold of the broadly syndicated loan and high-yield markets. In the core middle market, because we are an important strategic lending partner, the process and package of terms we receive is attractive. We have many weeks to do our diligence. We thoughtfully structure transactions with sensible leverage, meaningful covenants, substantial equity cushions to protect our capital, attractive spreads, and equity co-investment. Additionally, from a monitoring perspective, we receive monthly financial statements to help us stay informed on the performance of our portfolio companies. Regarding covenant protections, while the upper middle market has seen significant erosion, our originated first lien loans consistently include meaningful covenants that safeguard our capital. Our credit quality since our inception over 14 years ago has been excellent. PennantPark Floating Rate Capital Ltd. has invested $9 billion in 551 companies and we have experienced only 27 nonaccruals. Since inception, our loss ratio on invested capital is only 12 basis points annually. As a provider of strategic capital that fuels the growth of our portfolio companies, in many cases we participate in the upside of the company by making an equity co-investment. Our returns on these equity co-investments have been excellent over time. Overall for our platform from inception through March 31, we have invested over $618 million in equity, and co-investments have generated an IRR of 25% and a multiple on invested capital of 2.0x. Looking ahead, our experienced team and broad origination platform position us well to generate attractive deal flow. Our mission remains consistent: to deliver a stable and well-covered dividend while preserving capital. Everything we do is aligned to that objective. We continue to focus on investing in high-quality middle market companies with strong free cash flow generation. We capture that value through first lien senior secured loans, and we pay out those contractual cash flows in the form of dividends to our shareholders. With that overview, I will turn it over to Jose for a more detailed review of our financial results. Jose Briones: Thank you, Art. For the quarter ended March 31, GAAP net investment income was $0.26 per share, and core net investment income was $0.27 per share. Core net investment income includes the add-back of $1.1 million of debt issuance costs related to the refinancing of our securitization due 2038. Our operating expenses for the quarter were as follows. Interest expense on the debt was $24.1 million. Base management and performance-based incentive fees were $12.8 million. General and administrative expenses were $2.1 million. Credit facility amendment and debt issuance costs were $1.1 million. Provision for taxes was less than $100 thousand. For the quarter ended March 31, net realized and unrealized change of investments, including the provision for taxes, was a gain of $3 million. As of March 31, NAV was $10.47 per share, essentially flat from $10.49 per share last quarter. As of March 31, our debt-to-equity ratio was 1.6x, and our capital structure is diversified across multiple funding sources, including both secured and unsecured debt. Subsequent to quarter end, we paid down our revolving credit facility and reduced our debt-to-equity ratio to 1.5x, which is within the target range of 1.4x to 1.6x. As of March 31, our key portfolio statistics were as follows. The portfolio remains well diversified, comprising 162 companies across 51 industries. The weighted average yield on our debt investments was 9.8%, and approximately 99% of our debt portfolio is floating rate. LTM PIK income equaled 2.2% of total interest income. The portfolio is comprised of 87% first lien senior secured debt, 1% in second lien and subordinated debt, 3% in equity of PSSL 1 and PSSL 2, and 9% in equity co-investments. Debt-to-EBITDA on the portfolio is 4.6x and interest coverage was 2.0x. With that, I will turn the call back to Art for closing remarks. Art Penn: Thanks, Jose. In conclusion, I would like to thank our exceptional team for their continued dedication and our shareholders for their trust and partnership. We remain focused on delivering durable earnings, preserving capital, and creating long-term value for all stakeholders. That concludes our remarks. We will now open the call for questions. Operator: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We will take our first question from Brian McKenna of Citizens. Brian McKenna: Thanks. Good morning, everyone. NAV per share was roughly flat in the quarter. That is a pretty notable standout here within the group for the first quarter. What is driving the resiliency here? You do have the fairly sizable realization event, I believe, coming in the next quarter or so, so I am assuming that drove some incremental gains across the portfolio. But anything else to note across the rest of the portfolio? Art Penn: Yeah. Thanks, Brian, and good morning. Yes, Echelon is a big piece of the equation there, really showing the value of equity co-invest. We also have a few other equity co-invests that are percolating along nicely, and you will see those in the SOI. We have one called Guild Garage, which is an equity co-invest that has already been exited, and we have some others that are certainly not the size of Echelon but are percolating along and provide us some nice singles and doubles. Just to zoom out, that is really part of the reason we do equity co-invest. Many of our peers do it; some of our peers do not. It is nice to have something in the portfolio that can give you some lift that can offset the inevitable nonaccruals that you are going to have in a broadly diversified loan portfolio. The program in this quarter is certainly meeting its mission and providing a stable NAV. Brian McKenna: Got it. That is helpful. Thanks, Art. And then when you look at your pipeline of new originations today, where are you leaning in? Is it a lot of the same sectors? I know you have been active in defense and government services, but what is the mix of the pipeline there? And then how do spreads compare on these transactions versus spreads tied to the prepayments that have come in over the last quarter or two? Just trying to gauge where the spreads are coming in today versus the recent prepays. Art Penn: Yeah. Jose, do you want to answer that one? Jose Briones: Sure. Good morning. With regards to areas of opportunity and what we are seeing, defense and government services is a big part of our investment philosophy as well as healthcare and some business services. We are quite active with our private equity sponsors looking at those type deals in these industries, and you saw the benefit of our exposure to defense with Echelon. With regards to spreads, by and large in our market we are in that 500 to 550 over SOFR, and our view is that it is pretty consistent over the last couple of quarters. Art Penn: I will also add on the industry focus. Obviously, government services and defense are a big one. We also have substantial exposure to healthcare, which we think can be a resilient area of the economy. It is certainly a big part of GDP. Some of our peers have stumbled a little bit in healthcare over time. Thankfully for us, by and large, we have done very well with it. We keep leverage low. We do not get out over our skis. We keep leverage reasonable. I think where you have seen stumbles in healthcare, it is higher leverage situations, and when you have higher leverage, you just do not have the cushion to be able to withstand bumps in the road. We are pleased with healthcare. We also have a big business services book. Consumer services are a big area we have been doing quite a bit in, kind of services around the home. That has been an active area. Those are some of the areas where we focus. Brian McKenna: Very helpful. Thank you, guys. Operator: And as a reminder, that is star 1 for questions. Art Penn: Okay. We do have an extra question here. Please. Operator: We will go next to Christopher Nolan with Ladenburg Thalmann. Christopher Nolan: Hey, guys. Apologies if I missed part of the call. Art, on your comments earlier on the dividend adjustment, should we look at that as a proxy for the run-rate direction for PennantPark Floating Rate Capital Ltd.? Art Penn: Yeah. It is a great question. We still believe that as we ramp this joint venture, this JV 2, we can earn over time north of $0.30 a share per quarter. If you were to model it out, Chris, I think you would see that. With what is going on in the M&A market, which was not quite as robust as we would have hoped, we said, let us not force it. Let us take our time in this more muted M&A market. Forcing investment usually does not pay off. So we said, let us take this time to adjust the dividend to be more comfortable. We clearly want to position ourselves as a prudent, stable BDC. BDCs today are a little bit out of favor, and as the market turns—and we hope they will be in favor again—we want to come out of it well positioned as a BDC that easily and comfortably covers its dividend and also has dividend upside. It was an opportunity for us to clear the table a bit, align the dividend comfortably to the NII, which is why we have chosen the $0.24 a quarter—$0.08 a month—plus 50% of the difference between the base and GAAP NII. We will pay that out monthly. We have already stated that for the month of July there will be an $0.08 per share base dividend and a $0.33 supplemental dividend for July, August, and September. We will announce earnings in August, be back here in a few months, see what GAAP NII was, and adjust the supplemental to whatever that was. We thought it was a good time, given what is going on, to reset the table, make sure our investors know that we can comfortably cover it, and not force the issue on ramping the JV in a more muted M&A market. I hope that makes sense. Christopher Nolan: Yeah, it does. And from a broader perspective, you see a lot of deals. For this quarter, at least from my chair, it looks like asset quality for BDCs in general seems to be deteriorating. I am not isolating PennantPark Floating Rate Capital Ltd. or any PennantPark entity, but in general, where do you see us in the cycle for credit for these middle market companies? Art Penn: For us—if you missed the first part of the call—our nonaccruals are under 1%. For us, that is pretty good. We will take below 1% in any environment. Let me comment on the broader picture. Those BDCs that have significant software exposure, by definition, had to mark those loans down. Hopefully, they will perform well and pay off, but by definition there was a mark-to-market, particularly for those with big software exposure. We have very limited software exposure, so we did not get hung up on that. I will highlight that where we do have our minimal nonaccruals—and where everyone in the industry has some nonaccruals—is what I will call the post-2021/2022 deals. Right post-COVID, there was a lot of money flowing around, and there was a perception that the era we were in—for instance, consumer products were doing well and other areas of the at-home economy—would persist long term. Here we are in 2026; there has been a reversion to the mean. Some of those companies that were doing really well in 2022 or 2023 are doing less well. For us, in our below-1% nonaccruals—and you see it elsewhere in the industry—that is where you are seeing some of the nonaccruals hit. Does that answer your question, Chris? Christopher Nolan: Yes, it does. Thanks for the color. Operator: At this time, there are no further questions. I will turn the call back to Art for any closing remarks. Art Penn: Thank you. Thanks, everybody, for being on the call today. We look forward to speaking with you in early August after our next earnings release. In the meantime, wishing all the mothers out there a great Mother's Day. Have a great summer, and we will speak to you in August. Thank you very much. Operator: This concludes today's conference. We thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to StoneX Group Q2 Fiscal Year '26 Earnings 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, Bill Dunaway, Chief Financial Officer. Please go ahead. William Dunaway: Good morning, and welcome to our earnings conference call for our quarter ended March 31, 2026, our second quarter of fiscal 2026. After the market closed yesterday, we issued a press release reporting our results for the quarter, and this press release is available on our website at www.stonex.com as well as the slide presentation, which we will refer to during this call. The presentation and an archive of the webcast will also be available on our website after the call's conclusion. Before getting underway, we are required to advise you and all participants should note that the following discussion should be considered in conjunction with the most recent financial statements and notes thereto as well as the Form 10-Q filed with the SEC. This discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. These forward-looking statements involve known and unknown risks and uncertainties, which are detailed in our filings with the SEC. Although the company believes that its forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions, there can be no assurances that the company's actual results will not differ materially from any results expressed or implied by the company's forward-looking statements. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned that any forward-looking statements are not guarantees of future performance. With that, I'll now turn the call over to Philip Smith, the company's Chief Executive Officer, for a brief introduction. Philip Smith: Thank you, Bill. Good morning, everyone, and thank you for joining our second quarter earnings call for fiscal year 2026. I'm very pleased to report a consecutive record quarter, including record net operating revenues, net income and EPS. This was driven by strong performance across all 4 operating segments, highlighting our depth and breadth of product offering and capabilities within the unique StoneX ecosystem. It also reflects the continued progress of integrating R.J. O'Brien, which remains on track to be substantially completed later this fiscal year with no change to expected synergies and efficiencies, making StoneX the largest nonbank FCM in the United States. Despite the geopolitical uncertainty, nearly all of our products reported a double-digit growth, driven by higher volatility and increased demand for our services. This has included delivering another record quarter for listed derivatives with volumes approaching 100 million contracts and average client equity approaching $14 billion, reflecting the expanded scale of the platform following the RJO acquisition. Record OTC derivatives volume, transacting over 1.5 million contracts, a 68% increase year-on-year. As a reminder, we offer customizable OTC contracts to customers, giving them the benefit of a lookalike option or swap or structured product to more closely address their risk management needs, whilst we benefit from typically higher rate capture when compared to traditional listed derivatives. We reported record securities average day volume of over $12 billion, driven by strong performance across both our equities and fixed income franchises. We will touch on our equities business later today, but we believe we have one of the most diverse equity market ecosystems covering execution, market making, custody and clearing, prime brokerage as well as equity capital markets and research offerings, which we acquired through the Benchmark acquisition last year. Alongside our securities and derivatives records, we also reported record operating revenues derived from physical contracts, which underscores our continuing global relevance in the physical space within the commodities market over consecutive quarters. Turning to payments. We recorded our second highest ADV of $92 million, following the record set last quarter with year-on-year growth of 19%. This performance reflects continued engagement from institutional counterparties using our cross-border payment solution. Lastly, we saw FX CFD volumes grow by 3% year-on-year and the revenue capture of $103 per million, up by 6%, reflecting the higher market volatility seen in this quarter. We continue to set records across our key metrics, but are mindful that the geopolitical landscape remains complex and disciplined risk management will remain at the heart of our business as we continue to service our clients' business needs and activities. As our company scales, processing ever higher volumes, growing our client base and improving our offering to clients, I wanted to spend a couple of moments touching on one of our strategic initiatives regarding the use of AI. We are seeing the deployment of AI evolving from isolated experimental use to now serving as an enterprise force multiplier that enhances operational efficiency across our organization. What started out as a useful development tool for our programmers has now grown into utilizing AI agents across client support, internal operations and platform development. Within payments, we mentioned our X-Pay system in previous calls, which was a proprietary built platform. And within this, we have developed AI-assisted automation to help with the settlement instruction repair, validation and reconciliation designed to reduce manual intervention and improve our straight-through processing rates. Alongside this, we are developing AI chatbots to aid client services with client queries, document translation and compliance-related tasks. We are also applying AI to further improve the productivity of our software developers through the design of support agents for agentic development. This should culminate in one, accelerated development, shortening the time from a proof of concept to a functioning prototype; two, enhanced agility and innovation, automating testing, delivery of iterative improvements, which should lead to innovation; and three, business solutions, ultimately leading to the delivery of working solutions for our commercial teams that are responsible to our clients' needs. One such example of this was the development of the feature, which we estimated would have taken the team without AI, approximately 2 to 4x longer to design, test and launch. This is a sizable step change we hope to replicate across the organization, whilst ensuring we operate within a standardized framework and remain cognizant of local regulations, controls and governance. It is a promising start, and we see significant opportunities to leverage technology further to develop products and services faster, meet our clients' needs and optimize our resources to continue to deliver strong financial performance. With that, I will now turn over to Bill, who will go through this quarter's financial results. William Dunaway: Thank you, Philip. I will begin with the financial overview for the quarter, and we'll be starting with Slide #5 in the slide deck. Just as a reminder that our Board of Directors approved a 3-for-2 split of our common stock, and our shares began to trade on a split-adjusted basis at the market opened on March 23, 2026. So all per share metrics on this call will be on a split-adjusted basis. Second quarter net income came in at a record $174.3 million with diluted earnings per share of $2.07. This represented 143% growth in net income. However, earnings per share grew at 120% rate due to an additional shares outstanding as compared to the prior year, primarily related to the issuance of approximately 3.1 million shares related to the acquisition of R.J. O'Brien during the fourth quarter of fiscal '25. Net income and diluted earnings per share were up 25% and 24%, respectively, versus our immediately preceding first quarter of fiscal '26. This represented a 26.5% return on equity despite a 75% increase in book value over the last 2 years. On a tangible book basis, this equates to a 37% return on tangible equity for the quarter. We had operating revenues of approximately $1.6 billion, up 64% versus the prior year and up 9% versus the immediately preceding quarter. As a reminder, our operating revenues include not only interest and fees earned on our client balances, but also carried interest that is related to our fixed income trading activities. Net operating revenues, which nets off interest expense, including that which is associated with our fixed income trading activities as well as introducing broker commissions and clearing fees were up 70% versus a year ago and 14% versus the immediately preceding quarter. Total fixed compensation and other expenses were up 44% versus the prior year quarter with $56.9 million of this attributable to acquisitions made over the last 12 months, most notably RJO and Benchmark. Also contributing to this increase as compared to the prior year, bad debt expense increased $12.3 million, primarily within our Commercial segment, which despite this, had a second consecutive record quarter. Total fixed compensation and other expenses, excluding bad debt expense, were up 5% or $16.4 million versus the immediately preceding quarter. Fixed compensation and benefits were up 32% versus a year ago and up 13% or $18.7 million versus the immediately preceding quarter. The increase versus the immediately preceding quarter included a $10 million increase in employee benefits, most notably payroll taxes, paid time-off benefit costs and retirement costs, which is typical as we start a new calendar year as well as $8.5 million in higher severance and retention costs, including costs associated to a formal collective redundancy consolidation process for U.K.-based employees following the integration of certain RJO entities as well as severance and retention costs for certain U.S.-based positions relating to ongoing integration activities. These increases were partially offset by higher participation on our employee elected deferred compensation plan, which is part of our restricted stock plan. Professional fees increased $1.9 million versus the prior year, primarily as a result of higher legal fees related to our defense and various legal matters, net of recoveries. They were down $14.4 million versus the immediately preceding quarter, which included significant legal costs incurred related to the BTIG arbitration matter. During the second quarter, we received the final arbitration award from the FINRA arbitration panel adjudicating the claims between us and BTIG. The panel awarded us $1 million in compensatory damages and awarded BTIG $2.9 million in damages. These amounts were offset, and we made a net payment of $1.9 million during the March of 2026. On May 4, 2026, we made an immaterial payment to fully and finally resolve all differences with BTIG and no additional claims between the parties remain. The conclusion of the BTIG litigation, along with the resolution of the option sellers' arbitrations and settlement of the patent case inherited through the acquisition of GAIN Capital marked the end of the large-scale litigation matters that have resulted in heightened legal expenditures over the last 5 years, most notably the last 24 months. Moving on, I had mentioned the acquisitions over the last 12 months and wanted to touch on the contribution of the most notable one, R.J. O'Brien. Excluding amortization of acquired intangibles and a $7.7 million negative mark-to-market adjustment on their investment portfolio, R.J. O'Brien contributed $35 million in pretax net income for the quarter, a nice improvement over the immediately preceding first quarter. Looking at our results from a longer standpoint, our trailing 12 months results show operating revenues up 40%. Net income was a record $462.4 million, up 57% with diluted earnings per share of $5.60 and a return on equity of 19.8% for the trailing 12-month period, above our target of 15%. For the second quarter, our average client equity and FDIC sweep balances were $15.2 billion, up 91% versus the prior year and up 4% versus the immediately preceding quarter. Finally, we ended the second quarter of fiscal '26 with a book value per share of $34.16. Turning to Slide #6 in the earnings deck, which compares quarterly operating revenues by product as well as key operating metrics versus a year ago, we experienced operating revenue growth across all products versus the prior year. Transactional volumes were up across all of our product offerings and spread and rate capture increased in all products with the exception of securities down 3% and payments down 7%. Just touching on a few highlights for the fourth quarter. We saw operating revenues derived from listed derivatives increased $189.4 million or 148% versus the prior year, primarily due to the acquisition of RJO, which contributed $151.7 million as well as strong growth in base metals activities in LME markets, which increased $20.2 million versus the prior year. Listed derivative operating revenues increased 18% versus the immediately preceding quarter. Operating revenues derived from OTC derivatives increased 98% versus the prior year, driven by increased client activity and a widening of spreads, most prevalent in agricultural and energy markets, including renewable fuels, driven by heightened volatility as a result of the onset and continuation of the U.S.-Iran conflict. This also represented an 89% increase versus the immediately preceding quarter. We had strong performance in our physical business with operating revenues derived from physical contracts increasing 162% versus the prior year, primarily driven by $116.1 million increase in precious metals operating revenues. Operating revenues derived from physical contracts were up 21% versus a record immediately preceding quarter. Securities operating revenues were up 38% as volumes were up 35%, partially offset by a 3% decline in the rate per million captured versus the prior year, with the improvement driven by growth in U.S. equity volumes as well as an increase in overall client activity driven by the onset and continuation of the U.S.-Iran conflict. Payment revenues increased 14% versus the prior year quarter due to a strong 19% increase in average daily volume, partially offset by a lower rate per million. Payment revenues were down 2% versus the immediately preceding quarter. FX CFD revenues were up 9% versus the prior year quarter, resulting from a 3% increase in average daily volume and a 6% increase in rate per million, each of which were primarily driven by improved performance in our self-directed business. FX and CFD revenues were up 13% versus the immediately preceding quarter. Our interest and fee income earned on our aggregate client float, including both listed derivative client equity and money market FDIC sweep balances increased $54.8 million or 54% versus the prior year, with the acquisition of R.J. O'Brien contributing $53.9 million. Average client equity increased 110% as RJO contributed $6.4 billion in average client equity for the current quarter, while the average money market FDIC sweep client balances declined 7%. Turning to Slide #7. This depicts a waterfall by product of net operating revenues from both the prior year quarter to the current one as well as the same for the trailing 12-month periods. Just a reminder, net operating revenues represents operating revenues less introducing broker commissions, transaction-based clearing expenses and interest expense. For the quarter, net operating revenues increased 70%, principally coming from listed derivatives and physical contracts, up $84.6 million and $116 million, respectively. In addition, we had a very strong quarter in OTC derivatives, which nearly doubled, adding $58.8 million versus the prior year. Net operating revenues from securities also added $36.9 million. On a net basis, interest and fee income on client balances increased $33.2 million with RJO contributing $30.3 million. Looking at the bottom graph for the trailing 12-month period, listed derivatives has the largest increase, up $187.7 million, primarily as a result of the acquisition of R.J. O'Brien as well as strong growth in LME base metal markets. Securities was up $180.6 million versus the prior year, driven by a 27% increase in average daily volume and 17% increase in rate per million. Physical contracts net operating revenues added $162.1 million versus the prior fiscal year, primarily driven by strong performance in precious metals. OTC derivatives added $90.4 million off of strong performance in agricultural and energy markets, including renewable fuels. Interest and fee income increased $87.6 million, primarily as a result of the acquisition of R.J. O'Brien. Moving on to Slide #8. I will do a quick review of our segment performance. Our Commercial segment saw record net operating revenues with an increase of 111%, primarily resulting from 52% and 98% increases in listed and OTC derivatives, respectively. In addition, physical contracts increased 239%, while net interest income and fee income increased 55%. The growth in listed derivative and interest income were primarily driven by the acquisition of RJO as well as in base metal markets on the LME. Segment income was another record, increasing 151% versus the prior year, while on a sequential basis, net operating revenues were up 30% and segment income was up 36%. Our Institutional segment also saw strong growth in net operating revenues and segment income, up 65% and 40%, respectively. The growth in net operating revenues was principally driven by a $33.3 million increase in securities revenues. In addition, listed derivatives and interest and fee income increased $60.4 million and $14 million, respectively, primarily driven by the acquisition of RJO. On a sequential basis, net operating revenues and segment income declined 3% and 13%, respectively. In our self-directed retail segment, net operating revenues increased 15% and segment income was up 40%, which demonstrates the strong operating leverage in this segment. This growth was driven by a 9% increase in rate per million captured in FX CFD contracts, along with a 3% increase in average daily volumes. On a sequential basis, net operating revenues were up 18% and segment income increased 65%. Our Payments segment net operating revenues were up 10% and segment income increased 30%. Average daily volume was 19% up versus the prior year, while rate per million was down 7%. Versus the immediately preceding quarter, Payments net operating revenues decreased 3%, while segment income decreased 6%. Moving on to Slide #9. Looking at segment performance for the trailing 12 months, we saw strong growth in Institutional segment with net operating revenues up 62% and segment income increasing 58%. Our Commercial and Payments segments added 48% and 11% in segment income, respectively. Our self-directed retail segment income decreased 23%. Finally, moving on to Slide #10, which depicts our interest and fees earned on client balances by quarter as well as a table which shows the annualized interest rate sensitivity for a change in short-term interest rates. The interest and fee income net of interest paid to clients and the effective interest rate swaps increased $29.1 million to $103.6 million in the current period. And as noted, the acquisition of R.J. O'Brien contributed $30.3 million in net interest in the current quarter. On a sequential basis, interest and fee income, net of interest paid to clients and the effect of interest rate swaps, declined $7.8 million, primarily related to an $11.7 million mark-to-market adjustment on our investment portfolio. During the second quarter of fiscal 2026, we entered into an additional $600 million in fixed rate SOFR swaps to hedge our aggregate interest rate exposure. which brings our aggregate swap position to $1.8 billion with an average duration of approximately 2 years and an average rate of 3.38%. These swaps are reflected in the interest rate sensitivity table on this slide. As shown, we now estimate a 100 basis point change in short-term interest rates, either up or down, would result in a change to net income by $47.6 million or $0.58 per share on an annualized basis. With that, I will hand you back to Philip for a product spotlight on our global equities business. Philip Smith: Thank you. Now turning to Slide 12. I wanted to highlight another facet of our ecosystem and speak about our principal market-making business within our global equities business line. Our equities business operates as a global market intermediary built around agency execution, custody and clearing, market making, prime as well as capital market services. We serve institutional clients offering access to exchanges, liquidity and clearing and custody infrastructure. We monetize client activity through commissions, spreads and financing. Through the Benchmark acquisition, we further enhanced our relevance to customers with deep equity research and ability to connect users through corporate access and capital market services. We have built an ecosystem that is designed to service clients across the full equities life cycle. On our next slide, Slide 13, turning to equity market making specifically. It is important to recognize the scale and relevance of this business. We are a principal equities market maker, providing liquidity and execution across a wide range of global securities. In 2025, StoneX ranked #1 in over-the-counter American depository receipts and foreign securities, a position we have held consistently since 2015, according to FINRA ORF data. We make markets in approximately 18,000 equities globally, and we rank #1 in over 1,500 individual securities. This is supported by more than 20 years of experience, 24-hour market coverage and access to 120 global markets. For institutional clients, this matters because it translates into reliable liquidity, pricing and execution, particularly in less liquid international or complex stocks. While this part of the business may be less visible than the traditional listed securities, it plays a meaningful role in how institutional investors, asset managers and retail broker-dealers access global equity markets with StoneX. Moving on to the next slide, Slide 14. What makes our market-making franchise different and succeed. Our entry into the highly competitive Reg NMS stock was built upon our leading OTC ADR franchise, market experience and deep institutional relationships developed over decades. This foundation has allowed us to scale into the listed space in a disciplined way. Second, market making at StoneX operates within a vertically integrated equities ecosystem. As already shown, it exists alongside clearing, custody, prime brokerage, research and capital markets. It is all connected. This integration improves capital efficiency and allows us to serve clients more comprehensively. Third, we benefit from the aggregation of trading flow across a globally diversified client base that is institutional as well as self-directed retail. This aggregated diverse flow allows us to provide deeper liquidity and more consistent pricing, supporting high-quality execution for our clients while managing risk and hedging more efficiently. Finally, technology is the real enabler. Our proprietary electronic platforms are designed to support best execution and allow us to deliver tools focused on execution quality. The results of these factors are reflected in the growth you see here with our Reg NMS market making volumes growing at a compound annual rate of over 130% since 2022. We believe we are a fraction of the total addressable market, which is likely measured in trillions of dollars of notional volume. Lastly, turning to the priorities on Slide 15 required to scale the Market Making platform. First, we're continuing to streamline our operations by consolidating platforms, automating middle office processes and simplifying reporting and post-trade workflows. This improves operating efficiency and supports our operating margins as volume grows. Second, we are deliberately deepening our market share, expanding our NMS wholesale market-making capabilities, growing outsourced trading relationships and increasing our presence in ETFs and global options where client demand is rising. Third, we are strengthening our global reach and technology platform. This includes building a footprint in Asia Pacific, expanding sales coverage in the EMEA region and continuing to invest in the core architecture that underpins our market-making platform. Overall, we expect to process higher volumes, expand our global reach and continue to invest in a platform that is efficient and scalable and supportive of high operating leverage. Importantly, all of this is being done in a way that strengthens our broader equities ecosystem, making StoneX increasingly relevant to our clients across execution, liquidity, clearing and custody, prime services, research and capital markets. Now to close out this presentation, this was a hugely pleasing quarter all around, highlighting record net income of $174.3 million, which is up 143% versus prior year, diluted EPS of $2.07, up 120% versus prior year and achieving an ROE for the quarter of 26.5% and 19.8% for the trailing 12 months ending March 31, 2026, and an ROE on tangible book value for the quarter of 37% and 25.9% for the trailing 12 months. Book value per share of $34.16, up $8.43 or 33% versus prior year. And results over the last 2 years have grown trailing 12-month net operating revenues by 56% or a 25% CAGR and trailing 12 months earnings by 91% or nearly 38% CAGR. A more volatile economic backdrop has emerged, potentially surpassing levels of the past 2 years, but this environment plays into our strengths as volatility continues to be a key driver of our business. We have seen significant growth in our client assets, average client funds, securities clearing, prime brokerage and metals, which provide stable recurring income. We believe our unique ecosystem, which offers extensive depth and breadth of product at a widespread geographical reach, combined with a significant total addressable market, will continue to power growth in the years to come. We naturally remain very excited about our future growth and continued expansion of our ecosystem. With that, operator, would you kindly open the line for questions? Operator: [Operator Instructions] Our first question comes from the line of Dan Fannon from Jefferies. Daniel Fannon: The environment continues to be quite constructive as you highlighted. And I was hoping to just get a bit more context around the health of that. One of your peers highlighted a customer loss in, I think, January on the natural gas side. I was hoping you could talk about just kind of the good and bad volatility that you saw in the quarter. And then also give us an update here, given we're now in May of kind of what's happened as the quarters ended, and we've seen some of the exchange volumes also start to moderate, how that's translating across your business as well. Philip Smith: Sure. So as we said in the Q1 Q&A, there was surprisingly very little in terms of credit losses. And we did remind the market that continued heightened level of volatility, while positive from a revenue perspective, it obviously does increase the chance of some credit losses. Now we work very closely with our clients each and every day to help mitigate that because communication with our clients through these extreme volatile periods is -- whilst unusual, it is important that we maintain that level of communication and ensure that we help our clients to minimize their own exposure, their own liquidity risks. And I think in light of the fact that if you look at the levels of volatility in the last 2 quarters, I think the level of credit losses we've provided for have been somewhat minimal. So I wouldn't say it was particularly unusual. I think it highlighted the quality of our clients. And I think probably more relevant, it highlights the interaction and engagement that we have with our clients. But as we said very openly many times, this level of increased volatility, there should be an expected increased risk in credit losses that come with that heightened revenue generation. Daniel Fannon: And then I guess just a follow-up on just the kind of current environment what we're seeing in April, particularly in certain of the markets where we know we can see volumes have moderated, whether that's metals or precious metals or other areas. Can you give us an update in terms of how that business looks here thus far to start fiscal third quarter? Philip Smith: Yes, certainly. I mean, Dan, we've had a tremendous activity in the first couple of quarters and last year, I guess, in the precious metal space. And then obviously, listed derivative, OTC, everything was really doing well with the volatility we saw here in the second quarter of fiscal year. But we do see -- we see that what you see is from the standpoint of some moderation coming into April as we start the third quarter just with a little bit -- I wouldn't -- it's certainly not normal, but off where you saw in Q2 from the standpoint of activity. But overall, a very good environment from the standpoint of interest rates and still an elevated volatility market. Daniel Fannon: Got it. Okay. That makes sense. And I guess I'm not used to being restricted by my number of questions on this call, but... Philip Smith: Go ahead, Dan. Daniel Fannon: I guess just, Bill, you mentioned some of the costs associated with R.J. O'Brien and severance and what we saw in the quarter. Can you update us on the synergies and just broadly at the highest level, how the integration is going? Clearly, the environment is good, but I'd like to get a little bit more detail around what you're doing under the hood and how that's going. Philip Smith: Well, if I maybe start, Dan, by just giving you an update in terms of what we set out from a time line from an integration program perspective, we are on track. And I think the last call, we highlighted the targeting of our non-U.S. businesses and the integration that go with those businesses was the priority and also a testing ground to ensure that the larger program of integration in the U.S. is able to run more smoothly based upon any observance or any issues that we -- that arose during the non-U.S. integration process. So those have begun. This quarter we're currently and it is obviously an important quarter for us, and we've begun the process of the integration of our U.S. FCMs. And it's on a much more gradual basis, whereby we begin testing with some small group of clients. We then have a second group, which has already occurred, and then we have a gradual buildup to the entirety of the FCM consolidation at the end of this month. So it's an ongoing process. The time line hasn't changed from where we set out and how we set it out almost 2 quarters ago. And in terms of the costs and the efficiencies, those are also on track, but I'll let Bill highlight those in detail. Daniel Fannon: Sure. Thanks, Philip. William Dunaway: We touched on this a little bit last quarter, Dan. So within the quarter, we talked a little bit coming out of last quarter what the run rate is. For the quarter of -- second quarter, we had about 7 -- just shy of $7 million, $6.9 million worth of synergies that we saw in the numbers in Q2 and the exit run rate kind of coming out of Q2 of those same synergies is about a little over $8 million. So we're at about a $32 million run rate to reaffirm kind of where our target is. Our expectation is that we'll be $50 million by the end of the process. And we think that coming out of Q2, we're probably around $32 million on an annualized basis, and we expect by the end of fiscal year to be probably closer to $45 million, and then we'll have that kind of remaining piece dribble in, in '27. Does that answer your question? Daniel Fannon: Yes. No, that's super helpful. And then just lastly, Bill, on the context of the hedge that you talked and quantified, are -- do you think you're kind of -- do you expect to do more as the year goes on? Or is this kind of what -- you've talked about this previously, but is this the kind of right amount in terms of interest rate exposure you're looking to manage to? William Dunaway: Yes. We talked about this when we first did the RJO kind of integration in that first quarter, and Sean had touched on at the time that at that time, we had about $13 billion of the 2 kind of combined portfolios, and there's about roughly half of that, that is our balances that we keep virtually most of the income on those assets. So that's really the key one that we're trying to protect. So this puts us at around $1.8 billion of swap coverage, and we've got about $1.5 billion of kind of duration, right, that's going out to 20, 24 months of physical purchases of investments. So we feel like we've got a good start, but I think we'll probably continue to look where applicable to still put in some floors there just to protect the downside on that where it's just kind of -- there's not sharing on those balances. So we want to make sure that we're comfortable with the levels we're setting. So still an active management program that we've got in place. Hopefully, that kind of gives you some guidelines of what we're looking to protect. Operator: Your next question comes from the line of Jeff Schmitt from William Blair. Jeffrey Schmitt: In the commercial hedging business, could you just give us a sense of the mix of that business? I mean, obviously, strength was widespread, but how much is agricultural versus energy or, I guess, renewables and RJO's interest rate business as well? William Dunaway: So within the majority -- just to level set it, the majority of the RJO institutional interest rate business is actually in the institutional segment because it's more institutional customers looking to -- the FIG group and others looking to manage their interest rate exposure. But if we're looking on the commercial side, of the listed derivative, it's probably going to be more heavily weighted towards the energy and the renewable fuel side. I mean a lot of it was soybean oil and other inputs into renewable fuels. So it's -- you can call that agriculture, you can call that renewable, it's a little bit of both. It's the inputs on the agricultural side, the output on the energy side. But it's more so bad. I mean I think we're still seeing -- we had a bit of a slow start to Q2 and kind of, I would say, like the U.S. row crops, corn and soybean wheats, but then we saw nice activity in the back half of the quarter. But really, the OTC market was really where we saw was the real stand out with the best volume, best revenues we've seen historically on the OTC space. And with that volatility, I think those customized solutions that we can provide to customers to really kind of help capture margin and mitigate their risk showed their -- showed the benefit in that quarter to clients, and we saw a lot of uptake in activity. Philip Smith: And I would only add that in Q1, maybe we were slightly overshadowed by the success of the metals business in relation to everything else. But in Q2, there was a consistent level of increased activity, increased revenue across the board, which we don't always expect and we shouldn't expect, but it was pleasing to see that that was evident. And as Bill said, obviously, energy was very much the story of the quarter, but there was consistent growth in other areas as a result of increased volatility, but also just increased activity from our clients and across the board, which good to see, very pleased. Jeffrey Schmitt: Okay. That's helpful. And then maybe if you could do the same in the physical trading business. I mean, is that mainly precious metals and gold in particular? What portion of the mix is that? And then where are you in terms of cross-selling with RJO clients? I don't think they have that physical trading capabilities. Philip Smith: No, they don't. And I think that was raised last quarter. I think there was a level of confusion whether a lot of that came from RJO integration and cross-selling. The physical aspect is very much driven by our very successful precious metals business. but also our very successful non-metals business, which in areas of cocoa, in areas of coffee, we had continued expansion, continued growth across the board. But unfortunately, within the physical space, there is still an overshadowing by the physical metals business. And we saw Q1 showing record levels of transaction volume and net income attached to that physical metals business. Unfortunately, Q2 overshadowed Q1. So that continued level of growth and client activity. But it was, as I said before, across multiple subproducts within our commercial business, there was a broad level of increased activity and increased revenue. And I would say with regards to our OTC business, where we are -- we highlighted a record level of OTC contracts, that is something that we look forward to greater participation from the RJO integration post full integration in the U.S., where we are able to more easily offer OTC contracts, OTC products and capabilities to the legacy RJO client base. Until that integration happens, it's just slightly more cumbersome in terms of papering in different legal entities and so that make that life easier. William Dunaway: And Jeff, to your numerical question there for total $190 million worth of physical contact operating revenues in Q2, about $150 million of that was precious. The rest was -- the rest of the -- what we called physical agriculture and energy before, we're now calling StoneX Supply and Trading, but that's kind of more the agriculture and energy side of the business. Jeffrey Schmitt: Okay. Okay. Very helpful. And then could you provide an update on the M&A environment and sort of what inning you think we're in for industry consolidation? Are opportunities up versus a year ago? How are valuation expectations trending? Philip Smith: I think I think generally, we will always continue to see a certain level of small to midsized interest and M&A activity. And I think I mentioned this previously is that the -- we are known in the market as a consolidator. We are known as an expander of our ecosystem. And I think that drives the interest in people wanting to bring their business who maybe either want an exit strategy or they want to take their business to the next level and be part of a broad, more capable, expansive ecosystem that they can operate within StoneX. And I think we've mentioned previously that on the whole, most of the acquisitions we've done ended up within a relatively short period of time, growing in multiples of where they were prior to becoming part of StoneX. And a lot of that is the heavy cost of business, heavy cost of regulation, heavy cost of having monoline businesses in certain areas where you don't have that diversity of revenue, you don't have the ability to utilize and access the clients across multiple products. And I think that's our benefit. So as a result, that is why we do get a constant level of interest in that sort of mid -- small to midsize sort of $10 million to $30 million range of businesses that we are very easily able to acquire, incorporate, tack on to the ecosystem and then start leveraging either the client capability, the geography expansion or the products that those acquisitions provide us. And I think it's important that we talk about our ecosystem all the time, and that is a huge driver of much of the M&A activity. And I think it's something we probably don't talk enough about. because the way we operate our verticals and our products, we don't allow -- we don't want any silos within our businesses. And over the last sort of 10, 15 years, I think we've done a very good job of integrating multiple new products, new entities, new capabilities that were previously on a stand-alone basis. Everything is becoming much more integrated and that allows us to truly leverage those capabilities and truly have multiple product initiatives like we've seen with our FIG initiative, where we're bringing together all aspects of the company and heading in the same direction. That drives interest in us from an M&A perspective, and it drives interest that we have in other areas where we would like to continue that level of ecosystem expansion. So I don't think the market has changed drastically. We continue to have a lot of interest. And we do almost make small acquisitions on a very regular basis, which we probably don't promote as much because we're so used to that level of expansion. But always looking at transactions, always looking at potential expansion opportunities. Operator: [Operator Instructions] This now concludes the question-and-answer session. I would now like to turn it back to Philip Smith for closing remarks. Philip Smith: Thank you. In closing, I would just like to say a huge thank you to all the employees of StoneX for their vital contribution in achieving this record quarter. Working tirelessly every day with our clients through such heightened volatility market conditions is what we do and StoneX employees do this incredibly well, a service for which I'm hugely proud of. And this quarter, I feel, is a testament to that dedication and that service to our clients. So a huge thank you to all of our employees and look forward to seeing what Q3 brings. Thank you very much. Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Baytex Energy Corp. First Quarter 2026 Financial and Operating Results Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. You may also submit questions in writing at any time using the form in the lower right of the webcast frame. Should you need assistance during the conference call, I would now like to turn the conference over to Brian Ector, Senior Vice President, Capital Markets and Investor Relations. Please go ahead. Brian Ector: Thanks, Dave. Good morning, and welcome to Baytex Energy Corp.'s First Quarter 2026 Results Conference Call. Joining me today are Chad E. Lundberg, our President and Chief Executive Officer; Kendall Arthur, our Chief Operating Officer; and Chad L. Kalmakoff, our Chief Financial Officer. This is Chad’s first call as CEO and Kendall’s first as COO. Before we begin, please note that our discussion today contains forward-looking statements within the meaning of applicable securities laws. I refer you to the advisories regarding forward-looking statements, oil and gas information, and non-GAAP financial and capital management measures in yesterday’s press release. All dollar amounts referenced in our remarks are in Canadian dollars unless otherwise specified. After our prepared remarks, we will open the call for questions. Webcast participants can also submit questions online. With that, let me turn the call over to Chad. Chad E. Lundberg: Well, good morning, everyone. Q1 was a strong start to the year. Production averaged above the high end of our guidance at 69,500 BOE per day, driven by outperformance across our heavy oil portfolio. We exited the quarter with net cash of $591 million and repurchased 35 million shares, or 4.6% of our shares outstanding, for $174 million. With this outperformance, and a constructive commodity backdrop, we are raising our 2026 production guidance to 69,000 to 71,000 BOE per day. This represents 7% annual growth at midpoint, up from 3% to 5% previously. We are maintaining discipline, with capital expenditures moving to the high end of our guidance at $625 million, and this includes incremental projects in our Duvernay and heavy oil. Along with updating our current-year guidance, we are also updating our three-year outlook. With the depth and quality of our inventory, we are targeting 6% to 8% annual production growth through 2028, up from the prior midpoint of 4%, while maintaining a net cash position throughout the period. Before I turn the call over to Kendall, I want to acknowledge two appointments that were announced yesterday. Kendall Arthur moves into the Chief Operating Officer role and Adrian Blazovic has been appointed Vice President, Heavy Oil. I have worked closely with both for the past eight years. They have been instrumental in building our Canadian operations and are central to our long-term leadership plan. I am confident in their ability to execute and deliver against the strategy you will hear about this morning. Kendall, over to you. Kendall Arthur: Thanks, Chad, and good morning. We had a strong operational quarter. As Chad mentioned, production of 69,500 BOE per day exceeded the high end of our guidance, with oil and NGLs representing 88% of the mix. We invested $145 million in exploration and development, and brought 53 wells on stream, consistent with our full-year plan. In heavy oil, we delivered strong results across the portfolio. At Peavine, the first six wells of our 2026 program averaged 30-day IP rates of 680 barrels per day, well above the expected type curve. At Lloydminster, we stepped up to three rigs during the quarter, successfully targeting seven discrete horizons across the “Van Ville” stack, bringing 16.7 net wells on stream. At Peace River, we brought three wells on stream and acquired an additional 40 sections at Utikima, bringing our total land position to 109 sections. We completed a 21 square mile seismic shoot covering approximately 20% of the land base, and following interpretation could drill our first exploration test well in early 2027. In the Duvernay, we drilled our first four wells of the year, with completions now underway. First wells are expected on stream in June, with nine following in Q3 and Q4, totaling 13 wells on stream in 2026, with one four-well pad drilled and to be completed in early 2027. It was a safe and efficient quarter, and I want to recognize our field teams for their dedication and hard work. With that, I will turn it over to Chad L. Kalmakoff. Chad L. Kalmakoff: Thanks, Kendall. This marked our first full quarter of results for our Canadian business. We generated $152 million of adjusted funds flow, or $0.20 per basic share. Our operating netback improved to $35.36 per BOE, up from $29.30 per BOE in Q4 2025, driven by higher realized pricing and continued cost discipline. We realized hedging losses of $29 million in the quarter. Our exposure to the current strip will increase as our WTI hedges roll off at the end of Q2. As a reminder, on an unhedged basis, every $5 move in WTI impacts our adjusted funds flow on an annual basis by approximately $125 million. We ended Q1 with a net cash position of $591 million and, as Chad highlighted, we repurchased 35 million shares, or 4.6% of the shares outstanding, for $174 million. The balance sheet is in excellent shape with full flexibility to fund our capital program and return capital to shareholders. Our quarterly dividend of $0.0225 per share remains unchanged. With that, I will turn the call back to Chad. Chad E. Lundberg: Thanks, Kendall and Chad. I want to close by stepping back from the quarter and speak about the business and the opportunity in front of us. Our strategy is straightforward: grow 6% to 8% annually, advance the Duvernay and our heavy oil portfolio, invest in future optionality, and return value to shareholders. We are targeting 15% annual total shareholder return at a mid-cycle price of $70. This is through a combination of production growth, dividends, and share buybacks. We can deliver this with the strength and depth of our current portfolio. The Duvernay is on track to deliver 35% production growth in 2026 with an exit rate of 14,000 to 15,000 BOE per day. Our heavy oil assets carry 12 years of drilling inventory at our current pace, with active exploration across the fairway and two Peavine waterflood pilots underway. We are also driving our cost structure lower. The long-term sustaining breakeven target is under $50, further enhancing our resilience through the cycle. Gemini Thermal represents significant long-term optionality that sits beyond our three-year outlook. Gemini is a regulatory-approved project with 44 million barrels of booked reserves and a first-phase design of 5,000 barrels per day. We are advancing our technical and commercial outlook toward a final investment decision in 2027. This is a business with deep, profitable heavy oil inventory, a growing Duvernay, and net cash on the balance sheet. We are excited to show what Baytex Energy Corp. is capable of. Before we open for questions, I want to recognize two people. First, Eric Thomas Greager. Through his leadership, Eric helped to establish the disciplined Canadian platform we are today. He has worked to ensure a seamless leadership transition and has positioned the company for success going forward. Second, Brian Ector. I did not want to let this call pass without saying Brian has been the trusted and steady voice of Baytex Energy Corp. to the investment community for many years. He will be retiring in July, and we look forward to working with him through the transition. On behalf of everyone at Baytex Energy Corp., thank you both. It has been a pleasure working with you. With that, we are ready for questions. Operator: We will now begin the question and answer session. You will hear a tone acknowledging your request. To submit your question in writing, please use the form in the lower right section of the webcast frame. If you are using a speakerphone, please pick up your handset before pressing any keys. Our first question comes from Phillips Johnston with Capital One. Please go ahead. Phillips Johnston: Hi, thanks for the time. I wanted to ask about the new 15% total shareholder return target, which is rather impressive. Just want to make sure I am thinking about it correctly. So if we assume the new three-year growth rate is around 7% and you add the 1.5% base dividend yield to that, you need another 6% or so from share buybacks to bridge that gap, which in round numbers I think is around $300 million of share buybacks per year. So my question is, is that math correct? And I guess as a follow-up, I realize that this year's buyback is going to be significantly north of that figure. So conceptually, should we think about the buyback in 2027 and 2028 as being significantly lower so that you average around $300 million per year over the three years, or is that a decent placeholder for 2027 and 2028? Chad E. Lundberg: Okay. Thanks, Phil. Appreciate the question. I think this one is very important to be clear on. So, yes, at a top line, our first priority is to deliver a 15% total return to shareholders. As you said, that is inclusive of production growth, plus a dividend, plus our buyback program. If we just step back, I want to reiterate the commitment from the proceeds from the Eagle Ford sale. Seventy-five percent, or $650 million, will be deployed in 2026 through the buyback program. Beyond that, though, we think this business is capable of, and we are targeting, the 15% that you described as we think about moving from this point into the future. Phillips Johnston: Okay. Great. That clears it up. Thank you so much. And then I wanted to ask you about the incremental CapEx spend for the year. Does that increase factor in any service cost inflation, or is it just a reflection of the increased activity? Chad E. Lundberg: Maybe just a little bit of minor cost inflation. We are seeing no doubt on the diesel side now. I do not think you could say we have it all baked in at this point in time. Short of that, no, that is something that we are thinking about. We have most of our service supply costs locked in for calendar 2026, certainly. And so we will just have to see. We are seventy days into the war, seventy days into a complete flip on a macro basis with respect to supply, demand, and the oil market. We will just continue to monitor and see where supply costs go. Phillips Johnston: Sounds good. Thank you, Chad. Operator: And the next question comes from Greg Pardy with RBC. Please go ahead. Greg Pardy: Thanks. Good morning. Thanks for the rundown and congratulations to everyone. And Brian, it has been just amazing working with you for such a long time. So all the very, very best. Chad, I want to ask you just a little bit about Gemini. I know in your opening remarks you framed it and indicated that it would be beyond the three-year plan as you look at it. What are the next steps in terms of how you are approaching this? For example, I know it has been framed at 5,000 barrels a day or so at this point. Is that a number that conceivably could go up? And then what about the team you are assembling within the organization, with depth of expertise in thermal? Chad E. Lundberg: Okay. Thanks for joining, Greg. Let me start high level. Gemini has been in the portfolio since 2014. We have identified 300 million barrels of resource on the project. At a modest 50% recovery, that puts us at 150 million barrels that we are targeting to capture. As I said in my comments, we have regulatory approval for Phase 1 of the project to develop it out. What does that mean? It means we have 3D seismic shot. We have stratigraphic test wells to identify and confirm the chamber, and ultimately that gave confidence for the approval. So that would be Phase 1. If you do the math on the total resource available to recover against 5,000 barrels a day, it would put us out at a 75-year ROI, and so that would make us think about incremental projects to enhance the production beyond the 5,000. Can we get to 10,000 or maybe a little bit above? I think there is a chance. What do we have to do? A bit of the team has been scheduled since the initial projects back in 2014. We had a recent hire, as some picked up on the web, into the thermal team that we are very excited about. We are relooking at the commercial, technical, and capital cost outlook on the project. From there, we are thinking about trying to get to an FID decision in early 2027. That means we ultimately have a chance to put first barrels online in 2029. Does that help, Greg? Greg Pardy: Chad, it helps a lot. You know how I feel about thermal, so that is music to my ears. Maybe just back on the conventional side. As you look at your three-year plan now with a higher growth rate, with that comes higher decline rates, higher natural declines, and then also higher sustaining. Could you maybe put some context around how your decline curve is going to shift and then maybe what sustaining looks like over the next two or three years, just in broad strokes? Chad E. Lundberg: As you pointed out, 6% to 8% production top line growth over the three-year plan. The bulk of that comes out of the Duvernay asset, but there also is some coming from heavy oil. Heavy oil is 75% of our production flows today, and I would remind everybody that of the 75%, approximately 10% of our heavy oil is waterflood-derived at this point in time. So if you look across that piece and portion of our portfolio, we have very competitive declines in the space. As we think about that three-year plan, our decline stays actually relatively flat with the growth. On top of that, we have incremental projects and catalysts that do not sit inside the three-year plan today—so Peavine waterfloods that are being piloted right now. We have incremental project opportunity across the conventional cold flow heavy oil fairway, as well as just working on the cash cost structure and making the business better, which we do as meat and potatoes every day inside the company. Operator: And the next question comes from Menno Hulshof with TD Cowen. Please go ahead. Menno Hulshof: Thanks, and good morning, everyone, and congratulations Eric and Brian. Just maybe I will start with a question on the balance sheet. You talked about running net cash under the three-year plan, which is great to hear. But can you describe your philosophy in a little more detail? And is there a scenario you would take on a bit of balance sheet leverage? I am assuming the answer is no, but maybe you could just walk us through that. And then on the outlook for 2027—I understand we will have to wait for the release of 2027 guidance for the full details, which is still a long way out—but what ultimately drives the decision to grow 6% next year versus 8%? Oil price, of course, is going to factor in, but what are the other considerations in getting from six to eight or the other way around? And what are the broad strokes in terms of growth, spending, and activity levels based on what you are seeing today? Chad E. Lundberg: Good morning, Menno. First and foremost, we think that a strong balance sheet is paramount for an oil and gas company given the cyclical nature of the commodity. That would be step one. We view debt as a potential tool in the event we need it. We would not look to ever use it as a tool to go into debt like we were in the past before the Eagle Ford transaction and the repositioning that we have undertaken. As you think about this company going forward, if we did elect to use debt, half a turn at $70, or mid-cycle pricing, would be a threshold boundary that we would not exceed, and there would have to be very good reason to take it on. On your second question, it comes back to what we are really trying to do at the company, and that is drive value out to the shareholders within Canada with these great assets that we have. When you think about how we do our capital planning, it is really a bottoms-up build from the teams. The question we ask is, what is the best way to run this asset? What does “best” mean? Where can you deliver the strongest returns and strongest capital efficiencies to ultimately drive this growth? The fallout is the corporate top-line production. When we talk about 6% to 8% in 2027, 2028, and beyond, this moves us, for example, to an 18 to 20 well program in the Duvernay. Again, that is where we hit a one-rig levelized base, and we have a shot at improving our capital cost structure even further than what we have demonstrated to this point in the asset. Equally so in heavy oil, where we would look to run the four rigs—essentially keep them going around the clock—to build on the crews, the teams, and efficiencies. That is what underpins the growth, Menno: coming at it from a point of view of where we can drive the maximum value and returns to shareholders. If you look at 2027 with what I just said and think about capital costs, this year, in the press release yesterday, we are going to 13 wells drilled, completed, tied in, and online in the Duvernay, with an incremental pad in the Duvernay that is docked into 2027. Next year, 18 to 20 wells. That is going to come with some incremental capital, and you can expect that to be additive to the $625 million where we sit today. Does that help, Menno? Menno Hulshof: Yeah, that does. That is great. Thanks again. I will turn it back. Operator: And the next question comes from Dennis Fong with CIBC. Please go ahead. Dennis Fong: Hi. Good morning. First, congrats also to Brian as well as Eric, and thanks for taking my question. My first one maybe falls a little bit further along the line from what Menno was asking. You have obviously showcased very strong well cost improvement in the Pembina Duvernay. As you switch towards a one-rig development program and start to roll in a lot of those efficiencies, where do you think the cost structure can get to within the Pembina Duvernay? And then my next question turns towards the waterflood over at Peavine. I know you are initiating the two pilots with two different styles of waterflooding technique. Can you talk to some of the data points or key metrics that you are looking for or hoping to find in terms of each of those pilots, how that may provide you insight to its possible deployment across your existing field, and the future development of the play? And if you will permit me one last question, I am looking at slide 12 within your presentation. You have highlighted an opportunity set targeting eight discrete development horizons within your heavy oil exposure. I see that most of it is coming from the Waseca and the Sparky. Can you characterize the opportunity set that exists from targeting the full stack of formations as you go forward, both from an inventory perspective and a growth perspective? Chad E. Lundberg: I am going to answer that very directly. If you look in our slide pack on page 10, we outline what we have been doing with Duvernay costs. In 2024, we moved from $1,165 per foot to $1,025 per foot of lateral length completed. We are budgeted this year at $1,000 per foot, and we think—this is the power of getting to scale in the asset—that at full rig activity pace we have a shot at getting to $900 a foot or better. I think that directly answers your question. The broader question is the ecosystem of unconventional development. People have to understand what we have done at this company. We talked about costs; we have not talked about characterization. Again, slide 10 points to what we have done year-over-year, 2024 to 2025, on the characterization front, moving from 80 BOE per foot to 90 BOE per foot. We have not really talked about facilities and water infrastructure, but that is part of the ecosystem that needs to be developed to really optimize and maximize your efficiencies. This year we have a little bit of incremental facilities spending. For example, as we built up budget, it is about $50 million, with the majority of that going to the Duvernay. We have three years of elevated facility spend in the Duvernay—2026, 2027, and 2028—at that $35 million range. After that, it drops to $10 million going forward. That gets us five of seven major anchor batteries completed and two and a half of five of the water reservoirs completed. The last point I would make is stakeholder relations. We have a tremendous surface stakeholder team at the company. The amount of work they have done to complete the formula for how you are successful in unconventionals has been very strong. On Peavine waterfloods, we are currently drilling and converting our two pilots. One of the pilots is a conversion of a two-leg lateral—it was actually the initial discovery well in the play—to an injector. We will be actively trying to observe how fast we can fill up the voidage for oil that we have pulled out of the ground already and what happens when we get that voidage refilled, with the offsetting declines and subsequent production on the active producers. The second pilot is where we are drilling new producers in conjunction with new injectors. Again, as we turn the production online, we will immediately turn injection online, and we will be attempting to observe what happens with decline and ultimately what that does to the recovery factors on the wells up in Peavine. Stepping back, we hold 48 of the top 50 wells on primary production in Peavine, and you can see continued strong results with the delivery of primary development in Q1. In broad brush strokes for conventional cold flow heavy oil, typically you get to a 7% recovery on primary development, double that with waterflood to roughly 15%, and then push greater than 20% as you go to more of a polymer flood style development technique. In some of our primary wells we have surpassed and gone as high as a 15% recovery, so we are seeing tremendous recovery from primary production. Boiling it down, Dennis, we are looking for base decline moderation on offsetting wells, how that translates into ultimate recovery factor, and how that ultimately flows straight through to top-line production out of the asset. We are pretty excited about what it does for the company if it works. On the broader heavy oil opportunity set, we are very excited about this area. In Northeast Alberta, we have doubled the land position in the last five years and opened up eight different stacked layers. We think about it as a cube of oil in place. You are right, the initial production is from the Sparky formation, and that is what we identified on a map five years ago in our long-range planning. With the work that has been done by our technical teams and industry broadly, mapping out the signatures of the Clearwater has opened up the incremental opportunity set here to the Waseca, as you pointed out, the Colony, McLaren, and the various zones within that stack. Of the 1,100 wells that we hold and call a risked inventory set in heavy oil, approximately half sit on this Northeast Alberta property. There is further incremental inventory that we are actively derisking by way of exploration dollars, drilling stratigraphic test wells, and, at times, committing to an outright development well. They are $2 million wells, and at times we will push right through to drilling. The opportunity is large. It is a cube of oil in place over eight different layers and a sheet that is greater than 100 sections. There are two predominant zones that we are producing from right now, but you can see that we are starting to uptick the different layers as we move further out in time. Look for us to continue to advance and unlock that in the future and in future updates. Operator: This concludes our question and answer session from the phone lines. I would like to turn the conference back over to Brian Ector for any questions received online. Brian Ector: Great. Thanks, Dave. We do have several questions coming in from the webcast, and I will try to summarize a few of them here. First, to Chad L. Kalmakoff, can you elaborate on our hedge roll-off—maybe the hedge book and our hedge philosophy going forward? Chad L. Kalmakoff: Sure. I will hit the hedge book first. We still have about 50% of our WTI hedged until the end of Q2. Those have been legacy hedges that we had in place prior to the sale of the Eagle Ford. As I mentioned in the introductory remarks, once those roll off, we have pretty robust exposure to WTI prices. In terms of philosophy going forward, I think we have always said a strong balance sheet is the best hedge. We would not be looking to hedge any more WTI exposure and, obviously, with our cash position we are in an enviable spot. So I am not looking to do any more WTI hedges. We continue to hedge differentials—WCS, MSW. We are about 40% to 50% hedged on WCS for the remainder of the year around $13. That is something that we will probably continue in the future, to hedge those differentials. Brian Ector: And a number of questions are coming in around dividend philosophy and shareholder returns again. Chad, can you elaborate on the thoughts around the dividend versus the buyback program? Chad E. Lundberg: At the top line, we talked about the target to deliver 15% returns to our shareholders at $70 oil, comprised of growth plus dividend plus buybacks. We talked about $650 million coming to shareholders this year by way of buybacks. The other 25% of the proceeds, I would remind everybody, is being deployed to small, incremental greenfield tuck-in and bolt-on style activity that we think we are very good at, to enhance and extend our current inventory position. With respect to the dividend, Brian, specifically, we pay 9¢ a share today—depending on where our price is, in the 1.5% range as part of the formula. We do not intend to increase the dividend at this point in time. That would be something we might look at in the future, but as we sit today, everything is evaluated on a best returning, risk-adjusted basis, and this is the formula that we are moving forward with. Brian Ector: One last question around the free cash flow generation of our business. We were a couple million dollars in Q1, Chad. Thoughts on expectations as the year unfolds for free cash flow? Chad L. Kalmakoff: Sure. I think we expect the balance of the year to be more robust. We kind of touched on the hedges—that impacts Q2 a little bit. But beyond that, if you think about an $80 average price for the remainder of the year, that would put you at around $250 million of free cash flow for 2026 in total. And then, again, you think about the WTI price beyond that—the $125 million per $5 on a full-year basis—that would be your notional change. Brian Ector: Perfect. Thank you. So free cash flow will grow as the year unfolds. That covers the questions coming in from the webcast. That does wrap up today’s call and the questions that were coming in. We would like to thank everyone for joining us. Thanks again for your time, and have a great day. Operator: This brings to a close today’s conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Welcome to the Alpha Metallurgical Resources, Inc. First Quarter 2026 Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note that this conference is being recorded. I will now turn the conference over to your host, Emily O'Quinn, Senior Vice President Investor Relations and Communications. You may now begin. Emily O'Quinn: Thank you, Rob, and good morning, everyone. Before we get started, let me remind you that during our prepared remarks, our comments regarding anticipated business and financial performance contain forward-looking statements, and actual results may differ materially from those discussed. For more information regarding forward-looking statements and some of the factors that can affect them, please refer to the company's first quarter 2026 earnings release and the associated SEC filing. Please also see those documents for information about our use of non-GAAP measures and their reconciliation to GAAP measures. On the call today, I am joined by Alpha Metallurgical Resources, Inc.'s Chief Executive, Andy Eidson, and Chief Financial Officer, J. Todd Munsey. Andy Eidson: Given this and since we expect improved operational performance in both coal volumes and cost of coal sales for the balance of 2026, we believe it is still possible to finish the year within the top end of our existing cost guidance range of $95 to $101 per ton. However, if the Iranian conflict and its resulting inflationary impacts persist, we will likely adjust our cost guidance upward. Our realizations improved quarter over quarter largely due to increases in the low-vol indexes that occurred in recent months due to supply-related issues from flooding in Australia. However, there are historically unusual divergences within the indexes that have either persisted or gotten more pronounced in recent weeks. Within low-vol pricing, the Australian PLV is currently $45 per metric ton higher, or 23% more, than the U.S. East Coast Low Vol Index. And of particular importance to us and our portfolio, there is a further $36 per ton gap down from the U.S. East Coast Low Vol to the U.S. East Coast High Vol A, another difference of 23%. The U.S. East Coast spread from Low Vol to High Vol A is likely related to how oversupplied the market for high vol has become with additional tons recently brought to market in an already weak environment. We continually evaluate the productive capacity of our portfolio alongside the needs of the market, both in the near future and from a longer-term perspective. We are watching to see if either of those index spreads tie into a more normalized level or if the divergence persists. Across the organization, our employees are working hard to maintain safe, efficient operations despite the external headwinds we are facing. Within the first quarter, many Alpha Metallurgical Resources, Inc. teams received third-party recognition for exceptional work in the areas of operational safety, mine rescue, environmental stewardship, and reclamation. I commend each of our team members who make positive contributions through their work every day. Our sales team also tackled a difficult challenge by successfully planning for and mitigating the potential disruption of a four-week outage in March at Dominion Terminal. They diligently worked to keep as much Alpha Metallurgical Resources, Inc. coal moving as possible both before and after the downtime, while strategically utilizing our Hampton Roads terminal capacity beyond DTA. We are grateful to all of our partners for helping us overcome these challenges, and we are especially appreciative of the DTA team for their work to do so many equipment maintenance tasks and upgrades in such a short time. With that, I will turn the call over to Todd for a review of our first quarter financial results. J. Todd Munsey: Thanks, Andy. Adjusted EBITDA for the first quarter was $30 million, up from $28.5 million in 2025. We sold 3.6 million tons in Q1, down from 3.8 million tons. Met segment realizations increased quarter over quarter with an average realization of $124.39 in the first quarter, up from $115.31 in Q4. Export met tons priced against Atlantic indices and other pricing mechanisms in the first quarter realized $110.32 per ton, while export coal priced on Australian indices realized $144.09 per ton. These results are compared to realizations of $106.01 per ton and $114.96 per ton, respectively, in the fourth quarter. Realization for our metallurgical sales in the first quarter was a total weighted average of $128.40 per ton, up from $118.10 per ton in Q4. Realizations in the incidental thermal portion of the met segment decreased to $69.41 per ton in the first quarter, down from $77.80 per ton in Q4. Cost of coal sales for our met segment increased to $107.98 per ton in Q1, up from $101.43 per ton in the fourth quarter. Alongside lower productive volumes for the quarter, higher diesel and other supply and repair costs were the primary drivers of the quarter-over-quarter cost increase. For the first quarter, SG&A, excluding noncash stock compensation and nonrecurring items, increased to $13.5 million as compared to $10.9 million in the fourth quarter. Moving to the balance sheet and cash flows. As of March 31, 2026, Alpha Metallurgical Resources, Inc. had $317.2 million in unrestricted cash and $49.6 million in short-term investments as compared to $366.0 million of unrestricted cash and $49.6 million in short-term investments as of December 31, 2025. There was $184.3 million in unused availability under our ABL at the end of the first quarter, partially offset by a minimum required liquidity of $75 million. As of March, Alpha Metallurgical Resources, Inc. had total liquidity of $476.2 million, down from $524.3 million at December. CapEx for the first quarter was $40.7 million, up from $29.0 million in Q4. Cash provided by operating activities was $29.0 million in the first quarter, up from $19.0 million in the fourth quarter. As of March 31, our ABL facility had no borrowings and $40.7 million of letters of credit outstanding. In terms of our committed position for 2026, at the midpoint of guidance, 48% of our metallurgical tonnage in the met segment is committed and priced at an average price of $132.03 per ton. Another 43% of our met tonnage for the year is committed but not yet priced. The thermal byproduct portion of the met segment is fully committed and priced at the midpoint of guidance at an average price of $74.53 per ton. From a market perspective, geopolitical and weather-related supply issues influenced metallurgical coal markets in 2026, with the war in Iran causing increased volatility in the energy sector. While not directly linked to war-related electricity generation and power concerns, metallurgical coal markets also moved during the quarter with modest increases across the met coal quality spectrum. Of the four indices Alpha Metallurgical Resources, Inc. closely monitors, the Australian Premium Low Vol Index represents the largest quarterly increase of 8.6%. The Aussie PLV index increased from $218 per metric ton on January 2 to $236.80 per metric ton on March 31, 2026. The U.S. East Coast Low Vol Index rose from $185 per metric ton in early January to $195 per metric ton by March. The U.S. East Coast High Vol A index increased from $150.5 per metric ton at the beginning of the quarter to $159.5 per metric ton at the quarter's close. And the U.S. East Coast High Vol B index increased from $144.2 per metric ton to $149.5 per metric ton at the end of the quarter. Since then, the Australian PLV index has increased to $239.8 per metric ton as of May 7, 2026, while the U.S. East Coast Low Vol is at $195 per ton, exactly the same as at quarter end. U.S. East Coast High Vol A and High Vol B indices are also largely unchanged from quarter close at $159 and $149 per ton, respectively, as of May 7, 2026. In the seaborne thermal market, the API2 index was $95.5 per metric ton in January and increased to $125.75 per metric ton in March. Since then, the API2 index has dropped to $111.5 per metric ton as of May 7, 2026. With that, operator, we are now ready to open the call for questions. Operator: We will now open the call for questions. At this time, we will be conducting a question and answer session. Our first question comes from Nick Giles with B. Riley. Your line is now live. Nick Giles: Yes. Thank you, operator. Good morning, everyone. Obviously, some higher costs in Q1 and some of it, or a lot of it, outside of your control. I was just hoping to get some more color on just kind of cost cadence starting here in Q2, just with diesel prices remaining elevated here and now. How much of that cost pressure kind of carries over into Q2? And what should we really be roughly penciling in for the quarter? Thanks. And maybe on the other side, realizations moved up. It is nice to see. Just was curious on are there any opportunities to shift more tons to kind of an Aussie-linked basis? What kind of incremental opportunities are you seeing in South Asia, maybe as Australian supply, especially for higher-quality met, remains tight? Thanks. And maybe a last one for me is just what are you seeing in Central App in terms of some of your competitors out there? Are you seeing any production that could come back? Just an update more broadly on kind of the surrounding production areas would be helpful. Andy Eidson: Hey, Nick. I do not want to guide too early because we are only partway through the quarter. I think diesel contributed a couple of dollars a ton of the cost pressure. Of course, that was just really a late February–March impact. So it will look like we will see a full quarter's impact of it, so you could see a little bit more than that. And also, that is the direct diesel cost. The piece that you do not see that is buried is diesel impacts delivery cost of pretty much everything that we buy, and so you are going to see the indirect portion of that coming through supplies and maintenance, which we have also seen a step up there as well. We do expect, just from increased productive activity during the quarter compared to the first quarter, we should see some of that cost getting spread over more tons, particularly our fixed cost spread. So I do expect it to be coming down from Q1, but it is a little bit too early to tell the quantum on that. Daniel E. Horn: Hey, Nick. This is Dan. On your question about shifting to Aussie-linked pricing and opportunities in Asia, I think the short answer is yes to the extent that we have some medium-vol and low-vol coals that we can place into the Asian markets. The landscape for high vol coals into Asia is pretty tough right now. You are essentially matching the lowest price the competitor throws out that day. So even if it is linked to the Aussie index, it is discounted pretty heavily. We are pretty selective on which opportunities we pursue. It is not so much about the indexes; it is about the ultimate price and the netback to our coal mines. But I think there is some upside as demand increases, and if the Aussie production for the higher-quality coals remains a little bit short, there are opportunities. Andy Eidson: Yeah. Nick, I will take your Central App question first, and I will ask Dan to jump in if he has anything additional. We obviously have seen some tons coming offline really earlier in Q1, but as the quarter has gone on, it has been some smaller incremental batches. I do not think it is anything that is terribly needle moving thus far. I think the quantum has been less than what is required to fill some of the gaps in the supply and demand situation. Dan, any thoughts on that? Daniel E. Horn: No, I think you said it well, Andy. I mean, you look at today versus where we were a couple of years ago, there is probably something like 11 million tons of new longwall high vol production that is in the marketplace, and the round numbers of how many tons have come out of Central App is probably 1 million to 2 million, somewhere in that range. So still a pretty good imbalance. Global demand for the use of high vol coals is something less than it was a couple of years ago too. So as demand improves, that will help somewhat with the rebalancing. Nick Giles: Got it. Understood. Okay. Well, thanks, guys, and best of luck. Operator: Our next question comes from Nathan Martin with The Benchmark Company. Please proceed with your question. Nathan Martin: Thanks, operator. Good morning, everyone. I think it would be helpful to get some thoughts on shipping cadence for the balance of the year. I think, Andy, you said you expect Q2 to improve for the reasons we already talked about. Does that get made up mainly in Q2, or do you kind of expect those tons to be spread out in subsequent quarters? And then maybe, Dan, obviously freight rates elevated post the start of the conflict in the Middle East. I believe you guys have traditionally sold very little based on CFR prices. Is that still true? And then, the spot market maybe a little bit quiet—you just mentioned High Vol especially. What do you think needs to happen for things to pick up there? Andy Eidson: Hey, Nate. I would expect—because normally we have a bit of a bell curve during a regular year where Q1 and Q4 are going to be your lightest quarters, and Q2 and Q3 through the summer have your best shipments—I think it will probably look similar to that this year. I do think most of the makeup, where it happens, will happen in the middle two quarters. And then we will probably start tailing off a little bit as we get to the end of the year with the holidays and that kind of stuff. So it is going to look like a normal year; it is just a little bit steeper curve from Q1 into Q3. Daniel E. Horn: Yes, on the freight, you are correct. Most of our business is FOB vessel. To the extent we do some chartering, we have seen freight increase—pick a number—around a 40% increase in the freight rates. To the extent that coal travels halfway around the world to South Asia and places like that, that is a pretty significant hit. And the impact of that is some of that freight will be shared between the buyer and the seller. It is not necessarily all passed over, particularly on new business. If you are chasing new spot business, freight is absolutely a factor, as opposed to a term contract where you have a set price. In that instance, the freight responsibility shifts to the buyer. As to what has to happen for the spot market to pick up, like I mentioned to Nick, I think we have to see some demand improvement and some continued supply discipline. We are more oversupplied than we have seen in a while. We have seen it before in the marketplace, but at this moment in time, it is a pretty significant hill to climb for most of the U.S. producers here. Nathan Martin: And then maybe the 3.1 million tons of export met that you guys have committed and priced—can you give us an idea of that mix by quality? And could we get an update on Kingston Wildcat? Maybe from Jason? It seems like those tons coming online may be opportune timing given the wide relativities we are seeing between premium low vol and high vol. Daniel E. Horn: It is primarily high vols and mid vols with a little low vol thrown in there. We do not give an exact breakdown. I will point out, and kind of to your question on the ship cadence too, as the Wildcat mine—our low-vol mine—ramps during the year, that mix will include, we expect, more low vol going into that mix. I cannot quantify it any more than that, but our long-term strategy was to put more of the high-rank, higher-quality coke strength coals into our portfolio. That should continue this year and next. Jason E. Whitehead: Sure. Good morning. The Wildcat mine is on coal and there are tons coming out of the mine. They are still in the development phases, but we actually plan for that to conclude here in Q2, and in Q3 and Q4 we actually see a ramp of production coming out of the mine. Operator: Our next question comes from Matthew Key with Texas Capital Securities. Please proceed with your question. Matthew Key: Good morning, everyone, and thanks for taking my questions. Kind of piggybacking off of the diesel discussions, I was wondering if you could provide a sensitivity to diesel pricing that we could use as a general rule of thumb moving forward? And is there anything that the company could do to manage some of these inflationary cost pressures? Do you currently do any diesel hedging, and would that be something you would consider in the future? Andy Eidson: That is a tough one, Matt, as far as knowing that off the top of my head. I am looking at Todd right now to see if he has some viewpoints on that. J. Todd Munsey: Yes, Matt. In a typical year, we use about 22 million to 23 million gallons of diesel. If you think about the balance of the year, with the movement we have had in diesel prices—and to the point Andy made earlier—the diesel we use, we expect that to be a couple of bucks influence on the cost. But then there are also the surcharges and whatnot that will flow through from transportation-related costs. Hopefully that helps a little bit as you think about the balance of the year. Obviously, we all hope that issue goes away, but if not, that is kind of how we think about it. Andy Eidson: Yes. Historically, we have done some, not necessarily diesel hedging, but buying forwards through our diesel providers to lock in pricing around budget time. We have done that some of the past three to four years. Most of the time, it has actually gone upside down on us. This year, of course, happens to be the one where we chose not to do those forwards because back in August and September, who could have seen this coming. But it is something that we are discussing actively simply because the world seems to be getting more and more politically volatile, to a degree where it may require locking in as many of your inputs as possible whenever you have the opportunity, just because things do seem to be changing at a pace that is faster than the world can actually keep up with. Matthew Key: Got it. That is super helpful. I will stop there. Appreciate the time, and best of luck. Operator: Our next question comes from Analyst with Jefferies. Please proceed with your question. Analyst: Hey, guys. Thanks. It is Chris Lafemina from Jefferies here. Just wanted to go back to the market. We are all kind of waiting for the high vol discounts to narrow, and this has been an issue for quite a long time. Now we have iron ore prices rising, energy prices globally rising, premium low-vol met coal prices strengthening pretty materially, global steel markets appear to be okay, but the high vol discount is widening. I am wondering if something else is going on. I understand the point about there being quite a bit of high vol supply that has come online, but I would have thought, if anything, that would have brought the premium low vol price down rather than just result in a wider spread. So is there anything else going on in that market that is more structurally problematic, or is this purely a short-term cyclical issue that we should expect to resolve? And if it is a cyclical issue, why has it not resolved yet? It has been going on for quite an extended period of time, and the spreads have been wider than we have ever seen and do not seem to be reversing at all. Just trying to figure out what is going on there. Thanks. Daniel E. Horn: Chris, this is Dan. I will try to unpack that a little bit. The PLV is its own creature. It is an index that follows primarily Australian coals. We use it; we link our higher-quality low vols and medium vols to that index. We do believe that the U.S. East Coast Low Vol Index is too far below the Aussie index. When there is a shortage of Australian PLV, we get phone calls and we—U.S. producers that produce low vol—ship our coal to replace that PLV. So we believe that the gap between East Coast Low Vol and PLV is too wide, to your point. The high vol coals are used differently. They do not contribute to the coke strength; they are used for plastic properties and, arguably at times, just as a cheap filler. They move differently, but they have been depressed, and again, I think that is more of just old-fashioned supply and demand working on that. Buyers are trying—when they see the potential for low price or big discounts, they will adjust their blends to try to buy more of that. I think they will run into the ocean freight issue—that those tons of coal that have to go halfway around the world at a high freight number are not going to travel well if they are low-value coals. I would not lump all that together the way you did; I think you have to break that apart. Andy Eidson: And, Chris, this is Andy. If I could add one more piece to that. The differential between East Coast High Vol A and East Coast Low Vol is somewhat of a recent phenomenon. If you go back to the first of 2025, that differential was only $5. Now it has climbed to $38. And so I do think that is pretty directly attributable to all the new tonnage that has come online, both in Northern Appalachia and in Alabama, just hitting a market that is having trouble absorbing it. Analyst: Understood. Thanks a lot for that. Appreciate it. Good luck. Operator: We have a follow-up question from Nick Giles with B. Riley. Please proceed with your question. Nick Giles: Yes, thanks for taking my follow-up. Just wanted to ask more broadly—we had the Presidential Memorandum Section 303 a few weeks back in April, and I wanted to ask if this has really translated to your business or if you could expect to see any benefit or funding from these actions by the administration. I think maybe some of this is more related to the thermal side; they call out baseload power generation explicitly, but even export terminals are mentioned. So could DTA, for instance, be a candidate for some sort of government support? Thanks. Andy Eidson: Yeah, that one is still developing, as with most of these executive orders and other proclamations going back into last fall. A lot of the details are still developing real time. We are involved to a high degree with the federal government on evaluating the different programs and seeing what is out there. From what we have seen thus far, it does seem that it is mostly thermal-focused. There are some smaller areas where there may be some benefit, but as of yet, I do not think we are seeing anything that is hugely material to what we are doing right now. Fingers crossed that some of it translates to bigger benefit on the met side of the house, but I am not sure we have seen anything in that regard yet. Operator: We have reached the end of the question and answer session. I would now turn the call over to Andy Eidson for closing remarks. Andy Eidson: Yes. We appreciate everyone joining us this morning for the earnings call, and we hope everyone has a great weekend. Thank you. Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.